On the principle of public faith of land registers in a comparative context

I. Preliminary remarks

The institution of public faith of land registers is one of the fundamental principles of the Polish land register system. It is closely connected with the principle of material publicity of land register. Polish legislation has adopted these principles in order to ensure a stable position and guarantee protection of third parties acting in good faith, which means that in the case of competition between the interests of the owner or other persons who have rights to real estate not disclosed in the land register and the interests of third parties – the land register regulations ensure, through the indicated instruments, strong protection of the latter^[2].

In spite of such a significant meaning of this principle, so far it has not become the subject of more extensive comparative research in the Polish literature^[3]. Meanwhile in world literature much attention is paid to the issue of public faith of land registers. The degree of realization of this principle within particular jurisdictions even serves as a criterion for classification of functioning land registers, which are divided into so-called positive versus negative registers^[4], as well as registers including or resigning from the condition of good faith as part of the protection granted to persons acting in confidence in their content (notice versus race registers).

80The aim of this article is an attempt to characterize typical model solutions relating to the issue of character and degree of realization of the principle of public faith of land registers, taking into account a broad comparative perspective. Conducting further research, however, is conditioned on making certain preliminary assumptions, which include:

1. For the purposes of this article, the term “land register” is taken to mean a public register containing information to establish the legal status of real estate, including in particular data on ownership relationships, encumbrances and restrictions on disposal for the purposes of civil law real estate transactions. This term, although characteristic of the common law system, allows for a broader perspective, not limited to e.g. ground books (within Grundbuch model)^[5].

2. The assumption that the norms binding in different legal jurisdictions concerning the system and substantive legal principles of land registers in the above meaning often show significant similarities. These norms, for the purposes of research can be reduced to a few models, and in this paper four most important (also in the context of geographical range) models of registers will be analyzed, i.e. derived from the common law tradition: deeds recordation model, functioning in the vast majority of states of the USA^[6] and Anglo-Australian model of title registration^[7], as well as characteristic for the continental legal tradition: the Central European Grundbuch model^[8] and the model of transcription rooted in the tradition of Napoleon’s Code^[9].

At this point, it should be emphasized that the principle of public faith of the land register, as an instrument for protection of the real estate trade, is generally ac81cepted under all the mentioned register models^[10]. However, it is worth emphasizing that the practical significance of this principle increases in models which grant registration only declaratory significance. Consequently, in the deeds recordation and transcription models, which assume only declaratory effect of registration, its operation is the basic justification for the functioning of land registers. On the other hand, in the Grundbuch model, the complementary character of this principle is seen in relation to other instruments for securing the real estate trade, such as e.g. participation of notaries in documenting the trade or the principle of constitutive registration and universality of land register, limiting the risk of discrepancies between the legal status revealed in the register and the actual legal status. On the other hand, the assumptions of the title registration model with regard to this principle are ambivalent. On the one hand, at the core of the model is the granting of an indisputable character to the content of the register, which theoretically eliminates the possibility of its contradiction with the actual legal state (indefeasible title). This counterfactual assumption, however, gives way to the principle of a public guarantee of the registered right, making it possible to acquire the right both from an unauthorized person and in a state free of unregistered third-party interests.

With these initial assumptions in mind, further analysis will be carried out taking into account the following research problems:

1. the relationship between the principle of public faith of the land register and the principle of nemo plus iuris ad alium transfere potest quam ipse habet,

2. material and personal prerequisites for the operation of the principle of public faith of the land register,

3. the legal implications of the operation of the principle of public faith of the land register.

The concluding remarks will be devoted to a brief summary of the comparative research conducted in this work and an attempt to answer the question whether it is appropriate and justified to value the different legal solutions operating within the framework of the various land register models.82

II. Relationship between the principle of public faith of the land register and the principle nemo plus iuris ad alium transfere potest quam ipse habet

The literature on the public faith of land registers traditionally distinguishes between the negative aspect of this principle, according to which protection is afforded to persons acting in reliance on what is not disclosed in the register, but what should – according to the applicable law – be reflected in it (Was nicht eingetragen ist, gilt nicht), and its positive aspect, according to which protection should be afforded to persons relying on what is disclosed in the register (Was eingetragen ist, gilt)^[11]. In other words, the negative aspect of the principle means that, in the event of a transfer of a right in real estate, its purchaser acquires it free of any unregistered encumbrances and restrictions. The positive aspect, on the other hand, means that the purchaser may acquire the right from a person disclosed in the register as the holder of the right but who is not entitled to it. In this context, the limitation of the principle of public faith of the register only to its negative aspect is considered to be a characteristic of the deeds recordation and transcription models^[12]. On the other hand, both the positive and negative aspects of the principle are implemented by the Grundbuch and title registration models^[13].

It would seem that the above distinction should be accompanied by a different approach to the scope of implementation – within the framework of particular register models – of the principle nemo plus iuris in alium transferre potest quam ipse habet, whose application is respected both in the common law and civil law traditions. In this context, the suppression of the invoked principle should constitute an exclusive feature of land registers taking into account the positive aspect of the principle of public faith. Indeed, there should be no doubt that the institution of public faith within the Grundbuch model (öffentlicher Glaube des Grundbuchs - 83§ 892–893 BGB^[14]; Art. 973 ZGB^[15]; § 61 et seq. GBG^[16] and § 1500 ABGB^[17]) entails a departure from the principle nemo plus iuris transferre potest quam ipse habet, aiming to protect persons acting in reliance on the content of the land register by enabling them to acquire a right from a materially unauthorised person to whom the entries in the land register attribute the appearance of a right (Der Rechtschein ersetzt das Recht)^[18]. As a rule, a similar effect is produced by registration within the common law model of title registration, the assumptions of which allow for the possibility to acquire the right to a real estate from an unauthorised person. Such a solution is explicitly provided for in the LRA 2002^[19] binding in England and Wales, as well as in legal acts in force in individual Australian states and in New Zealand, which implement the principles of the Torrens system. For example, under section 29 of the LRA 2002, registration of a interest in the land register gives effect to that interest over other interests in the same estate whose priority is not protected by the registration. In turn, Article 23 of the LRA 2002 establishes the principle that the interest of a person disclosed in the register is free from any restrictions, unless such restrictions arise from the content of the entries in the register or from the provisions of law. Similarly, pursuant to the so-called protection section, contained in all Torrens Acts, the purchaser of an interest from a person disclosed in the register as the holder acquires an indefeasible title, i.e. is limited only by third party interests and encumbrances shown in the register^[20]. Incidentally, it may be added that the above effect occurs only when the interest is acquired from a person registered in the land register, i.e. from an owner at law, and provided that the purchaser of the interest has registered it himself, as it is only from the moment of registration that the acquisition acquires an erga omnes effect^[21].

Therefore, at this point it is necessary to verify the truthfulness of the above-mentioned thesis according to which under the models of transcription and deeds recordation it is not possible to acquire the right to the real estate from an unauthorised person because these models implement the principle of public faith of 84the register only in its negative aspect^[22]. This statement should mean that only the owner can effectively dispose of the real estate, and the possibility of acquiring a right to it from an unauthorised person is in principle excluded^[23].

It should be noted first of all that, in the light of the assumptions of the deeds recordation model, the registration in the land records of a document containing the act on the basis of which the interest to real estate was transferred does not cure its deficiencies. A defective deed remains invalid regardless of registration^[24]. This rule applies to all deeds in the chain of title, so that if one of them was defective for a specific reason, i.e. it did not lead to the transfer of the interest to real estate, all subsequent dispositions of this right are ineffective^[25]. In this respect American solutions observe the well-known in common law principle nemo plus iuris in alium transferre potest quam ipse habet, excluding the possibility of invoking the public faith of land records in its positive aspect.

On the other hand, it should be noted that the importance of land records as an institution that strengthens the security of land trading is manifested in the resolution of conflicts between two (or more) purchasers of the interest to the real estate, deriving their rights from the same transferor^[26]. Conflict resolution in this respect was in fact one of the main objectives of establishing the deeds recordation model in the 17th century. It remains its characteristic feature today^[27]. State regulations defining the rules governing land records introduced a significant departure from one of the basic principles of common law, i.e. “first in time – first in right”. (This principle is based on the assumption that priority between several purchasers of interests to the same real estate is determined by the fact to which of them the vendor first transferred the deed^[28]. This departure is based on the protection granted by the deeds recordation model to a subsequent (later) purchaser of interest to the real estate, who, being in good faith, acquired those rights in return for a consideration (subsequent good faith purchaser for value). This doctrine, which has its origins in 85the equity system, is intended to promote security of trade at the expense of stability of interests to real estates^[29].

The fulfilment of both conditions described above, concerning good faith and the valuable nature of the acquisition, ensures that the subsequent purchaser has priority over persons who have previously acquired interests to the real estate but have not registered the relevant documents. Consequently, the interests of such persons become ineffective against a subsequent purchaser. This solution is at the same time treated as a breach of the principle nemo plus iuris in alium transferre potest quam ipse habet. A subsequent purchaser effectively acquires the interest, even though the transferor was no longer entitled to it due to the fact that he had previously transferred it to another person. In the past, American courts have had trouble accepting this result, but the argument about the need to ensure the efficiency of land records ultimately prevailed. Already at this point, however, it should be noted that its significance in practice has been weakened by the relatively extensive use of the so-called “notice” doctrine in the jurisprudence, which will be discussed below.

