Relativity of Title - David Fox

Cambridge Law Journal, 65(2), July 2006, pp.
330365 Printed in Great Britain
RELATIVITY OF TITLE AT LAW AND IN EQUITY

DAVID FOX* THE relativity of titles to land is a fundamental feature of property holding in the common law system. It is treated as one of the features that distinguishes it from civilian systems of property holding and proves the pragmatic stu from which the common law is made.1 Although the principles of title applying to land are well known and comprehensively explained in the literature,2 the way that they apply to other kinds of property has hardly been touched upon. This article seeks to expand the inquiry by investigating the full breadth of the relativity principle across all branches of the law of property. One question is the extent to which relativity of title, as a feature of property holding at common law, applies to chattels. It is proposed here that it does, but with the important dierence that a relative title to a chattel is more easily extinguished than a relative title to land. A second question is more fundamental: whether the title conferred by an equitable interest in an asset is relative, in the same way as a legal title to a tangible asset is.3 The view developed in this article is that relativity is as much a feature of the enforcement of equitable titles as it is of legal titles to tangible property. A third, and related, question is whether relativity applies to legal titles to intangible property. The view proposed is that it is generally impossible to have a relative legal title to a purely intangible asset. The article begins by examining the core case of relativity of title: the title to possess generated by a persons being in adverse possession of unregistered land. It elucidates some of the main features of, and reasons for, the relativity principle. The article then
* Faculty of Law, University of Cambridge. I am grateful for the comments of David Ibbetson, Richard Nolan and Michael Prichard. The usual disclaimers apply. 1 E.g., K. Gray, Property in Common Law Systems in G.E. van Maanen and A.J. van der Walt (eds.), Property Law on the Threshold of the 21st Century (Tilburg 1996); K. Gray and S.F. Gray, Elements of Land Law, 4th ed. (London 2005), paras. [6.1][6.5] (hereafter cited as Gray and Gray). 2 E.g., Gray and Gray, ch. 6; Megarry and Wade, Law of Real Property, 6th ed. by C. Harpum (London 2000), paras. [3-115][3-126]; ch. 21 (hereafter cited as Megarry and Wade). 3 It seems that the only author who has directly considered the relativity of equitable titles is Professor R.M. Goode in his Commercial Law, 3rd ed. (London 2004), pp. 401 (hereafter cited as Goode).
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develops denitions of the concepts of title and relativity before turning to an investigation of the three main questions outlined above. Certain themes link all parts of the inquiry and establish its general importance. The rst is the inseparability in common law reasoning of rules of evidence and procedure from the substantive law of property. The enforcement of titles to an asset is governed by evidential presumptions about the existence of claims to that asset and by the rules on joinder of parties applying to disputes over it. The second theme is the fundamental linkwhich is commonly overlookedbetween the resolution of disputes over title to an asset and the rules of priority which determine the ranking of competing interests. Once this link is appreciated, it will be seen that the relativity principle applies far more widely across the law of property than is commonly thought. I. THE CORE CASE: ADVERSE POSSESSION OF UNREGISTERED LAND Suppose that one party (P1) has a valid paper title to the land under an unregistered fee simple estate. A second party (P2) squats on the land and dispossesses him.4 By virtue of his possession, P2 acquires a title to the land enforceable against all third parties who cannot prove a title which is positively stronger than his own. His title is sucient for him to sue any trespasser who interferes with his possession or generally to allow him recover possession from any third party (P3) who in turn may dispossess him.5 An evidential presumption applies under which P2 is treated as holding a fee simple estate in the land.6 The presumption would in fact be the same whether the person whom he dispossessed had title to the land under a freehold or leasehold estate.7 The modern rule derives from the old rule of evidence that as against a wrongdoer a
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For the authoritative modern statement of the elements of adverse possession see J.A. Pye (Oxford) Ltd. v. Graham [2003] 1 A.C. 419. P2s possession would even found a title ito sue in nuisance for interference with his reasonable use and enjoyment of the land: Foster v. Warblington U.D.C. [1906] 1 K.B. 648, recently approved in Hunter v. Canary Wharf Ltd. [1997] A.C. 655. Leach v. Jay (1878) 9 Ch.D. 42, 4445 per James L.J.; and J.H. Matthews, Treatise on the Doctrine of Presumption and Presumptive Evidence as aecting Title to Real and Personal Property (London 1827), p. 29. For a modern statement, see Megarry and Wade, paras. [3-117] and [21-059]. P2s interest arises as soon as he is in possession, not merely once the limitation period has run and P1s title has been barred: Rosenberg v. Cook (1881) 8 Q.B.D. 162, 165 per Jessel M.R. In this respect, P1s interest arising from adverse possession diers from an easement arising from long user under the doctrine of prescription. The easement is only taken to be granted to the dominant owner once the full prescription period has elapsed. Leach v. Jay (1878) 9 Ch.D. 42, 445 per James L.J.; Rosenberg v. Cook (1881) 8 Q.B.D. 162, 165 per Jessel M.R.; and, generally, N. Curwen, The Squatters Interest at Common Law [2000] Conv. 528, 5323; Land Registration for the Twenty-First Century (Law. Com. No. 254), para. [10.73].
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person in possession of land was presumed to have seisin in fee simple.8 Since the presumption of P2s title arises from his having taken possession of the land, his estate is treated as being newly created, not deriving by grant from P1.9 So long as P1s title to possession remains enforceable, his paper title to an estate is treated as continuing independently of, and concurrently with, the equivalent estate of P2. Provided that time has not run under the Limitation Act 1980, P1s title to possess the land remains stronger than P2s and he may bring an action to recover the land from him.10 Accordingly, we say the validity of P2s title is relative, in the sense that it is void against P1 but generally valid against any third person (P3) who interferes with his possession. If P3 were to interfere in this way, his only defence would be to prove that his title was stronger than P2s, as it would be if it derived by valid grant from P1. It is no defence to P3 that he can prove that P2s title is weaker than P1s. The long-established rule is that P3 cannot defend his wrongful possession of land by proving the jus tertii, i.e., the right of possession of a third party, P1, which is stronger than that of the claimant, P2. If P3 is to succeed at all, he will do so by the positive strength of his own title relative to P2s, not by the weakness of P2s title relative to P1s. II. TITLE DEFINED The denition of title is elusive since the sense in which the word is used varies with the context. Sometimes it is used in a very loose sense as a synonym for ownership. So it is that we would say that a bare trustee holding an asset as a nominee for another has the legal title to the trust asset and the beneciaries have the equitable title to it. The word also takes on specic meaning in the context of the Land Registration Act 2002. The word title refers in that context to the extent to which a proprietors claim to a registered estate is indefeasible and backed by a state guarantee that a proprietor will be paid an indemnity if it turns out that that his entry as proprietor is mistaken. So it is that a proprietor of registered freehold estate may be registered as having an absolute, qualied or possessory title to it, which confers upon the proprietor a dierent level of guarantee by the state.11
See Peaceable d. Uncle v. Watson (1811) 4 Taunt. 16, 17 per Manseld C.J., and generally A.W.B. Simpson, History of the Land Law, 2nd ed. (Oxford 1986), pp. 1534. 9 Tichborne v. Weir (1892) 67 L.T. 735. 10 Limitation Act 1980, sections 15 and 17 bar the claimants right of action to recover the land and extinguish his title after the limitation period has run. 11 Land Registration Act 2002, s. 9.
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None of these uses quite captures the specic sense in which the word title is used in this article. As a starting point, title is best understood as referring to a claim to an asset arising from a proprietary interest. In its strict sense, title does not refer so much to the content of the claimants proprietary interesti.e., to the incidents of practical enjoyment which his interest in the asset confers on himbut to the strength of his claim to that enjoyment, relative to other people who have similar interests in the same asset. Inherent in the notion of title is the question whether one persons claim to those incidents is stronger or weaker than that of other potential claimants. Professor Goode has expressed the point as depending on the dierence between the quantum of the claimants right to the asset and the strength of that right as against others.12 Once this meaning of title is understood, it makes sense to speak of two claimants having competing titles to an asset where their claim is something less than ownership. Examples could be ` given of competing titles to the enjoyment of prots a prendre over land, such as exclusive shing rights. There may be a dispute over which grantee has the better right to take sh from the waters on the grantors land. This would be a dispute about the strength of one grantees title relative to that of the other. This dispute would be wholly dierent from one about the content of the grantees enjoyment of the shery, such as the weeks of the year when he was permitted to exercise his right, and what species of sh he was allowed to take. While it is true that in the core case of adverse possession of land the rival parties make competing claims to possession, the same is not necessarily true for other kinds of asset. The connection between title and possession is contingent. The key connection is that between title and the ability to assert and defend the benet inherent in the interest concerned. Since title consists essentially in a claim, what the claimant can enforce by his title depends entirely on the content of his interest in the asset and the incidents of practical enjoyment which the nature of the asset permits. In the example given, the rival grantees of the exclusive shing rights have a claim to take sh from the grantors land but not to be in possession of it. Similarly, if we suppose a case where there are competing equitable assignments of a debt, the main incident of the assignees equitable title is their right to compel the assignor to sue on the debt. It makes no sense to say that their title confers on them a claim to possess the debtthe debt is intangible.
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See Goode, p. 31.
