Transcript Multiple sales and transfer of property: a critical

Multiple sales and transfer of property:
a critical analysis of the decision in
Prophitius v Campbell 2008 3 SA 522 D
Overview
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Issues
Background theory & SA system
Prophitius v Campbell overview
Cases supporting Prophitius
Support for abstract
Support for causal
Conclusions
Indefeasibility of title?
Negative or positive system?
Conclusions
Issues
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Whether the abstract system of transfer of ownership
applies to immovable property?
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Whether there should be guarantee of title? In other
words a positive system of registration?
Background theory
Abstract vs Causal theory (Legator McKenna at para 20)
Abstract - validity of transfer of ownership isn’t dependant on
validity of underlying transaction which gave rise
to the transfer.
Transfer requires (a) delivery/registration (b) real
agreement (intention to transfer and
intention to
receive ownership both present)
Causal - valid underlying transaction (iusta causa) is
required for transfer of ownership
Positive & Negative systems of registration
Positive system: Title is registered with a built in State
warranty that the information in the
deeds registry is correct
State takes extensive measures to
avoid incorrect registration, involving
lengthy exam procedures
Negative system: Records rights without State
warranty
Register can be incorrect
(original/statutory acquisition)
Positive vs Negative systems…
Features of positive
 registration of title
 warrants correctness of register against bona fide 3rd parties
(1) mirror principle: register is reflection of all rights in land
(2) curtain principle: register only source of info,
‘screens’ from any hidden interests
(3) insurance principle: if flaw in register, those who suffer loss
must be compensated
SA System
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Transfer of land in South Africa is governed by the Deeds Registries
Act
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Purpose of a registration system is to compile complete register of
real rights in all land
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Publicity is meant to avoid double sales and protect creditors and
proposed holders of security rights in land (Ex Parte Menzies et Uxor
1993 (3) SA 799 (C) at 804)
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Transfer of rights in land is registered in the nine deeds registries
offices throughout the country, each headed by a registrar of deeds
assisted by several officials.
Prophitius v Campbell
FACTS
 22nd Jan 2004: Trust sold immovable property to 3rd respondent
 30th October: trust sold same property to applicants
 26 Dec: 3rd respondent sold property to 4th respondent
 15 Feb 2005: Transfer to applicants was registered
 5 May: transfer to 3rd respondent, then to 4th respondent,
registered in Deeds registry
 Both the applicants and 4th respondent claim to be the rightful
owner and are in possession of title deeds to the same property
 Registrar informed parties couldn’t make determination of title,
requested parties to approach court for declaratory order
 Held, the seller had committed fraud, on both parties, alleged
applicant was party to fraud…however, dealt with on basis that
were innocent parties
Reasoning in Prophitius
(1) RDL; followed abstract approach
Iusta causa not required to transfer ownership
(2) Abstract approach been approved for movables
Commissioner of Customs and Excise v Randles, Brothers & Hudson (1941 AD):
Majority favoured the abstract approach in context of movables. Held, if parties intend to
transfer ownership (real agreement) this is sufficient, not necessary to have underlying
causa, no need to rely on preceding legal transaction.
Trust Bank van Afrika Bpk (1978 AD):
held fact that underlying contract was void due to impossibility, could have no influence
on passing of ownership.
(3) High Court decisions have supported abstract system…
Klerck NO v Van Zyl and Maritz NNO (1989 SE) in an obiter dictum, held abstract
applies to movables & immovables
Similar statements to Klerck NNO in; Mvusi v Mvusi NO (95 Tk), Radebe v Government
RSA (95 N), Mnisi v Chauke (94 T)
Finding in Prophitius
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Held, the principles applicable to movables should apply a fortiori to
immovables.
[a fortiori: Latin for "with even stronger reason," which applies to a
situation in which if one thing is true then it can be inferred that a second
thing is even more certainly true. Thus, if Abel is too young to serve as
administrator, then his younger brother Cain certainly is too young.]
Held, the public system of deeds registration is a notice to the world of
the ownership of immovable property and takes no consideration of
underlying causa
The fact that the applicants obtained transfer first means that they
became the real owners by the delivery of the immovable property.
This is in accordance with the principle qui prior est tempore potior est
jure.
Held, The applicant declared rightful owner
Held, Transfer to respondents set aside
Held, Registrar directed to amend records in Deeds registry
Criticism of Prophitius
(1) Weak reasoning? Court didn’t apply itself to
question of whether abstract should apply to
immovable property.