Also within the framework of the transcription model, the principle of public faith of the land register is only negatively addressed. A potential purchaser can only act in reliance on what is not includedin the register^[30]. This conclusion follows from the basic sanction of non-registration of deeds subject to this formality, which is their ineffectiveness vis-à-vis third parties (Article 30 of French Decree No 55–22 of 4.1.1955 on the reform of the rules of publicity of land^[31]). Thus, unregistered deeds subject to this formality may, under certain conditions and by certain persons, be ignored.

On the other hand, the doctrine notes, however, that basing the land register on the principle of public faith in the negative approach makes it possible, to a narrow extent, to acquire the right from an unauthorised party (a non domino). Such an eventuality is limited to one situation, i.e. a case of multiple dispositions of the right to real estate by the same transferor in favour of several purchasers. The possibility of its occurrence results from the principle of consensuality underlying the transcription model. By disposing of the right to the real estate for the first time, the transferor loses this right, and therefore by making subsequent dispositions, he/she 86is no longer authorised, as the right is vested in the first purchaser – from the moment the agreement between the transferor and the first purchaser is executed. Nevertheless, a subsequent purchaser may under certain conditions effectively acquire the right, causing the first purchaser to lose it^[32]. These conditions are set out in detail in Article 30 décr. No. 55–22. Formally, this provision indicates the situations in which a so-called third party may invoke the ineffectiveness against himself of the unregistered deed leading to the acquisition by another person. The existence of the prerequisites listed in this provision determines the operation of the principle of public faith of the register in its negative aspect.. However, an “incidental” effect of their occurrence is also the acquisition of a right from an unauthorised person in the case of several dispositions of the right to real estate by the same transferor. It should be stressed, however, that acquisition from a non-holder under the French variant of the transcription model presupposes that the right that is the subject of the acquisition in the past was held by the unauthorized person. Therefore, the acquisition of a right from a non-holder who has never had the right in question is excluded^[33].

On the other hand, the problem is approached slightly differently in the Italian legal order, despite the fact that the legal regulations adopted in Italy also follow the assumptions of the transcription model. However, the fundamental difference between the French and Italian concepts of the principle of public faith of the land register lies in the fact that in Italy the position, according to which a subsequent purchaser after winning the race to the register acquires the right from an unauthorised person (a non domino), is definitely of a minority^[34]. Attempts have been made in Italian doctrine to theoretically explain the negative side of the principle of 87public faith of the land register in the context of the principle of consensuality, with the predominant view being that a subsequent purchaser who is the first to transcribe his deed acquires the right derivatively from the transferor as the right holder (acquisition a domino)^[35]. However, the justifications for this position vary. As an example it may be pointed out that some authors, contrary to the generally accepted view on the declaratory effects of transcription only, give this formality a constitutive effect^[36]. Others formulate the concept of the so-called natural property right (proprietà naturale) as a relative right, effective only between the parties, as opposed to the civil property right (proprietà civile). The former right would be transferred on the basis of the contract of the parties alone; the acquisition of the latter would require a transcription, which would mean that the two categories of property could be held by different parties^[37]. According to another view put forward in the literature, the failure to register the deed giving rise to the acquisition by the first purchaser leads to a “relative ineffectiveness of the acquisition” (l’inefficacia relativa dell’acquisto)^[38]. Still other authors take the view that only the transcription transfers the right to dispose of the real estate. Consequently, as long as the first purchaser has not done it, the transferor retains the right to dispose of it in favour of third parties^[39]. Finally, the view is presented that transcription by the purchaser constitutes a conditio iuris of full effectiveness of the transcribed agreement. It determines the extinction of the transferor’s power to dispose of the real estate and makes the acquisition, which until it is made is only potential, fully effective^[40].

However, according to the most widely accepted theory aimed at explaining the phenomenon of the acquisition of a right following a transcription by a subsequent purchaser as acquisition a domino, his “victory in the race to the register” constitutes a resolutive condition (condizione risolutiva), the fulfillment of which causes an ex tunc termination of the material effects of the contract concluded by the transferor with the first purchaser. Consequently, the subsequent purchaser acquires the 88right from the right holder, and the contract with the first purchaser – by way of legal fiction – is deemed not to have been concluded^[41].

Finally, it should be noted that in the literature some views are expressed which indirectly aim at reconciling the controversy around the substantive legal effects of transcription by giving it a strictly procedural meaning. According to these ideas, although the transfer of the right to the first purchaser takes place at the moment of conclusion of the agreement, its failure to transcribe has the effect of preventing the court from taking this circumstance into account in a trial e.g. for release of the real estate^[42].

In conclusion, it should be pointed out that the principle of nemo plus iuris ad alium transfere potest quam ipse habet - subject to contrary views expressed in the Italian doctrine – is also overcome under models providing only for negative effect of the public faith of the land register, although the scope of permissible exceptions to this principle is limited to situations of multiple dispositions of the right to real estate by the same transferor in favour of several subsequent purchasers. Due to the declaratory effect of registration assumed in the models mentioned above, by making successive dispositions, the transferor is already unauthorized, but the subsequent purchaser effectively acquires the right from him, provided that the first purchaser failed to immediately register the document constituting the basis of acquisition in his favour. In reality, therefore, the principle nemo plus iuris in alium transferre potest quam ipse habet is also breached in this case. However, the main difference compared to models fully implementing the principle of public faith of the land register in its positive aspect is that in order for a right to be effectively acquired by a subsequent purchaser, it is required that the transferor actually had the right before he disposed of it to the first purchaser. This circumstance is illu89strated by the solution adopted in the model of deeds recordation, where a defect in any of the deeds in the chain of successive dispositions preceding the disposition in favour of the transferor prevents, as a rule, all his successors from effectively acquiring the right, regardless of whether the principle of public faith of the register operates in their favour. Also in the transcription model, the disposition of a right by an originally unauthorized person leads to ineffective acquisition, even if the other conditions of the principle of public faith are met^[43].

III. Objective prerequisites for the operation of the principle of public faith of the land register

The basic aim of the principle of public faith of the land register, under all models analysed in this study, is to increase the level of trade security, in particular by protecting persons acting in reliance on its content. It should be stressed, however, that in none of these models the protection granted to the participants of trade is complete and conclusive, which causes it to be referred to in the literature as selective protection^[44]. This thesis is confirmed by both subjective and objective prerequisites for the operation of the public faith principle, while further considerations within the framework of this section will concern the first of the two groups of prerequisites mentioned above.

1. As regards the objective prerequisites for the operation of the public faith principle, it should be emphasised that in none of the presented models are cases of acquisition by operation of law (e.g. by inheritance) protected, and the scope of protection is limited to cases of derivative acquisition inter vivos. This circumstance is particularly strongly articulated under the Grundbuch model, where the prerequisite for protection is the acquisition of a right on the basis of a legal action. In the case of the German variant of this model, this is indicated e.g. by the contents of § 892 BGB, which expressis verbis states that the principle of public faith is only applicable if the acquisition of a right to real estate (or a right in such a right) occurs by means of a legal action. The legal action referred to in this provision is a real contract (Auflassung), which should be valid and effective. If it is defective, the pro90tection of the purchaser provided by § 892 BGB will not apply^[45]. It follows therefore from this formulation that:

1. the protection of the public faith principle shall not apply to acquisitions by operation of law, e.g. by a decree of the legislature or by inheritance^[46]. In principle, acquisition by operation of law is treated analogously to acquisition by universal succession (Gesamtrechtsnachfolge) – e.g. in the event of a merger of companies or the establishment of a matrimonial community of property^[47]. The protection of § 892 BGB also does not extend to acquisitions in enforcement proceedings, including, for example, the acquisition of a judicial mortgage^[48];

2. the public faith of the land register does not extend to obligatory legal relationships, e.g. lease or tenancy agreements^[49]. The protection extends only to cases of acquisition of a right based on dispositive legal actions^[50];

3. § 892 BGB applies only if the right is acquired by means of a so-called turnover legal actions (Verkehrsgeschäft), which means that the legal action should lead to a financial gain in favour of a legal entity separate from the transferor. The protection provided by this provision is therefore excluded where there is a personal or economic identity between the parties to the legal action^[51].91

Also the Swiss ZGB makes the effectiveness of the protection under the public faith of land register dependent on the acquisition of a right on the basis of a legal action, which in this case is an act of a obligatory nature (causa, Rechtsgrund)^[52]. Therefore, in order for the protection of Article 973 ZGB to apply, it is necessary that the legal basis for the transfer of ownership is valid and effective and that the entry in the land register is lawful^[53]. Due to the fact that a third person (ein Dritter) is subject to the protection of this provision, a personal identity between the parties to the obligatory legal action is excluded for its application^[54].

Exclusive acquisition by way of a legal action as a prerequisite for the application of the public faith principle is also provided for by the Austrian legislature, eliminating from its scope cases of acquisition through universal succession (in particular inheritance) or through enforcement proceedings^[55]. As is the case in Switzerland, the action leading to the acquisition of a right under the conditions of public faith of the land registers is a valid and effective obligatory contract, constituting a title to transfer ownership or to acquire or establish a limited right in rem in real estate (Titelgeschäft)^[56].

