This is an extract of our Exceptions To Indefeasibility Of Title document, which we sell as part of our Property and Equity 2 Notes collection written by the top tier of University Of New South Wales students.
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Class 5 - The in personam exception
Such an exception was recognized by Lord Wilberforce in Frazer v Walker and constantly affirmed in Australian cases
The rationale as recognized by the PC was that a person cannot rely in being the RP of land in order to avoid the normal operation of the law of contract o
E.g. Because someone is the RP they cannot refuse to complete an SP contract/trustees can't evade obligations owed to beneficiaries
This also protects parties through equity's inherent jurisdiction to prevent unconscionability
Bahr v Nicolay (No 2) (1988) 164 CLR 604 Facts: Mr and Mrs Bahr (B) couldn't raise funds to develop their land and hence sold it to Nicolay (N) on terms giving them a lease over it and a right of repurchase (cl 6). N sold the land to Thompson (T - the SR) which included in the contract express acknowledgement of cl 6 (cl 4) and T subsequently told B that he 'recognized' cl 6 of their contract with N. When B attempted to repurchase and pay the deposit, T the RP refused to sell. B commenced action claiming an order that upon payment the land was vested in them: Mason CJ and Dawson J: There honours began by discussing the principles in Breskvar v Wall that the principle indefeasibility and corresponding sections didn't protect an RP against equities arising out of subsequent transactions as long as that equity didn't conflict with those sections. They went on to discuss what constitutes fraud - noting that mere notice does not amount to fraud subsequently holding that some species of equitable fraud fall within the purview of the sections (e.g. Latec Investments 'pretense and collusion in the conscious misuse of power'). Following this they held that the cases didn't advocate a strict interpretation of the indefeasibility section to the effect that there is a distinction between dishonesty subsequent to registration:
"There is no difference between the false undertaking which induced the execution of a transfer (like in Loke Yew) and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the interest" o Both are fraudulent - the repudiation is fraudulent since its object is to destroy the unregistered interest even though it was the foundation or assumption underlying the execution of the transfer (similar to using the statute of frauds as an instrument of frauds)
They went on to discuss the effect of cl 4 in this case, paying regards to the matrix of circumstances:
? They began by holding that on its own cl 4 would amount to no more than notice of the appellant's rights and therefore could be destroyed by subsequent registration; leaving the N (the FR) liable for breach of contract
? But the context and matrix of circumstances provides a strong inference which necessarily influences the interpretation of cl 4 and provide a foundation for imputing an intention to the parties and reading the clause as a reflection of it
? A trust relationship is an accurate reflection of the intention to be imputed to the parties o Their honours noted that courts seldom infer express trusts without a clear manifestation and rather impose constructive trusts - but noted that where parties
intend to protect the interest of a third party and a trust relationship is an appropriate means of doing so; there is no reason why an express trust shouldn't be inferred
? In the alternative their honours went on to hold that even if a trust shouldn't be inferred, the subsequent repudiation of the agreement constituted fraud, falling into the statutory exception Wilson and Toohey JJ: Their honours were not willing to hold that the case fell into fraud - saying that the evidence falls short of establishing that the designed object of the transfer to the SR, N, was to cheat the appellants of their right (while it may have been on the hope that they wouldn't but it wasn't their intention to make sure it didn't).
But their honours held that the consequence of the express acknowledgement of the right to resale and communications to them to that effect was to impose a constructive trust upon them - a personal equity which is enforceable against them. This arose not because of notice, but because of their acceptance of a transfer on terms that they would be bound by the interest the appellant had in the land by reason of their contract with the first respondent
Brennan J: Held that equity would compel an RP who purchases on terms that they will be bound to an interest. He noted that the idea of the indefeasibility provisions was not to protect an RP from interests that he himself burdens his title with but to protect a transferee from defects in the title of a transferor.
A means by which equity does this is to impose a constructive trust upon a purchaser when they repudiate the unregistered interest
The lines aren't so neatly drawn between a purchaser who knows of an unregistered interest and one who undertakes to be bound by it o
Hinds v Uellendahl - mere knowledge of the existence of a prior contract of sale isn't knowledge to indicate that there is some fraudulent/dishonest design
CB muses whether this would extend to an equity of rectification - such an equity is a mere equity, would this make a difference?
