The Equitable Doctrine of Notice

The purchaser must be bona fide

This means that the purchaser must act in good faith. This part of the rule seems to be duplicated by the requirement that the purchaser should not have notice of the right, and it is difficult to see what is added by this phrase. However, Lord Wilberforce in Midland Bank Trust Co. Ltd v Green [1981] AC 513 at p. 528 considered that:

It would be a mistake to suppose that the requirement of good faith extended only to the matter of notice…good faith is a …separate test which may have to be passed even though absence of notice is proved

The purchaser must give value

It is necessary for the person who acquires the estate to give value if he is to rely on the notice rule. Thus a done (or ‘volunteer’) takes a gift of land subject to any equitable interests that there may be. ‘Value’ includes money, money’s worth and some other forms of consideration, such as marriage.

A person who acquires an estate for value is described as a ‘purchaser for value.’ This may seem unnecessarily long-winded, since in ordinary speech ‘purchaser’ means ‘buyer’ and so includes the notion of taking for value. However, for the lawyer, ‘purchaser’ has a technical meaning of ‘one who takes by act of the parties rather than by operation of law.’ This means that he has had the property transferred to him in the appropriate way by the previous owner, rather than having it vested in him automatically by operation of some rule of law, such as that which vests a bankrupt’s property in his trustee in bankruptcy or the deceased’s property in his personal representatives. In this sense then, even a donee is a purchaser and so in a context like this it is necessary to state specifically that the person acquiring the estate is a purchaser for value.

The purchaser must acquire a legal estate

The purchaser must buy a legal estate, rather than an equitable interest in the land. Thus if the purchaser is to be safe, he must have acquired the legal estate before he discovers the equitable interest.

The purchaser must not have notice of the equitable interest

There are three types of notice: actual notice; constructive notice; and imputed notice.

    Actual notice: This is quite straightforward and applies where the purchaser has actual knowledge for the existence of the equitable interest. It is not necessary for the purchaser to obtain this information from any particular source and he may even discover the truth from a complete outsider (Lloyd v Banks (1868) LR 3 Ch App 488). Constructive notice: When the notice rule was first created by the courts of equity, clever purchasers soon realised that they could obtain an advantage if they declined to make any investigations which might lead to the discovery of equitable interests. Equity was quick to extend the rule to prevent purchasers deliberately ‘turning a blind eye’ in this way, as such behaviour was evidence of a lack of good faith on the part of the purchaser. The means used was to say that the purchasers would be deemed to know of interests which they would have discovered if they had asked the usual questions about the property and so were bound by such interests. This rule is preserved in modern law by LPA 1925, s. 1999(1)(ii). Imputed notice: A purchaser is also deemed to have notice of an equitable interest if his agent has either actual or constructive notice of it. This rule is essential, since most purchasers do not conduct their own conveyance. Thus if a conveyance obtains actual notice of an equitable interest, his purchaser/client is also regarded as having notice of it (Jared v Clements [1903] 1 Ch 428).

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