The transcription model is also based on similar assumptions. In the French variant, the prerequisite for the application of the public faith principle is the requirement that the rights of both the first and the subsequent purchaser derive from the transcribable ‘acts’. This means that the competing rights of the first and subsequent purchasers to the same real estate must derive from transcribable acts on pain of being ineffective against third parties. Consequently, this condition is not fulfilled when one of the competing rights is a right under a non-transcribable act (e.g. a tenant’s right under a lease concluded for a term of less than one 12 years) or when the right arises under a transcribable act, but only for information purposes^[57]. Also under the Italian variant, transcription of the act is only relevant if the first and subsequent purchasers have acquired incompatible rights derivatively inter vivos and derive these rights from the same transferor. Transcription does not 92therefore serve to resolve conflicts between purchasers, one of whom acquired his right inter vivos and the other mortis causa, as the provisions of the law of succession are decisive in this respect. Similarly, transcription does not resolve the conflict between two purchasers, one of whom acquired his right originally and the other derivatively. In this respect, the regulations on usucapione, which give priority to the original acquisition, are of primary importance. In the situation described, the case of a derivative acquisition should be treated as an acquisition from an unauthorised person (a non domino), which, according to the prevailing view, is excluded in Italian law. The transcription of the act documenting the derivative acquisition can only open the way for the purchaser to claim an adverse possession of the real estate, reducing its term to years 10 (usucapione abbreviata), assuming that the purchaser has obtained possession of the real estate^[58].

Also in the light of the assumptions of the deeds recordation and title registration models derived from the common law tradition, there should be no doubt that the public faith protection afforded to the purchaser of an interest to the real estate is updated in the case of a derivative inter vivos acquisition^[59].

2. The objective exclusions from the scope of protection granted by the public faith principle, referring to specific categories of rights to which the principle does not apply, are also of a general nature within the framework of the analysed models. In case of some register models, the scope of rights to which the public faith principle does not apply is determined by their systemic principles. This is the case, for example, in the transcription model, where only acts strictly indicated in legal regulations are subject to publication – under the sanction of ineffectiveness towards third parties. By way of example, mention may be made here of Article 28 (1) of French décr. No 55–22, which lists all acts (including court decisions) having the effect of transferring or creating rights in rem to real estate – other than privileges or mortgages, i.e., in particular, acts concerning legal actions for consideration, coming into effect inter vivos (actes à titre onéreux entre vifs)^[60], such as typical contracts leading to the transfer of ownership and other transferable rights in rem (actes translatifs - e.g. sale, exchange, marriage contracts, insofar as they result in a transfer), as well as acts leading to the creation of limited rights in rem real estate (actes constitutifs)^[61]. Similarly, in Italy, the acts to be transcribed under the sanction of being ineffective against third parties are strictly defined by the Civil Code. These include, in particular, contracts leading to the transfer of ownership of real estate, as well as contracts establishing, transferring or altering the content of rights in rem93to real estate, i.e.: usufruct (usufrutto), surface right (diritto di superficie), emphyteusis (enfiteusa), easements (servitù prediali), right of use (diritto di uso) and right of residence (diritto di abitazione) (art. 2643 points 1, 2, 4 and 7 of the Italian Civil Code), as well as certain contracts of an obligatory nature from which personal rights concerning real estate arise (e.g. lease contracts concluded for a period of more than 10 years – Article 2643 point 8 of the Italian Civil Code)^[62].

The deeds recordation model also excludes from the protection of land records certain categories of rights which do not arise from written documents or which arise from documents not subject to registration. As regards the first of these categories, it should be noted that due to the fact that land records are in fact archives of documents, those rights which do not arise from written documents cannot find any reflection in the documents stored in the register^[63]. The group of these rights is relatively extensive. They include, inter alia, the rights of a person who has acquired title to land by adverse possession^[64], easements by necessity and easements by implication, quasi-easements^[65], rights of the spouse of the person who has the title to the real estate^[66], rights of persons performing labour or supplying building materials while performing construction works on the real estate (hidden Mechanic’s Liens)^[67]. As regards the second category of rights, it should be noted that the applicable legal regulations may explicitly exclude certain documents from being registered in land records. Of greatest practical importance in this respect are documents covering short-term leases. Such agreements are not subject to recordation due to the assumed low economic importance of legal relations created on the basis of the said agreements^[68]. The consequences of the exclusion of these rights from any form of publicity are particularly relevant for purchasers of rights to real estate who remain bound by them regardless of whether they were aware of their existence at the time of purchase^[69].

For other models of land registers, in turn, it is characteristic to create more or less extensive catalogues of rights to which the principle of public faith does not apply. A typical example of such an approach are solutions adopted in the title registration model, in which the applicable legal acts include lists of the so-called over94riding interests. These are rights which, by virtue of the law or due to the protection granted to them by the judicature, bind the purchaser of the real estate also in the case when they have not been registered in the register and the purchaser had no knowledge about them. This category of rights constitutes the most important exception in practice to the mirror principle, i.e. the basic principle of the title registration model, as it does not allow to assume that the register accurately reflects the legal status of the real estate in every case. The catalogue of overriding interests varies depending on the specific jurisdiction. By way of example, in the English LRA 2002 they are divided into two categories: (1) rights which retain their existence regardless of whether they are registered in the course of the so-called first registration – i.e. the establishment of an individual register for a freehold or leasehold estate relating to the real estate, hitherto remaining outside the land register – and (2) rights which bind the purchaser of the registered real estate regardless of whether they were included in the register and whether the purchaser was aware of their existence. The first category (interests overriding first registration) set out in Schedule 1 to the LRA 2002 includes, inter alia: rights to possession and use of another person’s real estate for a specified period (lease) not exceeding years 7; rights of a person in actual occupation of the real estate; legal easements and legal profits à prendre, but only those the existence of which has not been revealed by a diligent inspection of the real estate and of which the purchaser of the real estate had no actual knowledge; public rights and local land charges imposed e.g. by building or spatial planning regulations; customary rights; rights resulting from mining and geological regulations (mineral rights).

The second group of overriding interests is specified in Schedule 3 to the LRA 2002 and includes rights which, although not registered in the land register, are still effective against the purchaser of the registered real estate (interests overriding registered dispositions). The scope of these rights is currently very similar to the above described rights contained in Schedule 1 to the LRA 2002. The most important in practice are the rights of persons in actual possession of the real estate, rights to possession and use of another’s real estate for a specified period of time (leases) not exceeding 7 years, easements and profits à prendre, the existence of which was not revealed by a diligent inspection of the real estate and of which the purchaser of the real estate had no knowledge^[70].

95Extensive catalogues of overriding interests are also contained in the Torrens Acts, although the scope of exemptions varies at the level of regulations applicable in individual states of Australia and New Zealand. However, some of them are almost universal^[71]. In particular, the universal exemptions include: certain easements which, although not disclosed in the register, are nonetheless binding^[72]; rights of persons in actual possession of the real estate (adverse possession)^[73]; rights arising from short-term leases (tenancies)^[74]; certain tax liabilities or other public burdens relating to the real estate^[75]; and certain rights arising from matrimonial property regimes.

Apart from the Torrens Acts themselves, further exemptions are provided for in special legislation (the so-called overriding legislation)^[76]. Moreover, an important group of exemptions is also created by judicature, which implements the rules of equity characteristic for common law^[77].

96Apart from the introduction of more or less extensive catalogues of overriding interests, within which the most important in practice are the rights of persons in actual possession of the real estate^[78], a commonly accepted solution is to exclude the operation of the public faith of the land register in relation to third party rights, which are not shown in the register, but which the purchaser has undertaken to respect towards the transferor. In English literature, such agreements are treated as a special form of fiduciary contract for the benefit of a third party (constructive trust). Accordingly, the fulfilment of certain obligations under this type of agreement can be demanded directly from the purchaser by the third party^[79].

Analogous solutions appear also in the Grundbuch model, in which the scope of rights to which the principle of public faith does not apply is additionally determined by regulations specifying the content of the register. The characteristic premise of the principle of public faith in this model is the premise of incompliance of the content of the register with the actual legal state of the real estate (Unrichtigkeit des Grundbuchs)^[80]. By way of example, it may be pointed out that in the German variant of this model, in the light of § 892 BGB, the principle of public faith applies if the content (Inhalt) of the register is incorrect (unrichtig). In the literature, however, it is emphasised that its operation is limited exclusively to the legal content of the register^[81] and thus applies to situations leading to an incorrectness of the regis97ter in the legal sense^[82]. Consequently, publica fides covers: a) the existence of rights in rem entered in the register (the so-called positive side of public faith of the book – positiver Vertrauensschutz); b) non-existence of rights in rem, which, although they are subject to entry in the register, were not entered in it or were deleted from it (so-called negative public credibility of the register – negativer Vertrauensschutz)^[83]; c) non-existence of the so-called relative limitations in disposal of the real estate (serving the protection of certain persons), which, although they are subject to entry in the register, were not entered in it or were removed from it^[84].

In this respect, for the validity of the public faith principle it is irrelevant whether the incorrectness of the German land register is of primary or subsequent nature. In other words, the reason that led to the contents of the register being inconsistent with the actual legal state is not relevant^[85]. In order for that condition to be fulfilled, it is, however, essential that the content of the register was ‘incorrect’ at the time of acquisition of the right, by which is meant the time when the entry was made in favour of the purchaser.

