I understand that, as a student, Professor Rennie was known to miss the occasional conveyancing class in order to play football. This siren call is not the only danger that the beautiful game has posed for Scots property law.
It also gave us a name, and a dubious metaphor, for the so-called offside goals rule.
Few areas of Scots property law have attracted as much modern scholarly interest.1 One of the reasons why the rule might appear unworthy of the fuss is the simplicity with which the core case may be stated. The classic instance is double sale: Alfred concludes a contract for the sale of his field to Betty; before Betty has obtained her real right, Alfred sells it a second time to Cecil, who registers first. The offside goals rule says that, if Cecil was in bad faith, the transfer to him is voidable at Betty’s instance. Betty can also set aside a gratuitous transfer to Cecil even if he is in good faith.
1 D Carey Miller, “A Centenary Offering: The Double Sale Dilemma – Time to be Laid to Rest” in M Kidd and S Hoctor (eds), Stella Iuris: Celebrating 100 years of the teaching of law in Pietermaritzburg (2010) 96; R G Anderson, Assignation (2008) paras 11-04-30; D L Carey Miller with D Miller. Corporeal Moveables in Scots Law, 2nd edn (2005) paras 8.28-32; D A Brand, A J M Steven and S Wortley, Professor McDonald’s Conveyancing Manual, 7th edn (2004) paras 32.52-62; S Wortley, “Double Sales and the Offside Trap:
Some Thoughts on the Rule Penalising Private Knowledge of a Prior Right” 2002 JR 291; K G C Reid, The Law of Property in Scotland (1996) paras 695-700. Professor Rennie has perhaps been a little sceptical about the attention lavished on it, observing that
“the rule against offside goals has become quite fashionable recently.” R Rennie “Land Registration and the Decline of Property Law” (2010) 14 Edin LR 62 at 74.
© John MacLeod, CC BY 4.0 http://dx.doi.org/10.11647/OBP.0056.07
There is broad consensus on the basic elements. A grant is voidable under the offside goals rule if:
(i) the granter was under a prior obligation to grant a real right to the avoiding party, which obligation gave rise to a concomitant obligation not to alienate or burden the property;
(ii) the grant was made in breach of the prior obligation;
(iii) the grantee knew of the obligation or the grant was not for value.2
If the rule can be briefly stated and there is agreement about its content, why are Scots property lawyers so concerned about it? One reason is that it bears on the discussion of the relationship between real and personal rights which was at the centre of Scots property law discourse at the turn of the 21st century. In particular, it threatens to undermine the clear distinction between real and personal rights established in Burnett’s Trustee v Grainger.3 The rule appears to run contrary to the maxim prior tempore potior iure est.4 The puzzle is to explain how a party with a real right can be vulnerable to a challenge brought by someone with a mere personal right.
A. Mala Fides, Personal Bar and the Publicity Principle
Although the topic was addressed during the foundational period in the seventeenth and eighteenth centuries,5 modern discussion begins with Rodger (Builders) Ltd v Fawdry6 which offers little consideration of the basis of the rule. Lord Jamieson, giving the leading judgment, was content to rely on three nineteenth-century cases where the rule had been applied and to observe that the purchaser was in bad faith.7
In the first of these, Marshall v Hynd,8 the judges’ primary concern was the level of knowledge needed to put the second purchaser in bad faith.
2 Reid Property para 695, approved in Advice Centre for Mortgages v McNicoll 2006 SLT 591 at para 46.
3 2004 SC (HL) 19. For a summary of this debate, see the Scottish Law Commission Report on Sharp v Thomson (SLC No 208, December 2007) Part 1.
4 For a very forceful statement of this view, see Anderson Assignation paras 11-05 and 11-30.
5 Anderson Assignation paras 11-06-23.
6 1950 SC 483.
7 1950 SC 483 at 500, citing Marshall v Hynd (1828) 6 S 384, Petrie v Forsyth (1874) 2 R 214 and Stodart v Dalzell (1876) 4 R 236.
8 (1828) 6 S 384.
If knowledge is to constitute bad faith, there must be some rule which explains why the party with the knowledge should have acted differently.
