Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044

Facts

  • Mr. and Mrs. Lyus entered into a contract with Prowsa Developments Ltd to purchase a plot of land.
  • Before the sale to the Lyuses could be completed, Prowsa Developments Ltd sold the same land to a third party.
  • The third-party purchaser was aware of the Lyuses' prior contract regarding the property.
  • Mr. and Mrs. Lyus sought to enforce their contractual rights against the third-party purchaser, who was not a party to the original contract.

Issues

  1. Whether a purchaser of land with notice of a prior contractual obligation is bound by that obligation despite not being a party to the original contract.
  2. Whether the doctrine of constructive trust applies to bind such purchasers in equity.
  3. Whether the absence of bona fide purchaser status affects enforceability of prior contractual rights.

Decision

  • The Court of Appeal held that a transferee or purchaser of land with notice of prior contractual rights can be bound by those rights, even if not a party to the original agreement.
  • The court found that the doctrine of notice extends to both legal and equitable interests, including purely contractual rights if certain conditions are met.
  • The purchaser who took the land with notice of the Lyuses' rights held the property on constructive trust for the Lyuses to the extent required to give effect to the contract.
  • The judgment confirmed that a bona fide purchaser without notice would not be bound, but here, notice was established.

Legal Principles

  • Contractual rights concerning land may be enforceable against third-party purchasers who have notice of those rights.
  • The doctrine of notice, rooted in equity, may bind a transferee to honour existing contractual obligations over the land.
  • A constructive trust may be imposed where property is transferred to a party with notice of a prior contract, preventing unjust enrichment.
  • Bona fide purchasers for value without notice are protected against such obligations.

Conclusion

Lyus v Prowsa Developments Ltd established that a purchaser who acquires land with notice of a pre-existing contractual obligation may be bound by that obligation under equitable principles, with the court willing to impose a constructive trust to protect prior contractual rights and uphold fairness in property transactions.

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