It follows from the above assumption that not all cases of inconsistency of the content of the register with the actual legal state of the real estate are covered by the public faith principle. In the light of the provisions of the BGB, the following are beyond the scope of this principle: rights that are not subject to entry or that do not require entry (nicht eintragbare, nicht eintragungsbedürftige Rechte), i.e. in particular public law restrictions and burdens on real estate (e.g. resulting from construction and spatial planning regulations, pre-emption rights reserved for public institutions, arrears in property tax, etc.); purely factual information, e.g. relating to the plot of land, use, location or development of the real estate^[86]; information arising from the content of the register relating to the personal relationships of persons 98entitled to the real estate, such as their legal capacity or authority to dispose of the real estate^[87]; cases of so-called Doppelbuchung, i.e. situations where the same real estate is entered in more than one register^[88]; cases of lack of identity between the disposer of the real estate and the person entered in the land register as the rightful owner^[89]; relationships of a purely obligatory nature relating to the real estate, e.g. resulting from lease or tenancy agreements, which, although they are not entered in the land register, are still effective towards the purchaser, regardless of the purchaser’s good faith (§ 566, 581, 593 BGB)^[90]; the so-called “old easements” (altrechtliche Grunddienstbarkeiten), i.e. easements effectively created before the entry into force of BGB and which are not subject to the principle of constitutive entry^[91]; absolute restrictions on the disposal of real estate (Absolute Verfügungsbeschrankungen), resulting in the ineffectiveness of the disposal (e.g. restrictions arising from agricultural real estate regulations)^[92]; so-called inadmissible entries (unzulässige Eintragungen), which are subject to ex officio deletion^[93].

The inconsistency of the content of entries in the land register with the actual legal state is also a premise of the principle of public faith in the Swiss variant of the Grundbuch model^[94]. Pursuant to Art. 973 ZGB, the starting point for the protection granted to the purchaser is the entry in the land register – if it was made in error or became incorrect afterwards^[95]. In principle, the effect of the public faith of the register extends to entries made in the principal register (Hauptbuch), but it also covers supplementary registers and documents, if they are part of the land register and entries in the principal register refer to them. This means that the principle of public faith of the land register also applies, for example, to the contents of the plan for the register (Plan für Grundbuch), indicating the boundaries separating properties with different legal status. Similarly, its effect may be extended to documents constituting the basis for entries (Belege), to the extent that they supplement the entries made, as well as to data contained in the land register 99journal (Tagebuch), if the content of a page of the register refers to the pending proceedings for entry^[96].

It is further argued in the Swiss literature that while the prerequisite for the operation of the public faith is a materially incorrect entry, it should be formally justified^[97]. This means, among other things, that an entry of a right not subject to disclosure in the land register is not covered by the operation of this principle^[98]. On the other hand, the meaning of the public faith is somewhat more complicated in the case of the disclosure by reservation (Vormerkung) of certain personal rights. Since the public faith principle relates to rights in rem, personal rights do not benefit from the positive side of this principle. Consequently, the purchaser of a right in rem cannot rely on the fact that a personal right disclosed in the book by way of reservation actually exists. On the other hand, a characteristic feature of the Swiss regulation is the solution according to which the principle of public faith in its negative aspect is applied to personal rights. Thus, the purchaser of the right in rem is not obliged to respect the existing personal rights, which were not protected by a reservation (Vormerkung)^[99].

As in Germany, the public faith of land register does not extend to the legal capacity of the person entitled according to the content of the register, nor to his identity. Furthermore, restrictions or encumbrances that exist independently of the registration or are not subject to registration at all, such as the so-called direct and indirect statutory restrictions on ownership of a public or private nature, are not covered by its effect^[100].

A different method of regulation is adopted in the Austrian variant of the Grundbuch model, although also on the GBG and ABGB planes ‘irregularity’ (Unrichtigkeit) or “incompleteness” (Unvollständigkeit) of a land register constitute a prerequisite for the public faith principle, which is referred to in Austrian literature as the principle of trust (Vertrauensgrundsatz)^[101]. In Austria, however, a strict distinction is made between ‘original’ non-compliance of the content of the land register with the actual legal status (ursprüngliche Unrichtigkeit) and ‘subsequent’ irregularity and incompleteness of the land register (nachträgliche Unrichtigkeit und Unvollständigkeit)^[102]. In the first case, as defined in § 61 et seq. GBG the entry in the regis100ter does not coincide with the material legal status of the real estate from the moment it is made. The second situation, on the other hand, covers cases where the content of the register initially corresponded to the actual legal status of the real estate, but subsequently – as a result of events not reflected in it – became incorrect (§ 1500 ABGB)^[103]. Connected with this distinction is the separate determination of further prerequisites for the protection of a purchaser acting in reliance on the content of the register in each of the two mentioned cases of inconsistency with the actual legal status. Furthermore, according to Austrian doctrine, it corresponds to the two sides of the principle of trust, i.e. the positive (Was eingetragen ist, gilt - § 61 et seq. GBG) and the negative (Was nicht eingetragen ist, gilt nicht – § 1500 ABGB)^[104].

Notwithstanding this distinction, the principle of trust extends to the content of the main register (Hauptbuch) and the collection of documents (Urkundensammlung), insofar as entries in the main register expressly refer to it (§ 5 GBG), as well as to the content of the so-called list of entries deleted (Verzeichnis der gelöschten Eintragungen), which forms part of the land register. On the other hand, this rule does not apply to factual circumstances disclosed in the content of the register, such as, for example, the manner in which the real estate is used, or to issues relating to the legal capacity of persons entered in the register as holders of rights^[105]. Moreover, it does not cover the so-called inadmissible entries and, as a rule, entries that are irrelevant^[106]. Moreover, the negative side of the principle of trust does not apply, exceptionally, to certain rights existing independently of the entry in the land register, such as e.g. certain easements, public law encumbrances or burdens related, 101for example, to the obligation to make a part of the real estate available for public roads^[107]. It also does not apply to personal rights (e.g. lease or tenancy), regardless of whether they have been entered in the land register^[108].

3. In contrast to the prerequisites public faith principle discussed so far, the prerequisite of the acquisition of a right for valuable consideration is not of a universal nature. Its consistent inclusion is characteristic for models of registers originating from the common law tradition, i.e. deeds recordation and title registration. Under the first of the mentioned models, protection is extended to subsequent bona fide purchasers of the right to a real estate, but only under the condition that the acquisition is for valuable consideration^[109]. The meaning of this term causes divergences in the case law of American courts. While there is no doubt that the protection does not cover purchasers on the basis of a donation or heirs, problems may arise when the remuneration paid for the right to real estate is lower than its market value (full fair market value), or is symbolic in nature (nominal consideration). Jurisprudence takes a relatively flexible approach to this problem, denying protection to transactions where the remuneration is only symbolic, but on the other hand emphasising that protection cannot be a priori denied to persons who e.g. negotiated a bargain price and the transaction itself is not fraudulent^[110]. In principle, however, it is required that remuneration is actually paid. A mere obligation to pay is not sufficient^[111].

Similarly, under the title registration model, only the purchaser of the right to real estate who acquired the right for a consideration (purchaser for value) is protected. Such conclusion results e.g. from the content of Article 29 of LRA 2002, according to which registration gives the purchaser priority and effectiveness over unregistered interests of third parties only if the transfer of this right was made for valuable consideration. As a side note, however, it should be noted that such a limitation is not provided for in the so-called protection articles contained in the Australian and New Zealand Torrens Acts. The aforementioned acts do not make any 102difference between purchasers and volunteers, granting the purchaser an indisputable title to the real estate, regardless of whether he acquired the right on the basis of an act of gratuitous or pecuniary character. Moreover, in some Australian states (Queensland and the Northern Territory) the regulations clearly state that also the purchaser of the right under a gratuitous title, as long as he registers it (registered volunteer) obtains an indefeasible title^[112].

However, the literature points out that in those jurisdictions where the legislation does not expressly deal with this issue, protection should only be given to purchasers for valuable consideration^[113]. The basic argument in this respect is that the Torrens system, from its inception, has been primarily a ‘buyer’s system’, aiming at facilitating real estate transactions by eliminating the risk of potential financial loss to which the purchaser was exposed. By contrast, the analogous rationale for granting protection is lacking in the case of a person who does not commit financial resources to the acquisition of the right to the real estate. Consequently, in those jurisdictions where the Torrens Acts do not expressly limit the protection only to purchasers of real estate for valuable consideration, such a limitation would have to be taken by implication^[114].

Accepting the prevailing view that protection under the Torrens system is limited only to purchasers of rights to real estate by way of transactions for valuable consideration, and relying on the unambiguous wording of the LRA 2002, it must be concluded that the registration of a right by a purchaser under a gratuitous title does not enjoy the protection provided by either the positive or negative side of the principle of public faith of the register. Consequently, the purchaser cannot rely on the content of entries in the register and defend himself by arguing that a specific interest of a third party is not disclosed in the register. Consequently, all third party interests encumbering the transferor’s right remain effective against him, including those not disclosed in the register^[115].

The above solutions functioning in the title registration model, in turn, raise doubts as to the scope of voluntary dispositions, excluded from the protection granted by the land registers. It is argued in the literature that these are both inter 103vivos actions – including e.g. all marriage agreements where the consideration would have only a nominal character, i.e. existing only in name – as well as cases of acquiring the right to real estate by will^[116].

Generally, it can be concluded that the register models derived from the common law tradition consistently aim to limit the protection afforded by land registers exclusively to those purchasers who acquired rights to the real estate for value and therefore the loss of which would mean a pecuniary loss for them. The mentioned feature of land registers in the models of deeds recordation and title registration confirms the thesis of their market, “commercial” origin. The introduction of both models was aimed at protecting people who invested money in acquiring rights to real estate (purchasers for value), and thus exposed to the risk of potential loss.