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To summarise then, relativity of title is about the respective enforceability of competing claims to vindicate the incidents of enjoyment inherent in some particular proprietary interest. III. ABSOLUTE AND RELATIVE TITLES COMPARED (i) Absolute Title to Assets We could suppose a property holding system which recognised only absolute titles to assets. In such a system, it would be impossible to create competing interests of the same kind in the same asset, each of which conferred on its holder equivalent entitlements to enjoy it. The best illustration is the right of Quiritary ownership in classical Roman law. Since the content of the right is not directly relevant for present purposes, it will be enough to say that Quiritary ownership amounted to full benecial ownership of the asset concerned.13 More relevant in this context was the unitary and exclusive character of Quiritary ownership. It was an inherent incident of Quiritary ownership that only one such interest could exist in an asset. In strict principle, it made no sense to conceive of two or more Quiritary owners concurrently holding their rights, with each right conferring a competing title to the asset.14 In the strict sense therefore the title of the Quiritary owner was absolute.15
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For accounts of the content of Roman ownership, W.W. Buckland, Textbook of Roman Law, 3rd rev. ed. by P. Stein (Cambridge 1963), pp. 18694; M. Kaser (trans. R. Dannenbring), Roman Private Law, 2nd ed. (London 1968), pp. 92101; P.B.H. Birks, The Roman Law Concept of Dominium and the Idea of Absolute Ownership [1985] Acta Juridica 1, pp. 724; and J. Getzler, in S. Bright and J. Dewar (eds.), Land Law: Themes and Perspectives (Oxford 1998), pp. 8285. On unitary character of Quiritary ownership and the absolute title which it conferred, see B. Nicholas, An Introduction to Roman Law (Oxford 1962), pp. 127, 15455; and D.L. Carey Miller, Property, Chapter 3 in E. Metzger (ed.), A Companion to Justinians Institutes (London 1998), at p. 45. Whatever the strict theory, even classical Roman law must, in practice, have permitted something akin to the relativity of ownership interests. A person seeking to enforce his Quiritary ownership by the rei vindicatio might be forced to rely on his possession of the thing in good faith as the strongest evidence of his ownership. In practice, therefore, he might succeed against a defendant on proof of a title that was defeasible. The classical Roman law also recognised a right of bonitary ownership in res mancipi. It conferred on the owner all the practical incidents of Quiritary ownership. It arose when a person received a res mancipi from the Quiritary owner without the formal procedures of mancipatio which were necessary to transfer Quiritary ownership in such things. It was enforceable through the actio Publicana against third parties generally. By the exceptio rei venditae et traditae the bonitary owner could even protect his interest in the asset against the Quiritary owner who brought a rei vindicatio to enforce his interest in it. For an analysis of bonitary ownership as a form of relative ownership, see Nicholas, op. cit., at pp. 1278; and W.W. Buckland and A.D. McNair, Roman Law and Common Law, 2nd ed. by F.H. Lawson (Cambridge 1965), pp. 856. This is not to say that the Quiritary owner could not grant away lesser rights to other people. He might create a usufruct entitling another person to the benecial use of his land, or perhaps burden his land with a servitude entitling another person to a right of way. The title of the Quiritary owner was unitary and absolute, notwithstanding that he had granted away his entitlement to enjoy certain incidents that might otherwise have comprised part of the content of his ownership. These situations are entirely dierent from that in which two people independently claim the same kind of interest in the one asset, each entitling them to coextensive incidents of enjoyment.
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The theory of the classical Roman law was to exclude the possibility of relative ownership rights. The title of the Quiritary owner had to be the best since, by denition, no other ownership interest could exist to compete with it. English law, however, freely permits the possibility of more than one fee simple estate existing concurrently in the same land. As has been seen, it applies a presumption in favour of the person in possession of land that he holds it under a fee simple estate. The presumption allows what are, in eect, multiple fees simple to be created in the same land. While the Roman law could only contemplate the right of the Quiritary owner being valid in an absolute sense, the English approach allows the possibility that an estate in land can at the one time be valid and void, depending on which other claimants title it is compared with. A further renement should be added to what is meant here by an absolute title. The word does not have the same meaning here as it does when we speak of a fee simple estate absolute in possession. In that sense, it means that the claimants interest is of potentially unlimited duration and extent, within the limits of the law. The contrast is with a determinable or contingent interest, the duration of which potentially limited or which may not vest until an uncertain future event occurs.16 In that sense, absolute refers to the content of the claimants right over the asset, not to the relative strength of his title to it. The signicance of the Roman law comparison is that it illustrates the permeability of the common law distinction between rules of evidence in procedural practice and rules of substantive law in recognising the existence of proprietary rights. In the common law, possession of property could be treated as evidence of a good title arising from some underlying proprietary interest, notwithstanding that there was almost certainly some other claimant who could assert an equivalent proprietary interest in the asset. To a large extent, presumptions of evidence determined a claimants right of recovery rather than any conceptual theory of substantive proprietary interests. (ii) Absolute Versus Best Title to Assets We must distinguish also between the concepts of an absolute and the best title to an asset. In this article an absolute title will be taken as one which is unitary and exclusive, like the title
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The distinction is lucidly drawn by F.H. 1958), p. 36. The current edition of the B. Rudden, Law of Property, 3rd rev. distinct from contingent or determinable
Lawson, Introduction to the Law of Property (Oxford work does not consider this point: F.H. Lawson and ed. by B. Rudden (Oxford 2002). For absolute as interests, see Megarry and Wade, para. [4-039].
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conferred by the strict conception of Quiritary ownership. The existence of such a title necessarily excludes the possibility of any equivalent proprietary interest conferring a competing title on a dierent claimant. The best title to an asset will not necessarily be absolute in this specic sense. The best title is one which is superior to that of any other person but it may still not be absolute. An example is the title of a proprietor of a registered freehold estate in land. His title to the land is for all practical purposes indefeasible: subject to interests taking priority over his estate and to very narrowly dened grounds of alteration, the fact of registration guarantees his title to enjoy all the normal incidents of ownership. However, although the registered proprietors title in fact is guaranteed to be the best, it is not necessarily absolute. His title still lacks that characteristic of unitary absoluteness which necessarily excludes the possibility of another person having an equivalent interest at the same time.17 A squatter can still take adverse possession of the registered land and in doing so he establishes a relative title to possess under a fee simple estate, which is enforceable against all but the registered proprietor.18 The signicance of the distinction is to illustrate that although English law was content to recognise the notion of the best title to an asset, it was not thereby accepting the theory underlying the Roman law conception of Quiritary ownership which would have absolutely excluded the possibility of any competing claim to the asset arising from an equivalent interest. Rules to determine the best title to assets are fully consistent with a theory of relativity of title. (iii) Relativity of Title and Priority of Interests A third point that needs to be claried is the dierence, if any, between disputes which turn on competing titles to an asset and those which turn on the resolution of a priority conict among competing interests. The view proposed here is that there is no
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In the light of these examples, Gray and Gray at para. [6.26] perhaps overstate the point in saying that the eect of the land registration system is to demonstrate an inexorable drift towards the hitherto alien continental concept of dominium. H.M. Land Registry and Law Commission, Land Registration for the Twenty-First Century (Law Com. No. 271). Under the scheme provided in s. 97 and Sched. 6 of the Land Registration Act 2002, after 10 years the squatter may apply to be registered as proprietor of the estate to which his possession has been adverse. Sched. 6, para. 9(1) implicitly recognises that until the registrar accedes to the squatters application, the squatter has an unregistered title to the land which exists concurrently with that of the registered proprietor. Another example of a relative title to registered land arises from the procedure governing the insolvency of a registered proprietor. It presupposes that a trustee in bankruptcy may take an unregistered legal title to an estate alongside that of the now bankrupt registered proprietor: see Ruo and Roper, Registered Conveyancing (London 2003), para. [34.004] explaining the eect of Insolvency Act 1986, s. 306(1), (2).
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sharp distinction in kind between the disputes described in these two ways. All disputes about relativity of title can be recast as disputes about priority. Any dispute over stronger or weaker titles to an asset is resolved by the rules of priority applying to assets of that kind. We typically speak of a dispute over title when the claimants assert competing, but equivalent, interests in the same asset, such as when a squatter and the proprietor of a registered estate claim possession of the land. We generally speak of a priority dispute when the claimants assert dierent kinds of interest in the same asset, which may confer incompatible incidents of enjoyment to the asset. An example would be the equitable interest of a beneciary in occupation under a trust of land and the legal charge of a mortgagee of the land who seeks an order for possession.19 Both confer rights to possess the land but the nature of each interest is dierent. The distinction between competing titles and priority rules is a loose one, but, for the most part, it is not important to try to draw it sharply. For once the dierences in terminology are stripped away, it will be seen that disputes over competing titles necessarily depend on rules of priority. Any property system which allows the creation of multiple valid titles to the same asset needs priority rules to determine the strength of those titles relative to each other. To speak of a better title or a stronger title necessarily presupposes priority rules which have ranked the competing titles into their proper order. Priority rules are therefore essential to resolving disputes arising from the relativity of titles. It follows that title disputes can be recast as disputes over priority among competing interests in the same asset. For example, the rules by which we resolve the familiar title disputes found in the common lawsuch as between a paper title holder of unregistered land and a squattercan be reexpressed by saying that priority is generally awarded to whichever claimant relies upon the earlier title. The claim of the paper title holder is stronger precisely because it arose earlier in time than the squatters, and he takes advantage of the classical rule of common law priorities that legal interests bind the world.20 The same, it will be argued, is true of competing equitable titles to an asset. Their enforceability relative to one another depends on the relevant rule of priority which applies to interests in assets of that kind. This fundamental similarity between common law and equity is overlooked for two reasons. First, disputes over competing
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E.g., Williams & Glyns Bank Ltd. v. Boland [1981] A.C. 487; Bank of Baroda v. Dhillon [1998] 1 F.L.R. 324. See Goode at pp. 6545; and J. McGhee, Snells Equity, 31st ed. (London 2005) para. [4-03].
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equitable titles to an asset tend to be expressed in terms of the priority of competing interests in the asset rather than in terms of relativity of title. This is in contrast with the classic common law disputes over titles to tangible property which tend to be expressed in terms of the relative enforceability of those titles, rather than in terms of the priority of interests. The second reason for the obscurity is that equity sometimes applies a priority rule to resolve disputes over relative titles which does not depend on the order in which the titles were created. It will be argued,21 for example, that a common case of relativity of title in equity arises from multiple assignments of the same debt. These tend not to appear as disputes over title because they are resolved by a priority rule that depends on the giving of notice to the debtor, rather than the usual rule more common to title disputes at lawthat priority depends on the order in which the competing titles were created. Once these dierences are put aside as essentially linguistic and the connection between relativity of title and priority is established, it will be seen that the principle of relativity is far more widespread than might at rst appear. (iv) Reasons for Relativity of Title The rule that P2 can enforce a merely relative title to land illustrates the pragmatic approach of the common law to the proof of title and the resolution of disputes to property. There are many reasons for allowing it and only a few of them need be sketched out here.22 First, the presumption of a legal title from the fact of possession is important to resolving uncertainties in evidence when proof of a valid paper title conferred by a chain of conveyances may be doubtful. When supported by rules on the limitation of actions, a theory of title by possession quietens title to assets by eliminating the risk of competing claims to it, whether spurious or well founded. With real property in particular, it has been shown that the combination of limitation rules and the relativity principle facilitates conveyancing and promotes the free alienability of land.23 Secondly, relativity of title is a concomitant of the fact that, in the absence of a conclusive system of title registration, it may be dicult for a claimant to prove that he has the best title to the disputed asset. To force him to establish this would require the proof of a universal propositionthat there is no other person with a title superior to this own. Even in a system which only requires
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See Part IV below. See, e.g., Gray and Gray at pp. 36771. M. Dockray, Why Do We Need Adverse Possession? [1985] Conv. 272.
