Derivative Acquisition PDF

**Derivative Acquisition** **General principles and analysis applicable to all forms of property** **Reading\ Gretton & Steven, Property, Trusts & Succession (4th ed),\ chapters 4 & 5.\ Reid, Property Paras 597 forward.\ Carey Miller (and Irvine) Corporeal Moveables (2nd ed),\ chapters 8 & 9.\...

**Derivative Acquisition** **General principles and analysis applicable to all forms of property** **Reading\ Gretton & Steven, Property, Trusts & Succession (4th ed),\ chapters 4 & 5.\ Reid, Property Paras 597 forward.\ Carey Miller (and Irvine) Corporeal Moveables (2nd ed),\ chapters 8 & 9.\ Derivative Acquisition is the topic of LS2031 Property Law Tutorial 3.** **A derivative acquisition problem scenario...\ Brutus wants to buy a dagger from Antony, but he won't have the money\ until the following week. Antony says "that's a good offer and I'm happy\ to agree to it but sure as Hades you won't be getting the dagger until I\ have the money in my hand. That's the deal -- you bring me the money,\ you get the shiv", so Antony and Brutus agree to give effect to the deal\ the next week when money and the dagger will change hands. Brutus\ leaves. Cassius, lurking in the shadows, has heard the discussion and\ steps forward. He says to Antony "I'll give you twice as much as Brutus\ has offered, right now cash in hand, so will you sell me the dagger?" The\ deal is concluded, and Cassius goes off with his dagger. Seven days later,\ at the appointed time, Brutus turns up at Antony's house with the\ money. He says "here is the money. Where is my dagger?" Antony\ replies "oh, I sold it to Cassius last week." Brutus is very unhappy.\ Brutus still wants his dagger. Does he have any remedy in modern\ Scots property law?\ Would it make any difference in respect of Brutus' remedy if in\ the interim Cassius had sold the dagger to Julius?** **Derivative Acquisition - Coverage\ General principles and analysis;\ Heritable property;\ Moveable property: (i) Common Law, (ii) Sale of Goods Act 1979\ (SOGA), (iii) DCFR (https://\ www.law.kuleuven.be/web/mstorme/2009\_02\_DCFR\_OutlineEd\ ition.pdf);\ Defective acquisition (including 'offside goals').** **General Matters - applicable to all forms of property\ We are concerned with property in the sense of what is open to\ disposal, derivative acquisition being the process of disposal or\ transmission of property (as distinct to original acquisition,\ which is considered elsewhere in this course);\ Derivative acquisition is driven by the right of disposal which is a\ core aspect of the right of ownership; arguably the key aspect --\ see Lord Dunedin in Grant v Heriot's Trust "...and I have no\ hesitation in saying that to give a thing in common property and\ at the same time to say that you are not to pursue a division is an\ impossibility according to the law of Scotland, just as great an\ impossibility as to give a person the property in fee and at the\ same time to tell him that he is never to dispose of it" (1906) 8F\ 647 at 658;** **General Matters - applicable to all forms of property\ Ownership (or 'title', as in 'title deed' signifying 'entitlement') is made up of rights to\ use, fruits and disposal (usus, fructus. abusus); the rights to use and fruits (i.e.\ benefits produced by property) can be parted with; provided the right of disposal is\ retained, ownership is retained (Katie, going to Oz for a year, leaves her 6 hens with\ Billy who gets the eggs in return for looking after the hens; while this contract\ continues Billy has possession of the hens and the right to their eggs but Katie retains\ ownership because she retains the right of disposal);\ Consider lesser rights distinguishable from ownership; the 'real right' of ownership may\ be contrasted with personal rights (e.g. loan, deposit) which do not involve a right of\ disposal; having actual possession of a thing does not necessarily mean that the\ possessor has the right of ownership;\ Real rights are available 'against the whole world', personal rights only against\ another person.** **General Matters (cont.)\ Disposal can only be by one who has the right or has the right-holder's\ authority to transfer property in the thing concerned (for example, an agent\ acting within his or her authority);\ Maxims: nemo plus juris ad alium transferre potest quam ipse haberet - no\ one can transfer to another a greater right than he has himself or the simpler\ nemo dat quod non habet -- no one can give what he does not have; see Reid,\ Property, para 669); this principle applies in all legal systems which recognise\ the right to ownership of property; the NZ Hillary watches case is a good\ example: http://www.nzlii.org/nz/cases/NZHC/2010/1985.html\ The owner's control over disposal means that she/he must intend to transfer\ property in any process of derivative acquisition; this intention must, normally,\ be manifested in an active way, only exceptionally can an intention to pass\ ownership be inferred from the circumstances;** **A two-stage process\ Essentiality of two stage process of transfer in context of\ controlling distinction between personal and real rights;\ The coming into being of a contract giving a personal right and\ its leading to the transfer of a real right necessarily involves a\ two-stage process;\ Illustrate: Jill advertises her Mini for sale at 12K and Jack comes\ to view it...