In the case of models derived from the tradition of continental law, the solutions adopted with regard to the acquisition for valuable consideration as a prerequisite of the public faith of the real estate register are not so homogeneous. The question of paid or unpaid character of acquisition as a prerequisite for the operation of the principle of public faith is omitted, e.g. consistently in the legislations belonging to the transcription model, which grant identical protection both to volunteers and purchasers for value^[117]. Among justifications for identical treatment of cases of acquisition for a valuable consideration and free of charge at the level of regulations concerning the principle of public faith, the necessity to ensure systemic efficiency is mentioned in particular, through elimination of problems with determining the pecuniary character of actions, which are frequent in practice.

The German and Swiss legislators also pursue similar assumptions within the framework of the Grundbuch model. On the basis of § 892 BGB and Article 973 ZGB, the principle of public faith of German and Swiss land registers is applied both to gratuitous and for value legal actions, respectively of dispositive (German variant) or obligatory (Swiss variant)^[118] character. The opposite solution is adopted in the Austrian variant of the Grundbuch model. Although the Austrian regulations on the “principle of trust” (§ 61 et seq. GBG and § 1500 ABGB) do not require that the protected legal action of an obligatory nature (Titelgeschäft) be for valuable consideration, according to the unanimous view of the judicature and doctrine, this principle applies only to transactions of a pecuniary nature^[119]. The adoption of this prerequisite at the level of Austrian regulations leads to controversies similar to the deeds 104recordation and title registration models with regard to the determination of the pecuniary character of many legal actions, which are then resolved, often in a casuistic manner, in the case law and doctrine.

IV. Good faith of the purchaser – subjective prerequisite of the principle of public faith of the land register

Among the models of land registers analysed, there is no uniform approach to the subjective prerequisites for the operation of the principle of public faith, which include in particular the good faith of the purchaser (bona fides)^[120]. From a historical perspective, it should be noted that the rule of disregarding the state of consciousness of the purchaser – even if it takes the form of positive knowledge of unregistered rights of third parties – underpinned both the deeds recording and transcription models, despite the fact that they originate from separate legal traditions^[121]. To this day, this assumption is adhered to within some variants of the deeds recordation model. On the level of the so-called pure race statutes, the priority between several purchasers depends exclusively on the moment when the documents constituting the basis for the acquisition of rights to the real estate are registered in the land records. The winner of the ‘race’ to the land records acquires the right regardless of whether he had knowledge or notice of an earlier but unregistered disposal of the right to the same real estate^[122]. Also under the Italian variant of the transcrip105tion model, no attention is paid to the good faith of the subsequent purchaser, treating subjective issues as irrelevant to the operation of the land register^[123]. Consequently, with the objective considerations referred to above, the decisive factor is always “victory in the race to the register”. Even if a subsequent purchaser has positive knowledge of a prior, unregistered, disposition of the right by the transferor to the first purchaser, the transcription by the latter of his own deed allows him to deprive the first purchaser of the right^[124]. Under Italian law, the subsequent purchaser’s bad faith affects only his liability for damages against the first purchaser^[125].

On the other hand, it is worth noting that in both the deeds recordation model and the transcription model, the inclusion of the issue of the purchaser’s subjective attitude, his state of mind as a prerequisite for granting protection, has been admitted by the judicature. This is evidenced, for example, by the evolution of French jurisprudence in relation to fraud (fraude) in the publication by the purchaser of his right as a negative premise for granting protection. In the early days of décr. No. 55–22 this condition was derived from the general principle of fraus omnia corrumpit. According to its content, fraud cannot be sanctioned by the solutions adopted under the transcription model^[126]. However, at that time fraud was understood as an intentional cooperation of an unauthorised transferor and a subsequent purchaser in order to render ineffective a right that had already passed to the first purchaser (concert frauduleux)^[127]. Hence, the conclusion was drawn that the mere knowledge of the subsequent purchaser of an earlier but unregistered disposition of the right in favour of the first purchaser – and therefore his bad faith – remained irrelevant from the point of view of the mechanism provided for in Article 30 décr. No. 55–22. Consequently, also a third party in bad faith effectively acquired the right from an unauthorised transferor^[128].

This initially dominant view was, however, challenged by the French Court of Cassation, which took the view that the bad faith of a subsequent purchaser, understood as his positive knowledge of the unregistered deed constituting the basis of 106the acquisition by the first purchaser, was sufficient to exclude the possibility of his acquiring a right on the basis of the register’s public faith principle. The above-mentioned position, although sometimes criticised in the literature^[129], should be regarded as prevailing nowadays both in case law and in doctrine. Consequently, good faith of a subsequent purchaser has become a prerequisite for acquisition of a right from an unauthorised transferor. Bad faith, on the other hand, is understood as positive knowledge of an earlier disposition of a right by the seller. Negligence, even gross negligence, is not sufficient to impute bad faith to a subsequent purchaser^[130]. This condition should be fulfilled at the moment of acquisition of the right by the subsequent purchaser, i.e., as a rule, at the moment of conclusion of the agreement with the unauthorised transferor^[131].

Even more intense was the influence of the judicature on the concept of good faith in the deeds recordation model, creatively developing the so-called doctrine of notice, developed by the Chancery Court in England. This doctrine has now been adopted in the vast majority of American state statutes, which introduce solutions referring to the pure notice or race-notice model. The former provide protection to a subsequent purchaser of rights to real estate if he had no notice that the transferor had previously disposed of those rights to the first purchaser, who neglected to register the relevant document in the land records. The lack of knowledge of the prior disposition is only relevant at the time of the transfer of the right to the subsequent purchaser. If this condition is fulfilled at that time, the subsequent purchaser retains the priority, even if the first purchaser has subsequently registered his deed. The subsequent purchaser is also not obliged to register his deed in order to retain the priority^[132]. The race-notice statutes, on the other hand, presuppose that in order for a subsequent purchaser to have priority over the first purchaser, he must, on the one hand, have no knowledge of the earlier transaction and, on the other hand, win the ‘race’ to the land records with the first purchaser, i.e. register his deed^[133] beforehand.

107The inclusion of subjective issues within the pure notice or race-notice model was accompanied by a significant development of the doctrine of notice itself in American jurisprudence, influenced by the doctrine of good faith purchase derived from the equity system. Although the premise of good faith is drafted differently at the level of individual state statutes, the American literature attempts to synthesise state regulations by indicating a general concept of good faith^[134].

Most often good faith is equated with lack of “notice” of an earlier disposal of rights to the real estate by the transferor^[135]. In the doctrine there are attempts to classify various subjective mental states, the occurrence of which allows one to conclude that a subsequent purchaser has notice of an earlier disposition of the rights to the real estate, and therefore is not in good faith and does not deserve the protection of the recording statutes^[136]. In this respect, the literature distinguishes between so-called actual notice, constructive notice and inquiry notice. Actual notice is equated with actual knowledge on the part of the purchaser of the prior disposition of the rights to the real estate. It is irrelevant in this respect whether the purchaser obtained knowledge of the nature of this disposition or of its other circumstances. All that matters is that he was directly and unequivocally informed of the event itself. The source of this information can also be arbitrary. Actual notice held by a person acting on behalf of or for the account of the purchaser is treated as if it were held by the purchaser himself^[137].

Constructive notice, on the other hand, is understood to mean all facts resulting from an examination of the information and documents in the land records, as well as from a careful inspection of the real estate^[138]. The doctrine of constructive notice is thus closely linked with the operation of the land register. It imposes an obligation on the purchaser of a right to carefully inspect the documents stored in this register. In American law, the purchaser of such a right may not plead ignorance of the documents recorded in the land records. Overlooking a document results in assigning constructive notice to it and, consequently, eliminates good faith^[139]. However, practical application of this rule is a source of serious controversy in doctrine and judicature. The most common problems concern the relevance for the attribu108tion of constructive notice of cases where a given registered document was wrongly indexed^[140], or registered outside the chain of title (wild deed)^[141], or a given document is not registered at all for formal or substantive reasons.

The doctrine of inquiry notice – prevalent in the American courts – is recognised in the literature as a fundamental obstacle to the primary objective of land records, which is to facilitate real estate transactions by enabling a quick determination of the legal status of a real estate based on the data contained in the register^[142]. This doctrine assumes that the purchaser should carry out diligent enquiries as to the legal status of the real estate also outside the land records, in particular if there are such reasonable doubts as to this status that they would lead a reasonable person to carry out further enquiries^[143]. Such doubts have in principle two sources: they may arise either from information obtained in the land records^[144] or from information obtained outside the land records^[145].

The broad application of the doctrine of inquiry notice entails a significant danger for potential purchasers of real estate, who should reckon with the fact that knowledge of off-label circumstances is imputed to them. Moreover, even if they 109take steps to make appropriate findings as a result of the aforementioned concerns, American case law requires that these findings be “diligent”. Diligence is an issue that must be assessed on a case-by-case basis^[146].

On the other hand, the excessive use of the doctrine of notice in jurisdictions belonging to the common law tradition was the reason for the rejection of the condition of the purchaser’s good faith under the title registration model. Under this model, a purchaser, who knows that the content of entries in the register is inconsistent with the actual legal state, may effectively purchase real estate from an unauthorised person or in a state free of unregistered interests. It should be emphasized, however, that the approach of legislators to the issue in question within the framework of individual jurisdictions implementing the principles of the title registration model is not uniform. The most consistent implementation of the above principle is provided for by the Australian Torrens Acts, which expressis verbis provide that – except for cases of fraud – no person acquiring a right from a registered holder should bear negative consequences resulting from his notice of the existence of unregistered third party interests. Moreover, his knowledge of those rights should not automatically qualify as fraud^[147]. Consequently, the Australian courts treat the purchaser’s knowledge of unregistered third party interests obtained outside the register as irrelevant to the purchaser’s ability to acquire an indefeasible title. Disregarding subjective mental states on the part of the purchaser – as long as they do not qualify as fraud – is treated as a condition for ensuring the functionality of the system and security of the registered title^[148].