This issue was addressed in the third case mentioned in Rodger (Builders), Stodart v Dalzell, where Lords Ormidale and Gifford suggested that the second purchaser’s knowledge of the prior right meant that he was not entitled to rely on the faith of the records regarding his seller’s right.9
These authorities make Lord Gifford’s characterisation of the rule as a species of personal bar in the second of the three cases, Petrie v Forsyth, understandable.10 On this model the first buyer has acquired a right, albeit not one which has been published. Under normal circumstances, that right could not be invoked against second buyer who had registered because the latter could invoke the faith of the records. However, the second buyer’s knowledge of the right means that he is barred from making this argument since he knew better. As Reid and Blackie point out, however, personal bar is difficult to maintain in this context because of the absence of inconsistent conduct by the second buyer.11
Even if the language of personal bar is eschewed, a rule which restricts reliance on the register to those who are in good faith is conceivable.
Indeed such rules exist in the Land Registration (Scotland) Act 2012.12 Wortley makes tentative moves towards such an analysis with his suggestion that the basis of the offside goals rule might lie in an aspect of the publicity principle: “the publicity principle is not merely there to protect third parties: in certain circumstances, it can also be used to penalise them.”13
The difficulty with this approach is that the act of publicity (be it registration, intimation or delivery) is not merely a mechanism for making a transfer known. It is constitutive of the transfer. Until that act is completed, ownership remains with the seller and the first buyer’s right is merely personal. The first buyer has no proprietary interest of which third parties could have notice. This stands in contrast to the good faith requirements
9 (1876) 4 R 236 both at 242. Similar comments were made by Lord Kinloch in Morrison v Somerville (1860) 22 D 1082 at 1089 and by Lord Jamieson in Rodger Builders 1950 SC 483 at 500.
10 (1874) 2 R 214 at 223.
11 E C Reid and J W G Blackie, Personal Bar (2006) para 2-08. See further J W G Blackie,
“Good Faith and the Doctrine of Personal Bar” in ADM Forte (ed) Good Faith in Contract and Property Law (1999) 129 at 147-60.
12 E.g. Land Registration (Scotland) Act 2012 s 86, particularly paragraph (3)(c).
13 Wortley (n 1) at 314.
in the 2012 Act,14 which cover cases where the Land Register misstates the relevant real rights.
In that context, an argument based on the faith of the records or the publicity principle might have difficulty answering Lord Low’s objection:
“Assuming that they knew of the obligation, they knew also that it did not affect the lands.”15 Like its correlative right, the seller’s duty is personal. The second buyer might argue that his knowledge of it was irrelevant because the obligation of which he knew did not bind him. Further, arguments about publicity or personal bar offer little in the way of an explanation for why a gratuitous transferee who was ignorant of the earlier transfer should be vulnerable.16
B. Mala Fides and the Transfer Agreement
Carey Miller suggests that the import of the second buyer’s bad faith can be explained, not by reference to the publicity principle but by invoking the principle of separation of contract and conveyance.17 This principle recognises transfer as a distinct juridical act requiring intention on the part of transferor and transferee. Carey Miller argues that the second buyer’s bad faith means he has a defective intention to acquire, which renders his right voidable.18
Carey Miller employs an unusual understanding of intention.
Both seller and second buyer wish the transfer to take place and, on a conventional view of intention, that would be enough. At the time of the transfer their wills are directed to that end. The fact that they know it to be wrong does not affect this intention. A poacher has a sufficient animus acquirendi, although he knows that he is committing a crime.19 Further,
14 Land Registration (Scotland) Act 2012 ss 86-93.
15 Morier v Brownlie & Watson (1895) 23 R 67 at 74.
16 E.g. Alexander v Lundies (1675) Mor 940.
17 Wortley describes Carey Miller’s analysis as an “abstract system approach” (Wortley (n 1) at 312), a characterisation which Carey Miller accepts (“A Centenary Offering” at 96). However, the analysis turns on the need for a real or transfer agreement. A transfer agreement might be necessary even in a system which also requires a valid causa for the transfer. Therefore, it seems marginally preferable to see the analysis as resting on the principle of separation.
18 Carey Miller Corporeal Moveables para 8.28. See also para 8.30 and Carey Miller (n 1) at 19 Erskine, 114. Inst 2.1.10.
the vices of consent, such as fraud and force and fear, operate for the protection of one of the parties to a transaction where his consent has been improperly obtained. What is being suggested here is something completely different: both parties give free and informed consent and it is a third party who needs the protection.