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facts to be proved to the standard of balance of probabilities, such proof can be dicult, given that there is an unascertained number of individuals who would need to be considered to see whether they had a claim to the property.24 Thirdly, the rule that allows a person to sue on a merely relative title to land shows the preference of the common law for discouraging the social disruption that comes when one person unjustiably interferes with the settled possession of another. The presumption of title in a mere possessor of an asset illustrates one of the many instances where uncertainties in evidence are resolved against a wrongdoer.25 Beyond these commonly cited reasons, there are two overarching explanations for the breadth of the relativity principle at law and in equity. One is the eect of relevant rules on joinder of parties which apply to the proceedings where the title to the disputed asset is litigated. It will be seen that a relative title is more likely to be recognised and enforced when the claimant is not required to join to his action a third person who might have a stronger claim to the asset. This is generally the case at common law.26 But the more stringent rules of joinder in equity have tended to require an equitable claimant to join any party who is believed to have a stronger title than his own. This allowed nality in the litigation. As a result, it has been uncommon for a claimant to sue successfully on a merely equitable relative title, which may explain why the operation of the principle in equity has been obscure. Second, the fact that proceedings to determine property rights operate in personam makes it practically impossible to reach a determination binding on the world at large that a particular claimant has the best title to an asset.27 Any determination that the court may make only binds those people who are joined as parties to the action.28 An estoppel by record operates between them,
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K.W. Saunders, The Mythic Diculty of Proving a Negative (1985) 15 Seton Hall L. Rev. 276. Compare the evidential presumptions applied against a person who wrongfully mixes his own fungible goods or money with those of the innocent claimant. Any deciency in the mixture is presumed to be attributable to the wrongdoer: Indian Oil Corporation Ltd. v. Greenstone Shipping S.A. [1988] Q.B. 345; Re Halletts Estate (1880) 13 Ch.D. 696. See below. On the meaning of proceedings in personam and their distinction from proceedings in rem, see generally, Smiths Leading Cases, 13th ed. by T.W. Chitty, A.T. Denning and C.P. Harvey (London 1929), pp. 66674; and Spencer Bower, Turner and Handley, Res Judicata, 3rd ed. by K.R. Handley (London 1996), pp. 2389. An example of property litigation operating in personam is the case where a purchaser of land objects to the vendors title. A purchaser may be compelled by an order of specic performance to accept a vendors title, even though it is arguably subject to an adverse interests held by a third party. A determination between the vendor and purchaser that the third partys interest is unlikely to be valid would not bind the third party. See Smith v. Colbourne [1914] 2 Ch. 533; Johnson v. Clarke [1928] Ch. 847; and M.E.P.C. Ltd. v. Christian Edwards [1981] A.C. 205. See Johnson v. Gore Wood & Co. [2002] 2 A.C. 1; Isaacs v. Salbstein [1916] 2 K.B. 139, 144 per Atkin J., and Spencer Bower, Turner and Handley, Res Judicata, at pp. 2156. The rule is
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which prevents a party to the original proceedings from disputing it in a later action. The corollary is, however, that a third person who had an interest in the subject of the original proceedings but who was not joined as a party to them, would be not be estopped from raising the same issue in fresh litigation. So even on the hypothesis that a court were to rule in the original proceedings that P2 had the best title to the disputed asset, its determination could not bind a third person, P1, who in fact had a better title but who was not joined as a party to the original proceedings. Acknowledging that inherent limitation on the courts powers, English law has often been content to allow a claimant to sue on a title which was obviously relative. With this background established, let us consider how the relativity principle applies in dierent areas of property law. IV. RELATIVE LEGAL TITLES TO TANGIBLE PERSONAL PROPERTY Alongside the well-known doctrines of adverse possession of land, there are corresponding principles which apply to personal property. The simplest example is the possessory title of a person who nds a lost chattel.29 Suppose that P2 nds and takes into his possession a lost chattel which belongs to P1. As against P3, a wrongdoer who interferes with P2s possession of the chattel, P2s possession is evidence that he has a title enforceable by action in trespass or conversion. P2s title arises as soon as he is in possession of the chattel. It is not the case that he must wait till the relevant limitation period has elapsed so as to extinguish the cause of action and title of P1.30 In this respect, possessory titles to personal property are explained by rules which are similar to those applying to real property where a squatter is presumed to have a title through a fee simple estate, regardless of whether the paper title holders interest has been extinguished.31 There are three main dierences in the creation and enforcement of possessory titles in real and personal property. First, under section 8 of the Torts (Interference with Goods) Act 1977, there are situations where a defendant in the position of P3 may plead the jus tertii of P1. The intention of the provision is that the court
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implicit in the rules governing the binding eect of judgments or orders: C.P.R., rr. 19.6(4), 19.7(7). The most famous example is Armory v. Delamirie (1721) 1 Str. 505, and the leading modern example is Parker v. British Airways Board [1982] 1 Q.B. 1004. The classic nders case, Armory v. Delamirie (1721) 1 Str. 505, would have to have been decided dierently if it had been true that the plainti had no title to sue until the limitation period had elapsed. The basic limitation period for actions founded on tort is six years, and at the end of that period the title of P1 is extinguished: Limitation Act 1980, ss. 2, 3(2). Cf. Rosenberg v. Cook (1881) 8 Q.B.D. 162, discussed in note 6 above.
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would require P1 to be joined as a party to the action, with the result that P2 would be barred from recovering on the strength of his possessory title.32 The competing claims to the asset can be resolved in one set of proceedings. The Civil Procedure Rules which give eect to this provision require the claimant to name every person who is believed to have an interest in the disputed goods so as to allow the defendant to apply to have that person joined as party.33 In principle, therefore, this exception would only aord P3 a defence if he knew P1s whereabouts and if P1 were available to be joined as a party. So if P1 were the undiscovered owner of a lost or stolen chattel, the old common law rule would still apply. P3 would be barred from pleading the jus tertii of P1 in defence to P2s claim on his possessory title.34 The rule that the jus tertii could not be pleaded in claims arising from dealings with personal property was generally observed before the enactment of the Torts (Interference with Goods) Act 1977, whether the plainti sued in trespass or in trover for conversion. Before the Common Law Procedure Act 1852 abolished the forms of action, the relevant elements which the plainti was required to plead in his declaration of trover were as follows: [The plainti] . . . was lawfully possessed, as of his own property, of certain goods and chattels, to wit, [the goods were then listed] of great value, to wit, the value of _ pounds . . . ; and being so possessed thereof . . . casually lost the said goods and chattels out of his possession; and the same afterwards . . . came into the possession of the [defendant] by nding . . . and afterwards . . . converted and disposed of the said goods and chattels to his [the defendants] own use.35 The cases and writers accepted that a plainti with a purely possessory title could plead that the goods were as of his own property, as the form of declaration required.36 So the nder of a lost jewel could sue in trover to enforce his limited property against
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For the practical workings of s. 8, see A.M. Dugdale (ed.), Clerk and Lindsell on Torts, 18th ed. (London 2000), paras. [14.89][14.90]; and G. Battersby, The Present State of the Jus Tertii Principle (1992) 56 Conv. 100. Civil Procedure Rules 1998, r. 19.5A, inserted by Civil Procedure Amendment Rules 2001 (S.I. 2001 No. 256) and re-instating the former R.S.C. O.15, r.10A. P2 could of course join P1 as a party on his own initiative under the general power to add parties in C.P.R., Part 19. But if he believed that P1s title was superior to his own, he would often have no incentive to continue the action with P1 as a party. Costello v. Chief Constable of Derbyshire Constabulary [2001] 1 W.L.R. 1437, noted [2002] C.L.J. 27, is a stark modern illustration. P2, who had been in possession of a car which was undoubtedly stolen, successfully sued the police, P3, in conversion after their statutory authority to detain the car from him had expired. The police had failed to identify the original owner of the car, P1, and therefore could not rely on the jus tertii defence. For the full form of the declaration, see H.J. Stephen, Treatise on the Principles of Pleading in Civil Actions, 2nd ed. (London 1827), p. 51. Ibid., at pp. 3546; and J. Chitty, Practical Treatise on Pleading, 5th ed. (London 1831), p. 173.
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a person who wrongfully withheld the jewel from him.37 A bankrupt could sue a person who interfered with his possession of the goods, notwithstanding that the property in the goods might have passed by statutory assignment from the bankrupt to the trustee in bankruptcy.38 A buyer of wood who took delivery of it under a void grant from the seller would have a sucient title to sue a person in trover who interfered with his possession of the wood.39 This would follow even though the property in the goods might remain in the seller because the grant was ineective. In all these cases, if the defendant alleged that the plainti was not possessed of the goods as of his own property, he was eectively raising the jus tertii, though the explicit language of that plea by the defendant does not appear in the judgments of the court. The court would not accept the plea in trover just as it would not have accepted it in an action in trespass.40 The second dierence between real and personal property is that legal estates cannot be created in personalty.41 Therefore so far as it is necessary to describe the content of the interest of a person with a possessory title to a chattel, he would be presumed against a wrongdoer to have an ownership interest in it, not an estate. We have seen that with real property there was an evidential presumption applied against wrongdoers that a person in possession of land had seisin in fee simple.42 With chattels, the evidential presumption arising from possession of a chattel had to be dierent. The classical statement of the rule is that of Sir Frederick Pollock:
37 38
39 40
41
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Armory v. Delamirie (1721) 1 Str. 505. Webb v. Fox (1797) 7 T.R. 391. See especially the judgment of Lord Kenyon C.J. at p. 397 who said that it should make no dierence whether the bankrupt sued in trespass or in conversion. Basset v. Maynard (1601) Cro. Eliz. 820. The precise way in which the defendant would have pleaded the jus tertii changed over time. After the judges promulgated the New Pleading Rules of Hilary Term 1834 (the Hilary Rules), the defendant would have had to plead the defendants lack of title specially by way of confession and avoidance. If he pleaded the general issue, that would be taken merely as a denial of the conversion only, not of the plainti s title to the goods: see W. Selwyn, Abridgment of the Law of Nisi Prius, vol. 2, 9th ed. (London, 1838), p. 1402 discussing rule IV, 1, 2. Before that reform, the defendant could have put the plainti s title in issue by pleading the general issue. Under this plea every ground of defence which would have proved that the conversion was lawful might be given in evidence. Compare the 5th ed. of Selwyn (London 1820), p. 1317. Webb v. Fox (1797) 7 T.R. 391 seems to be an example where the defendant raised the jus tertii by a plea of the general issue. See J. Williams, Law of Real Property (London 1848), pp. 7, 21; J. Crossley Vaines, Personal Property, 5th ed. (London 1973), p. 6. The reason for the dierence is that a private individual can only hold land in tenure ultimately from the Crown which is the allodial owner. The system of tenures did not apply to chattels. A private person could therefore be the direct owner of a chattel. Interests corresponding to estates can only be created in chattels by means of a trust. See Section I above.
