Doctrine Of Priority In Property Law
The determination of the relative rights and priorities of successive assignees of the same or overlapping rights has been a serious problem for the Courts. When there are two or more competing equitable interests, the equitable maxim qui prior est tempore potior est jure (he who is earlier in time is stronger in law) applies. This means that the first in time prevails over the others. Section 48 of the Transfer of Property Act embodies this principle in legislation.
The Section is founded upon the important principle that no man can convey a title than what he has.
The article looks into the law applicable in case of conflicting rights created over the same property, its basis, exceptions, with judicial interpretations and its application in modern times.
BASIS OF THE PRINCIPLE
It is a principle of natural justice that if rights are created in favour of two persons at different times, the one who has the advantage in time should also have the advantage in law. This rule, however, applies only to cases where the conflicting equities are otherwise equal.2
Section 48 of the Transfer of Property Act 1882 is founded upon the important principle that no man can convey a title than what he has. If a person has already effected a transfer, he cannot derogate from his grant and deal with the property free from the rights created under the earlier transaction. Section 48 is an absolute in its terms and does not contain any protection or reservation in favour of a subsequent transferee who has no knowledge of the prior transfer.3
Madras High Court in Duraiswami Reddi v. Angappa Reddi4 held that the prior transferee would be entitled to enforce his rights though his document is registered later and even if the subsequent transferee entered into transactions bona fide without knowledge of the first transaction. It was held that this result was implicit and was a direct consequence of the combined operation of Section 47 of the Registration Act and Section 48 of the Transfer of Property Act. It is also observed that the right of priority of the first transferee would be postpones only if the later transferee establishes any informative circumstances like fraud, estoppels or gross negligence.
Reference may be made to the following observations at page. 426. "Such a plea, if allowed would lead to much fraud. If a later document registered earlier is to prevail over an earlier document registered later it would always be easy for the vendor and the later purchaser to enter into a transaction within the time given for registration of the earlier document and get the new deed registered immediately and thus defeat the purchaser under the earlier deed." This decision was followed in a later decision of the Madras High Court in Ramaswami Pillai v. Ramaswami Naicker,5 as well as in the Bench decision of the Andhra Pradesh High Court in Jagannatha Rao v. Raghavarao.6
In K.H. Nathan v. Maruthi Rao7, it was held by the Supreme Court that the mortgage-deed became effective and operative from the 5th July, 1947, when the mortgage was registered and would prevail over a transfer which took place between the date of the execution and registration of the earlier transaction.
If there are successive transfers of the same property, the later transfer is subject to the prior transfer.8
APPLICABILITY OF THE RULE
Where the competition is between a mortgagee by deposit of title-deeds and a subsequent purchaser, the principle embodied in Section 48 is applicable.9
Section 48 of the Transfer of Property Act does not admit of any exception.10
In Sitaram v. Rajnarain11, Rachpal Singh, J., and Smith, J., have held that the question of priority between a mortgagee and a subsequent purchaser is governed by Section 48 and is not protected by the provisions of Sec.41 there is no proof of negligence not the part of the mortgagee.
The right of priority will have to be determined by the combined operation of Section 48 of the Transfer of Property Act and Sections 47 and 49 of the Registration Act. Any undue emphasis upon Section 49 of the Registration Act in isolation would render nugatory and useless the equally important provisions in Section 47 of the Registration Act and Section 48 of the Transfer of Property Act. Once the document is registered, Section 49 of the Registration Act has no relevance and the document takes effect from the date of its execution by reason of Section 47 of the Registration Act will necessarily have to be determined in accordance with the rule embodied in Section. 48 of the Transfer of Property Act.12
The charge which the Plaintiff has under the indemnity clause in the partition deed is not entitled to priority or even equality with the charge which Defendant 1 has for the money due to him for he is entitled to priority over the charge in Plaintiff's favour.13
Subsequent lease cannot operate to the prejudice of the old tenant.14
OWELTY OR EQUALITY OF PARTITION
While effecting a partition of the property belonging to the joint family, it would not be possible to divide the properties by metes and bounds there being necessity of an allocation of properties of unequal volumes amongst the members of the joint family. Properties of larger value might go one member and properties of a smaller value of another and therefore there would have to be an adjustment of the values: by providing for the payment by the former of the latter by way of equalization of their shares. This position has been recognized in law and a provision for such payment is termed "a provision for owelty or equality of partition."15
This provision for owelty is construed as a lien which the co-sharer who is awarded owelty is deemed to acquire on an excessive allotment of property to the other co-sharer.
