Back
1920 Supreme(SC) 65
Privy Council
Justice Duff, Atkinson , Justice Lords Buckmaster , JJ.
National Bank of Australasia Limited -Appellant
Versus
Paul Hamilton Joseph, Since deceased and others -Resopndent
Privy Council Appeal No. 184 of 1919
Decided On : 26-10-1920
Possession of real estate serves as constructive notice of the title under which the possession is held. A party dealing with such property is bound by the equitable interests of the party in possession, limiting the security they can acquire from a third party.
Headnote:(A) Property Law - Notice of Title - Possession of real estate - It has always been held that possession of real estate is in itself notice of the title under which such possession is retained, which anyone dealing with the property cannot, without risk, ignore.
(B) Equitable Interests - Transfer for specific purpose - Where property is transferred to a party for the purpose of sale and realisation and as collateral security for advances to be made to the transferor, the transferee does not hold the property for absolute beneficial interest. A third party with notice of the arrangement takes the property subject to the transferor's equitable interest and the limitations on the transferee's power to deal with the property.
Facts of the case:
A religious organization entered into an agreement with its minister to acquire a new site for its premises. The organization transferred its existing property to the minister to enable the sale and realisation of the asset and as collateral security for advances up to a specified limit to be made by the minister to the organization. The minister subsequently used the title of the existing property as security for loans from a bank. Throughout this period, the organization remained in actual possession and enjoyment of the property. The bank lodged a caveat against the land, and the organization did the same. Following the minister's resignation and subsequent death, the bank sought mortgagee's relief.
Findings of Court:
The bank is deemed to have notice of the terms of the agreement and transfer because the organization remained in possession of the property. The minister did not hold the property for his own absolute beneficial interest but primarily for the purpose of sale and as security for advances. Consequently, the bank can only take from the minister the title which he could legally give.
Issues: Whether the bank, having received the certificates of title without actual notice of the underlying agreement, was entitled to the property as the absolute owner or whether its rights were limited by the organization's continued possession and the specific terms of the transfer.
Ratio Decidendi: Possession of real estate constitutes notice of the title under which the possession is held. A party dealing with the property is presumed to have knowledge of the facts that an inquiry into the nature of the possession would reveal. Since the transfer was intended for sale and as security for advances up to a specific limit, the bank's security is limited to the extent that the minister actually made advances to the organization, up to the agreed limit of £10,000.
Result: The bank is entitled to hold the property as security for advances made by the minister to the organization, up to but not exceeding £10,000.
Legal Category Hierarchy
-
property law
-
land law
-
equitable interests
- priority of interests
-
notice
- constructive notice
-
equitable interests
-
mortgages
- security interests
-
land law
Lord Buckmaster:-
The appellants in this case are the National Bank of Australasia, Limited, and the contesting respondents are the Hindmarsh Square Congregational Church, Incorporated. For simplicity these parties will hereafter be referred to as the Bank and the Church respectively.
The real question for decision relates to the existence and priority of certain equitable interests claimed by the Bank and the Church over a piece of land situate in Hindmarsh Square, in the city of Adelaide, being portion of the Town Acre No. 150, and comprised in Certificate of Title Register Book, Vol. 22, Folio 128. The circumstances that have given rise to the litigation are unusual, and, though there is no controversy as to facts, the obscurity of the chief document upon which the rights of the Church depend renders the dispute difficult of determination. The first respondent, Paul Hamilton Morris Joseph, who, being now dead, is represented by the last respondent, George McEwin, was a minister of the Congregational denomination; in the early part of. 1916 he entered into negotiations with the Church, who then owned, subject to a mortgage for £1,200, the said piece of land in Hind-marsh Square, on which stood their chapel, schoolroom and other buildings with the object of securing that a new site should be obtained for the erection of church premises and buildings, and that he should be appointed Pastor of the Church for a period of ten years. It appears to have been contemplated that this scheme would be effected by raising money through the instrumentality of Joseph, who was to be aided in this purpose by the transfer of the Hind-marsh Square property. The actual details of the negotiations are not disclosed, nor are they indeed relevant, for the arrangement was reduced into writing, and is to be found in an agreement made between the Church and Mr. Joseph of the 15th February, 1916. Some of the terms of this agreement are sufficiently clear, but these unfortunately are not the ones that materially affect the present controversy.
By Clause 1 Mr. Joseph was to be appointed to the office of minister for the period of ten years from the 1st October, 1916, and by Clause 2 liberty was to be given to him to buy a piece of land in the city of Adelaide to build a new church and other necessary buildings. Clauses 3 and 4 are in the following terms :-
"3. So soon as the Pastor shall have entered into an agreement for the purchase of such other land as a new site for a Church the Church shall transfer the said land at Hind-marsh Square aforesaid to the Pastor or his nominee subject to the said Memorandum of Mortgage.
"4. Upon the registration of such transfer the Pastor shall stand possessed of the land and premises at Hindmarsh Square aforesaid subject to the terms of this agreement."
Clauses 5 and 6 provide that the new site shall be purchased in the name of the Church who shall grant a lease thereof to the Pastor at a nominal rent of 5s. Clause 7 throws in plain terms upon the Pastor the obligation of advancing the monies to purchase the new site and to erect complete and furnish the buildings as will be seen from the following words taken from the clause :-
"The Pastor shall advance the monies necessary to purchase the new site and to erect, complete and furnish the new buildings to be erected thereon."
Clause 8 is the only remaining clause that deals with the property in the old site, and it is as follows :-
"8. The Pastor shall use his best endeavours to sell the present premises for cash or on terms at or near their market value, to be ascertained by such valuator or valuators as the Pastor shall appoint or employ. The net proceeds of any such sale shall as and when received by the Pastor be applied in or towards the cost of purchasing the new site and erecting and furnishing such buildings as aforesaid. The price agreed with any purchaser of the land and premises at Hindmarsh Square aforesaid shall be in the absolute discretion of the Pastor.
The rest
