The Conveyancing Transaction: Position of the Parties After the Contract Stage:

Introduction:

In a previous note, we discussed the contract stage as one of the stages in the conveyancing transaction. It was explained that at the contract stage, the vendor does not actually transfer his interest in the land to the vendor; he merely agrees to transfer the interest.

In this note, we will discuss the positions of the purchaser and the vendor after the execution of a contract for the transfer of an interest in land.

Position of the Vendor After the Execution of the Contract for the Transfer of an Interest in Land:

After the execution of the contract for sale or transfer of an interest in land, the following happens with respect to the vendor:

1. He becomes a trustee for the purchaser.
2. He acquires a lien on the property for unpaid purchase money.
3. His death does not affect the completion of the contract.

These are now discussed.

1. The Vendor Becomes Trustee for the Purchaser:

In a previous note, it was emphasised that the contract for the sale or transfer of an interest in land does not actually transfer the interest in the land to the purchaser. Consequently, the vendor retains the legal title to the property. However, after the execution of the contract, the vendor holds the property as a constructive trustee for the purchaser.

A constructive trust is a type of trust that arises by the operation of law. In the case of Saaka v. Dahali [1984-86] 2 GLR 774, a constructive trust was defined as follows:

A constructive trust arises when, although there is no express trust affecting specific property, equity considers that the legal owner should be treated as a trustee for another. This happens, for instance, when one who is already a trustee takes advantage of his position to obtain a new legal interest in the property, as where a trustee of leaseholds takes a new lease in his own name. The rule applies where a person, although not an express trustee, is in a fiduciary position...A person receiving property subject to a trust ....becomes a constructive trustee if ... although he received it without notice of the trust, he was not a bona fide purchaser for value without notice of the trust, and yet, after he had subsequently acquired notice of the trust, he dealt with the property in a manner inconsistent with the trust.

According to Da Rocha and Lodoh in “Ghana Land Law and Conveyancing,” at page 117,

A constructive trust is a trust which arises independently of the intention of the parties but it is imposed by equity because the circumstances demand that the person holding the title to the property should be considered as a trustee. This trust usually arises by operation of equity where a fiduciary relation exists. A trustee or a person in a fiduciary relationship is not permitted to profit from his position. If therefore such a person obtains any valuable interest in the property he is holding on trust, equity decrees that he holds such an interest on a constructive trust for the beneficiaries.

After the contract for sale or transfer of the interest in the land is executed, the vendor continues to hold the legal interest in the land while the beneficial interest passes onto the purchaser in equity.

As trustee, the vendor must

1. Protect the property from injury or damage, and
2. Take reasonable steps to prevent its deterioration.

According to Da Rocha and Lodoh, this trusteeship only arises when the contract is specifically enforceable.

In the case of Amuzu v. Oklikah [1997-98] GLR 89-143, the Supreme Court of Ghana, speaking through Aikins JSC, stated that

The law is settled that the moment such a valid contract for sale is concluded the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the purchaser.

2. The Vendor Acquires a Lien on the Property for the Purchase Money which is Unpaid:

Per Black’s Law Dictionary, 9^th ed., a lien is

A legal right or interest that a creditor has in another's property, lasting usu. until a debt or duty that it secures is satisfied.

After the execution of the contract for the sale or transfer of the interest in the land, the purchaser comes under a duty to pay the purchase price and the vendor acquires a lien on the property for the purchase money which is unpaid. Among others, the vendor can apply to the court for an order restoring the property to him.

In the case of Amuzu v. Oklikah (supra), the Supreme Court stated that

The law is settled that the moment such a valid contract for sale is concluded the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficial ownership passes to the purchaser. However, the vendor has the right to the purchase money (a charge or lien on the estate for the security of that purchase), and also a right to retain possession of the property until the purchase money is paid, of course, provided there is no express contract as to the time of delivering possession

That is, for their lordships, the lien covers the purchase money and the property itself until the purchase money is paid.

3. The Death of the Vendor Does Not Affect the Completion of the Contract:

The vendor may die prior to transferring the interest in the land pursuant to the contract. Where that is the case, the position is that the contract must be carried out by the personal representatives of the vendor.