\ An act of delivery or some equivalent event (e.g. registration in\ respect of heritable property) provides a basis for determining\ the point in time at which property passes;\ This process of transfer can be analysed in two ways -- causal\ or abstract.** **Causal/Abstract\ Analysis of working of two stage process of transfer of property: stage 1 --\ contract, stage 2 -- conveyance; the two stages are explained by two\ different analytical models;\ Causal analysis explained: legal act (or stage) of transfer refers back to the\ contract. This is the position in English Law;\ Abstract analysis explained: transfer is a separate and independent legal\ act. This is the position in Scots Law (at least, this is the generally\ accepted position, but compare here Carey Miller and Reid);\ Illustration of A believing sale, B believing gift. Has property passed?\ Note that in many cases the outcome will be the same whether a causal\ or abstract analysis is applied.** **From D L Carey Miller, Acquisition and Protection of Ownership** A diagram of a contract Description automatically generated **Act of transfer -- different results\ Valid title; everything is OK and this is the intended outcome;\ Void 'title' = no title at all. NB 'title' = the legal basis on which a\ person has rights to property;\ Voidable title, 'subsistent' title; good while it stands but open to\ challenge;\ Position of subsequent (i.e. third) party in terms of general\ principles; A-B-C scenario; variables: B's title void or voidable, C\ in good faith or in bad faith.** **Real/Personal right distinction\ Fundamental importance of distinction cannot be over emphasised;\ As stated real rights are available 'against the whole world', personal rights only\ against another person;\ The opinions of the two Scottish judges in Burnett's Trustee v Grainger 2004 SC\ (HL) 19 confirm the significance of the distinction; the late Lord Rodger's\ 'unbridgeable division' (para 87); see also dicta of Lord Hope;\ Note the insolvency factor as an illustration of the significance of the distinction\ between personal and real rights;\ Importance of avoiding usage (especially in exam answers!) which blurs or\ confuses the distinction between the contract (giving a personal right) and the\ transfer of property (giving a real right);\ Legal terminology 'disponor/disponee' or 'transferor/transferee' - typically\ seller/buyer - reflects the legal act of transfer as a separate legal act.\ ** **Transfer of Ownership in Heritable Property** **Heritable and Moveable\ Scots property law incorporates a number of fundamental distinctions:\ ❑ Real and Personal\ ❑ Heritable and Moveable\ ❑ Corporeal and Incorporeal\ Heritable equates to land\ Heritable derives from 'that which goes to the heir.' Formerly, in Scotland, land\ could not be bequeathed in a will, and the rules of primogeniture and male\ preference in succession meant that land and related property went to the\ oldest male son.\ Primogeniture and male preference in succession to heritage were to remain\ the rule in intestate succession until the Succession (Scotland) Act 1964 (c 41)\ reformed the law.\ Heritage could not be disponed by means of testamentary writings until the\ Titles to Lands Consolidation (Scotland) Act 1886 (c 101).\ 'Heritage' as a term, is therefore now redundant, and some modern writers (see\ e.g. Gordon's Land Law, 3rd ed) prefer to use 'immoveables' instead.** **The Heritable/Moveable distinction\ However, things that may appear to be moveable may nevertheless be considered to\ be heritable -- for example, windows, doors and fittings waiting to be fitted into a\ house that was in process of construction when the owner died may be considered\ to be heritable by destination.\ Certain animate creatures can be heritable -- specifically, mussels and oysters which\ attach themselves to the land.\ Is a dung heap heritable or moveable? Authorities differ.\ Moveables become heritable through accession;\ this is important because it happens so frequently.\ The heritable/moveable distinction may be relevant in the context of succession\ because the estate of a deceased person is broken down into the two categories in\ order to work out important statutory rights in respect of the distribution of the\ estate.\ The distinction is also relevant in the context of the transfer of heritable property; in\ principle various moveable things may be heritable by destination; note the concept\ of 'accessory things'; e.g. the ash box which 'belongs to' a fireplace -- a disponor of\ the property can't take it away with him!