An analysis based on the wrongful nature of the second purchaser’s conduct faces obvious challenges in dealing with the case of gratuitous acquisition.76 Yet recognition that the seller’s conduct amounts to fraud means that the
“no profit from fraud” rule and the law of unjustified enrichment can be
74 See further MacLeod and Anderson “Offside Goals and Interfering with Play” at 94-95 and MacLeod “Offside Goals and Induced Breaches of Contract” 278 at 281-82.
75 1960 SC 255.
76 For examples of an offside goals challenge by a gratuitous acquirer, see Alexander v Lundies (1675) Mor 940 and Anderson v Lows (1863) 2 M 100.
invoked to explain the vulnerability.77 This rule presents its own challenges because of the indirect nature of the enrichment. However, this exception to the normal rule against recovering indirect enrichment can be explained as an extension of the fraud rule: had the donee known what was being done, he would have been bound to refuse the property. That being the case, it might be argued that he would act wrongfully in seeking to hold onto the property when he finds out the facts.78 The voidability of the grant enables the party who would be so-wronged to prevent this wrong from being done. Therefore, an obligation to reverse the enrichment is justified although the enrichment is indirect.
Of course, an onerous transferee in good faith may also discover later that he was an unwitting accomplice in the seller’s wrong, but in such a case the balance of policy is a little different. Such a transferee is not seeking to retain a pure enrichment but rather the benefit of a lawful bargain. Were it to be forfeited, he would be left with a claim for money and so exposed to the risk of the seller’s insolvency. Given the personal rights do not rank according to the rule prior tempore potior iure, there is no obvious reason why that burden should be shifted from the first buyer to the second when both were duped by the seller.
This analysis draws on the point made by Carey Miller regarding the relative lack of favour which the law shows to donees, but it gives a reason for allowing a donee whose personal right predates a right under an onerous contract to keep the property if he got his real right first. In that case, the donee was not an unwitting accomplice in any fraud because his author was perfectly entitled to make the promise at the time when he made it.
E. Implications of Fraud on Creditors as a Rationale
On the analysis suggested above, avoidance of the transfer gives effect to the first creditor’s delictual right to reparation against a second purchaser who acquired in bad faith. It does that by putting the second purchaser in the position he would have been in had the wrongful act not taken place.
The voidability of gratuitous grants is based on an analogous rule in the
77 Reid “Fraud in Scots Law” 243-49 and 256-58.
78 This idea of “incomplete dolus” which is completed at the time of enforcement has been deployed in the context of innocent misrepresentation: MacLeod “Fraud and Voidable Transfer” 48-50.
law of enrichment, which can be viewed as an extension of the fraud rule.
One advantage of this view is that it allows the offside goals rule to be set alongside the other instances of fraud on creditors. Once that is established, they can offer guidance on some of the contested issues surrounding the offside goals rule.
The implications for the relationship between offside goals and subordinate real rights have already been discussed but the fraud-on-creditors analysis also casts light on another point of contention: the time at which the grantee must be put in bad faith for the offside goals rule to apply. It was suggested obiter in Rodger (Builders) that a buyer who was in good faith when missives were concluded but who discovered the prior right before registration of the disposition would be vulnerable.79 This view was followed by Lord Eassie in Alex Brewster & Sons v Caughey,80 whose decision was, in turn, endorsed by Lord Rodger in Burnett’s Trustee v Grainger.81 Lord Rodger took pains to explain why the position of the trustee in sequestration was distinguishable from that of a second buyer in an offside goals case. That was necessary because of his view that a second buyer who hears of a prior right must stand aside for the first purchaser whereas there is no such obligation on the trustee.
Despite its high authority this seems to be wrong in principle and has rightly been subject to academic criticism.82 A clue as to why it is wrong can be found in the extract from Stair which Lord Rodger gave to distinguish between the position of the trustee or the creditor doing diligence and the second purchaser:
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.83
While the general rule is that a bad faith acquirer will be vulnerable as a partaker in his author’s fraud, the rule does not apply to those who
79 1950 SC 483 at 500 per Lord Jamieson.
80 Unreported, 2 May 2002. Available at http://www.scotcourts.gov.uk/opinions/EAS0904.
81 2004 SC (HL) 19 at para 142.html 82 Anderson Assignaton paras 11-24-31.
83 Stair, Inst 1.14.5, cited 2004 SC (HL) 19 para 142.
acquire “of necessity to satisfy prior engagements.” As Lord Rodger rightly observed, the trustee in sequestration and creditors doing diligence may readily be considered to fall into this class.
However, Lord Rodger neglects the fact that, once a purchaser has concluded his contract with the seller, he too is a creditor84 and takes “of necessity” because, like other creditors, taking an asset is the only way that he can ensure that his right is fulfilled. Indeed, it might be argued that the necessity affecting a purchaser is more pressing than that affecting a creditor who is owed money. It makes no difference to the latter which of the debtor’s assets is sold provided that it raises sufficient funds to pay the debt. A purchaser’s right, on the other hand, can only be satisfied by transfer of the asset he contracted to buy.
The point becomes clearer after reflection on other cases for fraud on creditors in the context of insolvency and of inhibition. It is no fraud to accept what you are owed and that is all that a buyer who registers with supervening knowledge of a prior contract does. There is an unavoidable conflict of rights and, in such a situation, each person is entitled to look to his own interests. The purchaser who knows of the prior contract before he concludes his own contract is in a different position because he can avoid the conflict of rights by not agreeing to buy the property.
F. Summary
The analysis in this chapter has suggested that the offside goals rule is best understood as an instance of the law’s response to fraud on creditors.
Avoidance is natural restitution, giving the defrauded creditor reparation for the wrong. Like the other instances of fraud on creditors, grantees may be liable as participants in the fraud (where they are in bad faith) or on the basis of an enrichment rule which prevents the completion of an incomplete dolus (where the grant is gratuitous).
Categorisation of the rule as an instance of fraud on creditors suggests that avoidance on the basis of the offside goals rule is ad hunc effectum, with the scope of the reversal being defined by what is necessary to allow the defrauded creditor satisfaction by obtaining a real right in the relevant property. This factor explains both how the offside goals rule can protect
84 R G Anderson “Fraud and Transfer on Insolvency: ta … ta… tantum et tale” (2004) 11 Edin LR 187 at 202.
a personal right to a subordinate real right and why the rule is limited to personal rights to real rights. The fraud-on-creditors rationale also implies that a creditor who was in good faith when he acquired his personal right is entitled to pursue satisfaction of that right even if he discovers a conflicting personal right before he gets his real right.
Painful though it is for an academic to admit it, skipping those conveyancing classes does not appear to have done any harm to Professor Rennie’s grasp of Scots property law. The Scots lawyer can handle a little football and, it appears, Scots law can handle the offside goals rule too.