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[P]ossession is prima facie evidence of ownership . . . [F]or the very reason that possession in fact is the visible exercise of ownership, the fact of possession, so long as it is not otherwise explained, tends to show that the possessor is the owner: though it may appear by further inquiry that he is exercising either a limited right derived from the owner and consistent with his title, or a wrongful power assumed adversely to the true owner.43 Pollock explains the rule in terms of the content of P2s interest. That is to say, P2 is presumed to have an ownership interest in the chattel which he possesses, which is why he has title to sue wrongdoers who interfere with that possession. Pollock might have been trying to produce a consistent explanation across both real and personal property that property rights can be presumed from the fact of possession. However, in contrast to the approach of Pollock, it is very rare for the earlier cases or writers to speak of the person with a possessory title to a chattel as having an ownership right in it.44 They were generally unconcerned with the content of whatever interest P2 might have. They simply spoke of his having a title to the chattel and considered the enforceability of that title relative to other claimants. If ever they spoke of his having property in the chattel, they would generally only say that he had a special property. A special property was the interest of a person who was in possession of goods but who held them subject to the title of another person who had the general property.45 The common examples were the special property of a bailee in relation to a bailor, a carrier to an owner of goods, or a factor to his principal. The relationship between a nder of goods and the true owner was explained in the same terms. In nearly all cases, a person could not have the special property in goods unless he had them in his possession.46 This dierence in approach between the quotation from Pollock and that of earlier sources is understandable. In a typical case where P3 interferes with P2s possession of the chattel all that matters is that P2 has a sucient title relative to P3 to enable him
43 44
45
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F. Pollock and R.S. Wright, An Essay on Possession in the Common Law (Oxford 1888), p. 25. E.g., Webb v. Fox (1797) 7 T.R. 391, 397 per Lord Kenyon C.J.: The plainti is possessed of these goods, and prima facie the possessor of personal property is the owner of them; and less precisely Wilbraham v. Snow (1670) 2 Wms. Saund. 47l, 6th ed.: So possession with an assertion of title, or even possession alone, gives the possessor such a property as will enable him to maintain this action against a wrongdoer; for possession is prima facie evidence of property. W. Selwyn, Abridgment of the Law of Nisi Prius, vol. 2, 9th ed. (London 1838), p. 1383 citing Webb v. Fox (1797) 7 T.R. 391, 396 per Lord Kenyon C.J. The exception was that a factor would have the special property in his principals goods and would therefore have been entitled to sue for their conversion even though he, the factor, had never had them in his possession: Chitty, Practical Treatise on Pleading, at p. 175 citing a dictum of Lord Eyre C.J. in Fowler v. Down (1797) 1 Bos. & Pul. 44.
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to sue in trespass or conversion. The issue is the relative strength of the parties claims to possession of the asset, not the content of the interest which entitles P2 to sue P3. Strictly, it would only be necessary to refer to P2 as having a relative ownership right in the chattel if the issue were between P2 and some person who claimed to derive title from him, as where P2 oered to sell the chattel to a potential buyer,47 or if a person wanted to lend money on the strength of P2s apparent ownership of the chattel.48 That person could fairly treat P2s possession as evidence of an ownership interest which he would acquire in the transaction, or as sucient evidence that P2 was good for the repayment of the loan which he made. But between P2 and a wrongdoer, P3, all that mattered was that P2s title to possession was stronger than P3s. The third dierence between real and personal property is that a relative title to personal property seems to be more vulnerable to extinction than a relative title to real property. In general, it only survives so long as P2 remains in possession of the chattel. By contrast, the standard view of the modern writers is that, subject to the extinction of titles under the Limitation Act 1980, any number of relative fee simple estates can be created in land. So, for instance, Megarry and Wade write: [The squatter has, in fact, a legal estate, a fee simple absolute in possession. But so also has the [original owner], until such time as his title is extinguished by limitation . . . [T]here is thus no absurdity in speaking of two or more adverse estates in the land, for their validity is relative.49 It seems, however, that it is generally impossible for more than two ownership interests to exist concurrently in personal property, the best one in the original owner and the other relative one in the possessor for the time being. Accordingly, it is generally thought that once a person with a purely possessory title to a chattel has been dispossessed, he loses his title to it.50 He acquires in substitution a purely personal right of action in trespass or conversion against the person who wrongfully dispossessed him. The practical powers arising from whatever continuing title he may have to the chattel are very slim indeed. Apart from some exceptions discussed below, he has no continuing title to the chattel
47 48
49
50
E.g., Hiern v. Mill (1806) 13 Ves. Jun. 114, 119 per Lord Erskine C.J. E.g., Ryall v. Rolle (1749) 1 Atk. 165, 168 per Burnett J. discussing the bankruptcy doctrine of reputed ownership under the statute 21 Jac. 1, cap. 19, s. 11. Megarry and Wade, paras. [3-122]-[3-123]. A similar conclusion seems to have been reached, though with full awareness of the analytical diculties which it creates, by B. Rudden in Terminology of Title (1964) 80 L.Q.R. 63, pp. 6771. See Goode at pp. 323, though the general position stated there does need to be qualied by the possible exception discussed in the text accompanying note 55 below. For a full historical account of the rights of the dispossessed owner of chattels, see J.B. Ames, The Disseisin of Chattels, ch. 67 in Select Essays in Anglo-American Legal History, vol. 3 (Cambridge 1909), pp. 55560.
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on which to found an action against a third person, P4, to whom the dispossessor passes the chattel. His only right is the chose in action enforceable against the person who dispossessed him. As a bare cause of action, the traditional common law rule before the enactment of section 25(6) of the Judicature Act 187351 was that such a right could not be assigned. Moreover, his power to alienate his surviving interest in the chattel is much attenuated. He cannot make a simple gift of the chattel itself since an eective conveyance requires a delivery of possession, and he lacks it to give. He would have to resort to making the gift by deed.52 Owing to the rule that allows title to goods to pass by an executory contract, he could sell his limited interest to a third party.53 But the donee by deed or the buyer under the contract would, of course, take subject to all the weaknesses in the donors or sellers title so he could have no claim to recover the goods from a third party to whom the dispossessor passed it. The transaction would confer a worthless benet. The reasons for this result will be explained in turn. The presumption of title in P2 is generated by the fact that he is in possession of the chattel and that his possession is enforceable against all third parties who cannot claim any lawful title to dispossess P2.54 But the presumption has its limits. It applies so long as P2 remains in possession, or if he is wrongfully dispossessed by another, P3, then the presumption that P2 has title applies as between himself and P3. It does not necessarily apply as between P2 and P4, a third person who acquires the chattel from P3 without deriving title through P3s original wrong against P2. So, for instance, if P4 stole the chattel from P3, then P2 might have no right of action in conversion against him, since he would not be presumed to have any continuing title to the chattel at the time of P4s conversion. The policy of protecting possession only goes so far as to give P2 a right of action in trespass or conversion against P3. Since P4 did not unlawfully interfere with P2s possession, the presumption of title would not work in P2s favour. It could not be
51
52
53 54
The legal assignment of choses in action is now provided for in s. 136(1) of the Law of Property Act 1925. Bourne v. Fosbrooke (1865) 18 C.B. (N.S.) 515, and, generally, F.W. Maitland, The Mystery of Seisin (1886) 2 L.Q.R. 481, pp. 4945. Sale of Goods Act 1979, ss. 17, 18. See Stephen, Treatise on the Principles of Pleading in Civil Actions, at p. 357; Chitty, Practical Treatise on Pleading, at p. 173. The rule is often expressed by saying that possession is a sucient title against a wrongdoer (e.g., Taylor v. Eastwood 1 East 212, 217 per Lord Kenyon C.J.; Elliott v. Kemp (1840) 7 M. & W. 306, 312 per Parke B.; Buckley v. Gross (1863) 3 B. & S. 566, 572 per Cockburn C.J.; M. Bacon, New Abridgment of the Law, 6th ed. (London 1832), p. 792. The circularity of this way of formulating the rule makes it less helpful. It cannot be known that the defendants conduct is sucient to make him a wrongdoer unless it is known, for some independent reason, that the claimant has an enforceable title to the chattel.
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presumed that P2 maintained a subsisting title to the chattel at the time when P4 converted it from P3. On the other hand, if P4 derived title to the chattel from P3 (as he would if P3 made a gift or sale of the chattel to him), then there is very slim authority in the South Australian decision of Field v. Sullivan that the presumption of title would apply as between P2 and P4, so as to make P4 liable to P2 in conversion. In that case Macfarlan J. said: [P2] is in possession of goods, he is prima facie in lawful possession of them, and prima facie has the right to that possession; in the absence of any evidence to the contrary, in any proceedings that possession is proof of ownership; but that possession may be divested out of him, either lawfully or unlawfully. If unlawfully, his right to possession remains. As against the person who unlawfully deprived him of his possession [P3], or those claiming through him [P4], [P2s] possession (even if wrongful) up to the time of seizure, is sucient evidence to establish his right to possession.55 Macfarlan J.s statement derived from some obiter dicta of the Court of Kings Bench in Buckley v. Gross,56 a problematic decision which is considered in detail below.57 A simple example adapted from the facts of the classic case on possessory titles should illustrate Macfarlan Js point. In Armory v. Delamirie58 a chimney sweep found a jewel. He took it to a goldsmith to be valued. The goldsmith wrongfully refused to return the jewel to him. The sweep successfully sued the goldsmith in trover on the basis of his possessory title to the jewel. If we suppose instead that the goldsmith had given the jewel to his wife, then the presumption that the sweep was the owner would have applied against her as well since she derived her title through the goldsmith. This account provides an explanation for Buckley v. Gross,59 an unusual case which is better known for the rule that the original owners of liquid substances which are mixed without their authority have interests in the resulting mixture as owners in common. A severe re in some warehouses and wharves along the River
55 56
57 58 59
Field v. Sullivan [1923] V.L.R. 70, 84 per Macfarlan J. The judgments in Buckley v. Gross are reported with varying emphases and in dierent degrees of detail in (1863) 3 B. & S. 566; (1863) 32 L.J.Q.B. (N.S.) 129; (1863) 9 Jur. (N.S.) 986; (1863) 7 L.T. 743; (1863) 27 J.P. 182. The implication that a claimant with a mere possessory title to the chattel could sue a successor in title of the person who wrongfully dispossessed him appears in the reports in (1863) 3 B. & S. 566, 571 per Cockburn C.J.; (1863) 32 L.J.Q.B. (N.S.) 129, 130 per Cockburn C.J., 131 per Blackburn J; (1863) 9 Jur. (N.S.) 986, 987 per Cockburn C.J., 987 per Blackburn J. See text accompanying note 59 below. (1722) 5 Str. 505. (1863) 3 B. & S. 566; (1863) 32 L.J.Q.B. (N.S.) 129; (1863) 9 Jur. (N.S.) 986; (1863) 7 L.T. 743; (1863) 27 J.P. 182. The argument and reasoning are reported most fully in (1863) 3 B. & S. 566; (1863) 32 L.J.Q.B. (N.S.) 129; and (1863) 9 Jur. (N.S.) 986.