** **Overview -- the transfer of Ownership in Heritable Property\ 'Conveyancing', a specialist subject which will only be touched on here;\ 3 stage process: conclusion of missives; delivery of disposition;\ registration;\ See Reid, Property paras 630ff\ Note the 'mind the gap' problem in period between a buyer's acquiring\ a personal right and it becoming a real right -- always a risky period but\ now one that can be very effectively managed by new notice period\ provisions. This is dealt with by the Land Registration etc. (Scotland) Act\ 2012.** **A three-stage process\ The sale and purchase of heritable property in Scots law is a three stage process.\ Missives\ Disposition\ Registration\ Missives is the contractual stage of the process and it gets its name from the exchange of letters\ (missives) of offer and counter offer between the buyer and the seller. Conclusion of the missives\ entitles the seller to the price and the buyer to a disposition and entry on an agreed date. The missives\ stage gives rise to a personal right only.\ Check it out...\ http://www.lawscot.org.uk/rules-and-guidance/section-f-guidance-relating-to-particular-types-of-\ work/division-c-conveyancing/advice-and-information/scottish-standard-clauses/\ Remember, by the way, that 'qualified acceptance' = a refusal and a counter-offer.\ The disposition is a formal transfer document in which the seller seeks to convey to the buyer\ ownership of the subject, and spells out the various terms and conditions and qualifications that the\ ownership is subject to. The form of the disposition is a matter for the subject of conveyancing.\ Delivery of the disposition by seller to buyer does not make the buyer the owner. Ownership remains\ with the seller until the third stage in the process is completed. Thus, the buyer's right at the\ disposition stage remains personal.** **Consequences of the 3 stages\ Concluded missives give rise to a personal right as between the buyer and the\ seller. Each can sue the other in the event of default -- the seller can sue for\ payment; the buyer can sue for delivery of the disposition and for entry. The\ general law of contract pertains.\ A real right in the subjects is ONLY brought into existence at stage III of the\ process.\ Stage III involves Registration (formerly, for the Sasine Register, 'recording'). It\ is stage III that sees the creation of a real right.\ Consider the significance of the transferee's right remaining personal until\ registration.\ Note in re stage 2 that 'risk' normally transmits to the purchaser on conclusion\ of missives. This is contract law not property and you protect yourself by\ means of insurance.\ ** **Registration requirement\ The longstanding rule is that a person only becomes the owner of heritable property when their\ acquisition is entered into a statutory register.\ See Abolition of Feudal Tenure etc. (Scotland) Act 2000s.4 provides:\ (1) Ownership of land shall pass---\ (a) in a case where a transfer is registrable under s.2 of the Land Registration (Scotland) Act 1979, on\ registration in the Land Register of Scotland;\ (b) in any other case, on recording of a conveyance of the land in the Register of Sasines.\ Although this statement appears in a statute of 2000, it does not in any way innovate in terms of the\ law. The provisions in section 4 simply restate the law of Scotland as known and understood from\ the introduction of the Sasine Register some 400 years ago. Note that s.3 of the Land Registration\ (Scotland) Act 1979 provides for acquisition on registration.\ See now the Land Registration (Scotland) Act 2012, fully commenced in December 2014** **Registration\ ** A contract for the sale and purchase of land creates mutual rights and\ obligations that apply only to the contracting parties; personal rights. It does\ not create any real right in the land, and ownership is a real right. In order\ for a person to become the owner of a piece of land, something more than\ bare contract is required.\ What is required is registration. Registration is the equivalent of delivery,\ and, in respect of land in Scotland, the maxim traditionibus non nudis pactis\ domina rerum transferentur still holds true (ownership is transferred by\ delivery not agreement). In order to begin to assert a claim to be the owner\ of a piece of land a person must be able to found upon a registered title in\ respect of that land.