The Doctrine Of Priority In Property Law

Coverage of this Article

KEY TAKEAWAYS

-Section 48 helps courts take decisions in situations where there are incomplete or conflicting rights arising from the sale of immovable property.

INTRODUCTION

-The concept of the doctrine of priority is set by Section 48 of the Transfer of Property Act, 1882. 

THE DOCTRINE OF PRIORITY

-“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, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created.” - Section 48 of Transfer Property Act 1998.

CASE LAWS

In Duraiswami Reddi v. Angappa Reddi{(1945) 1 MLJ 425}, held that even if the documents of a prior transferor are registered later on, he will still be given priority over subsequent transferee. This also holds true even when the latter transferee didn’t have any knowledge about the previous transaction.

In SFL Industries Ltd v. Reliance Capital Ltd, {AIR 2015 P&H 116} Section 429A in the Companies Act, 1956 didn’t specifically provide for rights of priorities over mortgaged assets. In such circumstances Section, 48 of TPA becomes applicable. Accordingly, the claim of the first charge holder would prevail over the claim of the second charge holder.

ESSENTIALS OF THE DOCTRINE

-Only applicable to immovable property

ILLUSTRATION OF DOCTRINE

-X is the owner of the immovable property. He mortgaged that property to Y in the month of June. 

EXCEPTIONS OF DOCTRINE OF PRIORITY

-This is covered under section 78 of the Transfer of Property Act and is an exception to the doctrine of priority. In this section, if the prior mortgagee conducts some fraud, gross negligence, or misrepresentation and induces any person to give security money for the same property, then the prior mortgagee is postponed to the subsequent mortgagees. As a result, the subsequent mortgagee will have priority in the rights of the property over the prior mortgagee.

CONCLUSION

-Section 48 helps court take decisions in situations where there are incomplete or conflicting rights arising from the sale of immoveable property.

KEY TAKEAWAYS

• Section 48 helps courts take decisions in situations where there are incomplete or conflicting rights arising from the sale of immovable property.
• There are exceptions to the doctrine of priority.
• Only applicable to immovable property.
• Protects the rights of the first transferee.

INTRODUCTION

The concept of the doctrine of priority is set by Section 48 of the Transfer of Property Act, 1882. This doctrine helps the court in determining the party to whom the rights are to be given priority over the other in a case where the court has conflicting interests. The need for this doctrine arises in a situation where there are conflicting rights created over the same property. It helps the courts resolve such cases efficiently.

THE DOCTRINE OF PRIORITY

“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, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created.” - Section 48 of Transfer Property Act 1998.

This doctrine is drawn from the Principles of Natural Justice which states that if the rights are made in favour of two different people at different times, then the one who has the advantage in time will get the advantage in law as well. However, this principle applies only within the cases where the conflicting equities of the parties involved are otherwise equal. The doctrine of priority under Section 48 is inspired from the legal maxim, qui prior est tempore potiorest jure which essentially means one who is first in time is greater in law.

This Section lays down a crucial principle that states, no man can convey a title apart from what hehas. This suggests that when a transferor transfers the same property in favour of more than one transferee, then each transferee will enjoy the property together with its right as the former transferee. Under this doctrine, if an individual has already created a transfer of the property in motion, then he cannot ignore his grant and treat the property free from the rights that were created in an earlier transaction. This Section is absolute in nature and does protect or reserve in favour of the transferee, who might not even know about the prior transfer. The principle of the doctrine of priority explained under Section 48 is applicable where there is conflict among the mortgagee by retaining title deeds and a subsequent transferee.

CASE LAWS

In Duraiswami Reddi v. Angappa Reddi{(1945) 1 MLJ 425}, held that even if the documents of a prior transferor are registered later on, he will still be given priority over subsequent transferee. This also holds true even when the latter transferee didn’t have any knowledge about the previous transaction.

In SFL Industries Ltd v. Reliance Capital Ltd, {AIR 2015 P&H 116} Section 429A in the Companies Act, 1956 didn’t specifically provide for rights of priorities over mortgaged assets. In such circumstances Section, 48 of TPA becomes applicable. Accordingly, the claim of the first charge holder would prevail over the claim of the second charge holder.

ESSENTIALS OF THE DOCTRINE

• Only applicable to immovable property
• There should be presence of one transferor and more than one transferee
• The transfer should have been made at different times and should have created rights of the transferee
• This right cannot be exercised to the fullest at the same time.

ILLUSTRATION OF DOCTRINE

X is the owner of the immovable property. He mortgaged that property to Y in the month of June. Later, in July X transferred the same property to Z. Here in this case, all the essentials are satisfied and as per the rule of priority, Y will get all the rights of the property prior to Z. In case of default on the payment of the loan, the mortgagee can sell the property as the latter transfer is in accordance with the earlier transfer.

EXCEPTIONS OF DOCTRINE OF PRIORITY

1. Postponement of prior mortgagee

This is covered under section 78 of the Transfer of Property Act and is an exception to the doctrine of priority. In this section, if the prior mortgagee conducts some fraud, gross negligence, or misrepresentation and induces any person to give security money for the same property, then the prior mortgagee is postponed to the subsequent mortgagees. As a result, the subsequent mortgagee will have priority in the rights of the property over the prior mortgagee.

2. Non-compliance with the procedure of law in prior transfer

Assuming, that the prior transfer is created non-complaining to the procedure laid down by the law, then such subsequent transfer would be given all the rights prior to the previous transfer. For instance, A executed a lease deed of immovable property in favor of B for a period of 5 years but did not get it registered which was mandatory. Afterward, A sold the same property to C. Here, the rights of C would be given priority over B.

3. Estoppel

For this situation, if the primary transferee had some awareness of the subsequent transfer, the ensuing transferee will get the priority. In this exemption, it isn't required for the primary transferee to know the specific items in the exchange.

4. By registration

Each instrument begins its activity from the date of its execution. In situations where subsequent deeds are done on the same date and the order for execution is obscure, then all the deeds will be carried out simultaneously. Additionally, in situations where two deeds comprise of different dates and are carried on various days, then, for such a situation, priority will rely on the dates on the deeds and not on their particular registered dates.

5. By notice

The presence of notice implies being familiar with the facts. Therefore, when a bona fide contract, whether oral or written is composed for the sale of property, and further the third party purchases the property concerning the notice of the previous exchange, the title of the party claiming under the previous exchange would get priority over the subsequent purchaser. However, the exchange that has been made in time should be bona fide.

Section 50 of the Registration Act also provides various classifications of the registered document which is in relation to the immovable property to draw effect against the unregistered document. Consequently, in situations where the holder of the registered deed had notice of the prior unregistered deed, at the time of execution, gives the registered deed of the past holder a priority because of his deed over the subsequent holder of an unregistered deed for not being ought to be registered.

6. By court

If or when the court orders or passes a decree to take the subsequent transfer or the second transfer, then such transfer would prevail over the previous transfer and the rights of the subsequent transfer would be given preference. Thus, the rule of priority will not be applicable in such cases.

CONCLUSION

Section 48 helps court take decisions in situations where there are incomplete or conflicting rights arising from the sale of immoveable property. It safeguards the rights of the first transferee in absence of a special contract or reservation.

Therefore, the transferor cannot harm the rights of the transferee by making any further transactions with the property.