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4 note the two formulations of the merits test better

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4. Note the two formulations of the merits test – ‘better equity’ and ‘prima facie first in time’ (favoured by the weight of authority) from Rice v Rice. 5. Under the latter, question is whether there is conduct that makes it inequitable as between the parties that the prior interest holder should retain priority 6. Identify any relevant act or omission on part of the first that contributed to misapprehension by the second that the prior interest did not exist. 7. Given that act or omission, what makes it inequitable that the first should have priority? Estoppel fits best with ‘arming’ cases – but need to find representation and detriment Reasonable foreseeability fits best in the ‘inconsistent interest’ cases. Was it reasonably foreseeable at the time of the relevant conduct that a subsequent interest would be created in the belief that the prior interest did not exist? 8. Consider relevance of failure to caveat in this framework, and in light of other protection eg possession of land, DCT. 9. Make out your argument, then consider if it would make any difference to your answer if you applied the ‘better equity’ formulation. Prior equity v Subsequent equitable 1. Personal equity: ‘A right to seek the assistance of a court of equity that is personal to the plaintiff‘. Distinguish from ‘mere’ equity (which is better than a personal equity, but still not a full equitable interest) (proprietary) 2. A proprietary equity is enforceable in rem, but not assignable. It is usually a right to an adjustment of property rights eg Inwards v Baker 3. What about an equity to set aside a transaction for fraud? Latec Investments v Hotel Terrigal 1. Latec was reg’d mortgagee of HT’s land. On default by HT, Latec exercised mortgagee’s power of sale. Latec fraudulently sold to SH, its wholly owned subsidiary, at an undervalue. SH became reg’d and gave MLC a floating charge over its assets (an equitable interest). But for MLC’s intervention, HT would have been entitled to set aside the sale to SH. Priority conflict between Latec’s equitable right to set aside the sale to SH, and MLC’s subsequent equitable interest 2. Two issues Was HT’s right to set aside the transaction for fraud an equitable interest or an equity? What priority rule applied if it was an equity? Majority (Kitto and Menzies) treated it as a mere equity for purposes of the dispute 3. What priority rule applies 44
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45 All 3 judges agreed that as between a prior equity and a subsequent equitable interest, the following rule applies: The holder of the subsequent equitable interest takes free of the prior equity if he or she is a bona fide purchaser for value without notice. On this rule, MLC took priority over HT 4. Mortgagee’s rights on default by mortgagor If mortgagor defaults in payment of principal or interest or in performance of any covenant and the default continues for one month, mortgagee can serve on the mortgagor a notice to pay under s 76(1) TLA
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