In contrast, the courts in New Zealand pay more attention to the purchaser’s knowledge of unregistered third party rights, even though the Torrens Act there 110contains regulations similar to its Australian counterpart^[149]. However, New Zealand jurisprudence tends to treat a purchaser’s positive knowledge of an inconsistency between the contents of the register and the actual legal status of the real estate as fraudulent and, therefore, to deny him the protection of registration^[150].

Under the English variant of the title registration model, on the other hand, the practical significance of the real estate purchaser’s knowledge or awareness of the inconsistency of the contents of the register with the actual legal status of the real estate has been a contentious issue over the years. Chronologically, the earliest legal acts concerning the registration of rights to estate, i.e. the Land Transfer Acts of 1875 and 1897, did not contain unequivocal solutions in this respect. The wording of the LRA 1925 also left room for interpretation, essentially granting protection only to purchasers in good faith for valuable consideration. This formulation led some scholars to conclude that only a purchaser who was unaware of the existence of unregistered third party interests could validly acquire the real estate free of such interests^[151]. However, the court jurisprudence aimed to strengthen the security of trade by limiting the significance of the subjective knowledge of the purchaser of the real estate and granting the decisive importance to the content of the entries in the register.

The current LRA 2002 remains more explicit in this respect, no longer containing any reference to the good faith of the purchaser in its provisions. Therefore, while the purchaser cannot be accused of fraud in acquiring the real estate, his knowledge of unregistered third party interests is irrelevant to the effective acquisition of the real estate free of such interests^[152].

To summarise the approach to the consideration of subjective states of mind on the part of the purchaser under the title registration model, it should be noted that this model replaces bad faith on the part of the purchaser with the concept of fraud as particularly reprehensible behaviour on the part of the purchaser. On the other hand, it is worth noting that a common feature of all legal acts implementing the principles of the title registration model is the fact that they do not contain a legal definition of “fraud”, leaving the specification of this concept to the jurisprudence and doctrine^[153]. It is argued in the literature that fraud must consist in something more than mere knowledge of the fact that the content of the register is inconsistent with the actual legal status of the real estate. It should consist of morally reprehen111sible behaviour, containing an element of personal dishonesty^[154]. However, the meaning limits of this concept remain fluid^[155].

Despite the described differences in approach to the problem of fraud, Anglo-Saxon authors agree that the definition of fraud cannot be formulated in abstracto. The concept should always be relative to the circumstances of the particular case^[156]. Irrespective of this general statement, only the purchaser of the right or his representative may commit a fraud relevant for undermining the principle of indefeasibility of title, provided that the acquired right was registered in the land register. Fraud committed by another person, such as the transferor, is irrelevant^[157]. The relevant moment for the moral assessment of the purchaser’s conduct and for the possibility to charge him with fraud is the moment of his application for registration. The issue of so-called supervening fraud – i.e. when the purchaser only begins to act fraudulently after registration^[158] – has not yet been resolved unequivocally in the literature. Contemporary jurisprudence seems to take a negative stance in this respect^[159].

112Fraud in the title registration model may occur: 1) against a previous registered proprietor or 2) against the holder of an unregistered interest. In the first case one can speak of fraud when the registration of a new proprietor takes place as a result of forgery, coercion, undue influence or intentional misrepresentation of the transferor. Fraud against persons with unregistered interests to real estate is a slightly more complicated and undefined category. The most common cases are those in which the purchaser’s knowledge about these interests is accompanied by an unlawful intention to deprive the entitled person of his rights, although unregistered^[160].

In view of the above distinction between the two categories of legally relevant fraud, the consequences of its finding are also different. When a right is registered in fraudulent circumstances against a previous registered proprietor, the purchaser does not obtain indefeasible title. The previous proprietor may seek rectification and return of the real estate if it was delivered to the fraudulent purchaser. If, on the other hand, the registration of the purchaser’s right takes place fraudulently to holders of an unregistered interest, the purchaser also does not obtain indefeasible title. The unregistered interests remain effective against him. The practical application of this principle may vary: the most radical possibility is for the court to order the annulment of a fraudulent acquisition. Another option is to register an interest that has hitherto remained unregistered by order of the court and to rectify the register. Finally, the court may also order the purchaser of a right in fraudulent circumstances to tolerate the unregistered interests of third parties. As emphasised in the literature, solutions in this respect depend on the specific situation and the type of interests infringed by the fraudulent registration. Therefore, any solution that will give effect to such an interest is acceptable^[161]. The situation is different if a person who has fraudulently acquired a real estate subsequently sells it for consideration to a subsequent purchaser who cannot be accused of fraud. The latter then obtains an indefeasible title, and the person who has thus lost an interest not protected by registration may seek compensation from an insurance fund or from the State^[162].

On the other hand, the good faith of the purchaser as a prerequisite for the principle of public faith is expressly verbis provided for in the legal regulations implementing the Grundbuch model. In the light of the regulation of § 892 BGB, the principle of public faith of the German land register does not apply only if the purchaser has positive knowledge (Kenntnis) of the discrepancy between the contents 113of the land register and the actual legal situation. Thus, the purchaser’s gross negligence does not exclude his protection^[163]. Bad faith of the purchaser is also not justified by his knowledge of the factual circumstances that result in the contents of the register being inconsistent with the actual legal state, if he does not draw the conclusion from the existence of these circumstances that the register is incorrect^[164]. The position of the purchaser is also strengthened by the presumption of his good faith arising from § 892 BGB. Consequently, the burden of proving the bad faith of the purchaser rests on the person who has lost the right as a result of the principle of public faith. Since the proof concerns subjective circumstances, it is generally difficult to carry out^[165]. Furthermore, in order to satisfy the condition of good faith, it is not necessary that the purchaser actually became acquainted with the contents of the land register. It is sufficient if it speaks in his favour^[166]. Under these circumstances, the German literature speaks of an “absolute protection of the market”, based not so much on individual and concrete, but rather on an objectified or even “fictitious” trust in the contents of the land register^[167].

Pursuant to § 892 BGB, the decisive factor for the assessment of the good faith of the purchaser is the moment of filing the application for entry in his favour in the land register. Subsequent knowledge of the inconsistency of the contents of the land register with the actual legal state remains irrelevant^[168]. However, this rule applies only if all prerequisites for making an entry have been met at the moment of filing an application. If, however, making an entry depends on obtaining certain public law permissions, assessment of good faith shall be postponed until the moment when such permissions become final or binding^[169]. Furthermore, § 892 (2) BGB expressis verbis provides that in those exceptional cases where the application for entry precedes the conclusion of a real contract (Auflassung), the condition of good faith shall be satisfied at the time of conclusion of the contract. On the other hand, according to the prevailing view, where a future acquisition is protected by a reservation (Vormerkung), good faith is to be assessed at the time of the application for 114entry of the reservation. Subsequent knowledge of the inconsistency of the content of the register with the actual legal status or even the entry of an objection (Widerspruch) remain irrelevant^[170].

The Swiss legislature takes a different approach to the concept of the good faith of the purchaser within the Grundbuch model. In contrast to the solution adopted in § 892 BGB, Article 973 ZGB, although expressis verbis uses the concept of good faith of the purchaser, it does not define it. Neither does the ZGB know a general definition of good faith, leaving to the doctrine the task of defining this concept. Consequently, according to the prevailing view, it should be understood as a situation which – despite the existence of objective legal defects – does not give rise to a feeling of injustice^[171]. The purchaser of the right to the real estate remains in good faith, if at the moment of acquisition he did not know, nor could he with a diligence have known, about the inconsistency of the content of the register with the actual legal status^[172]. On the basis of Swiss regulations, the purchaser’s failure to exercise diligence excludes his good faith. Bad faith can also be attributed to the purchaser, if he is aware of circumstances, which for an average layman would raise doubts as to the correctness of the content of the land register. In such a case, the purchaser is obliged to make further findings. Of significance is the fact that the good faith of the purchaser may also be excluded by entries in other public registers, the common knowledge of which is assumed by law – e.g. entries in the commercial register^[173]. The content of the entries in the land register journal (Tagebuch) must be considered with particular care by each individual purchaser of rights to the real estate, as the recording of the application in this register excludes his good faith^[174]. Even factual circumstances outside the land register, such as the physical condition of the real estate (the so-called natürliche Publizität), can be relevant for its assessment in a specific case^[175].

In summary, under the ZGB, the protection of the good faith of the purchaser – and thus the security of legal transactions – is much more limited, much less absolute, than in the case of analogous German solutions. On the other hand – as in Germany – the purchaser benefits from the presumption of good faith (Article 3.1 ZGB), which means that the burden of proof rests on the person who questions the fulfilment of this condition. Analogous to the German solution, the purchaser 115should remain in good faith until the receipt of the application (Anmeldung) is recorded in the land register journal. Subsequent knowledge of the inconsistency of the content of the land register with the actual legal status is irrelevant for the effectiveness of the acquisition (mala fides superveniens non nocet)^[176].