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Thames caused large quantities of molten tallow to ow down the sewers and into the river. A person retrieved a lump of solidied tallow and sold it to the plainti. The police seized the tallow and charged the plainti with a crime of being unlawfully in possession of stolen goods. The magistrate dismissed the charged. However, he exercised a statutory power to keep the tallow in the possession of the police with a view to returning it to its original owner, or if that proved impossible, to make some order to dispose of it.60 Shortly afterwards, the police sold the tallow to the defendants. The plainti sued the defendants for conversion of the tallow, alleging that his former possession of the goods gave him a title to possession which was enforceable against the defendants. The Court of Queens Bench dismissed the plainti s claim. It armed the rule from Armory v. Delamirie that possession is good evidence of title against a wrongdoer so that a person with a purely possessory title to goods could sue one who wrongfully interfered with his possession. So, for instance, Crompton J. said: It is clearly established that bare possession is alone sucient to enable a person to maintain trespass or trover, against a wrongdoer who deprives him of possession.61 There were, however, two possible distinctions between that situation and the one before the court. First, the plainti had not been unlawfully deprived of his possession, and, secondly, the defendant had not dispossessed the plainti. The police took the tallow out of the plainti s possession and the defendant derived title from them. The original dispossession of the plainti was lawful because, on one view, the policemen who seized the tallow from him held it on behalf of the original owners. It was as if they were dispossessing him by relying on a stronger title.62 On another view, the dispossession of the plainti was lawful because the magistrate acted within his jurisdiction by ordering that it should be detained from the plainti.63 As a consequence, the second point of distinction whether a possessory title can be enforced against a defendant deriving title from the original wrongdoerdid not arise. The comments of the court on that point are therefore strictly obiter dicta. Summarising the outcome, Crompton J. said: [The plainti] would still be able perhaps to maintain an action against a person wrongfully taking the tallow from his
60 61
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2 & 3 Vict. c. 71, s. 29. (1863) 9 Jur. (N.S.) 986, 987. See also the reports in (1863) 3 B. & S. 566, 573 and (1863) 32 L.J.Q.B. (N.S.) 129, 131 which are worded almost identically. (1863) 3 B. & S. 566, 575 per Blackburn J; (1863) 32 L.J.Q.B. (N.S.) 129, 132 per Blackburn J.; (1863) 9 Jur. (N.S.) 986, 988 per Blackburn J. (1863) 3 B. & S. 566, 572 per Cockburn C.J.; (1863) 32 L.J.Q.B. (N.S.) 129, 131 per Cockburn C.J.; (1863) 9 Jur. (N.S.) 986, 987 per Cockburn C.J.
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possession. But before the defendants dealt with the tallow the possession of the plainti had been divested, and he cannot revert to his previous possession, in order to maintain the action, unless he had the property. But here the plainti had no property, and his possession had been lawfully divested, and the tallow was ultimately converted by one who does not claim through a wrong-doer . . . . [V]ery possibly an action might be maintained on a bare posssessory title against a person claiming through a wrong-doer; but the action to be maintainable must be either against the wrong-doer who takes the article out of the hands of the possessor, or, at all events, against one claiming title under the wrongdoer.64 In the Jurist Crompton J. is recorded as having added to the version of this statement in the Law Journal Reports that since the plainti had been lawfully divested of the chattel no subsequent dealing therewith, even if not altogether justiable, [could] operate to revest in him the right of possession, so as to aord a ground of action.65 As a result, the plainti could not invoke against the defendants the presumption of title from possession. He had no interest in the chattel when the defendant converted it. He was not the original owner with an indefeasible ownership interest, and his title was correspondingly vulnerable. His only possible action could have been against the police for their detaining the tallow from him. However, they had a proper statutory authority for their actions so that issue could not be argued. This vulnerability of relative titles in personal property must be contrasted with the rights of an owner with an indefeasible title, P1. An indefeasible owner who is out of possession of a chattel has a right to possess which is enforceable against third parties generally.66 He is not conned to enforcing it only against third parties who wrongfully dispossess him of the chattel or who derive title through such a person. This is because his ownership and the right to possession which depends on it are indefeasible. The claimant is not simply presumed to be the owner from the fact of his previous possession. So if P2 stole the chattel from P1, and then
64
65 66
(1863) 32 L.J.Q.B. (N.S.) 129, 131; cf. (1863) 3 B. & S. 566, 573, per Crompton J.; and (1863) 9 Jur. (N.S.) 986, 987 per Crompton J. See also (1863) 3 B. & S. 566, 571 per Cockburn C.J.: It is not necessary to decide whether a person who has possession of a chattel without title may, if the possession be taken from him by a wrong doer, maintain an action against the wrong doer and persons deriving title from him otherwise than in market overt; for the answer to the plainti s case is, that the defendants do not derive their title from a wrong doer. The reports in (1863) 9 Jur. (N.S.) 986, 987 and (1863) 32 L.J.Q.B. (N.S.) 129, 130 are worded similarly. In Irving v. National Provincial Bank Ltd. [1962] 2 Q.B. 73, 80 Holroyd Pearce L.J. adopted the reasoning of Cockburn C.J. (1863) 9 Jur. (N.S.) 986, 987. Hollins v. Fowler (1875) L.R. 7 H.L. 757. G. Battersby, The Present Status of the Jus Tertii Principle (1992) 56 Conv. (N.S.) 100, p. 104 notes this anomaly, particularly where P1 may have no way of proving his indefeasible title other than by relying on long possession.
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P3 stole it from P2, P1 could recover damages from P3 for the conversion of a chattel, even though P3 did not wrongfully dispossess P1. On similar facts, P2, a person with a purely possessory title, would have no action against P4, a person who stole the chattel from P3, who had in turn stolen it from P2. However, if the dictum in Field v. Sullivan is followedand a possessory title can be enforced against recipients who derive title from the person who wrongfully dispossessed the claimantthen it might only be in the rare instances of successive thefts, as outlined above, that there would be any real dierence between a claimant suing on a relative and an indefeasible ownership interest in a chattel. The vulnerability of relative titles to personal property shows some similarity to the rules which applied to real property before the reforms of the early nineteenth and twentieth centuries. The original common law conception was that, once dispossessed by a squatter, the proprietor of land lost his fee simple estate.67 He ceased to have seisin. Only one person could be seised of land at a time, and it was against that person that the lord would exact any services due to him. Accordingly, the squatter, P2, was taken to be seised as a tenant in fee simple. The dispossessed proprietor, P1, was left with a mere right of entry or a right of action enforceable against P2. The right of entry was enforceable by P1s summarily ejecting P2, but the right of action could only be enforced by one of the real actions. Important practical consequences followed from treating P1 as having lost the estate in the land. P1 could not alienate the land by the two eective methods of conveying a freehold unless he rst recovered possession. Since P1 was out of possession, he could not enfeo another person by giving livery of seisin, and it would be dicult for him to eect a lease and release to the transferee since he would not be in a position to put the nominal lessee in possession of the land, as this method of conveyancing required.68 Neither were P1s right of entry or right of action freely transferable since each was in the nature of a chose in action. Although the right of entry was heritable, it was incapable of being assigned inter vivos. It could not be devised by will before the
67
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For a full historical account of the rights of the disseised proprietor, see J.B. Ames, The Disseisin of Chattels, at pp. 5436. For the common law methods of conveyance, see Williams Principles of the Law of Real Property (London 1926), 24th ed., by T.C. Williams (London 1926), pp. 21036. For lease and release, see J.H. Baker, Introduction to Legal History, 4th ed. (London 2002), pp. 3056, and Litt., para. [459]. The impossibility of a dispossessed proprietor conveying the land still nds its analogue in personal property. Unless he makes the gift by deed, the donor of a chattel must deliver the chattel from his possession into that of the donee, and he therefore cannot transfer the chattel if he lacks possession of it.
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reforms of the Wills Act 1837. The position was summed up in an early treatise on conveyancing: Things in action, and things of that nature, as causes of action, rights and titles of entry are not grantable over to strangers but in special cases. And therefore if a man have disseised me of my land or taken away my goods; I may not grant over this land, or these goods, until I have seisin of them again. Neither may I grant the suit which the law doth give to me for my relief in these cases to another man.69 The statutory reforms of the early nineteenth and twentieth centuries must have caused this theory to change. The point was reached where the disseised proprietor of land could be treated as still having an estate in the way that the authors of Megarry and Wade describe.70 The incidents of his right of entry gradually became equivalent to those of an estate.71 First, the right of entry became as freely alienable as an estate in possession would have been. The Real Property Act 184572 allowed a person who held a right of entry to convey it by deed inter vivos, and the Wills Act 183773 allowed a right of entry to be devised by will. Secondly, the formal procedures for transferring an estate were gradually brought into line with those which had been established for transferring a right of entry. Section 2 of the Real Property Act 1845 made it possible to convey land by deed of grant, as an alternative to conveyance by livery of seisin. Section 51 of the Law of Property Act 1925 took this progression one stage further by abolishing livery of seisin. From then on land could only be conveyed by deed of grant. The grantor could pass his right to possession of the land without going through the previous formal step of allowing the transferee to enter on the land, something which a dispossessed proprietor would be in no position to do.74 Thirdly, it had long been established that dispossession of the person who had held a limited interest in the land did not accelerate remainder interests which were expectant on his estate. All in all, it became easier to conceive of a right of entry which conferred a general right to possession becoming equivalent to a fee simple estate still vested in a person out of possession.
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70 71
72 73
74
W. Sheppard, Touchstone of Common Assurances, 9th ed. by E. Gibson Atherley (London 1826), p. 240. See the quotation cited in note 49 above. The stages of the transition are described in B. Rudden, Terminology of Title (1964) 80 L.Q.R. 63, 6768, upon which this account relies. 8 & 9 Victoria, c. 106, s. 6. 1 Victoria, c. 26, s. 3. For the historical limitations on the devise of rights of entry by will, see F.W. Maitland, The Mystery of Seisin (1886) 2 L.Q.R. 481, 4845. See F.W. Maitland, The Mystery of Seisin (1886) 2 L.Q.R. 481, 484; Williams Principles of the Law of Real Property, p. 224.