It follows that when an owelty is awarded to a member on partition for equalization of the shares on an excessive allotment of immovable properties to another member of the joint family; such a provision of owelty ordinarily creates a lien or a charge on the land taken under the partition. A lien or a charge may be created in express terms by the provisions of the provisions of the partition decree itself. There would thus be the creation of a legal charge in favour of a member to whom such owelty is awarded. If, however, no such charge is created in express terms, even so the lien may even so the lien may exist because it is implied by the very terms of the partition in the absence of an express provision in that behalf. The member to whom excessive allotment of property has been made on such partition cannot claim to acquire properties falling to his share irrespective of or discharged from the obligation to pay owelty to the other members.16
The principle of the section cannot apply where the two interests do not conflict. Thus in a case where the property is mortgaged to one and subsequently sold to another, this section will not apply, for the purchaser has obtained only the equity of redemption. So there is no conflict between a completed sale and contract for sale, as the latter confers no right on the property.17
An unregistered sale-deed, where registration is compulsory, would confer also no rights upon the vendee, and he cannot, therefore, claim as against the registered transferee.18 But it is otherwise if the latter had notice of the former.19
If A mortgages or sells to B and afterwards C purchases at a Court-sale the then existing right, title, and interest of A, C buys in the first case the equity of redemption and in the second nothing at all. In such a case registration cannot help, for on the very face of his certificate of sale, the property comprised therein is not the property previously conveyed to B, but only the residue of A's estate after such conveyance.20
In Chouth Mal v. Hira Lal21, an agreement to sell land in favour of one defendant was executed on 17th January, 1932. The sale-deed was executed in defendant's favour on 5th May, 1932. But in the meanwhile owners executed an usufructuary mortgage of the same land in the plaintiff's favour on 20th February, 1932. It was held that the mortgage must have its due effect as against the subsequent sale.
Once it is accepted that the parties really intended to convey the suit properties and possession of the said properties was in fact delivered to the conveyee in pursuance of the said conveyance, the mere omission of the plot numbers in the sale-deed is not of any consequence.22
According to Section 48 to the Transfer of Property Act, if the same property has been transferred at different times the subsequent transfer shall not confer any right, title or interest on the basis of the subsequent transfer vis-à-vis the first transfer.23
EXCEPTIONS TO THE RULE
(I) Salvage Charges
An exception to the rule qui prior est tempore is to be found in the salvage charges created on account of advances made to save the encumbered property from loss or destruction. Such advances are payable in priority to all other charges of earlier date, and amongst themselves have precedence in the inverse order of their respective dates.24 On the same principle, where the court authorises the Receiver to borrow money on a mortgage directing that it should constitute a first charge on the property, it will take priority over any other mortgage though of an earlier date.25 But in order to confer such priority the loan must have been raised for the purpose of preserving the property.26 If in such a case the Court even improperly confers priority, of which the mortgagees affected thereby have notice, the order may hold good against them unless it is set aside.
The rule also yields to the equitable principle of estoppel. This, in a case where the first mortgagee was a witness to the second mortgagee, though there was no actual proof of his knowing the contents thereof, yet, since the presumption is that he might have known the same, he was postponed to the second encumbrancer.27 So also, where the registered purchaser was present when possession was made over to the unregistered purchaser, the former was on that account postpones to the latter.28 A party paying off a prior mortgage is not stopped but has a right to use that mortgage as a shield against a subsequent mortgage if his intention was to keep the prior mortgage alive.29 No subsequent mortgage is bound in law to give notice of his encumbrance to the prior encumbrancers. In any case nothing short of estoppels would postpone him to the subsequent transferee. The rule is same in England, and no rule of Hindu law requires such a notice. Mere absence of activity on the part of an equitable encumbrancer cannot postpone his encumbrance.
(iii) By the Registration
An instrument operates from the date of its execution, and it is immaterial that it is compulsorily registrable, for in that case too, it will operate from the same date. Where two or more deeds are executed on the same day and the order of their execution cannot be ascertained, all the deeds will take effect at once, and pari passu. Such a case is analogous to that of a devise to A, and then devise of the same estate to B in a subsequent part of the will, which will give the estate to A and B either jointly or as tenants in common.30 Where two deeds bearing different dates are registered on different days, priority as between them is ascertained with reference to the dates of the deeds and not with reference to the date on which they were respectively registered; and this priority is not influenced by the fact that the party having the later deed is in possession of the property.31 Where after execution, but before registration, the deed is lost and another had to be executed in its place, the vendor having between the two dates re-sold the property by a registered deed to another with notice of the prior sale, it has been held that the first purchaser was entitled to a decree on his sale-deed.32
(iv) By notice
Section 78 enunciates the cases in which the rule of this section would be departed from. Thus, it has been held that Section 50 of the Registration Act, 1877, did not avoid to give the holder of a subsequent registered deed priority in respect of his deed over the holder of an earlier unregistered deed not being compulsorily registrable, if in fact, the holder of the registered deed had, at the time of its execution, notice of the earlier unregistered deed.33 So where a bona fide contract, whether oral or written, is made for the sale of property, and a third party, afterwards buys the property with notice of the prior contract, the title of party claiming under the prior contract prevails against the subsequent purchaser, although the latter's purchase may have been registered, and although he has obtained possession under this purchase.34
If a person who is about to take a mortgage which must be made by registered deed, finds some person other than the intending mortgager in possession, the fact of such possession is sufficient to put the would be mortgagee on enquiry as to the title of such person, and if such person's title is that of a prior mortgagee under a document not compulsorily registrable, the second mortgagee cannot, by getting his mortgage registered, obtain priority over the first mortgagee. Possession in certain cases is notice of the title of the person in possession and a party intending to deal with the property is bound to inquire into the nature of the possession. If he assumes that the occupant is a tenant and it appears that he had since purchased the land, the subsequent transferee would be affected with notice of the purchase.35
(vi) By decree or order
A decree or order passed in respect of a property does not by itself acquire any priority over registered deeds. A decree or order obtained upon an unregistered prior deed against the mortgagor alone, subsequently to a registered transfer of the mortgaged property, does not obtain preference in competition with the latter.36
Section 48 determines the priority when there are successive transfers. It provides that 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 fullest extent together, each later created right shall, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created. Section 49 of the Registration Act provides that until the document is registered, it shall not affect any immovable property nor can the document be received in operation of the provisions of Sections 48 and 54 of the Transfer of Property Act and there would be compliance of provisions of Section 54 of the Transfer of Property Act as well as Section 49 of the Indian Registration Act.