\ 'Registered' is an umbrella term. It encompasses two particular terms --\ 'recorded' and 'registered'. This reflects the development of the land\ registration system in Scotland. **Registration Continued** - There are currently two national land registers in Scotland. There is an old one, which is now actively being phased out, though the process may take some time yet to complete. - In both the old and the new systems there is a 'mind the gap' problem; the ruler prior tempore potior jure, (first in time, first in law) applies in principle; so if there is competition for the property the first party to register has priority. - If you have received a disposition but have no registered your title, you are vulnerable to someone swooping in and registering title ahead of you. For example, the seller may be a fraudster and may have sold the land a second time. Double sales -- 'off-side goals' -- will be mentioned later. A trustee in bankruptcy or company receiver may seek to register a title where the buyer has not yet done so. This happened in two cases we will be considering later. When we say 'mind the gap', we are referring to the gap between the delivery of the disposition and the registration. A buyer is vulnerable during that period -- hence the phrase, 'the race to the register' -- a race the purchaser doesn't want to come second. The Land Registration etc. (Scotland) Act 2012 now deals with this. **Registration Act 1617** 1617 c. 16 Oure Souereane Lord Considdering the gryit hurt sustened by his Maiesties Liegis by the fraudulent dealing of pairties who having annaliet their Landis and ressauit gryit soumes of money thairforre Yit be their vniust concealing of sum privat Right formarlie made by thame rendereth subsequent alienatioun done for gryit soumes of money altogidder vnproffitable whiche can not be avoyded vnles the saidis privat rightis be maid publict and patent to his hienes liegis FOR remedie whereoff and of the manye Inconvenientis whichhe may ensew thairupoun HIS Maiestie with aduyis and consent of the estaittis of Parliament statutes and ordanis That thair salbe ane publick... 1617 c. 12 Our Sovraine Lord considering the great prejudice which his majesties Lieges sustaines in their lands and heritages, not only in abstracting, corrupting and concealing of the true evidents, in their minority and lesse age, and by admission thereof, by the injury of time, through War, Plague, Fire or such occasions; but also by the counterfeiting and forging of false evidents and writs, and the concealing of the same to such time, that all means of improving thereof is taken away; whereby his majesties lieges are constinte in great uncertainty of their heritable rights, and divers pleas and actions are moved against them. Note how the two acts are so close in time; as in, hand-in-hand. **Role of Prescription In Transfer of Heritable Property** - There was a less significant role fo prescription in present system of undcer Land Registration (Scotland) Act 1979 ('reigster of title'); - A more significant role of prescription is restored by the Land Registration (Scotland) Act 2012, brought into Force on 8^th^ December 2014. - See Johnston Prescription and Limitation (2nd, 2012) 17.17 re the reformed position post Land Registration etc. **Key Case Law development in transfer of heritable property** Two Key cases arising from the 'mind the gap' situation; Both cases involved Aberdeen law firms acting for the purchasers of houses in Aberdeen. In each case, the disposition (the legal 'deed of transfer' made by the disponor in favour of the disponee was delivered but not registered; In Sharp v Thompson 1997 SC(HL)66 the Sharps bought a flat from an Aberdeen development company which was subject to a floating charge security; the Sharps paid the price and got possession of the flat; the disposition was delivered but not registered before the floating charge 'crystalised' on the liquidation of the disponor company; this was a 'mind the gap' scenario and the Sharps stood to lose the flat and the price they had paid; they would have only an unsecured claim for a repayment of the price which meant that they would be likely to recover only a proportion of the price paid; the Court of Session held to that effect (see 1995 SC 455 esp. Lord President Hope from 461 "property law context") The house of Lords, reversing the Court of Session focussed on the concept of 'property and undertaking' ion the floating charge context under the Companies Act and held that this did not include the flat which the Sharps had bought but did not yet have registered title; This decision, concurred In by the two Scottish Law Lords Jauncey and Clyde was seen as perplexing and wrong by Scottish Property lawyers because it meant that property passed in advance of registration in the floating charge situation. **Burnett's Trustee v Grainger** Burnett's Trustee v Grainger \[2004\] SC(HL)19 involved the personal insolvency of the disponer (Ms Burnett). In that case the disponee's (purchaser, the Rev Harvey Grainger) solicitor had delayed in recording his title and the disponer (seller) became insolver and a trustee was appointed to administer her estate for the benefit of her creditors. The trustee recorded a notice of title which confirmed that the property sold to the