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A corresponding transition seems not to have happened with personal property, or at least not to the same extent. The Real Property Act 1845 did not extend to making rights of action in respect of personal property assignable by deed. It remains generally true that a conveyance of a chattel requires a delivery of possession. A dispossessed ownereven one with an indefeasible titlecannot make a gift of the chattel till he recovers possession, unless he does so by deed. Even then the most he could assign would be a cause of action to recover the chattel.75 Although choses in action have generally been assignable since the Judicature Act 1875,76 the rules prohibiting the maintenance of actions may nonetheless prevent the assignment of causes of action in tort, whether under the statute or in equity. With torts against property, rather than against the person, the policy objections in favour of prohibiting such assignments must be questionable, particularly since rights of entry to land have long been assignable. That said, the prohibition may well still stand.77 The combination of these circumstances probably discouraged the view that P2, the person who had acquired a possessory title to the chattel, had any continuing interest in it once he had been dispossessed. V. RELATIVITY OF EQUITABLE PROPRIETARY RIGHTS (i) The Creation and Priority of Equitable Titles The view advanced in this section is that relativity is as much a feature of equitable titles as it is of common law titles to tangible assets. In principle, it is possible to create an indenite number of equivalent equitable titles to the same item of property. There is no relevant distinction for this purpose between tangible and intangible property. It will be seen, however, that the dierent rules on joinder of parties applied in the Court of Chancery have meant that it would be uncommon for a person to succeed in a claim based on a merely relative equitable title to property. The theoretical possibility nonetheless exists. The fundamentally similar approach to title disputes across common law and equity tends to be overlooked because relative titles have dierent causes at law and in equity.78 A relative legal title can arise simply from the claimant taking possession of the disputed asset79 but possession alone cannot generate an equitable
75 76 77
78
See text accompanying n. 52 above. See now Law of Property Act 1925, s. 136(1). See the dicta in Defries v. Milne [1913] 1 Ch. 98, 109 per Farwell L.J; and Trendtex Trading Corporation v. Credit Suisse [1980] 3 All E.R. 721, 744 per Lord Denning M.R., armed on dierent grounds: [1982] A.C. 679. Goode at p. 41, note 102 makes the same observation.
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title to an asset. A relative equitable title commonly arises from a derivative creation of rights made by the person who either has the legal interest or the equitable benecial interest in an asset. The simplest instances are where a creditor makes an equitable assignment of a debt to a third person, or where the same asset becomes subject to the concurrent competing claims of the beneciaries under dierent trusts. Each of these examples will be developed in this section. Another reason why the similarity of approach can be overlooked is that equitable titles to assets often consist in claims which are substantively dierent in content from those which are most frequently met at common law. Common cases of legal titles involve claims to possession of tangible property. This is often not the case in equity. For example, with equitable titles arising from the multiple assignment of the same debt, the assignees title does not give rise to any possessory claim. It would make no sense to speak of possession in the context of a debt. Rather, his title consists in his claim to compel the original assignor to join him in suing the debtor so as to secure a payment which discharges the debt.80 With titles arising under competing trusts of the same asset, each claimants title consists in his right against the trustee to compel him to administer the asset according to the terms of the trust existing in his favour.81 The claimants title under the trust may not necessarily give him any rights to possession of the trust assetoften it will not. The example of multiple equitable titles generated by competing assignments of a debt is well illustrated by Dearle v. Hall,82 the decision which dened the priority rule applying to competing equitable assignments of a debt. Zachariah Brown was the life tenant under a trust declared under his fathers will. In 1808 Brown assigned his claim to the trust income to Dearle, as security for an annuity which he had undertaken to pay to Dearle during the rest of Browns life. In 1809 Brown made a second assignment of his claim to the trust income, this time to Sherring to secure a further annuity to Sherring. Three years later, Brown made a third assignment of his life interest, on this occasion selling it to Hall for a lump sum. By each assignment Brown became a trustee to the respective assignees of his equitable claim against the will trustees. Provided that each assignee joined Brown as a party to the action, he had the eective equitable claim against the will trustees to
79 80 81
82
See Section I (above. See J. McGhee, Snells Equity, 31st ed. (London 2005), paras. [3-20][3-21]. Target Holdings Ltd. v. Redferns [1996] A.C. 421, 434 per Lord Browne-Wilkinson; Lord Millett, Equitys Place in the Law of Commerce(1998) 114 L.Q.R. 214, 2257. (1828) 3 Russ. 1; armed on appeal: 3 Russ. 48 (Lyndhurst L.C.).
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compel them to pay him the income, to the exclusion of Brown. Later rationalisations of this analysis have it that the assignor held his primary claim on the debt on trust for each assignee, as if to imply that the assignments created multiple equitable titles to the debt enforceable by Brown against the will trustees.83 In explaining the relative ranking of those titles, Sir Thomas Plumer M.R. formulated the rule of priority which now applies generally to competing equitable assignments of a debt. He held that Hall had priority over the two previous assignees since he was the rst to give notice to the debtors, the trustees of the will. He held that the usual rst in time rule governing the priority of equitable interests in property did not apply to competing equitable assignments of a debt. The Master of the Rolls justied the priority rule based on notice by saying the equitable title of the assignee was not complete until he had given notice to the debtor of the assignment. This explanation of the outcome has since been rejected. In Ward v. Duncombe84 Lord MacNaughton explained that the assignees title was complete regardless of whether he had given notice to the debtor. The giving of notice was relevant in that it secured the priority of one assignees claim over the claims of the others, and ensured that the debtor would get a good discharge from the assignee so that he could not be sued again by the assignor. If it had been impossible to create relative titles in equity, then there could have been only one result in Dearle v. Hall: whichever assignee was rst to get a complete equitable title to the debt would have had priority. Any later assignment would have been void since the entire claim against the debtor would already have vested in the rst assignee. Hall could not have had priority because he was only the third assignee to get a complete title. As it is, however, the outcome of the case supposes that the title of each assignee conferred a valid equitable claim to compel payment of the same debt, any one of which could have been enforced against the debtor before notice was given to him. Once Hall gave notice, his title became the stronger in any action to which he and the debtor were parties. His title would be stronger against the debtor even if he were sued by another assignee. The debtor could no longer procure an eective discharge, binding on Hall, from any of the other assignees.
83
84
Torkington v. Magee [1902] 2 K.B. 427 (overruled on other grounds by the Court of Appeal in [1903] 1 KB 644.). [1893] AC 369, 3912. See further Gorringe v. Irwell Rubber and Gutta Percha Works (1886) 34 Ch.D. 128, 132 per Cotton L.J.; and Re Trytel [1952] 2 T.L.R. 32.
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It is true that Dearle v. Hall is generally considered as a case on equitable priorities. As has been explained,85 however, this is perfectly compatible with its also being an illustration of the relativity of equitable titles. The principle of relativity allowed the creation of competing equitable titles to the debt, the comparative strength of which was then determined by the priority rule based on giving notice. Usually, the relative strength of competing titles depends on a rst in time priority rule. This is generally true of competing legal titles to land and chattels86 but there is no logical necessity for this rule to apply. At rst sight, the result in Dearle v. Hall seems an obvious breach of the rule nemo dat quod non habet. If the assignees equitable claims derived from an intentional transfer of rights by the assignor, how could the assignor validly carve out of his primary claim against the debtor more than one competing claim for dierent assignees of the same debt? There is no corresponding problem at common law when a person acquires a possessory title to land or a chattel. The fee simple or ownership interest which he acquires is newly created from the fact of possession and does not derive by grant from the paper owner. There can be no argument that the nemo dat rule has been breached. The answer to this apparent problem follows from the way in which an assignment of a debt takes eect in equity. Each assignment eectively operates as the creation of a fresh equitable liability in the assignor to be joined as a party in an action against the debtor.87 In functional terms, the assignees title to the debt consists in a claim against the assignor, a third party. In contrast, a legal title to tangible property consists primarily in a claim enforceable directly against the property itself. As a result, it is easier to conceive of the proprietor of a legal interest in tangible property as exhausting his interest in it when he makes a grant to another person. But since titles to a debt consist primarily in claims against a person not a thing, it is possible for the same assignor to create multiple valid claims against himself by a series of intentional assignments of the same debt. Once this analysis of an assignment is understood, it is only a short step to explain the creation of relative titles by means of competing declarations of trust. In functional terms, the eect of creating equitable rights under a trust is to create a personal claim against the trustee, which is enforceable by the benecary, governing his management and disposition of the trust assets.88 The
85 86 87
See Section III (iii) above. See Section I above. See note 80 above.
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right is proprietary in the sense that the beneciary can compel a third party to whom the trustee wrongfully transfers the trust asset to return it to the trustee, unless the third partys legal interest in the asset takes precedence according to the relevant rule of priority applying to property of that kind.89 While the beneciarys claim does not subject a third party transferee to the full range of administrative and duciary duties owed by the original trustee, it can at least make him liable to restore the asset to the trustee who will then be bound to administer it according to the terms of the trust instrument.90 Treated therefore as a functional account of how trusts operate, Maitlands description of equitable property rights under trusts as arising from the enforcement of a personal claims against the holders of the trust asset remains fundamentally true, though a renement needs be added to explain the dierent content of those personal claims against the original trustee or a wrongful third party transferee.91 If this functional understanding of interests under trusts is overlooked, it is easy to draw a mistaken conclusion that relative titles cannot be created under trusts. The error is to treat the beneciarys interest under the trust as a reied entity and then to infer from that that once the interest has been created in one person, it cannot be created again in another. It may be thought that the creation of the interest in one person must exhaust the trustees capacity to create it a second time. But properly understood as claims against the trustee in respect of his management of the trust asset, there is no logical reason why equity cannot allow the creation of relative titles to the same asset by a series of derivative transactions. The analysis is similar to that which applies to the case of multiple assignments of a debt. A person can validly create any number of claims against himself for the benet of dierent people. It is no objection to the validity of each claim that they cannot all be satised out of his present or future resources. It is a common experience for a person of precarious means to keep incurring more debts even when his assets
88 89
90 91
See text accompanying note 81 above. The most common examples are where a bona de purchaser for value acquires the legal ownership of personal property or where a legal estate in registered land is transferred and the priority of the trust interest has not been protected in one of the specied ways: Land Registration Act 2002, sections 28, 29. See generally, R.C. Nolan, Equitable Property (2006) 122 L.Q.R. 232. F.W. Maitland, Equity; also the Forms of Action at Common Law, 2nd ed. (Cambridge 1936), p. 116, and chs. 9 and 10 generally. For more recent writings describing the contractarian or obligation element of property holding by trust, see J.H. Langbein, The Contractarian Basis of the Law of Trusts (1995) 105 Yale L.J. 625; P. Parkinson, Reconceptualising the Express Trust [2002] C.L.J. 657; R.H. Sitko, Agency Costs Theory of Trust Law (2004) 89 Cornell L. Rev. 621. Langbeins article explicitly adopted and expanded upon Maitlands analysis of the trust.
