Priority of Rights Created by Transfer, and Rent Paid to a Holder under a Defective Title
Chapter Twenty-Two
Syllabus topic 1.2, "General principles of transfer of property"
Pages 111 to 115 of 378
In one line
Where the same person creates two rights over the same property and they cannot both work, the earlier one wins; a tenant who honestly pays his old landlord is not made to pay twice; and a buyer can require insurance money to be spent on rebuilding.
In exam wording: section 48 provides that where a person purports to create by transfer at different times rights in or over the same immovable property, and those rights cannot all be exercised to their full extent together, each later created right is, in the absence of a special contract or reservation binding the earlier transferees, subject to the rights previously created.
Section 48: first in time prevails
The rule is expressed in the maxim qui prior est tempore potior est jure, "he who is earlier in time is stronger in law".
The reason is simply that a transferor cannot give away what he has already given. Once he has created a right in favour of A, that much has left him, and what he gives B afterwards can only be what is left. The maxim is not a preference for the first buyer as a person; it is arithmetic about how much the transferor still had.
The conditions:
- the same person created the rights;
- by transfer, at different times;
- in or over the same immovable property;
- the rights cannot all exist or be exercised to their full extent together; and
- there is no special contract or reservation binding the earlier transferees.
The final condition is the escape. If the earlier transferee agreed to be postponed, or the earlier transfer reserved a power to create a prior right, the order can be changed. What the transferor cannot do is prefer the later transferee unilaterally.
Two important qualifications sit outside the section but decide real cases.
The first is notice. Section 48 is a rule about time, but section 40 and the doctrine of the bona fide purchaser for value without notice can defeat an earlier right that is merely an equity, such as the benefit of an agreement to sell. So an earlier contractual right may lose to a later purchaser who paid value and knew nothing, while an earlier completed transfer will not.
The second is registration. Priority under section 48 is fixed by the date of the transfer, and section 47 of the Registration Act 1908, taught in Module IV, provides that a registered document operates from the time it would have commenced to operate if no registration had been required, that is from execution. So a deed executed first and registered later can still rank first. That is a favourite examination trap and it is answered by reading the two sections together.
Priority of Rights Created by Transfer, and Rent Paid to a Holder under a Defective Title
Section 49: the transferee's right under an insurance policy
Where immovable property is transferred for consideration, and the property or any part of it is at the date of the transfer insured against loss or damage by fire, the transferee may, in case of such loss or damage and in the absence of a contract to the contrary, require any money which the transferor actually receives under the policy, or so much of it as may be necessary, to be applied in reinstating the property.
Four limits are built into that sentence and each of them is examinable.
The transfer must be for consideration. A donee cannot claim.
The policy must have been in existence at the date of the transfer.
The money must have been actually received by the transferor. The section gives no right to compel him to claim, and none against the insurer.
The remedy is reinstatement, not payment. The transferee cannot demand the cash for himself; he can require it to be applied in rebuilding, and only so much as is necessary.
Section 50: rent paid in good faith to the wrong person
No person is chargeable with any rents or profits of immovable property which he has in good faith paid or delivered to any person of whom he in good faith held the property, notwithstanding that it may afterwards appear that the person he paid had no right to receive them.
The Act's illustration: A lets a field to B at a rent of Rs. 50, and then transfers the field to C. B, having no notice of the transfer, in good faith pays the rent to A. B is not chargeable with the rent so paid.
The section protects the honest payer, and the justification is that he had no way of knowing. A tenant deals with the person who let him in; if ownership changes behind his back and nobody tells him, he cannot be made to pay a second time to the new owner. The new owner's remedy is against the transferor who took money that was no longer his.
Good faith is required twice, and this is worth noticing: he must have paid in good faith and must in good faith have held the property of that person. A tenant who knew of the transfer, or who is fixed with notice, loses the protection.
Section 50 is the natural companion of section 8, which passes rent accruing after a transfer to the transferee, and of section 37, whose proviso protects a person until he has reasonable notice of a severance. All three protect the person who owes money against changes of ownership he was not told about.
Priority of Rights Created by Transfer, and Rent Paid to a Holder under a Defective Title
A worked example
Umesh owns a bungalow at Kolhapur, insured against fire, and let to a tenant Vikram at Rs. 20,000 a month.
On 3 March Umesh executes a sale deed of the bungalow in favour of Wasim for full value. On 20 March he executes a mortgage of the same bungalow in favour of a bank. Both are registered, the mortgage first.
