The Court of Appeal overruled the Master of the Rolls and held that the third party purchasers acquired legal title to the property free of the interests of the beneficiaries. This is probably the earliest recorded case in English law where the court explicitly applied the rule that a bona fide purchaser for value without notice (or "equity's darling") takes free of any equitable interest in the property of which they were unaware, although even within the case report itself they refer to the principle as a long standing one.[2][3][4]
Facts
In 1830 the settlor, Jeremiah Pilcher, transferred certain property to three trustees on trust for himself for life and then his children by his first marriage thereafter.[5] In 1851 the trust loaned £8,373 to Robert Rawlins (a solicitor) on the strength of a mortgage granted by Rawlins over a property at Whitchurch, Hampshire. Under the law at the time, this involved Rawlins conveying title to the property to the trustees, subject to the proviso that they would transfer it back when the loan was repaid.[6]
By 1856 two out of the three appointed trustees had died, and the sole remaining trustee was W.H. Pilcher. William Humphrey Pilcher and Rawlins "connived" (in the words of the Lord Chancellor) a scheme. William Humphrey Pilcher transferred title to the Whitchurch property back to Rawlins even though he had not repaid the loan. Rawlins then mortgaged the same property to the trustees of another trust: Stockwell and Lamb, conveying legal title to the land into their names in consideration of a loan of £10,000. Stockwell and Lamb were unaware of the prior mortgage and the rights of the first trust in favour of Jeremiah Pilcher and his children. William Humphrey Pilcher and Rawlins then basically split the £10,000 equally, and left the title to the land with Stockwell and Lamb.[6]
When the fraud was uncovered, Jeremiah Pilcher and his children filed suit against W.H. Pilcher, Rawlins, Stockwell and Lamb. Stockwell and Lamb averred that they had good title to the land at Whitchurch as they were bona fide purchasers for value of a legal estate without notice.
The case came before the Master of the Rolls, Lord Romilly, at first instance, and he held that the 1851 mortgage prevailed and that Jeremiah Pilcher and his children were the beneficiaries of it, and Stockwell and Lamb's title to the land was subject to it. Stockwell and Lamb appealed.
Court of Appeal
Lord Hatherley LC
The lead judgment was given by the Lord Chancellor, Lord Hatherley. He noted the difficulty of leaving property in the hands of those who had procured it by fraud. He reviewed the existing authorities on the subject critically, and expressly disapproved Carter v Carter (1857) 3 K&J 617, 69 ER 1256. He held there was nothing in the case to put Stockwell and Lamb of notice of the rights of the beneficiaries of the Pilcher trust. Held:
...it is immaterial whether the purchaser knows or not that another has an equitable interest prior to his own, provided that he did not know that fact upon paying his purchase-money. It may perhaps be sufficient in all possible cases for the purchaser to say, "I am not to be sued in equity at all. I hold what was conveyed to me by one in possession, who was, or pretended to be, seised, and who conveyed to me without my having notice of another equitable title;" and that the Plaintiff in equity must disprove the plea before he can proceed any further with his suit.[7]
James LJ added a short concurring judgment, stating: "once you have arrived at the conclusion that the purchaser is a purchaser for valuable consideration without notice, the Court has not right to ask him, and has no right to put him to contest the question, how he is going to defend himself".[8]
Mellish LJ also added a short concurring judgment, rejecting the enlarged view of constructive notice proposed by the Master of the Rolls in the court below. He stated: "The general rule seems to be laid down in the clearest terms by all the great authorities in equity, and has been acted on for a great number of years, namely, that this Court will not take an estate from a purchaser who bought for valuable consideration without notice".[9]
Commentary
Jeffrey Hackney cites the case as fundamental to the understanding of not only the bona fide purchaser rule in English trust law, but the fundamental nature of the jurisdiction of equity itself. He argues that the case shows that equity is only prepared to intervene in specific cases, and so has no jurisdiction to act outside of that limited remit. Hence the term "equity's darling" is misleading: equity did not favour the purchaser, so much as ignore him entirely.[10]
Maxims of equity are legal maxims that serve as a set of general principles or rules which are said to govern the way in which equity operates. They tend to illustrate the qualities of equity, in contrast to the common law, as a more flexible, responsive approach to the needs of the individual, inclined to take into account the parties' conduct and worthiness. They were developed by the English Court of Chancery and other courts that administer equity jurisdiction, including the law of trusts. Although the most fundamental and time honored of the maxims, listed on this page, are often referred to on their own as the 'maxims of equity' or 'the equitable maxims', it cannot be said that there is a definitive list of them. Like other kinds of legal maxims or principles, they were originally, and sometimes still are, expressed in Latin.
In common law and statutory law, a life estate is the ownership of immovable property for the duration of a person's life. In legal terms, it is an estate in real property that ends at death, when the property rights may revert to the original owner or to another person. The owner of a life estate is called a "life tenant". The person who will take over the rights upon death is said to have a "remainder" interest and is known as a "remainderman".
