How then did the concept of Bona fide purchaser for value of a legal estate without notice creep into English real property jurisprudence? This concept has been used as a double-edged sword and some will say, instrument of fraud to dispossess persons of their land. This would seem to have first reared its ugly head in Leasehold estate. The Leasehold estate arose much later than the Freehold. Its origins lay in personal contractual arrangements between the Freehold tenant in possession of land and someone else, possibly landless, who wanted to occupy and probably farm the land for a specific limited period. The freeholder was called the landlord, and the occupier under the agreement was referred to as the tenant. Notice that none of them is vested with absolute ownership of the land. However, this is in the nature of a contract and the problem with a contract is that it only confers personal contractual rights (ie the privity doctrine). Thus, only parties to a contract can sue or be sued on the contract. Hence, if for instance, the landlord wrongfully ejected the tenant from the land, the tenant could sue him personally in the King’s Court. If, however, a total stranger dispossessed him the tenant could not maintain a successful action in the King’s Court for recovery of the land, as he was not the owner of the land. Only the landlord could do this. Besides, as a result of the rules relating to privity of contract (which still exist today, though subject to the Third Party Rights legislation) a third party to the contract was not bound by it. Hence, if the landlord sold the land to a purchaser, and the purchaser threw the tenant out, there was no action which the tenant could take against the purchaser. The reason was the same, as he has no legal interest in the land. The same principle will apply where a person sold land belonging to another and the purchaser bought the property in good faith, paying the market price for the property and genuinely and sincerely doing so without knowledge of the third party right or interest in the property, the law will not disturb the purchaser’s acquisition or holding of the property.
However, this problem of Bona fide purchaser for value has often been misunderstood especially in the unregistered conveyancing where the problems are common. In its proper signification, a claim based on bona fide purchaser for value cannot be validly maintained where property is registered or where the original owner has documentary title to the property which is coupled with possessory title. The simple reason is that the party claiming to be a bona fide purchaser for value without notice cannot sustain that claim in any properly constituted court of Law since a detailed investigation of the land registry would have disclosed the existence of prior documentary title or interest in the land especially if the interest or estate in the land is one of Freehold – fee simple as opposed to Leasehold estate. If it is Freehold, it would mean that the original grantee will always have their land and if it is Leasehold, it could mean that their term has expired. In the case of Freehold – fee simple, except where there is clear-cut evidence of abandonment or dispossession which will entitle the claimant to petition to the court for a declaration of title in his favour, a claim based on possession will entitle the claimant to or confer on him an equitable interest in the property only. Note the difference between Leasehold and Freehold interest is that with a Leasehold, which unlike a Freehold, the duration is fixed and settled from the date of the initial grant of the lease and unlike a fee simple it must eventually come to an end. That is why the common law holds that a lease without commencement date is void. See Lace v Chantler.
At common law, only the owner of an estate in the land could maintain an action in the common law courts for preservation and recovery. And against the backdrop of our earlier assertion that a fee simple estate would be freely transferred during the owner’s lifetime, it means that, a lord who was travelling to Jerusalem to help the crusaders in the struggle to liberate the Holy Land from the Ottoman Turks could transfer his estate to a "trusted" friend to safeguard his land on his behalf while he was away. This marked the genesis of our modern Trust Law. It will also mean that his personal attendance will be needed in court if any question arose as to the title of the land. This would have been near impossible as he cannot be on the battlefield in the Middle East and attend court at the same time and since the property was transferred to the personal trusted friend on the strict understanding that he would use and manage the property for the benefit of the lord’s wife and family while he was away. It could happen that the trusted friend may be untrustworthy and dishonest and throw the knights family off the land and take all the rents for himself. At common law he could do so as he was the owner of the land after all it had been properly transferred to him. Any complaints by the family would therefore be answered by the court to the effect that the court was a court of law and not of conscience because in the absence of legal ownership (which is vested in the trusted friend) the family could do nothing. Therein stepped in Equity to ameliorate the hardship of the common law. However, Equity does not roam the street with a bucket of water seeking for fire to quench. It can only intervene where the circumstances call for reasonable and justifiable intervention. Thus, in some instances even where the trusted friend had sold the property to an innocent buyer (ie bona fide purchaser) Equity may not disturb his possession. He will be a bona fide (innocent) purchaser (buyer) for value (who paid the price for the property) without notice (without knowledge of the third party interest). However, Equity will also issue out a decree against anybody who bought the property from the original trustee knowing full well what the position was. The rationale or justification for the above is not far-fetched: By knowing the true position the purchaser from the trustee knew that the property was subject to the interests of the Knight’s wife and children, his conscience was therefore affected. These rules were later strengthened to cover the situation where the purchaser not only actually knew, but also should have known. This is the doctrine of constructive notice. Thus by constructive notice, a purchaser is prevented from deliberately burying his head in the sand. Thus, you cannot claim a bona fide purchaser without notice if the doctrine of constructive notice is against you. The present-day operation or application of the rule boils down to two simple propositions. One is deemed to have constructive notice of all matters he/she would have discovered had he
l made a proper examination of the title deeds and
l made a thorough examination/inspection of the land.