Graingers vested in the trustee of Ms Burnett's insolvent estate. The disponee then recorded his title but it was too late. In accordance with the maxim prior tempore potior iure (first in time, first in law) the trustee in bankruptcy was held to have a better title; This time the House of Lords upheld the Court of Session; Burnett did not overrule Sharp but 'ringfenced' the decision so that it applies only in a floating charge situation "We are totally exasperated by the whole thing. The law is very strange. We paid the money in 1990, we have cleared the mortgage, we have spent another £13,000 over the years to maintain the property -- yet we have nothing. Apparently, this is quite an unusual case and it is being used for teaching in law faculties. But that is little consolation." -- Rev Grainger, Scotsman, 17 May 2002. **Derivative Acquisition; Moveables; Common Law... the Delivery Requirement; Sale of Goods Act (SOGA); DCFR**\ **Corporeal Moveables: Common Law -- Delivery requirement** Why does the common law insist on it? A definite stage 2 which transfers the rel right; signifies intention to transfer; the 'publicity principle -- a policy\ consideration;\ Note the following: Roman law influence; accommodation of commercial\ interests; well developed position of Scots common law by late-19thc.;\ The delivery requirement of Scottish common law fits with the common law\ presumption that the possessor of moveable is its owner;\ The presumption protects the possessor of a moveable by requiring that a party\ claiming it show (i) ownership and (ii) that the thing was not parted with in\ circumstances consistent with transfer (See Reid The Law of Property in Scotland,\ para 150: "He must also show that the possession of the defender is consistent\ with the continuing existence of that earlier right of ownership." ) See next slide\ for presumption case. **General Points (cont)** Transmission possible where transferor's subsistent title is merely voidable (Macleod; delivery of car by fraudster to good faith purchaser effective); In the case of a voidable title, a 3^rd^ party in good faith (unaware of defect) will get a good title (MacLeod) leaving the defrauded seller unable to recover the property and with only a claim for compensation; The vitium reale ('real defect') of theft which in Scots law rules out the acquisition of a real right by a subsequent party Distinguishing non-owner transferor cases (Hillary watches; note a non domino label; s.21(1) SOGA) and cases in which the owner does not intend a transfer (delivery intending loan; cf. delivery intending sale received as gift) **Forms Of Delivery** Actual, symbolic and constructive; no numerus clausus (closed list) of forms but there must be a transfer of possession or power (i.e. control must pass from transferor to transferee); Symbolic; delivery of keys of car; is this actual delivery? If wrong key is delivered? Constructive; some act or event recognised by the law as constituting delivery in the circumstances e.g. commercially important intimation to keeper of warehouse; brevi manu (transferee already holds the thing, e.g. on loan), longa manu (subject matter set aside for collection by transferee). **Sale of Goods Act 1893-1979** The Great law reform 'project' of the 19^th^ c. The railway sleepers on the (hypothetical scenario) 1855 Aberdeen -- Halifax train at Edinburgh Station: UK legislation of 1893; basic principles of derivative acquisition maintained in 1979 updated statute; radical from a Scots law point of view because it drops the delivery requirement in sale (by fat the most common basis of derivative acquisition); s.17(1) 'Where there is a contract for the sale of goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred; \(2) 'for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case'. **SOGA default Position** - s.18 provides 5 'rules for ascertaining intention' which apply ' unless a different intention appears'; - E.g. rule 1 'where there is an unconditional contract for the sale of specific goods in a deliverable state' property passes when the contract is made regardless of postponement of time of payment or delivery... - Read ss.17 and 18 **SOGA (continued)** - Note also: s.2(1) 'A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.' - s.2(4) 'where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale'; - s.2(5) 'Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell'. - s.21(1) 'Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the sellers' authority to sell'; - Note that the Act is consistent with Scots law is that its concept of ownership is a unitary one; there is no scope for the passing of a lesser form of property right under the Act; - Note 'Market-Overt'; never part of Scots law and dropped by English law in 1994 (Lincoln's Inn pictures); note good faith purchase provisions in some European states (short positive prescription). **Comparing the DCFR**\ https://www.law.kuleuven.be/web/mstorme/2009\_02\_DCFR\_OutlineEdition.pdf\ See Book VIII, Acquisition and loss of ownership of goods; Chapter 2, Transfer of ownership based on the transferor's right or authority; 2:101, Requirements for the transfer of ownership in general; Consider 2:101 (1)(a)-(e) (2) & (3) as referred to in lecture; Note policy of DCFR in allowing alternative options of delivery or intention; by coincidence this represents what is familiar in terms of the common law and SOGA in Scots law.  **Three models**\ Common law;\ SOGA (1893, now 1979);\ DCFR -- not law, only advisory;\ Note that the common law (requiring an act of delivery) applies to the contracts of exchange and gift;\ The common law may also apply in the case of a failed contract of sale on the basis of an effective act of transfer (abstract approach) -- sale/gift misunderstanding; no contract but an agreed position that property should pass;\ Note case of Cuthbertson v Lowes (1870) 8 M 1073 as one in which the abstract approach might have been applied **Chief Constable of Strathclyde v Sharp 2002 SLT (Sh Ct) 95; considered in (2003) 7 EdinLR 221**\ In July 1998 Mr Sharp reported the theft of his Porsche 911 from the driveway of his home; he also reported the theft to his insurers and passed to them the registration documents and two sets of keys. The police noted marks on Sharp's driveway which raised the possibility of removal by low-loader. (Sharp was charged with attempted insurance fraud but the procurator fiscal decided against proceeding.) Soon after removal of the car one McMillan came into possession of the car by cash purchase from a third party. It had false registration plates and no documentation, a key but no alarm control device. McMillan became a convert to good sense when he discovered that the car was on a police stolen property list. Following his report the police took custody.\ To resolve the question of ownership the Chief Constable raised a multiplepoinding (multiple-pinding) action in the sheriff court against Sharp, McMillan and the insurers. The court found in favour of Sharp, apparently on the basis that there could be no derivative acquisition in the circumstances. On appeal the Sheriff Principal invoked the presumption and found that while Sharp succeeded in proving ownership he failed to show that his loss of possession was consistent with a right to recover; on this basis the lower court's decision was reversed and McMillan was found to be owner. **Further Illustrative Cases**\ Morrisson v Robertson 1908 SC 332;\ MacLeod v Kerr 1965 SC 253 (see W A Wilson "999 for Rescission" (1966) 29 MLR 442);\ Shogun Finance Ltd v Hudson \[2004\] 1 AC 919 (Edinburgh Law Review, February 20o5)\ All considered in DCM, Corporeal Moveables in Scots Law (2nd ed with David Irvine, 2005). **Defective Acquisition** **General Points**\ Re both heritable and moveable property;\ For a thing owned by A to be acquired by B, B must first get the right to become owner of the thing (contract stage) and then A must transfer his right to B (conveyance stage);\ In the context of a controlling distinction between real and personal rights, getting from A's real right of ownership to B's necessarily involves these two defining stages: (i) A (having the real right of ownership)\ conceding a personal right to B; (ii) A's real right transferred in recognition of B's entitlement claim against A;\ A technique point: in working out a transmission of property issue focus on the act of transfer; don't conflate or blur contract and transmission of property aspects;\ No transmission of 'right' deriving from void title because there is nothing to transmit (see Morrisson -- delivery of cows by rogue to good faith purchaser ineffective). **Material misrepresentation with implications for passing of property**\ Classic scenario of credit 'purchaser' who secures seller's intention to transfer on basis of misrepresentation (e.g. false claim as to credit worthiness, as in case of untrue claim of inheritance);\ Because seller intends to transfer property buyer acquires;\ But, because of misrepresentation, acquisition is defective; voidable at the instance of the seller;\ Pending seller's obtaining reduction of transfer buyer can pass property to subsequent onerous party in good faith -- i.e. one who gives value and is unaware of the defect in his/her seller's title;\ MacLeod case (transfer obtained by giving stolen cheque) is an example **Double Sales Problem ('Offside Goals')\ Key reading:**\ Defect of knowledge of prior sale; 'offside goals' metaphor (see generally, Reid, Property paras 695-700);\ 'Rodger (Builders) Ltd v Fawdry 1950 SC 483 INNER HOUSE ; see Wortley in Norrie (ed) 100 Cases Every Scots Law Student Should Know (2001) 79; see next slide;\ Alex Brewster & Sons v Caughey 2002 GWD 10-318 (full report:\ https://www.scotcourts.gov.uk/search-judgments/judgment?id=293287a6-8980-69d2-b500-ff0000d74aa7 )\ OUTER HOUSE **Offside goals** The offside goals rule is generally applicable rule of property law. It is not limited to heritable property transactions. Gretton and Steven consider it only be reference to cases involving heritable property but do not let that mislead you.