Introduction
The maxim “qui prior Est tempore potior Est
jure” which means “he who is earlier in time is
stronger in law” applies in cases where there
are two or more equitable interests. The courts’
have found it troublesome while dealing with
the determination of relative rights and
priorities of successive assignees of the same
or overlapping rights.[i] In other words, they
find it hard to determine as to whose rights
should come first when parties approach the
court with conflicting interests. As the name
itself suggests, the doctrine of priority talks
about who should be given priority over whom.
The doctrine of priority is provided under
section 48 of the transfer of property act. The
doctrine is important because many a times,
subsequent interests are created in a property
which gives rise to conflicting interests. This
doctrine helps the courts to reach a conclusion
in such cases. This is a principle of natural
justice which says that one who has advantage
in time should also have an advantage in law
when rights in favor of two or more are created.
This section has developed on the principle
“nemo dat quod non habet” which means “no
one can give what they do not have”. When a
man in possession of property has created an
interest in favor of someone, he cannot later
deviate from it and create another interest
without being free from the previous
transaction.
Section 48[ii] of transfer of property act,
1882
“Priority of rights created by transfer—Where a
person purports to create by transfer at
different times rights in or over the same
immoveable 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.”[iii]
This section of transfer of property act says that
when an owner of a property wishes to transfer
an interest at different times in the same
immovable property, and the rights arising out
of these transactions cannot coexist or enjoyed
to their full capacity then the rights created
later would be subjected to rights previously
created unless there is a special contract or
reservation binding the prior transferees.
Essentials of Section 48
The right/interest is transferred to different
people in the same property;
The interest created should be at different
times. i.e., prior and subsequent;
Such interest cannot coexist or enjoyed to
full extent together;
The right created at a subsequent stage is
subject to the right created before.
Provided that there is no contract which binds
the first transferee.
Also, the property in which interest is
transferred must be the same and the rights of
different persons should conflict to apply this
principle.
Basis of the principle- “Qui prior Est
tempore potior Est jure”
The maxim says that “he who is earlier in time
is better in law”. This means that the
subsequent transferee cannot prejudice the
interests of the transferee who came before
him. When a transferor would transfer interest
in the same property repeatedly then all
subsequent transferees would take that interest
with the interest of prior transferee. It is also
based upon the principle of “nemo dat quod
non habet” which means no one can give what
he himself is not entitled to. Thus, a subsequent
mortgage would fail to jeopardize the rights of
the old mortgagee.
Example– Reema mortgages her property to
Rajesh for 1 crore. She later sells the same
property to Priya. Now, two interests have been
created in the same property. But Priya has
acquired an interest in the property with the
interest of Rajesh. Thus, if Reema fails to pay
the mortgage amount then the property would
be used to recover the amount. This would be
because subsequent interest is subject to prior
interest.
In the case of Duraiswami Reddi vs.
Angappa Reddi–[iv] The madras high court
held that the first transferee would be entitled
to enforce his rights even though his
documentation was late and the subsequent
person enters into the transaction without the
knowledge of the first transaction rendering him
a bona fide transferee.
What happens when subsequent
transactions relating to the mortgaged
property are made?
1. Creating Interest by selling the property
An immovable property which is given as a
security against a long is known as mortgaged
property. In simple words, when one person is
giving to loan money to another, some property
is pledged as security for the repayment of
loan. The person either gives original
documents or conditional possession of the
property to the lender until he repays the loan.
An example is housing loan. Whenever one
takes a loan from a bank, the bank retains
original documents of the property as a security
for repayment of loan. In case of default, the
bank can auction the property and recover the
loan amount.[v]
In general terms, mortgage is defined as an
interest created in some immovable property
for securing repayment of loan.
In the case of Chouth lal vs. Hira lal–[vi] A
sale deed was executed in favor of one
defendant on 17th January 1932. This deal was
executed on 5th mar, 1932. In the meanwhile, a
mortgage on the same property was created in
favour of another party on 20th February, 1932.
It was held that the mortgage would have its
effect over the subsequent mortgage.[vii]
In Hafiz Md. Anwar vs. Jaumna prasad
Singh–[viii] It was held by the court that if
subsequent transactions have been entered
into at different times, then they would not
confer any interest, right or title. This is in
accordance with section 48 of the transfer of
property act.
In the case of Suresh babu vs. State of
Kerala–[ix] The court said that “Even if the
property which is subject matter of an equitable
mortgage is sold by the mortgagor, to a third
party, that sale deed will be subject to the
mortgage claim. It cannot be said that the title
cannot be transferred. So long as the title
holder has title, he can transfer the title deed;
but it will be subject to the mortgage
liability.”[x]
Section 60[xi] of the act talks about the Right
to redemption– This right is available to the
mortgagor after the principal money has
become due and paid. It requires the
mortgagee to-
Deliver the property deed and documents
available with the mortgagee to the
mortgagor
To deliver possession when he possesses
the mortgaged property;
At the cost of mortgagor to re- transfer the
property to him or to any third party; or
Execute an acknowledgement stating “that
any right in derogation of his interest
transferred to the mortgagee has been
extinguished”.