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available to meet them are inadequate. The debtor does not exhaust his capacity to create more valid claims against himself simply because he no longer has enough money to meet them. So it is with claims under a trust. Nothing prevents the trustee from creating a series of equivalent claims against himself to the benecial enjoyment of the same asset. Viewed in functional terms as a bilateral relation between the trustee and each beneciary, the claim is valid. The claims of beneciaries of subsequent declarations of trust are as valid as those created earlier. The relevant rules of priority applying to equitable interests then determine the relative ranking of the beneciaries claims among themselves and, accordingly, the relative strength of each beneciarys title to the trust asset. In the case of competing equitable interests in the same asset, the rule is generally that the beneciary whose title is created earlier in time takes priority over later equitable titles.92 To illustrate the theory, we may suppose a case of a settlor who made successive and inconsistent declarations of himself as a trustee.93 He rst declares a bare trust for a beneciary, P1, who takes the entire benecial and equitable title to the asset. If the settlor/trustee then declares another bare trust of the same asset in favour of P2, and again in favour of P3, then P1s interest would rank ahead of that of the others. But in a dispute between P2 and P3, the settlor/trustee could still be taken to have created a valid benecial interest in P2 even though he had previously declared a trust for another person who was not a party to the action. But P3 could not plead the eect of the rule of rst in time priority as between P1 and P2, in defence to P2s claim to priority over him. In principle, this would be irrelevant in a dispute between P2 and P3. If P3 could successfully argue that the priority rule operated absolutely so as to defeat P2s claim against him, then he would eectively be setting up a defence of jus tertii. Subject to the dierent Chancery rules of joinder which are discussed below and which would commonly require P2 to join P1 as a party to his action,94 a defendant in an equitable action should only be allowed to succeed by relying on the strength of his own title, not by pointing out the weakness of the claimants title. We can take the point further to illustrate how, in principle, a relative equitable title could be enforced against third parties. Suppose again a case where a settlor/trustee makes successive
92 93
94
McGhee, Snells Equity, para. [4-03]. Another way in which the same result could be achieved would be if a person holding the legal interest in an asset were to incur liability as a constructive trustee to more than one equitable claimant, as in Bracken Partners Ltd. v. Gutteridge [2004] 1 B.C.L.C. 377 discussed in text accompanying note 96 below. See Section V (ii) below.
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declarations of a bare trust of the same asset for three dierent beneciaries. If the trustee wrongfully transferred the trust asset to a third person, any one of the beneciaries would have a sucient equitable title to recover it in specie by a proprietary claim, or to bring a personal claim for restitution of its value by an action for knowing receipt. Any one of them would have a personal claim against the trustee for any residual loss that resulted from the breach of trust. If P2 or P3 brought the action, neither the trustee nor the third person could defend himself by pointing to the relative weakness of their title as against P1. Again that would be to allow the defendant to succeed by arguing a jus tertii. The eect of the rst in time priority rule would be that P1s title to the asset would be stronger relative to that of P2 or P3, so if all three were joined as parties to the action, P1 could take the entire benet of the action to the exclusion of P2 and P3. Moreover, if P1 discovered that the trustee had paid any trust money to P2 or P3, he could treat that as a breach of his trust. He could get restitution of the money from P2 and P3 by a personal or proprietary claim. From P1s perspective, they would be as much strangers to his trust as any third person to whom the trustee might have paid the money. The same analysis would be true in a dispute between P2 and P3 or between P3 and a third party. Either way, the claimant with the stronger title would have a claim for restitution of his trust money from a recipient with a weaker title or a personal claim against the trustee for losses resulting from the breach. The defendant could not avoid liability by showing that another person might have had a better equitable title than the claimant to some or all of the money. El Ajou v. Dollar Land Holdings Plc. (No. 2)95 is a rare reported instance of such reasoning at work. The main question in the case was the amount of the defendants liability to the plainti for knowing receipt of a mixed fund of misapplied money amounting to 2.3 million. The fund was subject to charges for repayment of much larger sums which had been misappropriated from the plainti and many other unidentied victims of a fraudulent share selling scheme. The relative proportions of the plainti s and other victims charges was 7:3. Robert Walker J. held that the defendant was liable to the plainti for the full amount received, not just 70% of it. The defendant could not plead what was in eect the jus tertii of the other fraud victims to reduce his liability to 70% of the money received. It was held that the plainti
95
[1995] 2 All E.R. 213.
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could succeed in full upon his partial equitable title to the money received. His quantiable defect in title as regards the other victims of the fraud was irrelevant to its enforcement against the defendant. A case which reaches a similar result but for dierently stated reasons is Bracken Partners Ltd. v. Gutteridge.96 An argument about the enforcement of relative equitable titles was expressly put in the case though not in fact relied upon by the Court of Appeal. Gutteridge was the director of, and controlling inuence behind, three related companies which can conveniently be called P1, P2 and P3. In breach of duciary duty, he transferred money from P1 to P2. From P2 he transferred it to P3 before nally paying it to his wife, Ms. Smalley, who applied it towards the purchase of a house. Signicantly for present purposes, each of the transfers from P1, P2 and P3 represented a misapplication from the companies from which the money was taken. Each recipient became a constructive trustee to the company one link before it in the chain of misapplications. In an action brought by P2 against Ms. Smalley, she admitted that she held the house on constructive trust because it represented the traceable proceeds of the money originally misapplied from P1. However, she disputed P2s equitable title to sue, arguing that P2 had no equitable title at all to the money: title remained throughout in P1 as the victim of the original misapplication. The Court found an easy solution to the problem. Since P2 was a constructive trustee to P1, it could sue Ms. Smalley on P1s behalf, leaving it to account for the proceeds of its action to P1. The case would simply be treated as one where a trustee exercised equitable rights of action on behalf of its beneciaries.97 In this way, the Court did not need to consider whether P2 could have successfully sued Ms. Smalley by relying on its own equitable title arising from the misapplication from itself to P3. It is consistent with the argument in this paper that this should have been possible. Ms. Smalley could not have defeated P2s claim against her by pointing to P1s superior equitable title. That would have allowed her to succeed on unmeritorious grounds by arguing the jus tertii. P2 should have been free to sue on its own equitable title, leaving it liable to an accounting action by P1 in which P1 could have enforced its superior title.
96 97
[2004] 1 B.C.L.C. 377. See J. Mowbray et al., Lewin on Trusts, 17th ed. (London 2000), para. [43-01]; Montrose Investment Ltd. v. Orion Nominees Ltd. [2004] EWCA Civ 1032, (2004) 7 I.T.E.L.R. 255; C.P.R., r.19.7A.
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Whatever the position in theory, the historic rules on joinder of parties made it rare that a claimant could enforce a merely relative equitable title to an asset. This probably explains why instances of relativity of title seem so obscure in equity. The outcome in El Ajou v. Dollar Land Holdings Plc. (No. 2) was atypical: the other victims of the fraud who might have claimed a competing title to the money were not joined as parties and there seemed to be no realistic possibility of their being identied and joined. Typically, this is not the case. It had long been a strict rule of the Court of Chancery that all people who had a material interest in the subject of the suit, however numerous, had to be joined as parties.98 If the plainti failed to do so, the defendant could plead a demurrer for want of parties. The court sought to ensure that it would bind all people with an interest in the subject of the suit by joining them as parties. As Lord Redesdale explained, once they were joined, the court could do complete justice by deciding upon and settling the rights of all persons interested. It could make the performance of the court order perfectly safe for those who were compelled to obey it, and prevent future litigation as would have happened if the same issue were to be raised later by another interested person who had not been joined as a party.99 As a consequence, it was far less likely that a claimant with a merely relative equitable title, P2, could successfully recover against a defendant, P3, in cases where it was known that a third person, P1, had a stronger equitable title to the disputed asset. Unlike the general rule at common law, P3 would be permitted to raise P1s jus tertii in the form of a demurrer for want of parties. But he could not raise P1s better title to avoid liability altogether. The court would require P2 to join P1. It could then determine that P1s title was stronger than P2s and allow him to recover against P3 to the exclusion of P2. This outcome would not mean that P1s title was guaranteed to be the best, but it would at least mean that P2 would be denied the opportunity of enforcing a title which was known to be relative and when the claimant with the better title was available to be joined as a party. In this way, it was more likely that the court could reach a conclusive determination of the
98
99
For the general rule and its permitted exceptions, see Barker v. Wyld (1682) 1 Vern. 140; Chancey v. May (1722) Prec. Ch. 592; Adair v. New River Company (1805) 11 Ves. Jun. 429; Cockburn v. Thompson (1809) 16 Ves. Jun. 321; and the cases gathered in Equity Cases Abridged, ch. 12(B). J. Mitford (Lord Redesdale), Treatise on the Pleadings in Suits in the Court of Chancery, 5th ed. (London 1847), para. [164].
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competing claims to the disputed asset. Since the trustee would have to be joined as a party to any dispute between the competing beneciaries, it would be all the more likely that the defendant would discover and join a rival claimant. A claimant might only succeed by relying on a relative title in the rare instances where the person with the better title was unknown or where it was not practicable to join him as a party.100 The historic approach of equity to the enforcement of a relative title would have been similar to the modern rule under the Torts (Interference with Goods) Act 1977 about pleading a jus tertii in actions for conversion or trespass. As has been seen, a defendant in such an action is now authorised to show that a third party has a better right to the disputed goods than the claimant.101 The claimant is generally required to identify any person whom he knows claims an interest in the goods, and the defendant may apply for directions from the court as to whether any person should be joined as a party with a view to establishing whether he has a better right than the claimant.102 A claimant whose title is known to be only relative is unlikely to prevail in his action against the defendant. By the middle of the nineteenth century, however, the strict Chancery rules on joinder were relaxed. Section 51 of an 1852 statute,103 enacted to amend Chancery practice and procedure, provided that it was lawful for the Court of Chancery to adjudicate on questions arising between parties notwithstanding that they might be only some of the parties interested in the disputed property, without making the other people interested in the property parties to the suit. This rule continued to hold even after 1875 when the jurisdiction of the Court of Chancery was absorbed into that of the newly constituted Supreme Court.104 But this relaxation would probably not have made much practical dierence to the enforcement of relative titles in equity. The defendant would be liable to the plainti unless he joined the person with a better title.105 It was clearly advantageous for him to do so in any case where he could identify the person with the
100
101 102 103
104
For instance, the court would not require a person with a material interest in the litigation to be joined as a party if he was outside jurisdiction (Cockburn v. Thompson (1809) 16 Ves. Jun. 321, 326 per Lord Eldon L.C.); or his exact identity was unknown but where other parties had a similar interest which they could represent on his behalf (Adair v. New River Company (1805) 11 Ves. Jun. 429). See text accompanying note 32 above. Torts (Interference with Goods) Act 1977, s. 8(2)(b)(c). 15 & 16 Victoria, cap. 86 (An Act to amend the Practice and Course of Proceeding in the High Court of Chancery). The statute, which was the Chancery counterpart to the better known Common Law Procedure Act 1852, seems never to have been given a short title. All provisions governing the procedure in the former courts continued to apply in the Supreme Court unless some later statute or rule of court modied them: Judicature Act 1873, s. 24. See also the commentary to the former R.S.C., O.15, r.4 in The Supreme Court Practice 1997 (Vol. 1), para. [15.4.5].