\ See instead Ken Reid, Property at Para 695, citing Lord Kinloch in Morrison v Somerville: \'\[It has\] been long firmly settled in the law of Scotland, that, wherever an individual becomes bound to sell to one party, and another, in the knowledge of that obligation, takes a second right, this second right is ineffectual and reducible in a quest ion with the first purchaser. The principle is an obvious and equitable one. In granting a second right, the seller is guilty of fraud on the first purchaser. Against the seller himself the transaction would be clearly reducible. But, in taking the second right i n the knowledge of the first, the second disponee becomes an accomplice in the fraud, and the transaction is reducible against both alike. The principle is equally applicable regarding moveables as to heritage, and has been applied in both cases indiscriminately\' **Offside goals**\ Reid states "In his final sentence Lord Kinloch indicates that the rule applies to property of all kinds, whether heritable or moveable, corporeal or incorporeal, and it is thought that the position has not been altered in the case of corporeal moveables by the passing of the Sale of Goods Acts 1893 and 1979. The reported cases are, however, exclusively concerned with heritable property."\ This focus is perhaps explained by two considerations -- the fact that in re the transfer of ownership in moveables, statute -- in the form of SOGA regulates the process, whereas in heritage the importance of the land register is paramount.\ Here there is something I would like to clarify. In a G→G1 'sale' of 'goods' then property passes as per SOGA ss.17&18 (property passes when intended to pass, and the rules for ascertaining intention), therefore, where no alternate intention is manifest property passes to G1 and any subsequent disposal G→G2 would be subject to nemo dat rendering offside goals irrelevant. **Facts of Rodger (Builders)\ ** Owner Fawdry sold mansion and land to Rodger (Builders) on 9 July 1947 with settlement agreed for 11 November (reciprocal contractual obligations);\ 3rd party Bell, aware of sale, indicated his interest to Fawdry's lawyer;\ Rodger (Builders) having failed to perform as agreed, on 28 November Fawdry entered new contract with Bell, both parties being aware that Rodger was present and wanting to see Fawdry;\ Rodger had a cheque for the price; Fawdry intimated rescission, Rodger rejected;\ Disposition delivered to Bell in exchange for price on 22 December, Sasine registration on 23 December;\ Rodger sought to reduce conveyance to Bell on the basis of bad faith;\ Court of Session held that Rodger was entitled to reduction of conveyance to Bell and conveyance in its (Rodger's) favour. **Lord Justice-Clerk Thomson in Rodger (Builders)\ **Lord Justice-Clerk Thomson stated in Rodger Builders Ltd v Fawdry that: The appellants assumed that their title would be safe once the goal of the Register House was reached. But in this branch of the law, as in football, offside goals are disallowed. In certain states of knowledge, a purchaser is regarded as not being in good faith and goes to the Register House at his peril. Where, as here, Mr Bell and his advisers knew that a prior contract had existed and that the Rodgers were asserting that it still existed, they took the risk of the Rodgers being right when they themselves went to the Register House. The Rodgers having been shown to have been right, Mr Bell is not allowed to rely on the registration which in the knowledge which he possessed he succeeded in obtaining. **Reid's statement of the rule\ The law in re offside goals is stated by Professor KGC Reid in The Law of Property in Scotland at paragraph 695:**\ Any attempt to identify a principle capable of explaining all the different manifestations of the rule is to some degree hazardous, but it is thought that the original analysis based on \'fraud\' remains correct, provided that \'fraud\' is not confined to its narrow modern meaning. In current legal language the principle is expressed more accurately by saying that what is required is the breach by the granter of an antecedent obligation which was binding upon him. Thus the situation envisaged is that a granter undertakes, expressly or by implication, that he will not make a particular grant; nonetheless he makes the grant; and the grantee, either knowing of the obligation or failing to take for value, is affected by it.