The Austrian law, judicature and doctrine also take an even more restrictive approach to the concept of good faith. The protection of the GBG and ABGB therefore only applies to a purchaser who cannot be accused of not knowing the actual state of affairs due to his negligence^[177]. Consequently, the possibility of imputing any form of negligence to the purchaser eliminates his good faith. Hence, it remains problematic in the literature and case law to determine the objective standard of due diligence that should characterise the purchaser^[178]. In this respect, the so-called customs of trade are given particular significance, requiring the purchaser to inspect the real estate carefully. If, after the inspection, circumstances come to light that put into question the compliance of the content of the land register with the actual legal status, the purchaser is obliged to make further findings. It is only when such findings dispel the existing doubts that good faith may be attributed to the purchaser^[179].

On the other hand, for the purpose of assigning good or bad faith, it is not formally relevant whether the purchaser is acquainted with the content of the land register, as long as its content speaks in his favour^[180]. In certain cases, the good faith of the purchaser may also be determined by whether or not he is acquainted with the content of the documents constituting the basis for the entry and contained in the collection of documents (Urkundensammlung), although as a rule, in the case of a discrepancy between them and the content of the land register, the entries in the land register are decisive^[181]. However, if the entries in the register expressly refer to the document collection or if – after inspection of the register – the purchaser has doubts as to the conformity of its content with the documents on which the entry is based or if inspection of the document collection is regarded as customary, the purchaser ‘s failure to consult the document collection may result in bad faith being attributed to him^[182].

116The relatively strict requirements for the good faith of the purchaser are mitigated under Austrian law by placing the burden of proof for the lack of fulfilment of this condition on the person who disputes it, i.e. the purchaser’s litigation opponent^[183]. The literature also emphasises that the requirement of good faith should be met both at the time of the conclusion of the obligatory legal act constituting the title of acquisition (Titelgeschäft), and at the time of the submission of the application for registration at the land register court^[184].

V. Consequences of the operation of the principle of public faith of land register

The typical consequences of the principle of public faith of land register are the definitive and final acquisition of a right without being encumbered by unregistered third party rights (negative aspect of the principle) or effective acquisition from an unauthorised person (positive aspect). The first of the mentioned consequences is considered to be typical for the models of deeds recordation and transcription, in which the operation of the principle provides a subsequent purchaser with priority over persons who acquired rights to real estate earlier but did not register the relevant documents. Consequently, the rights of such persons become ineffective against a subsequent purchaser, provided that the purchaser himself has registered the document under which he acquired the right (i.e. has prevailed over the first purchaser in the race to the register). The principle of prior tempore potior iure, according to which it is the date of registration of the instrument documenting the acquisition of a particular right, and not the date on which it was drawn up, is therefore applicable here^[185].

In the title registration model – as already mentioned – registration may result both in the acquisition of a right to the real estate from an unauthorised person and in the acquisition of such a right in a state free from rights and interests of third parties not disclosed in the register. It follows from the wording of the relevant legal regulations that the purchaser has to take into account only such third party interests which have been registered or about which a relevant note has been made in the register (e.g. by way of notice in England and Wales or caveat in the Torrens system)^[186]. This effect in turn opens the way for the person who has lost the right in 117this way to claim appropriate compensation, the characteristic solution of this model being that the claims of such a person are directed to public institutions, according to the so-called insurance principle^[187]. The latter principle is still seen as a condition for the proper functioning of the broader principle of a public guarantee of rights registered in the land register (state guarantee of title). It is justified on the grounds that, since the State, in the person of the Registrar, is responsible for the effective transfer at law of rights to real estate following their registration, the State should also compensate for any damage suffered as a result of the malfunctioning of the system^[188].

Practical implementation of this principle at the level of the Torrens system was initially carried out by establishing separate insurance funds (Torrens Assurance Funds) within particular jurisdictions, to which funds were transferred from mandatory fees paid by the users of the system when registering their rights^[189]. Today, in many Australian states (e.g. Victoria, Queensland, Northern Territory) and in New Zealand, separate funds have been abolished, and compensation is paid directly from the state budget^[190]. In England and Wales, on the other hand, there is a special indemnity fund within the Land Registry, the compensation of which is financed from registration fees rather than from the state budget^[191].

A characteristic feature of regulations implementing the assumptions of the title registration model is the fact that they provide for compensation only in strictly defined cases, i.e. when the damage is a consequence of events listed in the provisions of law. In this respect, the Torrens Acts contain somewhat more general formulations. According to their wording, compensation is payable for damage resulting from errors or abuses by registrars, or from the loss of title to real estate as a result of the operation of the principle of indefeasibility of title under the Torrens system. In the latter case, protection is available primarily to innocent victims of fraud, where the rectification of the register is no longer possible because a third party – through registration – has acquired an indefeasible title to the real estate^[192].

118In England and Wales, on the other hand, the situations in which compensation may be claimed are more precisely defined. Under Schedule 8 to the LRA 2002, compensation is payable for rectification of the register^[193], as well as for error of the registrar which necessitated the rectification of the register^[194].

The prerequisite for seeking compensation under the abovementioned titles is the damage that a person has suffered as a result of the occurrence of the abovementioned events. Damage includes both the actual loss and lost profits. Legal regulations do not introduce an upper limit for damages. The fault of the registrar or its staff is not a prerequisite for liability. It is sufficient that the damage occurred as a result of events specified in the legal regulations. However, situations in which compensation is not due are also provided for. In particular, this applies to cases where the damage was caused by fraud committed by the victim himself or by his negligence, or where the victim significantly contributed to the occurrence of the damage.

The procedure for claiming damages varies depending on the specific jurisdiction. Sometimes the condition for seeking compensation is to first sue the person who directly caused the damage (e.g. the person who committed fraud). Only if this procedure fails to adequately compensate the damage is it possible to seek public compensation^[195]. Under the Torrens system, the typical way of claiming damages is through the courts, where the registrar is the nominal defendant^[196]. In England and Wales, by contrast, compensation can be claimed directly from the Land Registry’s compensation fund, bypassing the judicial route, which remains open in the absence of an agreement^[197]. There are also different time limits within which the injured party can claim compensation^[198].

Both positive and negative consequences of the principle of public faith operation are also provided for in the Grundbuch model. In the German variant, accord119ing to § 892 BGB, the operation of this principle leads to the fact that “the content of the land register is considered to be in accordance with the actual legal state” (gilt der Inhalt des Grundbuchs als richtig). This formulation means that – with the exceptions described above – rights entered in the register are deemed to exist (positive side of the principle of the public faith) and rights not entered in the register are deemed not to exist (negative side of the principle of the public faith)^[199].

As a consequence of the operation of principle of public faith, the materially hitherto entitled party loses its right in rem. In return, he is entitled to claims for unjust enrichment. The subject obliged on that account is determined depending on the circumstances, whether the legal action which led to the operation of the principle of public faith was for valuable consideration or of a gratuitous nature. In the first case, the person deprived of his right may claim from the transferor the surrender of the benefit obtained. On the other hand, if the legal action was of a gratuitous nature, the same claim is entitled to him against the purchaser. In practice, the deprived person will enforce the transfer of the right in rem (§ 816.1 BGB). If the purchaser has already transferred the right against payment to a subsequent purchaser, the deprived person has no claim against the subsequent purchaser; the latter has acquired the right from the materially entitled person. In this case, the deprived person may only claim the benefit from the first purchaser. If, on the other hand, the first purchaser has disposed of the right gratuitously, the deprived person may claim the transfer back from the subsequent purchaser. This is because the first purchaser is no longer enriched and the law does not protect gratuitous dispositions (§ 822 and 818 BGB). By analogy, if a benefit has been rendered to a person entered in the register contrary to the actual legal status, the materially entitled person may enforce against him the surrender of the object of the benefit (§ 816.2 BGB)^[200].

Also Article 973 ZGB provides for the positive and negative effect of the principle of public faith, providing for the protection of the purchaser acting in trust in the content of the entries in the land register^[201]. Consequently, in the case of such a purchase, the content of the land register, although inconsistent with the actual legal status, are deemed to be correct and comprehensive. Thus, the purchaser obtains the legal position to which he would be entitled if the register correctly reflected the legal status of the real estate^[202].

120If the prerequisites of Article 973 ZGB are met, the acquisition of the right by the purchaser is final. The previous materially entitled person is deprived of his right. He shall only be entitled to claims against the unauthorised transferor arising from the contract, tort law or unjust enrichment. Alternatively, if the land register office is accused of improper register keeping, the deprived person may claim compensation from the responsible canton (Art. 955 ZGB). On the other hand, he has no claim against a bona fide purchaser of the right, even if the acquisition was free of charge^[203].

The Austrian law regulates the effects of the principle of public faith of land register in a different manner, differentiating them depending on whether the discrepancy between the content of the land register and the actual legal state was of original or subsequent nature. Only in the case of a ‘subsequent’ irregularity and incompleteness of the register (nachträgliche Unrichtigkeit und Unvollständigkeit) does the acquisition of a right by a bona fide purchaser become final and unconditional. Consequently, in terms of the so-called negative side of the public faith of the Austrian land register, a bona fide purchaser acquires a right free from all rights not disclosed in the land register, in particular those acquired by way of seizure or prescription and easements not entered in the register (§ 1500 ABGB)^[204].

