Multiple sales and transfer of property: a critical analysis of the decision in Prophitius v Campbell 2008 3 SA 522 D.

Multiple sales and transfer of property: a critical analysis of the decision in Prophitius v Campbell 2008 3 SA 522 D

Overview

► 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

• Whether the abstract system of transfer of ownership applies to immovable property?

• 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 registrationPositive 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

Transfer of land in South Africa is governed by the Deeds Registries Act

Purpose of a registration system is to compile complete register of real rights in all land

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)

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 movablesCommissioner of Customs and Excise v Randles, Brothers & Hudson (1941 AD):Majority favoured the abstract approach in context of movables. Held, if parties intend totransfer ownership (real agreement) this is sufficient, not necessary to have underlyingcausa, 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 influenceon 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 abstractapplies to movables & immovablesSimilar statements to Klerck NNO in; Mvusi v Mvusi NO (95 Tk), Radebe v GovernmentRSA (95 N), Mnisi v Chauke (94 T)

Finding in Prophitius 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

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 Held that sale between M & E never properly concluded

Held M was offering sale on condition that needed approval of master of high court

Whereas E was offering unconditional acceptance

The difference between offer & acceptance meant that M’s purported acceptance was in fact a counter offer

Held, purported sale between M & E never concluded

Issue in Legator

Issue was therefore whether despiteinvalidity of underlying sale, was ownership nevertheless transferred?

Court accepted abstract theory applies toimmovables

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

Whether real agreement defective since M’s intention to transfer ownership had been motivated by mistaken belief that was valid sale agreement?

Held, mistake in motive couldn’t (in itself) render real agreement invalid

Van Reenen Steel case held party cant vitiate contract based on mistake in motive, unless contract is made dependant upon the motive

Held since M received letters of curatorship before real agreement (but after sale) this didn’t affect validity of real agreement

Therefore held was validly transferred to E, and court a quo erred in upholding respondents claim

ISSUE 1: Weak reasoning

Held that since abstract system applies to movables should apply ‘a fortiori’ to immovables

Carey Miller argue abstract system fits better with relatively formless & unstructured area of movables

But in relation to immovables is ‘overshadowed’ by deeds registry practice, since registrar needs underlying transaction to ensure legal requirements are metE.g. forms prescribed by Deeds registry act provide for recital of causae

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 Both requirements for transfer of immovables…have different policy functions

Intention is required since person not to be deprived of property against will

Publicity required since real rights affect the world, therefore world must have notice

Reid argues registration has effect of down playing intention…registration becomes real threat to intention

Tendency for register to rule & latent facts like intention are discounted

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 immovablesIn courts reasoning:

Rejected argument that (a) abstract to immovables is contrary to public policy since it would create uncertainty

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

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

Courts reasoning in Prophitius cant be supported

Cant simply accept since abstract applies to movables will apply with greater force to immovables

ISSUE 2 indefeasibility of title Prophitius v Campbell held ‘…I do have considerable

sympathy for respondent who has only the solace of an action for damages’

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

Under a positive system of registration, respondents title would have been guaranteed, and they would've been compensated

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 haselements 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 Deedsregistry 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?

SA has to be classified as negative system

Since defects in title of predecessor aren't cured by registration this excludes classification as a positive system (Silberberg & Schoeman 5th ed)

Support in case law: Knysna Hotel, Cape Explosives Works v Denel 2001 (SCA)

However as argued, there are elements of both present in SA system

Effect of positive vs. negative systems

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 Would be undesirable to have either system operating

without qualifications

SA system is pre-dominantly negative

However has elements of both & achieves balance

Those systems with indefeasibility historically went from private to public register, unlike SA

Deeds registry and practice gives high degree of certainty, mistakes such as in Prophitus are rare

‘Loser’ has claim for damages, but also section 99 which provides (limited) compensation for negligent acts of registrar