\ Professor Reid continues:\ In order for the rule\... to operate it appears that all of the following must be shown, namely:\ (1) That there was an antecedent contract or other obligation affecting the granter;\ (2) That the grant was in breach of a term, express or implied, of that obligation; and\ (3) Either that the grantee knew of the antecedent obligation prior to the completion of his own right or that the grant was not for value. **Facts of Alex Brewster**\ Agnes McKelvie (M) sold development land to Frank Caughey (C) subject to a suspensive condition regarding planning permission;\ Later C contracted with Alex Brewster & Sons (B) subject to the suspensive condition and conditions concerning payment by B direct to M and profit-sharing with him (C) if they (B) sold on;\ Almost 2 years later appeared that B was not going to proceed and C assigned his rights to a company Chelmwood Estates (CE) he established with a 3rd party director and himself (C) as agent. **Facts of Alex Brewster (cont)**\ On 6 April 2002 CE settled with M and the disposition was registered on 10 April;\ Also on 6 April B had told CE that they were ready to proceed;\ It was an issue whether CE knew about B's interest before its contract with M or only before registration;\ CE argued that its contract with M could be open to challenge as an 'offside goal' only on the basis of its knowing of B's interest at the time of the contract and that knowledge obtained after contract but before registration was too late;\ Lord Eassie found that CE knew of B's interest at the time of its contract with M but he also held, in an obiter dictum, that, in any event, knowledge acquired after contract but before registration gives an 'offside goal';\ This decision is controversial; it is seem by many as an unjustifiable extension of 'offside goals' but, arguably, it is consistent with the abstract system because the act of transfer can be affected by bad faith. **Difficulty and Differing Explanations**\ Perceived as personal right trumping real right; See Scott Wortley 'Double Sales and the Offside Trap' 2002 Juridical Review 291, Some say result can only be explained outside property law -- a delict? -- but this is unacceptable; Best explanation, 2nd purchaser's bad faith (see obiter of Lord Rodger in Burnett's Tr (2004 SC (HL)19 para 67) as disponee/transferee makes acquisition defective and open to reduction (i.e. being set aside) as a voidable title; Wortley (312-3) refers to this as the 'abstract system' approach **Difficulty and Differing Explanations (cont)** - It is the bad faith of the grantee -- i.e. the second grantee - that is important. In Professor Reid's Stair Memorial Encyclopaedia Property volume, at paras 695-700, he suggests that the doctrine is based upon civil law fraud, meaning bad faith, and that the original line in the case law had been that of punishing the Second Purchaser for his collusion with the seller in attempting to perpetrate a fraud upon the First Buyer - Scott Wortley's response to that is that an owner can always dispose of property that he or she owns (remember usus, fructis abutendi), and that this is why it is the bad faith of G2 that matters. In Burnett's Tr. V Grainger, Lord Rodger -- IN THE HOUSE OF LORDS -explained the rationale for offside goals thus: - Suppose that D, a purchaser from A, who was aware that she had previously sold and disponed the flat to B and C, deliberately tried to cut them out by recording his disposition before them. He would be regarded as not being in good faith and would therefore not obtain a valid title. The offside goals rule is criticised and there are those who argue for its abolition on basis that allows the holder of a personal right to trump the holder of a real right **Points to note**\ Contrast the situation of trustee on insolvency; see Lord Rodger in Burnett's Tr v Grainger 2004 SC (HL) 19 para 67 (noted in Carey Miller with Irvine, para 8.31); not a bad faith situation;\ Applicable system of registration is relevant to how a decree of reduction on the basis of a successful offside goal claim is given effect to.\ Remember Antony, Brutus and Cassius? That is a defective acquisition scenario in which offside goals IS relevant -- the facts in the scenario prevented SOGA from transferring property upon the conclusion of the (first) contract.\ I will put up a podcast in the next few weeks discussing the ABC scenario further. **Offside Goals further reading**\ ❑ Stair Institutions at I,14,5\ ❑ Gretton and Steven at 4.48 -- 4.51\ ❑ Wallace v Simmers 1960 SC 255 (offside goals only apply where the right could amount to a real right -- in Wallace the right could only at best have been a licence)\ ❑ Advice Centre for Mortgages v McNicoll 2006 SLT 591 (offside goals and leases)\ ❑ Optical Express (Gyle) Ltd v Marks and Spencer Plc 2000 SLT 644 (offside goals and leases)\ ❑ Trade Development Bank v Warriner & Mason (Scotland) Ltd 1980 SC 74 (offside goals and leases)\ ❑ Paisley and Cusine's Servitudes and Rights of Way in re OGF's and servitudes\ ❑ Greig v Brown 1829 7S 274 (Offside goals and leases) Usually right