Seems to accept since abstract applies to
movables, must apply (with greater force/ a fortiori?)
to immovables
(2) Inequitable result? Since no guarantee of title,
(innocent) party suffered loss
CASE LAW supporting Prophitius
Brits & Another v Van Eaton 1984 (T)
 Held abstract applies to immovables, because (1) referred to academic support, VdMerwe, Heyl
(2) abstract applies to movables
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Therefore held no difference in principle between
movables & immovables in application of abstract
system of transfer
KLERCK NO v VAN ZYL 1989 (SE)
Obiter, accepted abstract applies to immovables
(1) Abstract theory applicable to movables (Commissioner
of Custom & Excise, Trust Bank van Afrika, Air Kel
(Edms) Bpk)
(2) Agreed with Brits NO that in principles no difference
between movables/ immovables
(3) Views of authors: Carey Miller, Scholtens
(4) Obiter support in Wilken v Kohler, Preller v Jordaan
Therefore held, that the abstract theory applied to
immovable property as well as movable property.
Legator McKenna Inc & others v Shea (2008 SCA)
Decided at the same time as Prophitius (November 2008)
FACTS
 Appellant (an Attorney) been appointed as curator bonis of respondents
estate, after respondent declared incapable of managing her own affairs
 In capacity as curator purported to sell to E, signed offer of sale on 22
April 2002
 3 June 2002, Master issued M with letters of curatorship
 27 July 2002 house was transferred and registered to E in deeds registry
 Respondent recovered from accident & declared fit to manage her affairs
 Respondent sought transfer to E be declared invalid, contended sale
been concluded before M issued with letters of curatorship in terms of
Admin of estates act therefore should be declared void
 Court a quo declared contract of sale, illegal & void & directed registrar
to cancel registration of transfer
Underlying transaction
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Held that sale between M & E never properly concluded
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Held M was offering sale on condition that needed approval of
master of high court
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Whereas E was offering unconditional acceptance
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The difference between offer & acceptance meant that M’s
purported acceptance was in fact a counter offer
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Held, purported sale between M & E never concluded
Issue in Legator
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Issue was therefore whether despite
invalidity of underlying sale, was
ownership nevertheless transferred?
Court accepted abstract theory applies to
immovables
Reasoning in Legator
(1) High court decisions accepting abstract system…Klerck NO v
Van Zyl & Maritz NNO 1989 (SE), Kriel v Terblanche NO 2002
(NC)
(2) Academic support; Carey Miller Acquisition & Protection of
ownership, Van der Merwe Sakereg, Silberberg & Schoemans
Law of property 5th ed (Badenhorst, Pienaar et al)
Court reasoned ‘In view of this body of authority I believe the
time has come for this court (SCA) to add its stamp of approval
to the viewpoint that the abstract theory of transfer applies to
immovable property’
Conclusion in Legator
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Whether real agreement defective since M’s intention to transfer
ownership had been motivated by mistaken belief that was valid sale
agreement?
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Held, mistake in motive couldn’t (in itself) render real agreement
invalid
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Van Reenen Steel case held party cant vitiate contract based on
mistake in motive, unless contract is made dependant upon the
motive
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Held since M received letters of curatorship before real agreement
(but after sale) this didn’t affect validity of real agreement
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Therefore held was validly transferred to E, and court a quo erred in
upholding respondents claim
ISSUE 1: Weak reasoning
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Held that since abstract system applies to movables
should apply ‘a fortiori’ to immovables
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Carey Miller argue abstract system fits better with
relatively formless & unstructured area of movables
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But in relation to immovables is ‘overshadowed’ by deeds
registry practice, since registrar needs underlying
transaction to ensure legal requirements are met
E.g. forms prescribed by Deeds registry act provide for
recital of causae
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Therefore courts reasoning shouldn’t be supported
Support for causal and against Abstract
(1) Deeds registry practice…registrar requires causa to ensure legal
requirements fulfilled
(2) Reid (1997 Acta Juridica 225) argues abstract approach less
important than sometimes suggested:(i) rules as to validity of intention are similar in relation to personal
contracts & real agreement
(ii) invalidity in underlying contract is likely to be followed by invalidity of
real contract
(3) abstract largely developed in context of movables (Commissioner of
Customs & Excise, etc)
Private intention vs Public act
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Both requirements for transfer of immovables…have different policy functions
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Intention is required since person not to be deprived of property against will
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Publicity required since real rights affect the world, therefore world must have
notice
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Reid argues registration has effect of down playing intention…registration
becomes real threat to intention
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Tendency for register to rule & latent facts like intention are discounted
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Danger of persons being deprived of property against will
Support for abstract
(1) RDL supported abstract?
