The property legislation of 1925

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One of the most important changes made by the property legislation of 1925 was the severe curtailment of the equitable doctrine of notice which had played such an important role in the development of the land law. The doctrine is retained in unregistered land, although in a limited form [FN1] but is excluded entirely under the system of registration of title. [FN2] Yet in unregistered land the doctrine has, since 1925, retained an unexpected importance, whilst in registered land there seem increasingly to be traces of the doctrine. FN3] Given the present uncertainty, it is instructive to trace the decline of the influence of the doctrine and to consider the reasons for that decline. [FN4]

Problems with the doctrine The historical development of the doctrine of notice in the courts of equity is too well known to need detailed exposition [FN5]: its importance in the development of the law cannot be understated. Nevertheless, by the nineteenth century, the notice doctrine was acknowledged as causing considerable difficulties; it was identified in the earliest reports and proposals for reform in the nineteenth century as one of the major problems of real property. FN6] Difficulties arose mainly over the question of whether a person who was admittedly a purchaser for value of a legal estate [FN7] in fact had “”notice” of the prior equitable right. Actual notice, conscious knowledge of matters affecting the title, presented relatively few problems. [FN8]

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The difficulties of “imputed” notice, that is, notice which came through an authorised agent and was imputed to the principal, were largely overcome by the Conveyancing Act 1882, which confined imputed notice to matters found by the agent acting as such and in the course of the same transaction. FN9] It is constructive notice which has caused and continues to cause the most difficulty. The principle upon which it is based is eminently reasonable. If a purchaser is affected only by matters of which he actually knows, he will take care to ensure that he is without that knowledge.

Since this could clearly lead to injustice, equity was prepared in certain circumstances to treat the purchaser as having knowledge which he did not in fact have. FN10] In order to satisfy the courts of equity, the purchaser was expected to inspect both the land itself and the documents of title to a standard of enquiry set by the courts, and that standard could be very high. In Jackson v. Rowe, [FN11] for example a purchaser purporting to buy the fee simple from a mere life tenant was fixed with notice of the reversioner’s interest, despite the fact that the purchaser had been deliberately misled.

In general, however, the courts were concerned to confine constructive notice within the scope of those inspections and enquiries which it was reasonable to make, and not to put an over-stringent burden of enquiry on the purchaser. In Jones v. Smith, for example a purchaser who had been told that a marriage settlement existed but that it did not affect the property, was not fixed with notice when this proved to be untrue. It was said: If notice of the existence of a settlement, declared not to affect the husband’s estate, is to put a purchaser upon inquiry, only because it may by a possibility affect it, how can the Plaintiff stop short of the conclusion that marriage alone should be constructive notice of any settlement that may have been executed? And why, upon the same principle, should not every man who deals with his neighbour, without knowing he is married, be affected with notice of this marriage, and thence with notice of his marriage settlement (if any) and thence with notice of the contents of the settlement? ” [FN12]

Section 3(1) of the Conveyancing Act 1882, which confined the scope of constructive notice to those matters which could have come to a purchaser’s knowledge if he made reasonable enquiries, was held by the Court of Appeal in Hunt v. Luck [FN13] to have done no more than restate the existing law: what would be reasonable would depend both on the particular circumstances and on accepted practice. In this way it was hoped that the interests of the purchaser and the incumbrancer would be balanced. Difficulties remained for a purchaser, which were partly overcome by the practice of overreaching.

The effect of overreaching is to make notice irrelevant since it can allow the purchaser of the legal estate to ignore prior rights, even if he is aware them. [FN14] But overreaching, although useful, was limited in its application: it could only apply where there was a trust for sale or strict settlement of land [FN15] and only interests capable of being overreached, that is, of being transferred to the purchase money, can be so dealt with. [FN16] Overreaching was thus confined largely to beneficial interests: there is no sensible way in which the benefit of a restrictive covenant, for example can exist in a sum of money.

A registration system An alternative was to provide for registration of equitable interests. The effects of overreaching and registration are quite different. Whilst the effect of overreaching is to release the land from the incumbrance, the effect of registration is to ensure that the incumbrance remains attached to it. The first attempt to provide a regular framework [FN17] for the registration of a wide class of interests was made by the Real Property Commissioners in their Second Report in 1830, [FN18] which recommended the establishment of a register of deeds.

This was not a new idea: there were already in existence two deeds registers in England, in Middlesex and Yorkshire. [FN19] The primary purpose of the Deeds [FN20] Register Acts was to prevent fraud [FN21] and this was achieved by providing that priority between successive rights in the same piece of land should be regulated by registration. Where transactions were within the ambit of the registers, [FN22] the distinction between legal and equitable estates should have been irrelevant: the first to register would gain priority. From early in their history, however, the Register Acts were held not to exclude actual notice. FN23] The courts of equity were unwilling to allow a purchaser with clear notice of a prior, unregistered right to gain priority by registering his own deed first.