The question of priority has, therefore, to be determined only with reference to the principle embodied in Section 48 of the Transfer of Property Act. Section 48 incorporates an important principle that no man can convey a title better than he himself possessed. If a person has effected a transfer of property, he cannot thereafter deal with the same property, ignoring the rights already created by the earlier transfer effected by him.
Thus, according to 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 prior est jure. The section is just an expression of this well-known common law principle.
• Dr. Sir Hari Singh Gour, The Transfer Of Property Act (11th ed. 2008)
• M.R. Malik, Goyle's A Commentary On The Transfer Of Property Act ( 2nd ed.)
• Mulla, The Transfer Of Property Act 1882 (10th ed. 2010)
• R.K.Sinha, The Transfer Of Property Act(11th ed. 2010)
• Vera P. Sarthi, G.C.V Subba Rao's Law Of Transfer Of Property (Easments, Trusts And Wills) (Reprint ed. 2005)
• The Transfer Of Property Act,1882
• Indian Registration Act, 1908.
. S. Arunachalam v. Sivan Perumal Asari, AIR 1970 Mad 226 at p.230.
. Duraiswami Reddi v. Angappa Reddi, (1945) I M.L.J 425
. AIR 1960 Mad 396.
. (1963) Andh. W.R. 267
. AIR 1965 SC 430
. State of Andhra Pradesh v. Shri Rajah Ram Janaradhana Krishna Rangarao Bahadur Varu AIR 1966 A.P. 233
. Bisseswar Poddar v. Nabadwip Chandra Poddar, AIR 1961 Cal 300.
. Ishwar Dass Malhotra v. Dhanwant Singh, 26 (1984) Delhi Law Times, 377
. AIR 1934 Oudh. 283
. (1969) 2 MLJ 530.
. Narayana Bhatta v. Shankara Narayana Bhatta, 1958 Ker. L.T. 41
. Nihal Chand v. Natha Singh, (1962) 64 Punj. L.R. 680. at pp. 684-85.
. T.S.Swaminath Odayar v. Official Receiver of West Tanjore, AIR 1957 SC 577 at pp. 581-82.
. Mahabir Prasad v. Chhoti Singh, 49 I.C. 39
. Section 54, Transfer of Property Act.
. Waman Ramchandran v. Dhondiba Krishnaii, 4 Bom. 126
. Anundo v. Dhonendro, 14 M.I.A. 101
. Sobhagchand Gulabchand v. Baichand, 6 Bom. 193 F.B.
. AIR 1950 Ajmer 50.
. P. Rammurty v. A. Kalpo Patra, AIR 1958 Pat. 193 at pp. 195-96
. Hafiz Md. Anwar v. Jamuna Prasad Singh, AIR 1958 Pat. 193 at pp. 195-96
. Fisher, Mortgage, Sec.958.
. Girdharilal v. Drivendra, I.L.R. 34 Cal 427 at p.441.
. Ibid. at p.442
. Mocatta v. Murgatroyd, I.P. Wms. 393.
. Somnathdas v. Sindhu, 5 C.P.L.R. 97
. Gokaldas Gopaldas v. Puranmal Prem Sukhdas, I.L.R. 10 Cal. 1035 (P.C.)
. Hopgood v. Earnest, 46 E.R. 581 at p. 582.
. Narayana Venkap Setti v. Laxuman Shantaya Kini, I.L.R. 29 Bom. 42
. Nalappa Reddi v. Ramalingachi Reddi, I.L.R. 20 Mad. 250.
. Shivram v. Genu & Hanmantrao, I.L.R. 6 Bom 515..
. Chunder Kant Roy v. Krishna Sunder Roy, I.L.R. 10 Cal. 710.
Khondiba Bin Babaji v. Nana Shidras, I.L.R. 27 Bom 408.
. Ishan Chandra v. Gonesh, I.L.R. 28 Cal. 139 at p.141.
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