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stronger title: he could thereby avoid any chance of future liability to that person. So, for instance, a debtor who paid the second assignee, P2, would not get a good discharge as regards the rst assignee, P1, who had ensured his priority by giving notice to the debtor.106 Likewise, in a case of multiple trusts over the same asset where the rst in time priority rule applied, the trustee would not discharge his liability to the rst beneciary, P1, if he paid the second beneciary, P2. The defendant, therefore, had a strong incentive to discover and join the party with the better title. This would not be dicult. With multiple assignments of the same debt, the rule in Dearle v. Hall would mean that the debtor would have received notice of assignment from the assignee with the best title. With multiple declarations of a bare trust, the settlor/trustee should have been in a position to know if he had made any earlier declarations of trust which took priority over P2s claim. In substance, therefore, it would be rare that a person would succeed in enforcing an equitable claim to an asset based upon a merely relative title. The defendant could typically defeat the claim by joining a third party with a stronger title, so rendering the plainti s title unenforceable. VI. RELATIVE LEGAL TITLES TO INTANGIBLE PROPERTY In Dearle v. Hall each assignee had a relative equitable title to the payment of the debt. The outcome raises an interesting parallel question: at common law is it possible to create relative titles to intangible property? In principle, it seems that this is not possible, at least where the title arises from a right of ownership. There can be only one valid right of legal ownership to a chose in action. However, some slim authority exists to suggest that multiple legal titles can be created to a chose in action where the chose represents the traceable proceeds of an unauthorised exchange of an original asset belonging to the claimant. This general conclusion can be demonstrated by showing how neither of the two ways of creating relative titles applies to the legal ownership of a chose in action. First, the presumption that possession of property is prima facie evidence of title can have only
105
106
R.S.C. 1873, O. XVI, r. 13, to be found in the Judicature Act 1875, Sch. I, expressly provided a judge or court with power to strike out parties who had been improperly joined, or to join as a party any person whose presence was necessary to enable the court eectually and completely [to] adjudicate upon and settle all the questions involved in the action. The rule would have applied equally to proceedings in the Chancery or Common Law divisions of the High Court. Under the current practice, the court has power to add a party to an action if that would be desirable to resolve all the matters in dispute in the proceedings: C.P.R., r. 19.2. Brice v. Bannister (1878) 3 Q.B.D. 569; Bence v. Shearman [1898] 2 Ch. 582.
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a limited application to choses in action. A pure intangiblethat is, a chose in action which is not represented by a tangible document107is incapable of being possessed. This method of generating a relative title in tangible assets simply cannot apply to such a chose in action. The title is in the person with the right to sue on the claim. The right is necessarily unitary. The presumption of title from possession does, however, have some limited relevance when the chose in action is a documentary intangible, such as a share warrant transferable by simple delivery, a bill of exchange payable to bearer, or a bearer bond. If, for instance, P1, the original owner of a share warrant, were to have the warrant stolen from him by P2, then P2s possession of the warrant would confer on him a relative title to the document as against any third party, P3, who tried to interfere with his possession. As between P1 and P2, however, P1s subsisting legal ownership would give him the stronger title. P1s ownership of the warrant document would continue until the person in possession negotiated it to a bona de purchaser without notice of the possessors defect in title.108 The basic distinction is between actions where the claimant depends on possession of the tangible document and those where he is suing on the intangible claim embodied in the document. The analysis is dierent, however, when the warrant is viewed in its character as a chose in action enforceable against the company. In issuing the share warrant, the company would undertake to register the bearer as a member of the company if he surrendered the warrant to the company for cancellation.109 The benet of its promise, and correspondingly the legal ownership of the chose, is in this way freely transferable. From the companys point of view, the right to apply for registration could be enforced by only one person, the bearer for the time being. Possession is an exclusive concept so the bearers title to the warrant, as a chose in action, is unitary and indivisible. If P2 were to have himself registered as a member of the company, then P1 could have no claim against the company. His only recourse would be against P2 for interfering with his title to the warrant in its character as a chattel.110
107 108
109 110
For the distinction, see Goode, pp. 4750. See Rumball v. The Metropolitan Bank (1877) L.R. 2 Q.B.D. 194 (scrip certicates); and Webb, Hale, and Co. v. Alexandria Water Company Ltd. (1905) L.T. 339 (share warrants). For the analogous rules applying to other varieties of bearer instruments, see Bills of Exchange Act 1882, s. 29(1) (negotiable bills of exchange); and Garey v. Dominion Manufacturers Ltd. [1925] 1 D.L.R. 99 (bearer bonds). See Companies Act 1985, s. 355(1)(2). P1 would have an action in conversion against P2, leading to an award of compensatory damages. The starting point is that damages would be assessed according to the value of the shares when P2 rst converted the warrant: Sollaway v. McLoughlin [1938] A.C. 247; B.B.M.B. Finance Ltd. v. Eda Holdings Ltd. [1990] 1 W.L.R. 409.
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Returning to pure intangibles, what slim authority there is on the point suggests that it is also not possible to create relative legal titles in a chose in action by a series of derivative transfers of the legal right to sue on it. It seems that multiple legal assignments of a chose in action under section 136(1) of the Law of Property Act 1925 are impossible. That section provides that on completion of an absolute assignment pursuant to its provisions, the right to sue on the debt passes to the assignee. The assignee may give a good discharge of the debt without the concurrence of the assignor. In this respect, statutory assignments dier from equitable assignments of debts, which, as have been seen,111 allow the creation of multiple equitable titles to the same debt. The key to the dierence is that the assignees equitable title to the debt is not enforceable directly against the debtor. He must rst join the assignor as a party to his action. Strictly, his title to the debt consists in a claim against the assignor to compel him to sue the debtor on the assignees behalf. As has been seen, multiple claims against the same assignor are perfectly possible. The only authority directly on point is the sparsely reported decision of Denman J. in Cronk v. McManus.112 Cavell, a mortgagee of land, made a legal assignment of the mortgage debt to Gardner. Cavell then purported to make a second assignment of the debt to the plainti, Cronk, under section 25(6) of the Judicature Act 1873, the predecessor of section 136. The defendant, the debtor under the original mortgage, resisted the plainti s claim for payment of the debt. Denman J. held that the defendant should succeed: [I]t is impossible to say that the plainti is the assignee of a debt or other legal chose in action within the provision of the Judicature Act.113 Denman J.s reasoning assumes that the rst assignment of the legal interest in the debt exhausted the assignors interest. Any later assignment
111 112
113
See text accompanying note 82 above. (1892) 8 T.L.R. 449. See also Ellerman Lines Ltd. v. Lancaster Maritime Co. Ltd. [1980] 2 Lloyds Rep. 497, 503 per Go J, and the discussion in F. Oditah, Legal Aspects of Receivables Financing (London 1991), pp. 13940. In the same passage of the Ellerman Lines case, Go J. implied that any purported second legal assignment of the debt might be treated as an equitable assignment. Although this might create a create a valid equitable claim in the second assignee, the earlier legal assignee would be assured of priority under the rule in Dearle v. Hall. A purported second assignee who had taken all the steps he could to perfect his title would be sure to have given notice to the debtor since that is a condition to a legal assignment taking eect. (1892) 8 T.L.R. 449. It is worth noting that the debtor in Cronk v. McManus was eectively allowed to plead the jus tertii of the rst legal assignee of the debt in defence to his action against the purported second assignee. This is less surprising than it may rst appear. With claims to chattels, it seems that even before section 8 of the Torts (Interference with Goods) Act 1977 was enacted the defendant was allowed to plead a jus tertii if his aim in doing so was to show that the plainti had no title to the disputed chattel, not merely a title which was weaker relative to that of the original owner. See G. Battersby, The Present Status of the Jus Tertii Principle (1992) 56 Conv. (N.S.) 100.
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364
[2006]
would have been absolutely void at law. Consequently, a debtor who paid the purported second assignee of the debt could not get an eective discharge as against the rst assignee to whom he actually owed the debt, since he would not be paying pursuant to any valid legal obligation.114 With legal interests in intangibles, it seems therefore that the nemo dat rule operates absolutely, just as it does with tangible property. Claims to property enforced after the process of tracing may illustrate the rare instance where the common law allows the creation of multiple legal titles to the same chose in action. For example, a credit balance in a bank account held in the name of P2 may represent the traceable proceeds of money which has been wrongfully misapplied from P1.115 P2 holds the chose in action subject to the superior title of P1. P1s title is inchoate in the sense that it does not confer the present right to full ownership on P1. It would, however, be sucient to allow him to have a declaration requiring the bank to pay the funds to him. If P2 were to transfer the money to a third party, P1s title would be sucient for him to enforce an action against the recipient for money had and received.116 Apart from this instance, however, it seems that the common law does not allow the creation of multiple titles to intangible property arising from interests in the property which have the same incidents of enjoyment. All the more so, it does not allow such titles to be created by a derivative creation of a proprietary interest, as is possible in equity. VII. CONCLUSION A title to an asset is essentially a claim to enjoy the substantive incidents of a certain kind of proprietary interest in it. The relative validity of those claims depends on the rule of priority which applies to proprietary interests in the asset and the procedural rules governing the joinder of parties. It follows from these observations that although relativity of title is best known in cases of adverse possession of land, it applies far more widely across the law of property. Common law relative titles can be created in chattels, just as they can be in real property. They are, however, more vulnerable to extinction once the claimant loses possession of the chattel. The reasons for this dierence are
114
115 116
The debtor could not recover his payment from the second assignee for mistake of law or total failure of consideration. His action would be met by the defence that the money was due to the second assignee in equity because second purported legal assignment of the debt was eective in equity, if not at law. Trustee of the Property of F. C. Jones & Sons (A Firm) [1997] Ch. 159, 170 per Millett L.J. Lipkin Gorman (a rm) v. Karpnale Ltd. [1991] 2 A.C. 548.
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C.L.J.
Relativity of Title
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historical: certain statutory reforms which allowed rights of entry to land to be alienated had no equivalent applying to personal property. Relative titles can be created in equity. They can even be created by a series of derivative grants out of the same asset, something which the dierent basis of property holding at common law prevents. But the dierent joinder rules which applied in equity have made it unlikely that a claimant would be successful in enforcing a merely equitable relative title to an asset. The relativity principle has no part to play in determining competing legal claims to choses in action, except where the chose is embodied in a documentary intangible or in those rare instances where the title arises from an unauthorised substitution of an original asset. In general, the relativity principle illustrates the pragmatic interaction in common law reasoning between the rules of evidence and procedure, and the substantive principles governing the creation and transfer of property interests.
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Cambridge Law Journal, 65(2), July 2006, pp.

330365 Printed in Great Britain

RELATIVITY OF TITLE AT LAW AND IN EQUITY

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See Goode, p. 31.

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[1995] 2 All E.R. 213.

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Relativity of Title (ii) Joinder of Parties in Equity

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101 102 103

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