Posts Tagged ‘good faith’

Good faith

October 2, 2010

The concept of ‘good faith’ is relevant to the law of priorities in two ways. First, an equitable interest in land can be defeated by a bona fide (good faith) purchaser for value of a legal estate without notice of the earlier equitable interest. Second, section 3(2) of the Land Registration Ordinance provides that a transaction that should have been registered but has not been is void as against ‘any subsequent bona fide purchaser or mortgagee for valuable consideration’.

What does good faith mean? How is it different (if at all) from the concept of notice? In Midland Bank Trust Co Ltd v Green (No 1) Lord Denning MR said in the Court of Appeal ([[1980] Ch 590) that bad faith is ‘any dishonest dealing done so as to deprive unwary innocents of their rightful dues.’ (at 625).

In the House of Lords ([1981] AC 513), Lord Wilberforce said:

‘I think it would generally be true to say that the words “in good faith” related to the existence of notice. Equity, in other words, required not only absence of notice but genuine and honest absence of notice. As the law developed this became crystallised in the doctrine of constructive notice”. (at 528)

Lord Wilberforce went on to say, however, that ‘good faith’ is not only concerned with the doctrine of notice:

‘Equity still retained its interest in and power over the purchaser’s conscience.’ (at 528)

Michael Lower