Most RDL authors didn’t require causa (Pothier, Huber)
However many writers (Voet, Van Leeuwen, Groenewegen) though
that if agreement giving rise to transfer was influenced by fraud
(which would make it void) then ownership didn’t pass, which
supports causal
Commissioner of Customs & Excise v Randles Bros held abstract
system applicable to movables…held causa habilis referred to by
Voet, must be given ‘wide meaning’
Support for abstract
(2) Kriel v Terblanche held abstract system should apply to
immovables
In courts reasoning:
 Rejected argument that (a) abstract to immovables is contrary to
public policy since it would create uncertainty
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Referred to authors: VdMerwe Sakereg, Kleyn & Boraine
Silberberg & Schoeman 3rd ed…reasoned that abstract system
promotes equity by tempering legal uncertainty brought about by
negative system of registration
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Since although negative system doesent guarantee title, likelihood
of unimpeachable title is reduced if underlying transaction is
irrelevant
Support for abstract
Kriel v Terblanche
- Rejected argument that deeds office practice requires
identifiable underlying causa as prerequisite for transfer
- Referred to Carey Miller Pope Land Title in SA, held
transferors intention to pass is effective despite motivating
factors
- Although practice of registration demands causa, its not
iusta causa…No need for valid underlying transaction as
long as parties are ad idem about passing ownership
Conclusions
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Courts reasoning in Prophitius cant be supported
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Cant simply accept since abstract applies to
movables will apply with greater force to
immovables
ISSUE 2 indefeasibility of title
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Prophitius v Campbell held ‘…I do have considerable
sympathy for respondent who has only the solace of an action
for damages’
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In other words, because respondent had misfortune of
registering after applicant it didn’t get title, & could only claim
damages from trust, therefore faced risk of insolvency
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Under a positive system of registration, respondents title would
have been guaranteed, and they would've been compensated
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At issue, is whether a positive system would be desirable in
SA, to avoid inequitable results, such as in this case?
Does SA have positive or negative system?
Silberberg & Schoeman 5th ed argue that SA system has
elements of both
Elements of positive system
 Deeds registry maintains high degree of accuracy
 Registrar has ‘active role’; must examine all docs sent for
registration & reject any which aren't permitted by Deeds
registry act or any other law
Elements of negative system
(a) data in deeds registry not correct under all circumstances, mistakes
do occur (Prophitius is an example)
Real rights in land may be acquired by various modes not reflected in
the deeds registries act…e.g., by prescription, expropriation, statute,
as a result of marriage in community of property
Modes of termination also not (immediately) reflected in Deeds
registry, abandonment, merger, extinction of principle debt secured by
bond
In all these cases the true owner has better claim than a bona fide
possessor, who acquired title from registered owner in the Deeds
registry
Elements of negative system
(b) Section 99 of the Deeds Registry Act exempts
registry officials from liability in respect of non
negligent acts
What is SA?
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SA has to be classified as negative system
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Since defects in title of predecessor aren't cured by
registration this excludes classification as a positive system
(Silberberg & Schoeman 5th ed)
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Support in case law: Knysna Hotel, Cape Explosives Works v
Denel 2001 (SCA)
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However as argued, there are elements of both present in SA
system
Effect of positive vs. negative systems
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Mistakes can occur in both, difference is effect on
bona fide 3rd parties
Positive: full protection
Negative: no/ limited protection
However both have drawbacks
Positive: bona fide 3rd parties have greater
protection at expense of original holder (vice-versa
in negative systems)
Conclusions
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Would be undesirable to have either system operating
without qualifications
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SA system is pre-dominantly negative
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However has elements of both & achieves balance
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Those systems with indefeasibility historically went from private to
public register, unlike SA
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Deeds registry and practice gives high degree of certainty, mistakes
such as in Prophitus are rare
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‘Loser’ has claim for damages, but also section 99 which provides
(limited) compensation for negligent acts of registrar