A bona fide purchaser (BFP) – referred to more completely as a bona fide purchaser for value without notice – is a term used predominantly in common law jurisdictions in the law of real property and personal property to refer to an innocent party who purchases property without notice of any other party's claim to the title of that property. A BFP must purchase for value, meaning that they must pay for the property rather than simply be the beneficiary of a gift. Even when a party fraudulently conveys property to a BFP, that BFP will, depending on the laws of the relevant jurisdiction, take good (valid) title to the property despite the competing claims of the other party. As such, an owner publicly recording their own interests protects themselves from losing those to an indirect buyer, such as a qualifying buyer from a thief, who qualifies as a BFP. Moreover, so-called "race-notice" jurisdictions require the BFP to record to enforce their rights. In any case, parties with a claim to ownership of the property will retain a cause of action against the party who made the fraudulent conveyance.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
In law, an equitable interest is an "interest held by virtue of an equitable title or claimed on equitable grounds, such as the interest held by a trust beneficiary". The equitable interest is a right in equity that may be protected by an equitable remedy. This concept exists only in systems influenced by the common law tradition, such as New Zealand, England, Canada, Australia, and the United States.
A freehold, in common law jurisdictions such as England and Wales, Australia, Canada, Ireland, and twenty states in the United States, is the common mode of ownership of real property, or land, and all immovable structures attached to such land.
A deed of trust refers to a type of legal instrument which is used to create a security interest in real property and real estate. In a deed of trust, a person who wishes to borrow money conveys legal title in real property to a trustee, who holds the property as security for a loan (debt) from the lender to the borrower. The equitable title remains with the borrower. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary.
The Home Equity Theft Prevention Act is a New York State law passed on July 26, 2006, to provide homeowners of residential property with information and disclosures in order to make informed decisions when approached by persons seeking a sale or transfer of the homeowner's property, particularly when homeowners are in default on their mortgage payments or the property is in foreclosure.
The vast majority of states in the United States employ a system of recording legal instruments that affect the title of real estate as the exclusive means for publicly documenting land titles and interests. The record title system differs significantly from land registration systems, such as the Torrens system, that have been adopted in a few states. The principal difference is that the recording system does not determine who owns the title or interest involved, which is ultimately established through litigation in the courts. The system provides a framework for determining who the law will protect in relation to those titles and interests when a dispute arises.
Unregistered land in English law is land that has not been registered with HM Land Registry. Under the residual principles of English land law, for unregistered land proof of title is based upon historical title deeds and a registry for certain charges under the Land Charges Act 1972.
Resulting trusts in English law are trusts created where property is not properly disposed of. It comes from the Latin resultare, meaning to spring back, and was defined by Megarry VC as "essentially a property concept; any property that a man does not effectually dispose of remains his own". These trusts come in two forms: automatic resulting trusts, and presumed resulting trusts. Automatic resulting trusts arise from a "gap" in the equitable title of property. The equitable maxim "equity abhors a vacuum" is followed: it is against principle for a piece of property to have no owner. As such, the courts assign the property to somebody in a resulting trust to avoid this becoming an issue. They occur in one of four situations: where there is no declaration of trust, where an express trust fails, where there is surplus property, or upon the dissolution of an unincorporated association. Rules differ depending on the situation and the type of original trust under dispute; failed charitable trusts, for example, have the property reapplied in a different way from other forms of trust.
Constructive trusts in English law are a form of trust created by the English law courts primarily where the defendant has dealt with property in an "unconscionable manner"—but also in other circumstances. The property is held in "constructive trust" for the harmed party, obliging the defendant to look after it. The main factors that lead to a constructive trust are unconscionable dealings with property, profits from unlawful acts, and unauthorised profits by a fiduciary. Where the owner of a property deals with it in a way that denies or impedes the rights of some other person over that property, the courts may order that owner to hold it in constructive trust. Where someone profits from unlawful acts, such as murder, fraud, or bribery, these profits may also be held in constructive trust. The most common of these is bribery, which requires that the person be in a fiduciary office. Certain offices, such as those of trustee and company director, are always fiduciary offices. Courts may recognise others where the circumstances demand it. Where someone in a fiduciary office makes profits from their duties without the authorisation of that office's beneficiaries, a constructive trust may be imposed on those profits; there is a defence where the beneficiaries have authorised such profits. The justification here is that a person in such an office must avoid conflicts of interest, and be held to account should he fail to do so.
Tracing is a procedure in English law used to identify property which has been taken from the claimant involuntarily or which the claimant wishes to recover. It is not in itself a way to recover the property, but rather to identify it so that the courts can decide what remedy to apply. The procedure is used in several situations, broadly demarcated by whether the property has been transferred because of theft, breach of trust, or mistake.
Foskett v McKeown[2000] UKHL 29 is a leading case on the English law of trusts, concerning tracing and the availability of proprietary relief following a breach of trust.
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