Constructive notice

Equity’s darling is the bona fide (good faith) purchaser for value of a legal estate without notice of the prior equitable interest. Notice can be actual (what you actually knew) or constructive (what you are deemed to know). Gray and Gray explain it like this:

‘Constructive notice relates to matters of which the purchaser would have been consciously aware if he had taken reasonable care to inspect both land and title. Thus the purchaser is fixed with constructive notice of all those matters which a reasonable or prudent purchaser, acting with skilled legal advice, would have investigated.’ (Kevin Gray and Susan Francis Gray, Elements of Land Law, (5th ed), (Oxford, Oxford University Press, 2009), p. 1153).

So, for example, the question might be whether a purchaser or mortgagee has constructive notice of the equitable interest arising under a resulting or constructive trust.

An important judgment in this area is that of Vaughan Williams LJ in Hunt v Luck ([1902] 1 Ch 428). Dr Hunt had transferred ownership of some properties to Gilbert, allegedly by fraud so that Dr Hunt’s estate had an equitable interest in the properties. The question was whether mortgagees who had been given their mortgage by Gilbert had notice of Dr Hunt’s equitable interest in the property. It was held that they did not have notice.

In his judgment, Vaughan Williams LJ said:

‘[I]f a purchaser or mortgagee has notice that the vendor or mortgagor is not in possession of the property, he must make inquiries of the person in possession … and find out from him what his rights are, and, if he does not choose to do that, then whatever title he acquires as purchaser or mortgagee will be subject to the title of the [person] in possession.’ (at 433)

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