Toohey v Gunther

The High Court of Australia heard an appeal from the Supreme Court of New South Wales concerning a dispute over the sale of a hotel property. The appellant, the purchaser, refused to complete the purchase from the respondent, the vendor, after discovering a restrictive covenant, known as a "tie," in a bond executed by a predecessor in title. This bond obligated the hotel's trade to a brewery company until 1935 and stipulated that the brewery company could retain the certificate of title as security. The vendor subsequently rescinded the contract and forfeited the purchaser's deposit.

The central legal issues before the High Court were whether the restrictive covenant in the bond was binding on a subsequent purchaser with notice, whether the discharge of the original mortgage affected the validity of the bond, and whether the provisions of the Real Property Act 1900 (N.S.W.) and the Conveyancing Act 1919 (N.S.W.) impacted the enforceability of such a covenant against a registered proprietor or a purchaser from one. The court also considered whether the title offered was too doubtful to be forced upon a purchaser.

A majority of the High Court, comprising Knox C.J., Isaacs, Higgins, and Starke JJ., held that the appellant was not justified in refusing the title. The court reasoned that the bond, when viewed in conjunction with the mortgage and bill of sale, constituted a single transaction that was subject to equitable principles preventing fettering of the equity of redemption. Furthermore, the court found that the provisions of the Real Property Act, particularly sections 42 and 43, protected subsequent registered proprietors and purchasers from unregistered interests, even if they had notice of such interests, unless fraud could be established. The majority concluded that the vendor had a clean title under the Act, rendering the restrictive covenant unenforceable against the purchaser.

The appeal was dismissed, affirming the decision of the Supreme Court. The court ordered that the appeal be dismissed, meaning the vendor was entitled to rescind the contract and forfeit the deposit, and the purchaser was not entitled to a declaration that the vendor had not shown a good title.