A second problem with Carey Miller’s analysis is a variant of the problem with the publicity principle argument. Even if bad faith can affect intention to acquire, some explanation of why the knowledge amounts to bad faith is needed. As noted above, knowledge only constitutes bad faith when coupled with a rule explaining why the knowledge should have made you act differently.
As for the gratuity case, Carey Miller addresses this in straightforward policy terms, suggesting that the reason is simply that “a party who fails to give value should not trump a competing party with an earlier right.”20 This approach has intuitive appeal. The law of transfer is primarily geared towards the needs of commerce and thus of onerous transferees. Donees are not worthy of this protection.
Once again, however, a little more seems necessary. Suppose Donna makes a written promise to David that she will convey a field to him.
The next day, she concludes a contract with Betty for the sale of the same field. Foolishly, Betty pays up front. On the third day, Donna delivers the disposition to David who duly registers it. Betty clearly has a right against Donna for breach of contract but David is safe. The story would be different if Betty’s missives had been concluded on Day 1 and the promise to David made on Day 2. If the basic idea behind the vulnerability of donees under the offside goals rule is that they are less worthy of protection than onerous transferees, it is difficult to see why Betty should be worse off because the promise happened to come first. To say that David has the earlier right is to fall into the error which underlies the personal bar analysis: the idea that some kind of proto-property right is acquired before completion of the transfer of which the act of transfer merely gives notice. All David has on Day 1 is a personal right against Donna. Similarly, if the gratuity case is explained by lack of sympathy for donees, why can a promisee invoke the rule against later donee?21
20 Carey Miller Corporeal Moveables para 8.32.
21 E.g. Alexander v Lundies (1675) Mor 940.
C. Mala Fides and Fraud
The difficulties with the publicity principle and the transfer agreement as bases for the offside goals rule drive analysis back to an earlier approach.
The nineteenth-century cases cited in Rodger (Builders) marked a shift in the analysis of the rule. Up to that point, it was thought to rest on fraud.
Seatoun v Copburnes,22 decided in 1549, is probably the first recorded case which can be understood in terms of the offside goals rule. Lady Seatoun sought to reduce an infeftment given to James Copburne by his father. She argued that, prior to that sasine, she and the priests and college of the Kirk of Seatoun had bought an annualrent23 of the lands from the father. Lady Seatoun alleged that infeftment on the annualrent had been completed, so she might have relied on her prior real right but she chose not to do so.
Instead she suggested that “the said laird in manifest defraud of the said lady and preistis dolose infeodavit suum filium in suis terris, and sua, said scho [i.e. she], that that alienatioun in dolo et fraude (ut predicitur) facta de iure erat retractanda.” In other words, she sought reduction of the infeftment on the basis that it was granted in fraud of her right to the lands.
Fraud also played a key role in the first major scholarly discussion of the offside goals rule: Stair’s treatment of resolutive conditions in contracts of sale. A resolutive condition is a term which purports to make the property revert to the transferor in given circumstances. Stair’s view was that such conditions had no proprietary effect. The transferee merely had an obligation to reconvey if the condition occurred. This raised the question of the effect of the obligation on third parties who obtained the property from the transferee. Although the origin of the obligation to convey differs from double sale, the end result is the same: an alienation in breach of an obligation to grant a real right to someone else.
As with Seatoun v Copburnes, Stair analyses the situation in terms of fraud:24
…though there may be fraud in the acquirer, which raiseth an obligation of reparation to the party damnified by that delinquence, yet that is but personal;
22 (1549) Sinclair Practicks n 459.
23 I.e. a subordinate real right, giving the holder a right to an annual payment from the owner of the burdened property.
24 Stair, Inst 1.14.5. He does go on to consider whether the 1621 Act might apply to gratuitous alienations of property subject to a resolutive condition but concludes that the law is not clear. It would later become firmly established that insolvency at the time of the grant was a prerequisite of such a challenge.
and another party acquiring bona fide or necessarily, and not partaking of that fraud, is in tuto. But certain knowledge, by intimation, citation, or the like, inducing malam fidem, whereby any prior disposition or assignation made to another party is certainly known, or at least interruption made in acquiring by arrestment or citation of the acquirer, such rights acquired, not being of necessity to satisfy prior engagements, are reducible ex capite fraudis, and the acquirer is partaker of the fraud of his author, who thereby becomes a granter of double rights; but this will not hinder legal diligence to proceed and be completed and become effectual, though the user thereof did certainly know of any inchoate or incomplete right of another.
