DOCTRINE OF PRIORITY

THE RULE OF PRIORITY [SECTION 48]

The transferor cannot prejudice the rights of the transferee by any subsequent
dealing with the property. This self-evident proposition is expressed in the
equitable maxim qui prior est tempore potiorest jure which literally means that
"he who is prior in time shall prevail in law". The principle underlying this rule
is one of natural justice and the core elaboration of this rule is that two
successive transfers of the same property by sale or mortgage cannot co-exist;
the later in date must give way to the earlier.

Moreover, where there are two encumbrances on the same property, the first
encumbrancer must be first satisfied, and if necessary, he can exclude the
second. The application of this maxim in English Law is complicated by the
preference given to the legal estate over the equitable interest.

According to section 48,

 Where a person purports to create by transfer at different times rights in

or over the same immovable property, and
 Such rights cannot all exist or be exercised to their full extent together,
 Each later created right shall be subject to the rights previously created in
the absence of a special contract or reservation binding the earlier
transferees.

This means, if a person transfers a property at different times and it is not

possible to exercise rights over the property by transferees to their full extent
simultaneously, then the first transfer shall be effective. After that the later
transfer will be effective.

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But if there exists any special contract or reservation binding the earlier
transferee on that case the earlier transferee shall not get priority over the later
transferee.

For example, if A mortgages his land to B, first, subsequently A mortgages such

land to C. Both B and C are entitled to recover their mortgage money. But here
B will get priority over C. But if there is any special contract or reservation
which binds B on that case B will not get priority over C.

Owner of an immovable property is at liberty to transfer any kind of interest in

his property to any person. He may transfer partial interest to one person and
absolute interest to one person and absolute interest of the same property to
another person.

For example, he may give his house on lease to A and mortgage the same house
to B and ultimately sell it to C. Whenever such successive transfers are made,
the ultimate transferee takes the property subject to prior interests.

But, there might be cases when same kind of interest is transferred successively
to two or more persons in the same property. In such cases, use or enjoyment of
the property by one may be against the interest of the other and the transferees
cannot enjoy the property together. To deal with cases where same property or
interest therein is transferred to different persons in such a manner that use or
enjoyment by one transferee is against the interest of the other, the rule of
priority is applied.

It is an equitable principle expressed in the maxim: qui prior est tempore potior
est jure, which means “first in time is better in law”. Law incorporated in
section 48 is based on the equitable principle stated above and provides that if
there are successive transfers of the same property, the later transfer is subject to
prior.

Section 48 enacts that where,

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  a person purports to create rights in or over the same immovable
property,

 at different times, and

 The subsequent transfers are such that the rights in property cannot be
exercised to their full extent together.
Then, each later created right shall be subject to the previously created rights.

However, the rule under this section is subject to any special contract or
reservation binding the earlier transferee.
This section deals with cases where the successive interests are equal but
conflicting. It does not apply where the interests created are unequal and there is
no. inconsistency in them. For instance, where a property is mortgaged to A and
thereafter sold to, B, the interests of A and B are unequal, A has partial interest
whereas B has absolute interest. B takes the property subject to mortgage in
favour of A. In legal language B purchases the equity of redemption.

But, where there are two mortgages of the same property one after the other, the
later mortgage is subject to prior. That is to say, the subsequent mortgage may
sue for sale on his mortgage but the property shall be sold subject to prior
mortgage. Where the two successive mortgages are usufructuary mortgages i.e.
mortgage with possession, the prior mortgagee is entitled to possession under
the rule of priority.

Essential Requirements for Application of Doctrine of Priority

under Section 48:

The essential requirements for the application of doctrine of Priority are as

follows:

 A property must be transferred to different person and at different time.

 The transferred property to different person must be same.

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  The transferred property must be immovable property.
 The transfer must be in accordance with law and valid.
 All the transferee cannot exercise their rights over property at the same
time.
 The nature of the right or interest over property must be same, for
instance, either the rights or interests must be mortgage.
 There shall not be any special condition or reservation to the contrary.

Transfers Executed on the Same Date:

If two or more transfers are executed on the same date, then the evidence may
be taken as to which was executed first and that will have the priority.

Different Dates

It is necessary that the two transfers are made successively i.e. have been made
on different dates or, if made on the same date, one is earlier to the other. Where
the transfers are made through registered instruments, it is the date of execution
and not the date of registration which determines the precedence. Where the two
transfers are on the same date, evidence may be taken to determine as to which
transfer was made earlier and the first one gets priority. But, if the priority
cannot be determined, the rule of priority has no application and in such a
circumstance, the mortgagees take as tenants-in-common, or joint-tenants. It
may be noted that this section deals with priority of transfers in general terms on
the basis of the date of transfers. Special rules relating to priority have been
dealt with at appropriate places in this Act especially under sections 78, 79 and
80.