In Le Neve v. Le Neve, [FN24] a case concerning the Middlesex Register, the court refused to allow a later purchaser who had notice of a prior registrable but unregistered deed to gain priority: since the purpose of the register was to prevent fraud by secret conveyances, where the earlier conveyance was known to the later incumbrancer, the Act did not apply. According to the Court, it would be a most mischievous thing, if a person taking the advantage of the legal form appointed by an Act of Parliament might, under that, protect himself against a person who had a prior equity of which he had notice”. [FN25] Notice alone, (although not constructive notice) was thus sufficient to establish “fraud” and to deny the purchaser the protection of statute.

The philosophy of Le Neve v. Le Neve was followed in later decisions on both the Middlesex and Yorkshire registers and it was not until 1884 that notice was expressly excluded under the Yorkshire registers. FN26] Under the Middlesex register, notice continued to be sufficient to postpone a later registered transaction to an earlier unregistered one. Although the deeds registers were seen by many as seriously flawed, the Real Property Commissioners recommended an extension of the system to provide a general register of deeds in England. The Commissioners debated at length whether, under their register, notice of an unregistered deed should be allowed to disturb the priority given to a later registered deed. They recognised that there were strong arguments both for and against the admission of notice.

In favour of the admission of notice, there was the consideration that since the purpose of the register was to prevent secret transactions in land, actual knowledge of a prior right rendered registration unnecessary. Additionally, there was a concern that if notice were expressly excluded, it might be more difficult to establish fraud, since in many cases of fraud, notice was a vital ingredient. [FN27] On the other hand, there was a “public policy” argument that rights which might affect purchasers should be capable of being ascertained without difficulty: If the public good require that a purchaser to have the protection of the law, should comply with a form, and that form be made simple and easy, a purchaser omitting the form has no just ground of complaint that the protection is not given. ” [FN28]

The most serious obstacle to the admission of notice was a lack of practical difference between actual and constructive notice. The “mischief” of letting in constructive notice was so strongly felt that it had been excluded by the courts, even where actual notice was permitted to displace registration requirements, yet: Between actual notice and the highest degree of constructive notice, there is no substantial difference; indeed the latter, as resting oftener on written evidence, is frequently more clear and satisfactory; and the defence to moral feeling, which affords perhaps the strongest reason for giving effect to actual notice, would be violated in no less degree by denying the same effect to a strong and clear case of constructive notice”. [FN29] The Commissioners came to the conclusion that it was a question of a “balance of evils” and that all notice should be excluded in their proposed system.

However, nothing came of their proposals [FN30] and attention turned thereafter to registration of title, and to amendment of the substantive law of real property, to remedy the many problems of land law. [FN31] Notice and registration of title The earliest proposals for a register of title show a determination to exclude notice from the system. The Commission on Registration of Title appointed to consider the possibility of title rather than deeds registration, [FN32] considered the position of notice in its new register. We propose that fraud in obtaining a transfer of the registered ownership shall defeat the title of the person who becomes registered owner by fraud, but that notice of unregistered rights shall not merely as notice have any such effect. We think that though the purchaser in the course of his inquiries … has notice of any claims upon the estate, it will not be unjust to deprive the parties interested in such claims of their rights … if their rights are not protected upon the register. ”

The Land Transfer Act 1862 which was enacted following the Report aimed at a comprehensive system of registration in which there was no room for unregistered interests and no mention was made in the Act of notice of any sort. Both the subsequent Land Transfer Acts of 1875 and 1895 expressly provided that there should not be entered on the register any notice of any trust, implied, express or constructive but nothing was said of other equitable interests which were traditionally protected by notice.

A Royal Commission under the Chairmanship of Lord St Aldwyn appointed to examine the system of registration of title, which reported in 1911, [FN33] recommended that dealings for value by a purchaser with a registered proprietor should be protected, notwithstanding notice, whether express, implied or constructive, of any matter outside the register, except in a case of actual fraud to which a person dealing with the proprietor was party. Thus notice was expressly excluded from the system of registration of title and the provisions were carried largely unchanged into the Land Registration Act 1925.

Notice under the general law In its report of 1857, [FN34] the Commission on Registration of Title had warned that no register of title would be successful unless the general law was at the same time simplified. Consequently a number of Acts were passed in the following years whose aim was to simplify conveyancing. [FN35] It was recognised, however, that such measures, beneficial though they were, were insufficient, particularly if, as many desired, the “old” conveyancing by deeds was to continue as an effective rival to registration of title.