Executive Seminars v Peck Facts: Purchaser takes transfer of land with notice that small sliver of land is occupied and claimed by plaintiff under an arrangement with the purchaser's predecessor in title. The purchaser knew he was buying land as occupied by the vendor and didn't include the sliver. The ppurchaser then, after registering, repudiated the interest of the plaintiff
Held: The purchaser was guilty of fraud and a constructive trust enforceable against him arose regardless of his title
Logue v Shoalhaven Shire Council The personal equity exception isn't confined to conduct of the RP after being registered but extends to equities arising as a result of conduct on his part or to which he/she was privy prior to registration
Grgic v ANZ Banking Group  - makes it clear that things like "rights in personam" extend only to those recognized by law or equity, that is, known legal causes of action
Conlan v Registrar of Titles 
Facts: Concerned a pooled mortgage; investors entrusted their money to someone who was meant to obtain landed security from the borrowers. He acted fraudulently and indiscriminately gave land security to some but not others. Those who didn't get security argued that the registered title of those who did receive security were held subject to the in personam exception which extended broadly to unconscionability/unfairness
Held: The in personam exception must be based on more than just fairness and not develop into an equitable principle so broad as to take inroads into the principle of indefeasibility which has to be paramount
In Breskvar v Wall it was recognized that the terminal point of rights in personam are orders to wholly divest the estate - the question is whether this extends to a mortgagee who acts negligently in acquiring his interest and whether the RP has an action in negligence that gives him an equity to set aside the registered mortgage. o
Pyramid Building Society v Scorpion HotelsFacts: P sought to enforce its rights as a registered mortgagee (RM) against the RP, Scorpion. Scorpion couldn't establish fraud and hence relied on negligence on the basis that P's solicitor failed to read a company search which would have shown that the person attesting to the settlement was not a director, as was required.Held: Hayne JA thought that the solicitor didn't owe a duty of care to Scorpion but even if it did this would ordinarily give rise to a claim in damages - not a claim to have the mortgage set aside. No legal or equitable cause of action was established to this effect
Mercantile Mutual Life Insurance v Gosper owner establishes a personal equity to deprive a mortgagee of their interest acquired by registration of a forged mortgageFacts: Respondent husband forged her signature on variation of mortgage. Acting without fraud the bank (appellant) registered the variation using the certificate of title which it already had a mortgage on. The appellant wasn't actually authorized by the respondent to use the certificate for the purpose of registering the variation.Held: The respondent had a personal equity on the bank arising as a result of breach of its obligations to the respondent as custodian of the certificate of title but not from the bare fact that the instrument was fraudDistinguished in Ginelle Finance v Diakakis in this case the first and second mortgages were registered one after the other and there was no
pre0existing relationship between the plaintiff and defendant. In Gosper the mortgagee had the certificate of title for several years under real mortgage but then used it to register the forged variationCriticized by Butt (Indefeasibility and Sleights of Hand) - argues that the personal equities exception shouldn't be used to cut back the benefit of indefeasibility. Also points out that if the husband stole the certificate of title (COT) from the wife and registered the variation there would have been no personal equity argument even though the wife didn't give authority.
The fact that the mortgagee already had possession of the COT shouldn't in the absence of fraud give rise to a personal equity. This undermines the register.
The CB writers point out that while there is no doctrinal inconsistencies between the in personam exception and the doctrine of indefeasibility, there is a substantive inconsistency to the extent that enforcement of such an equity undermines the purchaser's security of transaction and htus deprive him of the registered title.
Personal equity and unconscionability
In order to preserve security of transaction, enforcement of personal equities are limited by the requirement that there be something unconscionable/unconscientious in the conduct of the registered owner in acquiring the title
Vassos v State Bank of South Australia (1993) 2 VR 316 Facts: The plaintiffs were RPs as tenants in common of land subject to a mortgage to Sandhurst Trustees (ST) to secure $130k. The third coowner was authorized to refinance the mortgage at cheaper rates. The plaintiffs discovered that their signatures had been forged to a registered mortgage in favour of the defendant bank and on to a guarantee and indemnity to secure $500k to an investment company (FHI). The defendant wasn't a party to the fraud; the plaintiffs sought a declaration that they had an in personam right against the defendant bank. Hayne J: Held that the guarantee was not enforceable since in no case where a signature of a mortgagor has been forged will that mortgagor have assented to pay the debt secured the by the mortgage. But what the plaintiff contends is that the lack of assent gives an in personam right to discharge the mortgage - the result would be that every mortgagor whose signature is forged can compel the mortgagee to discharge the mortgage since the mortgagee isn't entitled to demand any more than had been agreed to be paid, and the mortgagor never agreed to pay anything.
? But this would fly in the face of the principle of indefeasibility
The bare fact of forgery does not give rise to an in personam action; the definition as to what constitutes such an action is not so clearly defined but it should a) not be inconsistent with the terms or policy of the legislation and b) it should only arise from acts of the new owner. o Furthermore there must be some element of unconscionability/unconscientiousness and in the absence of any such conduct on the part of the bank no such in personam right may arise
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