Exceptions

Many exceptions also have been recognized to this rule. The rule of priority as
given in section 48 is not applicable in the following cases:

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  Section 50 of the Registration Act gives priority to a subsequent
registered deed over a prior unregistered deed of which the registration is
optional. However, this exception is subject to the doctrine of notice.
 Where transfer deed is executed through fraud, misrepresentation, or
gross negligence of prior transferee (mortgagee), the priority of the prior
mortgagee will be postponed. (Section 78 of the Transfer of Property Act)
 In a suit for partition, if the receiver under the direction of the
Government mortgages the whole or part of the estate, the mortgagee
would be entitled to priority over an execution creditor by whom the
property was attached after the commencement of the suit for partition.
 The lien of a co-sharer for owelty money on partition is entitled to
precedence over prior mortgages of property allotted to the co- sharer
who is liable to pay owelty.
 A previous mortgage by a co-owner of his share was subject to a prior
charge created by a manager over the whole estate under section 98 of the
Bengal Tenancy Act, 1885.

Priority of Registered and Unregistered Deed:

Generally, a registered deed will get priority over the unregistered deed. Where
the registration of a deed is compulsory under the Registration Act, 1908, then
there arises a question of priority of the registered deeds under section 48 of the
Transfer of Property Act.

If the registration of a deed is compulsory and if it is not registered then it will

not get priority over any registered deed.

Where two deeds are executed and registered on the same date, then the deed
which is executed and registered at first will get priority over later deed.

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Postponement of Prior Mortgagee/ Exception to the General Rule
of Priority (Section-78):

RULE OF PRIORITY:

We now proceed to consider the rights of the mortgagees inter se. As a property
may be mortgaged more than once, a conflict is likely to arise as to the rights
which the mortgagees possess among themselves. The fundamental rule is: 'he
who is prior in time is prior in right (qui prior est tempore postiorest jure).

Suppose a property of the value of Tk. 10,000 is mortgaged first to A for Tk.
5,000 and then to B for Tk. 2,000 and then to C for Tk. 1,000. If the mortgage
money is not paid and the property comes to be sold, A will get his money first,
and then out of the balance B will be paid before C.

According to Section 78,

 Where, through the fraud, misrepresentation or gross neglect of a prior

mortgagee,
 Another person has been induced to advance money on the security of the
mortgaged property,
 The prior mortgagee shall be postponed to the subsequent mortgagee.

This section is an exception to the general rule of priority. It says that where a
subsequent mortgagee is induced to give money to the mortgagor due to fraud,
misrepresentation or gross neglect of a mortgagee prior to him, the prior
mortgagee shall be postponed to the subsequent mortgagee i.e., the subsequent

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mortgagee will be repaid earlier than the prior mortgagee. The mortgagee later
in time be paid before the person earlier in point of time.

For example, where A mortgages his property at first to B and when he

subsequently tries to mortgage it to C again, C inquiries from B whether the
property has any prior encumbrance, he conceals the fact of his own mortgage.
Here B has committed fraud, and therefore, he will be postponed to subsequent
mortgagee C.

Priority Forfeited

Priority is forfeited by fraud, misrepresented or gross negligence. If a prior

mortgage is to secure future advances and express the maximum to be secured,
a puisne mortgagee who has notice of the prior mortgage is not entitled to
priority over subsequent advances by the prior mortgage within the amount of
the expressed maximum.

Fraud

Fraud means any act committed by the party charged or with his connivance, or
by his agent, with the intention of deceiving another party and includes the
suggestion, as a fact, of that which is not true by one who does not believe it to
be true or the active concealment of a fact. The term 'fraud' is used here in the
sense of the definition provided in section 17 of the Contract Act, 1872. Under
the explanation to that section non-disclosure is not a fraud unless in the
circumstances of the case there is duty to speak or unless silence is equivalent to
speech.

Misrepresentation

Misrepresentation has been defined in section 18 of the Contract Act. It includes

an innocent misrepresentation, that is, where there is no Intention to mislead
another person. Thus, if the mortgagee stands by and sees another person

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lending money on the same property without informing of his first mortgage, it
is a clear misrepresentation and he will lose his priority.

Gross neglect

It has been laid down in various cases that the expression 'gross neglect' is
something different from fraud. It means a failure on the part of the prior
mortgagee to take reasonable precautions against the risk of a subsequent
mortgagee being deceived.

The case of Lloyds Bank Ltd. vs. P. E. Guzdar & Co. exemplifies the rule. In
that case, G deposited title deeds of his property with Bank N to secure an
overdraft. The Bank after sometime on the on the request of G returned the
deeds to G who then borrowed money from Bank L on a deposit of the same
deeds. It was held that the Bank L had priority over the mortgagee to Bank N.

It was held that it would be gross negligent within the meaning of section 78, if
a prior mortgagee has by any act or omission enable the mortgagor to deal with
the property as if it is no encumbered. In proof of gross negligence, all that is
necessary to show is not direct and positive fraud, but lack of good faith in the
sense of due care and attention.

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