This Doctrine of Priority is based on the maxim Qui prior est tempore potior est jure.
This article discusses the doctrine of priority. As the title itself suggests, the doctrine tells about who would be given priority over others or who would be preferred first. The courts have faced and still face a lot of problems in determining whose rights are to be given priority over the other when parties before the court have conflicting interests. The doctrine of Priority solves this problem faced by the courts to a large extent. This doctrine is embodied in Section 48 of...
This article discusses the doctrine of priority. As the title itself suggests, the doctrine tells about who would be given priority over others or who would be preferred first. The courts have faced and still face a lot of problems in determining whose rights are to be given priority over the other when parties before the court have conflicting interests. The doctrine of Priority solves this problem faced by the courts to a large extent.
This doctrine is embodied in Section 48 of the Transfer of Property Act, 1882. The need for the doctrine is, there arises the situation where the transferor of property deals with the same property or transfers or creates rights in the same property, to different people subsequently.
The question of who will have the right over the others in cases where the rights of subsequent transferees are clashing and there is no contract between the parties to deal with the same would be determined by Section 48 of TPA.
I. Essentials of Section 48
- The transferor transfers the rights to the same immovable property
- At different times – one interest created should be prior in time, and another should be subsequent.
- Such rights created cannot coexist or cannot be enjoyed to the full extent together.
- Then, each later right created is subject to the previously created rights.
Provided that there is no contract to the contrary or reservation binding the earlier transferee.
Note: the property in question must be the same, and the rights created in favour of different transferees must be in conflict in order to attract this principle.
Qui prior est tempore potior est jure – Basis of the principle
This rule is based on the maxim Qui prior est tempore potior est jure which stands for: he who is prior in time is better in law, meaning that the subsequent dealings by the transferor of the same property cannot prejudice the rights of the transferee of the same property (prior transferee).
When a transferor transfers the same property in favour of several transferees, each transferee will take the property with the rights of the former transferee. It is also based upon the principle that no man can transfer the title other than which he’s entitled to. The subsequent lease cannot prejudice the rights of the old tenant. [1]
Examples:
- X mortgages his property to Y for Rs. 90,000/-. And then sells the property to Z. Here, two transfers have occurred. Now Z owns the property, but according to the law, the property is still subject to the mortgage, and in case of default of payment of the loan, the mortgagee can cause the property to be sold. As the later transfer is subject to the prior transfer.
- X grants a lease of his house to Y for 2 years. After the execution of the lease deed for 1 year, he sells the property to Z. Here X has transferred the same property to two people. The parties' rights cannot be enjoyed together as the owner, and the lessee both have the right to possession over the property. According to the rule laid out in Section 48 of TPA, the subsequent transferee will take the property with the right of the former transferee.
Hence, in this case, Z, who is the subsequent transferee, will take the property with the rights of the prior transferee, i.e. Y’s right would be given priority over Z’s right. And Z would not be able to take possession of the property with the immediate effect of the transfer but would have to wait till the determination of the lease.
In case of subsequent mortgages, the subsequent mortgagee merely gets equity of redemption and if he sues for the sale on his mortgage, it will be sold subject to the prior mortgage.
II. Exceptions to the rule of Priority
1. Where in prior transfer, the procedure laid out by the law which is compulsory is not followed
Hence, where the prior transfer is incomplete in the eyes of the law, there doesn’t arise any question of conflict of rights or interest in the property. Example: A executed a lease deed of immovable property in favor of B for 5 but didn’t get it registered. Registration of a lease deed which is for one or more than one years is compulsory.
A subsequently sold the same property to C. Here C can have immediate possession of the property if he wishes so. The rights of C would be given preference over the rights of B. And the rule of Priority would not be attracted here. When the conflict is between two registered documents, the earlier document but registered later would be preferred over the later document but registered earlier.[2]
2. Where the subsequent transfer or the second transfer takes place by virtue of the court
If the court has ordered for the subsequent transfer, then the subsequent transfer would be preferred over the prior transfer and the rights of the subsequent transferee would be given preference over the prior transferee. Hence, in this case, the Doctrine of priority will not apply.
3. Estoppel
Here, if the prior transferee is aware of the subsequent transfer taking place, i.e. the subsequent transfer is taking place, and the same is within the knowledge of the prior transferee, the subsequent transferee would be given preference. And the rule of priority would not be attracted. It is not needed for the prior transferee to be familiar with the exact details of the transfer.
4. Salvage charges
The salvage charges are the amount paid to protect the encumbered property from loss or destruction. Such amounts are recoverable/payable in priority to all other charges.
5. Notice / Section 78
Because of the fraud, misrepresentation or negligence of the prior mortgagee, a person gets induced and advances money on the security of the mortgaged property, then that person (the subsequent mortgagee) would be given priority over the prior mortgagee.
Having notice means either being familiar with the fact or the person is unaware of the fact because of his own gross negligence; if there were no negligence on his part he would be familiar with the facts.
So where a bona fide contract is made for the sale of property, and a third party, afterwards buys the property with notice of the prior contract, the title of the 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. But the transfer that has been made prior in time must be bona fide.
III. Section 50 of the Registration Act, 1908
Section 50 of the Registration Act provides for the categories of the registered documents relating to the land to take effect against unregistered documents. Hence, it gives the holder of a subsequently registered deed priority in respect of his deed over the holder of an earlier unregistered deed not being compulsorily registrable if the holder of the registered deed had, at the time of its execution, a notice of the earlier unregistered deed.
Other than those categories mentioned, where the parties execute a registered deed at any time subsequent to prior, but an unregistered deed is subject to the doctrine of notice, i.e. the parties executing the registered deed after the unregistered deed did not have the notice of it. [3]
In ICICI Bank Ltd. v. SIDCO Leathers Ltd. And Ors. [4],
The applicability of Section 48 in cases of Companies was questioned. It was held that there doesn’t exist any provision in the Companies Act which provides that the provisions of Section 48 of the Transfer of Property Act would not be applicable in relation to the affairs of a company.
Unless, expressly or by necessary implication, such a provision contrary to or inconsistent which shows a different intent can be found in the Companies Act, Section 48 of the Transfer of Properties Act, cannot be held to be inapplicable. This case further provides with exceptions to Section 48 of TPA / Doctrine of priority.
[1] Nihal Chand v. Natha Singh, (1962) 64 Punj. L.R. 680.
[2] Duraiswami Reddi v. Angappa Reddi, (1945) I M.L.J 425
[3] ICICI Bank Ltd. v. SIDCO Leathers Ltd. And Ors. (2006) 10 Supreme Court Cases 452
[4] ICICI Bank Ltd. v. SIDCO Leathers Ltd. And Ors. (2006) 10 Supreme Court Cases 452