Certain elements of the analysis are worthy of particular note: the idea that the primary wrong is done by the granter (referred to as the acquirer because of the context of a resolutive condition); that the successor is only vulnerable if the prior right is known of and that the basis of this is not his own fraud but participation in the granter’s fraud. As with his general analysis of fraud,25 Stair characterises the vulnerability of a transaction affected by fraud in terms of a personal right to reparation from the wrongdoer.
D. Is Fraud a Broad Enough Concept to Account for the Offside Goals Rule?
As Anderson and Reid show,26 the fraud analysis persisted until the nineteenth century. Indeed references to it can also be found in the later cases, existing alongside arguments based on publicity or personal bar.
Thus, in Morrison v Sommerville, Lord Kinloch gives a classic fraud-based analysis:27
In granting a second right, the seller is guilty of fraud on the first purchaser.
Against the seller himself the transactions would be clearly reducible. But, in taking the second right in the knowledge of the first, the second disponee becomes an accomplice in the fraud, and the transactions is reducible against both alike.
25 Stair, Inst 1.9.9-15.
26 Reid Property para 695; Anderson Assignation 11-06-23.
27 (1860) 22 D 1082 at 1089. This analysis is reflected in the issue which the Inner House appointed to be put to the jury: “whether, in violation of a previous minute of agreement, dated 7th October 1850, No 8 of the process, the said disposition was granted fraudulently by the said George Somerville, and was taken fraudulently by the said John Craig Waddell, in the knowledge of the said previous agreement, and in defraud of the pursuer’s rights under the same.” (1860) 22 D 1082 at 1090.
In Petrie v Forsyth, Lord Neaves proceeded on the basis that the second purchaser’s conduct was fraudulent.28 However, Lord Gifford took a different approach, distinguishing between fraud, mala fides and “mere knowledge.”29 He concluded that what was needed was knowledge sufficient to put the second purchaser under a duty to contact the first.
Lord Gifford clearly considered this to fall short of fraud. On such a model it is difficult to see how fraud can form the basis for the doctrine.
A similar line of reasoning is articulated by Lord Drummond Young in Advice Centre for Mortgages:30
The theoretical basis for the foregoing principle is not discussed in any detail in the decided cases, perhaps because its practical application is very obvious, at least in simpler cases. The origins of the principle seem to lie in the concept of fraud in its older sense. This is not the modern sense, involving a false representation made knowingly, but rather consists of actings designed to defeat another person’s legal right. Nevertheless, the law has moved away from the concept of fraud. In Rodger Lord Jamieson said: “[F]raud in the sense of moral delinquency does not enter into the matter. It is sufficient if the intending purchaser fails to make the inquiry which he is bound to do. If he fails he is no longer in bona fide but in mala fide.” Thus implied or constructive knowledge, just as much as actual knowledge, will bring the principle into operation and render the second purchaser in mala fide.
The discomfort with fraud as a rationale is also evident in academic analysis: Kenneth Reid is careful to specify that “the original analysis based on ‘fraud’ remains correct, provided that ‘fraud’ is not confined to its narrow modern meaning.”31 Wortley goes further, seeming to regard the second purchaser’s liability in cases of mere knowledge of the prior right as being more than a fraud-based justification can support.32 Dot Reid views offside goals as part of the law of fraud, specifically of secondary fraud, but suggests that this is a survival of the older, broader view which was heavily dependent on the concept of inequality derived ultimately from scholastic thinking. This leaves the offside goals rule in the law of obligations but outside the established categories of enrichment or delict.33
28 (1874) 2 R 214 at 221.
29 Ibid at 223.
30 2006 SLT 591 at para 44.
31 Reid Property para 695.
32 Wortley (n 1) at 301.
33 D Reid “Fraud in Scots Law” (PhD Thesis, University of Edinburgh, 2012) ch 7, esp pp 243-44 and 250-51.
The doubt stems from the interaction of two developments. First, there is the sense that while Scots law took a broad view of fraud in the
The doubt stems from the interaction of two developments. First, there is the sense that while Scots law took a broad view of fraud in the