This section is from the book "Dart's Treatise On The Law And Practice Relating To Vendors And Purchasers Of Real Estate", by J. Henry Dart . Also available from Amazon: A treatise on the law and practice relating to vendors and purchasers of real estate.
(b) Richer v. Rawlins, (1872) 7 Ch. 259: 41 L. J. Ch. 485.
But the legal estate will not protect a purchaser against the claims of persons whose prior right to its protection was known to him before the completion of the purchase, even though the extent of such claims was unknown : for instance, where A., knowing that B. had a charge on the property, accepted a mortgage of the estate, relying on the mortgagor's covenants, and then got in an old outstanding term for years, it was held, that B., having in respect of A.'s notice of the first incumbrance, a preferable right to require an assignment of the term, was entitled to priority, not only in respect of such first incumbrance, but also in respect of a subsequent charge of which A. had no notice at the date of his advance (c). So, where a purchaser bought a leasehold messuage, which was subject to three mortgages, two only of which were disclosed to him, and took an assignment, and paid the purchase-money by cheque, but shortly afterwards, having some misgivings, stopped the cheque, and then, for the first time, had actual notice of the third incumbrance, but eventually, under a threat of legal proceedings, allowed the cheque to be paid to the vendor, it was held that he was not a purchaser without notice, and that he was bound to redeem the third mortgagee (d). In one case, a transfer of shares to a mortgagee, who had no notice of a trust affecting them, was upheld, notwithstanding that he received notice before the transfer was registered (e).
Notice of another having better right to call for legal estate, is notice of all his equities.
(c) Willoughby v. W., (1787) 1 T. R. 763.
It is clear that a purchaser by paying off, and getting in a legal estate from an unsatisfied mortgagee, may hold it as against all mesne incumbrances of which he had no notice at the time of completion; and this may be done pendente lite, at any time before a decree to settle priorities (/). Thus, in the case of Bates v. Johnson, which well exemplifies the rule, where there were successive mortgagees (the first taking the legal estate) of property subject to a prior trust, which was fraudulently concealed by the mortgagor, it was held that the last mortgagee might, after he had received notice of the trust, and pending a suit by the cestuis que trust for the redemption of the first mortgage, pay off the several prior incumbrancers, and, having obtained the legal estate, hold it until he was paid in full (g). In this case the claim of the first mortgagee was still unsatisfied when he parted with the legal estate, and the decision was quite in accordance with the earlier authorities. And it makes no difference that, if the purchaser is challenged and an action is brought against him to recover possession, he may have to rely upon some deed disclosing the equitable title, but of which at the date of the conveyance he had no notice (h).
Legal estate got in from unsatisfied incumbrancer, available against subsequent incumbrancers.
(d) Tildesley v. Lodge, (1857) 3 S. & C. 543.
(e) Dodds v. Silk, (1865) 2 H. & M. 424 ; but ef. Ortigosa v. Brown, (1878) 47 L. J. Ch. 168, where the transferor was not the legal owner; and his title therefore remained to be completed before the transferee's could possibly be complete ; Roots v. Williamson, (1888) 38 Ch. D. 485 ; 57 L. J. Ch. 995; Moore v. North Western Bk,, 1891, 2 Ch. 599; 60 L. J. Ch. 627 ; Powell v. London Prov. Bk., 1893, 2 Ch. 555; 62 L. J. Ch. 79.
(f) Belchier v. Renforth, (1761) 5 Br. P. C. 292; Marsh v. Zee, (1670) 2 Vent. 337; 2 Wh. & T. L. C.
7th ed. 107 ; Brace v. Duchess of Marlborough, (1728) 2 P. W. 491; Robinson v. Davison, (1779) 1 Br. C. C. 63 ; Barnett v. Weston, (1806) 12 Ves. 130 ; Taylor v. Russell, 1892, A. C. 244 ; 61 L. J. Ch. 657; Bailey v. Barnes, 1894, 1 Ch. 25; 63 L. J. Ch. 73 ; and see Ex p. Knott, (1806) 11 Ves. 608, 619; Spencer v. Pearson, (1857) 24 Beav. 266.
(g) Bales v. Johnson, (1859) John. 304 ; and see cases there cited ; and Carter v. C, (1857) 3 K. & J. 617 ; 27 L. J. Ch. 74 ; Prosser v. Rice, (1859) 28 Beav. 68; Young v. Y., (1867) 3 Eq. 801 ; see, too, Hosking v. Smith, (1888) 13 A. C. 582 ; 58 L. J. Ch. 367.
But as regards a satisfied mortgagee or bare trustee, it is apprehended a distinction must be made. Where such a person, in breach of his duty, conveys away a legal estate which comes into the possession of a purchaser for valuable consideration without notice, such purchaser cannot hold the property against the owners of equitable interests who were defrauded by the conveyance (i).
No distinction on principle between satisfied and unsatisfied incumbrancer.
There exists a distinction, which is apt to be overlooked, between the doctrine of the priority given to the owner of an equitable interest, in that capacity, when he holds the legal estate (as e.g., in the case of tacking), and the established doctrine that Equity will not deprive the owner of the legal estate of his legal rights, in the absence of notice. In the former case, the acquisition of the legal estate, even with notice, may give priority to the owner of an equitable interest, acquired without notice of a prior equitable interest. Such priority depends upon equitable considerations, and is wholly unconnected with the legal rights which are incident to the legal estate. In the latter case, notice may always deprive the owner of the legal estate of his legal right. But it is no less absolutely true that, when the legal estate is acquired without notice (at all events, if acquired for valuable consideration), these legal rights remain in full force. It is apprehended that the doubt expressed by Sir G. Jessel in Mumford v. Stohwasser (k), as to the position of an innocent purchaser of the legal estate from a trustee in fraud of his cestuis que trust, applies only to the former of these cases, and cannot mean that the rights at Law of the legal owner, who has acquired his legal estate for valuable consideration without notice, can be questioned, even where the conveyance to him was the grossest breach of trust.