A Conveyancing Bill of 1896 aimed to provide a system of unregistered conveyancing which would rival the registers of title, by providing a system of cautions and inhibitions, similar to that used under the Land Transfer Acts. The idea was adopted in Lord Haldane’s Property Bills 1913-15 which provided for a register of beneficial interests in unregistered land. [FN36] The first attempt at reform after the Great War, the Law of Property (Assimilation) Bill of 1920, [FN37] abandoned Lord Haldane’s plan for a register, substituting for it a rule that purchase money should be paid to two trustees.

More controversially, almost all equitable interests has to be created behind a trust for sale or strict settlement [FN38] and would be overreached on sale. Although most of the massive Bill passed through all its Parliamentary stages “on the nod”, strong objection was taken to the virtual abolition of notice, [FN39] and when the Bill was re-introduced the following year, the overreaching provisions were confined to beneficial interests, and notice was restored as a general principle.

The Law of Property (Assimilation) Bill of 1922 was the first to provide for wide-ranging registration of equitable interests to protect those rights that were not to be overreached: the scope of the Land Charges Registration and Searches Act 1888 was extended and became the Land Charges Act 1925. It is made clear that registration under the Act is “notice” [FN40] and section 199(1)(i) of the Law of Property Act 1925 eliminates the equitable doctrine of notice from registrable matters. The approach of Le Neve v. Le Neve [FN41] has been thoroughly discredited: Midland Bank Trust Co Ltd v.

Green [FN42] affirmed the absolute irrelevance of “notice” in unregistered land where the Land Charges Act applies. At the same time the principles of overreaching were adopted and extended. [FN43] The residual doctrine of notice Despite its severe restriction in unregistered land and entire elimination from registered land, notice is only displaced to the extent of express statutory provisions. It remains as a common law principle and is thus available to fulfil its old role of regulating the priority of a prior equitable and a later legal interest, wherever that may be necessary.

Conclusion The containment of notice was an important purpose of the reforms which culminated in the property legislation of the 1925. Its total eradication was only prevented by the acknowledgement that in a few cases neither overreaching nor registration were appropriate mechanisms for dealing with equitable interests. [FN44] The decision to reduce its influence must be seen against the general background of the reforms, whose primary aim, (which remained largely unchanged from 1829 until 1925) was to make easier and cheaper the transfer of land.

Although equitable interests were still to be protected, the balance shifted in favour of the purchaser. There was little consideration of the effect on the owner of the equitable interest; whether, for example, the interests of a beneficial owner would be as secure in a sum of money as they were in land. [FN45] It must, of course, be remembered that late-twentieth Century difficulties over the trust for sale are a product of their time, as the overreaching provisions were of theirs. The wide extension of the trust for sale in 1925 did little more than put in statutory terms the expected position. FN46] Under a strict settlement, the interests of those entitled under the limitations could be overreached by the tenant for life: the only requirement was that he act within the terms of his power. Commercial equitable interests, (such as options to purchase land) deserved more protection by registration but registration is for the incumbrancer a two- edged sword.

Registration protects him completely: failure to register results in the complete loss of the right against the purchaser. The purchaser has little to lose; he will often in fact be aware of the prior incumbrance and a failure to register gives him an unlooked-for bonus. FN47] The antagonism of English law towards notice contrasts with that in the United States, where developments have been in a quite opposite direction. A variety of statutes in the different states provide for registration of deeds rather than title. [FN48] Far from being excluded, the doctrine of notice is seen as having a fundamental role in the regulation of priority of interests in land and both actual and constructive notice are permitted to “interfere” with registration provisions. In Ireland, where there is still a register of deeds, [FN49] actual, although not constructive notice, is admitted into the register.

Title registration systems tend to exclude notice [FN50] but the exclusion is not a precondition for successful title registration. It is clear from the American experience that the acceptance of notice is totally compatible with conveyancing in the modern world. The doctrine of notice was reduced by the 1925 legislation to a very narrow scope. Its inherent difficulties and the unfortunate experience of the Yorkshire and Middlesex deeds registers in allowing notice to displace statutory provisions, so thoroughly frightened the reformers that the only answer seemed to be the virtual eradication of the doctrine.

Yet, as has been seen, although the final decision was to exclude notice as far as possible, it was by no means a foregone conclusion. It was acknowledged by the reformers that it would be very difficult to wean judges away from the idea of notice. It was said in a report of 1857 [FN51] that “we are aware that it has been said that judges would notwithstanding any law to the contrary, in the course of time contrive some means of neutralising any enactment which went to exclude the doctrine of notice”.

The principle seems to be at the root of the decisions on section 70(1)(g) of the Land Registration Act 1925, although the problem of the single trustee is now being overcome by other means. [FN52] In a more far-reaching problem, it is by no means clear what role the doctrine has in dealings with rights arising by estoppel, whether the land be registered or unregistered. [FN53] Whether notice is an appropriate mechanism in modern land, is a matter for debate. Whatever the decision, experience suggests that the Commissioners in 1857 spoke more truly than they knew.