The operation of the principle of public faith is regulated differently in the case of the so-called original inconsistency of the content of the register with the actual legal status (ursprüngliche Unrichtigkeit), i.e. the situation in which the entry in the register does not coincide with the material legal status of the real estate from the moment it is made (§ 61 et seq. GBG). In such a case, the person whose rights have been infringed as a result of the entry is entitled to bring an action for “restoration of the previous register status”, i.e. for a declaration that the entry is invalid and its deletion (Löschungsklage). The time limit for bringing this action is determined in accordance with the general statute of limitations provisions of the ABGB (in particular § 1487 ABGB) and, within this period, it may be validly asserted against any subsequent purchaser, provided that he has remained in bad faith. In this case, therefore, the principle of public faith of the register does not apply at all.

If, on the other hand, the purchaser was in good faith, the question of whether or not the materially entitled person was notified of the unlawful entry in favour of his direct successor becomes relevant. If notice was not given, he may also successfully bring an action for restoration of the previous register status against the bona fide purchaser within a period of 3 years from the receipt of the application for 121registration in favour of his direct successor (§ 64 GBG). If, on the other hand, the materially entitled person has been notified of the entry on behalf of his direct successor, he can have the content of the register rectify, provided that he obtains the entry of a annotation of dispute (Streitanmerkung) within the time limit for lodging a complaint (Rekurs – § 123 GBG) and within a further 60 days of the expiry of this time limit lodges an action for restoration of the previous register status^[205]. The aforementioned complicated regulation of the GBG means that a bona fide purchaser definitely acquires a right only when three conditions are jointly fulfilled: (1) the validity of the entry in favour of his predecessor, i.e. a situation where no complaint (Rekurs) is already available with respect to the entry; (2) the absence of an annotation about the dispute (Streitanmerkung) in the content of the register; (3) the lapse of 3 years period from the entry of the right in favour of the direct successor of materially entitled person. Consequently, the operation of the so-called positive side of the public faith of land register is subject to far-reaching limitations under Austrian regulations^[206].

VI. Summary and conclusions

Having carried out the above analyses, it is advisable to formulate some general conclusions of a comparative nature concerning the construction and meaning of the principle of public faith within the models studied:

1. The principle of public faith of the land register is adopted in all analysed models of registers. However, its nature and scope varies. It is traditionally assumed that the limitation of the principle of public faith of the register only to its negative aspect is a characteristic of the deeds recordation and transcription models, while both the positive and negative aspects of this principle are realised by the Grundbuch and title registration models.

According to the view prevailing in the literature, this distinction would in turn be accompanied by a different approach to the scope of implementation of the principle nemo plus iuris in alium transferre potest quam ipse habet, observed both in the common law and civil law traditions. Breaking this rule is considered to be a characteristic feature of land registers taking into account the positive aspect of the principle of public faith. The analyses carried out in this paper have shown, however, that also under the models of deeds recordation and transcription it becomes possible to acquire a right from an unauthorised person, although the scope of per122missible exceptions from the principle nemo plus iuris in alium transferre potest quam ipse habet is limited to a situation of multiple disposition of the right to the real estate by the same transferor to several subsequent purchasers. However, the main difference compared to models that fully implement the principle of public faith of the register in its positive aspect is that in order for a subsequent purchaser to acquire a right, it is required that the transferor actually had the right before disposing of it to the first transferor.

2. In none of the analysed models is the protection granted to market participants through the principle of public faith of the register complete and conclusive (selective protection). This conclusion follows from an analysis of both the subjective and objective prerequisites for the operation of this principle.

As far as the objective prerequisites are concerned, it should be emphasised that all analysed models refuse protection to purchasers of rights to real estate ex lege (e.g. by inheritance), and the scope of protection is limited to cases of derivative acquisition inter vivos. Objective exclusions from the scope of protection granted by the principle of public faith, referring to specific categories of rights in relation to which this principle is not applicable, are also of universal nature. What is not universal, however, is the condition of the pecuniary nature of the acquisition (for valuable consideration). Its broad inclusion is characteristic of models of registers originating from the common law tradition, i.e. deeds recordation and title registration. They aim to limit the protection granted by land registers only to those purchasers who acquired rights to the real estate in return for a consideration (purchasers for value) and therefore the loss of the rights would mean financial damage for them. In the case of models derived from the continental legal tradition, the solutions adopted are not so uniform. The question of pecuniary or gratuitous character of acquisition as a prerequisite for the operation of the principle of public faith is omitted, e.g. consistently by legislatures belonging to the transcription model, which grant identical protection to both the purchaser under a gratuitous and for value title. Similar assumptions are also implemented by German and Swiss legislators within the framework of the Grundbuch model. An opposite solution is adopted in the Austrian variant of the Grundbuch model – although it was rather developed by the doctrine and judicature, as it does not result expressis verbis from the content of any legal act. Adoption of this prerequisite leads to controversies, similar to those in the deeds recordation and title registration models, concerning determination of the nature of many transactions as transactions for value, which are then resolved, often in a casuistic manner, in the case law and doctrine.

3. The register models analysed in this paper are characterised by different approaches to the requirement of good faith of the purchaser (bona fides). Under some variants of the deeds recordation (pure race statutes) and transcription (Italian variant) models, the issue of the state of awareness of the purchaser – even if it takes 123the form of positive knowledge of unregistered rights of third parties – remains irrelevant from the point of view of the principle of public faith. From a comparative point of view, it is interesting to note that in both of these models the consideration of the issue of the subjective attitude of the purchaser, his state of consciousness as a prerequisite for granting protection, has been admitted by the judicature. The intensive influence of case law on the concept of good faith in the model of deeds recordation, creatively developing the so-called doctrine of notice, is characteristic here. Too wide application of this doctrine in jurisdictions belonging to the common law tradition became the reason for rejecting the prerequisite of good faith in the title registration model. This model, however, does not completely abandon the consideration of subjective states of consciousness on the part of the purchaser, but replaces bad faith with the concept of fraud, as particularly reprehensible behaviour of the purchaser. Good faith, as a prerequisite for the principle of public faith of the land register, is instead provided for expressis verbis in legal regulations implementing the assumptions of the Grundbuch model.

Despite relatively wide account taken of subjective factors in the form of state of awareness of persons benefiting from the protection provided by land register regulations, attention should be paid to varied understanding of the notion of good faith within the framework of the analysed models, even at the level of regulations implementing the assumptions of the same model (e.g. Grundbuch, title registration). Most often good faith is understood as justified lack of knowledge (Kenntnis) about the inconsistency of the content of the register with the actual legal state (German variant of the Grundbuch model) or about the previous disposition made by the transferor in favour of the first purchaser (French variant of the transcription model). Positive knowledge of the above circumstances allows to impute bad faith to the purchaser, eliminating the possibility of protection by the principle of public faith. However, the systems analysed in this paper show significant deviations from this typical pattern, both towards broadening the scope of the concept of bad faith (e.g. Swiss and Austrian variant of the Grundbuch model, deeds recordation model) and its significant narrowing or even elimination by replacing the concept with the one of fraud (title registration model). The choices made by individual legislators are motivated either by the desire to increase the security of trade (which is achieved by narrowing the concept of bad faith), or the desire to take more account of axiological factors, consistent with the sense of justice (this goal is achieved by broadening the concept of bad faith). Common for all analysed models providing for the criterion of good faith (or lack of fraud) as the prerequisite of protection is however shifting the burden of proving bad faith (or fraud) to the person who derives legal consequences from this circumstance.

4. The effect of the principle of public faith of land register is the definitive and final acquisition of a right without encumbrance by unregistered rights of third 124parties (negative aspect) or effective acquisition from an unauthorised person (positive aspect). This effect, in turn, opens the way for the person who has lost the right in this way to claim appropriate compensation, whereby his claims, depending on the solutions adopted at the level of a given model, may have different grounds and be directed towards the transferor, purchaser or public institutions (e.g. insurance funds in the title registration model). Against this background, original solutions adopted in the Austrian variant of the Grundbuch model stand out, enabling a materially entitled person – in the case of the so-called original inconsistency of the content of the land register with the actual legal state – to neutralise the operation of the principle of public faith of this register, by bringing an action for “restoration of the previous register status”, subject to strict deadlines.

Concluding the above considerations, one should wonder whether it is justified to make a value judgement between the solutions adopted within the framework of the abovementioned register models. In this context it can be noted that the observance of the positive side of the principle of public faith by the registers in the models of Grundbuch and title registration is a manifestation of the view about the necessity to ensure security of trade at the expense of another universal principle: nemo plus iuris in alium transferre potest quam ipse habet. The basic consequence of the principle of public faith is the loss of a right by a materially entitled person, which consequence is mitigated by instruments provided most frequently by general provisions of civil law (e.g. concerning compensation for damages). This consequence may be debatable, as it is based on a certain axiological choice, which may be questioned. Moreover, the observations made above have shown that none of the models in operation embodies this principle in an absolute manner. The protection of market participants under these models is almost always of a selective nature. The criteria taken into account by the different systems vary; for example, purchasers of rights in fraudulent circumstances (title registration), purchasers in bad faith (Grundbuch model), purchasers on the basis of gratuitous transactions (title registration model, Austrian variant of the Grundbuch model) etc. are excluded from the protection provided. It is also characteristic that the intensity of the protection granted to market participants varies even within the various models implementing the principle of the public faith of the register in its positive sense^[207]. On the other hand, it should be emphasised that a breach of the principle nemo plus iuris in alium transferre potest quam ipse habet also occurs e.g. within the framework of deeds recordation and transcription models, traditionally included in the so-called 125“negative” models. Finally, it is worth noting that the literature presents views according to which solutions implementing the positive side of the principle of public faith should not be overestimated. While they ensure greater security of trade, this happens at the expense of other important values, such as speed and low costs of real estate trade^[208].