Thus, you cannot claim to be a bona fide purchaser of legal estate for value without notice where proper examination of title deeds would have disclosed prior third party interest in the property especially when those third party interest/title are available documentary title. Neither can you claim abandonment/dispossession or rely on the Conveyancing and Property Law Act. The proper action is to ask the court via Quieting Title Proceeding to have the Title investigated and a Certificate of Title to be granted to you. Neither can you claim to be a bona fide purchaser for value without notice in the circumstances where, if you have made a thorough examination (visit) to the land, the visit/inspection/examination would have disclosed third party equitable (overriding) interest in the land. The conveyancing community is yet to recover from the reverberations caused by the House of Lords decisions in cases like Williams and Glyn Bank Ltd v Bowland, Lloyds Bank v Rossit, National Provincial Bank, etc.
Be further advised that if a thorough examination or inspection of the land shows that any person other than the person selling the property is living there, then you are on notice that they may have rights enforceable by Equity. We refer to these rights as overriding interest and except where they are overreached the purchaser takes the property subject to those interests. The bank in the above-mentioned case of Williams and Glyn Bank Ltd V Bowland lost their security. Even the position of donees are not quite secure because the maxim is that Equity does not aid a volunteer but bona fide purchaser for value. Thus, whether or not they (donees) had any idea of the existence of the rights of the family members who are the beneficiaries, the fact is that even though they are acting in complete ignorance, Equity takes the view that as between the beneficiaries and the donee, the beneficiaries’ rights should prevail as the donee had not been prejudiced by having parted with money or other valuable consideration. Indeed Equity does not aid a volunteer. If you are receiving a gift of real estate, it might be better that you received it for value which could be any amount since it is a settled principle of Contract Law that consideration need not be adequate, but will be deemed sufficient once it is of value, but then you will still have to deal with stamp duty or convince the treasury that you are not defrauding the system.
Thus a bona fide purchaser for value will be a purchaser of the legal estate who acts in perfectly good faith, gives valuable consideration and acquires the property without any notice of any of the rights of the beneficiaries, either actual or constructive. He must satisfy all the core elements of the expression "Bona fide purchaser for value without notice" and if he does, he takes free of the beneficial interest. This is the person known as "Equity’s darling" and is the only one to take free from a prior beneficial interest. Thus, although rights under a trust started in the olden days as rights in personam, however, they have subsequently acquired the flavour of full rights in property, subject only to the overriding right of the bona fide purchaser for value of a legal estate without notice of a prior equitable encumbrance, or of a person claiming through such a purchaser.
Clement Chigbo teaches and consults locally and internationally in Property Law, Company and Commercial Law. He is a peripatetic lecturer in Law and practises as a registered associate in the Law Firm of Cassar and Co., Norfolk House, Frederick Street, Nassau, Bahamas. He offers free legal services available on Thursdays. Criticism, comments and suggestions are welcome. Tel: (242) 328-4695, UK Tel: +44 (0) 793-143-7747. E-mail: lawscholar2006@yahoo.com, clemsweiss@hotmail.com.