A purchaser takes free of an equitable interest only if he gives value and takes without notice
A worked RES examination question on interests classification, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.
The question
A property is transferred in three ways in the same year. In the first, it is sold to a buyer who pays the market price and knows nothing of an equitable interest affecting it. In the second, it is given outright to a relative. In the third, it passes to a beneficiary under a will.
Consider the following statements.
- (i) The paying buyer takes free of the equitable interest.
- (ii) A person must both give value and take without notice to do so.
- (iii) The relative receiving the gift takes free of it.
- (iv) The beneficiary under the will takes free of it.
The answer, and why
Answer: C
The rule. A purchaser takes free of an equitable interest only if he gives value and takes without notice. A donee and a beneficiary give no value.
Why C is correct. (i) and (ii) hold. (iii) and (iv) are false.
The other options.
- B, A and D each admit the donee or the beneficiary.
Exam note. Both limbs are required. Someone who pays nothing cannot take free however innocent.
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