Priority. Section 48 gives Wasim priority, his right having been created first, and the bank's mortgage is subject to it. The order of registration does not reverse this, because section 47 of the Registration Act 1908 makes a registered document operate from execution. Only a special contract or reservation binding Wasim could have postponed him.
The fire. In April the bungalow is damaged by fire and Umesh, still named in the policy, receives Rs. 8 lakh from the insurer. Wasim bought for consideration, the policy existed at the date of the transfer, and the money has actually been received. Under section 49 he may require it to be applied in reinstating the bungalow, to the extent necessary. He cannot demand that Umesh hand him the cash.
The rent. Vikram, never having been told of the sale, pays the March and April rent to Umesh in good faith. Under section 50 he is not chargeable with it again. Wasim's remedy is against Umesh. Once Vikram is told, or is fixed with notice, he must pay Wasim.
What it does NOT mean
Section 48 is not defeated by earlier registration. Priority runs from the date of the transfer, and section 47 of the Registration Act 1908 makes a registered document operate from execution.
Section 48 does not protect every earlier right against everyone. A merely contractual right may lose to a later transferee for value without notice.
Section 49 does not give the transferee the money. It gives him the right to require it to be applied in reinstating the property, so far as necessary.
Section 49 does not create a claim against the insurer. It operates on money the transferor actually receives.
Section 50 does not protect a tenant who knew. Good faith is required both in the payment and in the holding.
Section 50 does not extinguish the true owner's claim. It moves it: the claim lies against the person who wrongly received the rent.
Distinctions
| Section 48 | The bona fide purchaser rule | |
|---|---|---|
| Decides priority by | Time of creation | Notice and consideration |
| Protects | The earlier transferee | The later purchaser for value without notice |
| Where they meet | An earlier equity, such as an agreement to sell, may be defeated by a later purchaser for value without notice under section 40; an earlier completed transfer is not |
Priority of Rights Created by Transfer, and Rent Paid to a Holder under a Defective Title
| Section 8 | Section 50 | |
|---|---|---|
| Question | Who is entitled to the rent | Whether the payer is discharged by paying the wrong person |
| Answer | Rent accruing after the transfer goes to the transferee | A payment in good faith to the person of whom he held is a good discharge |
Quick revision
- Section 48: qui prior est tempore potior est jure. Where rights created at different times over the same immovable property cannot coexist, the later is subject to the earlier, unless a special contract or reservation binds the earlier transferees.
- Priority runs from the date of the transfer, not of registration; section 47 of the Registration Act 1908 makes a registered deed operate from execution.
- Section 49: a transferee for consideration may require insurance money actually received by the transferor for fire loss to be applied in reinstating the property, the policy having existed at the date of the transfer, absent a contract to the contrary.
- Section 50: a person is not chargeable with rents or profits paid in good faith to a person of whom he in good faith held the property, even if that person had no right to receive them. Illustration: B pays A after A has sold to C, without notice, and is not chargeable.
Test yourself
1. State the maxim in section 48 and explain why it is the rule. Qui prior est tempore potior est jure, he who is earlier in time is stronger in law. It follows from the fact that a transferor cannot give what he has already given away, so the later transferee can take only what remained.
2. A executes a sale to B on 1 June and a mortgage to C on 10 June, but C registers first. Who has priority? B. Section 48 fixes priority by the time the rights were created, and section 47 of the Registration Act 1908 makes a registered document operate from execution, so registering first does not gain priority.
3. When can the order of priority be altered? Where there is a special contract or reservation binding the earlier transferees, for example an agreement by the earlier transferee to be postponed.
4. What exactly can a transferee require under section 49? That money the transferor actually receives under a fire policy which existed at the date of the transfer be applied, so far as necessary, in reinstating the property. He cannot claim the money for himself and has no claim against the insurer.
5. A tenant pays rent to his original landlord after the property has been sold, knowing nothing of the sale. Must he pay again? No. Section 50 provides that he is not chargeable with rents paid in good faith to the person of whom he in good faith held the property, and the Act's illustration is that very case.
Priority of Rights Created by Transfer, and Rent Paid to a Holder under a Defective Title
6. Would the answer change if the tenant had been told about the sale? Yes. The protection depends on good faith both in the payment and in the holding, so a tenant with notice must pay the new owner.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.