In the case of Bou-Chedid v. Yalley [1976] 2 GLR 258, one Miss Williams agreed to sell land to Yalley. Yalley paid the purchase price; however, a deed of conveyance, by which Miss Williams would have transferred the legal title to Yalley, was never executed. Miss Williams subsequently got married to the co-defendant and passed away shortly after, without executing the conveyance in favour of Yalley. Yalley, however, took possession of the land. Sometime in 1972, Yalley discovered that the defendants were building on the land and instituted an action for declaration of title to the land and for damages for trespass. The court examined the interest Yalley would have had if there had been a conveyance and the interest she had even in the absence of a conveyance:

What would have the conveyance achieved? The formal execution of the deed of conveyance was to have passed the legal estate in the land to the plaintiff but this did not happen through no fault of the plaintiff. The vendor had died and there was litigation over her estate. In the circumstances prevailing at the time, the plaintiff could not call upon any person to execute the deed. However, she was in effective possession and could only rely on her equitable title. Notwithstanding her possession and her equitable title which could be converted into a legal estate, if she had chosen to go to a court of equity for specific performance, the co-defendant, fully aware of her vested rights, commenced to build on the land. The reason is not difficult to find. The absence of a deed of conveyance was construed by the co-defendant as an uninhibited licence to commit trespass.

That is, the conveyance would have given Mrs Yalley a legal title to the land, but in its absence, she had an equitable title to the land or was considered an equitable owner of the land. This equitable title was of such a nature that it could be converted into a legal title.

Position of the Purchaser After the Execution of the Contract for the Transfer of an Interest in Land:

After the execution of the contract for sale or transfer of an interest in land, the following happens with respect to the purchaser:

1. He becomes a beneficial owner of the property.
2. He acquires an equitable lien in the property for any money paid to the vendor.
3. His death does not affect the completion of the contract.

These are now discussed.

1. The Purchaser Becomes the Beneficial Owner of the Property:

It was highlighted above that the vendor becomes a trustee for the purchaser after the execution of the contract. In the same vein, the purchaser becomes the beneficial owner of the property after the execution of the contract. In Black’s Law Dictionary, 9th ed., a beneficial owner is described as

One recognized in equity as the owner of something because use and title belong to that person, even though legal title may belong to someone else; esp., one for whom property is held in trust

That is, the vendor retains the legal title while the purchaser gains the equitable title, as held in Bou-Chedid v. Yalley (supra).

According to Da Rocha and Lodoh, the purchaser, as beneficial owner, must bear any depreciation in the value of the property or any losses which cannot be attributed to any default on the part of the vendor. For instance, if the contract is for the sale of a house and the house burns down after the execution of the contract but before completion, the purchaser must complete the purchase and pay the full purchase price as agreed.

2. The Purchaser Acquires an Equitable Lien in the Property for any Money Paid:

In Black’s Law Dictionary, 9th ed., an equitable lien is defined as

A right, enforceable only in equity, to have a demand satisfied from a particular fund or specific property, without having possession of the fund or property. It arises mainly in four circumstances:

1. when an occupant of land, believing in good faith to be the owner of that land, makes improvements, repairs, or other expenditures that permanently increase the land's value,
2. when one ! of two or more joint owners makes expenditures of that kind,
3. when a tenant for life completes permanent and beneficial improvements to the estate I begun earlier by the testator, and
4. when land or other property is transferred subject to the payment of debts, legacies, portions, or annuities to third persons.

Upon the execution of the contract of sale, the purchaser has an equitable lien on the property for any money paid to the vendor until a conveyance is made to him. Among others, the purchaser may sue to be given possession of the property.  

3. The Death of the Purchaser does not Affect the Completion of the Contract:

If the purchaser dies before the completion of the contract, his personal representatives can sue and be sued on the contract of sale.

Conclusion:

This note reveals the importance and essence of a contract for the sale or transfer of an interest in land. After the execution of such a contract, the vendor becomes a trustee for the purchaser, who becomes a beneficial owner. The vendor also acquires a lien for the purchase money which is unpaid, and the purchaser also acquires an equitable lien. Finally, the death of either of the parties does not affect the completion of the contract.

In a subsequent note, we will discuss the remedies available to the parties for breach of contract.