Section 60A[xii] “allows the mortgagor to
require the mortgagee to assign the mortgage
debt and transfer mortgagor’s property to such
third party as mortgagor may direct and the
mortgagee shall be bound to obey such
direction of the mortgagor”.[xiii]
Section 92[xiv]talks about the Right of
Subrogation– The term “subrogation” stands
for “substitution”. It allows a person to stand in
the shoes of the creditor after paying off his
liabilities. In mortgage, this right can be
enjoyed only through redemption and therefore,
once the entire amount has been paid off can a
person enjoy the right of subrogation. The
person would acquire the right of foreclosure,
redemption and any other rights of mortgagee.
The person who redeems is said to be
subrogated to the rights of mortgagee.[xv]
Therefore, a transfer by sale in favour of
third party can be made because the
mortgagor is still the owner. However,
when he (third party) would buy the
property from mortgagor, he will be
buying the right to redemption because
that is what mortgagor has with him. He
can then redeem the property and enjoy
subrogation. Also, the rule of priority
would not apply if their interests are not
conflicting with one another. i.e., one gets
interest through sale and the other
through mortgage. Also, it’s his s
responsibility to make proper enquiry
(caveat emptor) before purchasing the
property from mortgagor and ask him to
clear the encumbrance.
2. Creating subsequent interest by way of
mortgage
A second mortgage is a subsequent mortgage
which is made when the original or prior
mortgage is still in effect.[xvi]The transfer of
property act does not mention such subsequent
mortgage to be invalid in whatsoever manner.
Thus, when the owner remortgages a property,
it stands valid in the eyes of law. There is no
law in India which makes such subsequent
mortgage invalid, so it is only fair to assume
that it is not invalid.[xvii] However, in such
cases, when there would be a default in
payment then the original mortgagee would
have the right to receive the proceeds from the
sale of property until all his dues are paid.[xviii]
The term “Pari passu” which means “equal
footing” used in connection with the concept of
mortgage implies that with the consent of the
mortgagees it can be contemplated that the
creditors are on equal footing. When a
subsequent mortgage is created with the prior
consent of first mortgage, this principle is
applied. The main point of difference between a
subsequent charge and remortgaging the
property at the same time is “consent”.[xix]
When there are differences on the availing of
the property by the mortgagees, the doctrine of
priority kicks in. This has been covered under
section 48 of TPA which says ‘first in time is first
in law’. In the case of ICICI Bank ltd. Vs.
SIDCO Leathers ltd. And ors. –[xx] The
Supreme Court held that,
“In terms of Section 48 of the Transfer of
Property Act, claim of the first charge holder
shall prevail over the second charge holder and
in case the debts are due to both, the first
charge holder and the second charge holder are
to be realized from the property belonging to
the mortgagor, the first charge holder shall be
repaid first”.
A full- bench of the Allahabad High court in
Raghunath Prasad v. Jurawan Rai–[xxi] said
that, “a second mortgagee has a right to sell
the property hypothecated to him subject to the
rights existing in favour of the first mortgagee”.
The Madras High court in Gangadhara v.
Sivarama–[xxii] said that “the plaintiff, second
mortgagee, was entitled to sell the property
subject to the lien of the prior mortgagees.”
Thus, the provisions pertaining to doctrine of
priority and supreme courts’ judgment makes it
clear that the interests of first mortgagee would
prevail over the second.
So, the mortgagor can create a
subsequent mortgage in favor of the third
party (second mortgagee) with the
consent of mortgagee or without his
consent. But, if there arises difference in
enjoyment of mortgage, first mortgagee’s
right would prevail over second’s
according to the Rule of Priority. For
example, if Mortgagor defaults in payment
of loan, the property would be used to
repay first mortgagee. And after that,
second mortgagee’s claim would be
adhered to.
Conclusion
Section 48 of the transfer of property act deals
with the doctrine or priority. It provides
protection to the transferee from subsequent
transactions created by the transferor over the
same property. If a man creates subsequent
interests in the same immovable property
which cannot be enjoyed to their full extent or
conflict each other, each right which is created
after the prior one would be subjected to the
previously created right unless there is some
contract binding the prior transferee. Thus, the
transferor cannot prejudice the rights by
creating subsequent interests in the same
immovable property. The owner is capable of
creating subsequent mortgages or sale the
property if he has the title deed, but the
doctrine of priority would not allow him to
refrain the prior mortgagee from enjoying his
rights. This is based upon the doctrine “first in
time, first in law”.