Multiple sales and transfer of property a critical analysis of by Levone

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									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 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
   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 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
   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 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
   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 met
    E.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
   immovables
   In 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 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?

   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

								
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