Re Nisbet and Potts Contract

Re Nisbet and Potts Contract [1906] 1 Ch. 386

ADVERSE POSSESSION – CONSTRUCTIVE NOTICE – LIMITATIONS – RESTRICTIVE COVENANTS – TRESPASS

Facts

N entered into a contract to sell a parcel of land to P. N’s title was possessory, the paper title having being defeated by a successful period of adverse possession several conveyances prior to the transaction in question. The contract required P to accept the possessory nature of the title. Unfortunately, N had not undertaken to investigate the title for the 40 years then required by conveyancing practice, and failed to discover N’s possessory title was subject to a restrictive covenant controlling building activities on the land. P was a builder and wished to take free of the covenant. P refused to complete the contract and the question arose whether the covenant was actually binding upon N; if so then P would be entitled to renege.

Issues

Whether a restrictive covenant affecting land, title to which had passed to a squatter under the doctrine of adverse possession, would bind that person; whether the effect of the s.34 of the Real Property Limitation Act 1833 (as amended) had the effect of extinguishing equitable rights, as well as the legal title of the paper owner; whether a purchaser of a squatter’s possessory title, in the absence of title guarantees, is fixed with constructive notice of equitable rights affecting the land in question.

Decision/Outcome

The Court of Appeal held that a restrictive covenant, as an equitable proprietary interest, is binding on all but a good faith purchaser for value without notice; it would not be defeated merely because the paper title had been extinguished. N was not such a purchaser. He had not investigated the title for the full forty year period and so had constructive notice of any interests that he would have discovered had he done so, including the restrictive covenant. N’s title was thus encumbered by the covenant and P was entitled to resile from the contract.