Priorities

• Pages: 217-265

PRIORITIES

The doctrine of priorities has been developed to meet situations where

there are rival claimants all asserting their rights to certain property the

value of which may not be adequate to meet all their claims. The doctrine

comes into play particularly where two or more mortgages are executed on

the security of the same property. Liverpool J.A. illustrated the problem

which the doctrine seeks to solve in these words:

It happens with unfortunate frequency that an owner of land manages to

obtain money from a person on the security of his land and by means of

fraudulent concealment he then proceeds to sell that land to another. The

two parties are then left to dispute with each other as to who should bear

that loss, since the land is invariably insufficient to satisfy both their claims.1

So the question arises as to the order of payment, or, wherethere have been

more than two encumbrancers, as to which encumbrancer has the right to

the title deeds after a prior incumbrance has been discharged.

In adjusting the claims of lenders or other claimants who have interests

in the same land, the following rules were developed: “Qui prior est

tempore, potior est jure”, i.e. the order of creation rule, the Latin meaning: he

who is earlier in time is stronger in law.

The problems which this rule is designed to solve do not involve only

loan transactions; they also arise where a landowner sells his land over

again to two or more purchasers, or where a trustee deals with a third

party in a way which is inconsistent with the trust, giving rise to rival

claims affecting a single property which cannot be utilised to satisfy all the

claims. In fact these rules are used to solve all rival claims in real property.

The order of creation rule is used in determining the priority of competing

interests in land, whether legal or equitable.

These rules have been greatly modified by land title registration and

documents recording legislation.

THE ORDER OF CREATION RULE

The primary rule is that estates and interests prima facie rank in the tem-

poral order in which they are created. The maxim is that Qui prior est

1Barclays Bank International Ltd v. Edwards, unreported Civil Appeal No. 6 of 1981, p. 1

(Grenada).

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tempore, potior est jure: he who is earlier in time is stronger in law. As

between rival claimants to interests in land, priority is accorded to the

person whose interest was first created. The authority usually cited for the

doctrine is the opinion of Lord Westbury expressed in Phillips v. Phillips 2:

The subsequent grantee takes only that which is left in the grantor. Hence

grantees and incumbrancers claiming in equity take and are ranked accord-

ing to the dates of their securities; and the maxim applies, Qui prior est

tempore potior est jure. The first grantee is potior – that is, potentior. He

has a better and superior – because a prior – equity.

In the case of Cave v. Cave3trust funds were, in breach of trust, used to

purchase property in the name of Frederick Cave, who in 1873 created a

legal mortgage of this property in favour of Philip Chaplin and sub-

sequently created an equitable mortgage in favour of John White. Neither

Philip Chaplin nor John White had notice of the trust. It was held that as

between the two equitable interests – the beneficiaries’ interest under the

trust and that of the equitable mortgagee – the first in time should prevail

and the interest of the equitable mortgagee, John White, should therefore

be postponed to that of the beneficiaries of the trust which was created

before the equitable mortgage.

In Rice v. Rice,4Kindersley V. -C. held that “as between persons having

only equitable interests, if their equities are in all other respects equal,

priority of time gives better equity, or, qui prior est tempore, potior est jure”.5

The doctrine, qui prior est tempore, potior est jure, applies not only to

equitable interests, but also with equal, if not greater, force to legal inter-

ests. In most cases of competing legal interests an easy solution can be

found in the nemo dat rule. That is, one cannot in law give a better title to

property than he himself possesses. For example, where B has a legal right

of way (easement) over Ugo Fields and Asubsequently acquires the fee

simple estate in Ugo Fields, there will arise two legal interests in the same

land, one derived under an easement and the other under the sale of a fee

simple interest. The title to Ugo Fields was qualified by an easement. It

could only be transferred to Asubject to the easement. Acould not be

vested with a better title to Ugo Fields than that which the transferor had.

Such a problem can equally be met with the doctrine qui prior est

tempore, potior est jure, i.e., B’s legal interest arising under the easement

which was created before A’s fee simple estate was acquired should be

2(1862) 4 De G.F. & J. 208, 215.

3(1880) 15 Ch. D 639.

4(1853) 2 Drew 73.

5(1862) 45 E.R. 1164. See also Phillips v. Phillips (1862) 4 De G.F.& J. 208, 215. Thus with the

two competing equitable interests in Assaf v. Fuwa (1955) A.C. 215 the Privy Council

accorded priority to the person who had his interest created prior tempore.

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given priority. Thus it is stated: “At law, as in equity, the basic rule is that

estates and interests primarily rank in the order of creation”.6

But before the rule can be successfully invoked, the competing inter-

ests should be of the same rank. That is, in a given situation, it is a con-

dition precedent to the application of the basic rule that all the interests

involved should be either legal or equitable, or mere equities. Where there

is a hodgepodge of these interests, legal plus equitable and possibly

mere equities, different rules may govern their priorities. It is only when

the competing interests are of the same juridical value or rank that the

maxim qui prior est tempore applies.

The basic rule may be displaced when there is:

(A) purchaser without notice;

(B) fraud, estoppel and gross negligence;

(C) registration; and

(D) overreaching.

These will be discussed in turn.

PURCHASER WITHOUT NOTICE

Where the equities are equal the law prevails. Equity follows the law, and

in situations where the conduct of rival claimants with respect to interests

in the same piece of land cannot be faulted on equitable grounds, the

claimant who is vested with, or who has a better right to, the legal title to

the land is accorded priority over the other claimants irrespective of the

temporal order in which the claimants acquired their respective interests.

The underlying doctrines

(1) Where a grant takes effect merely in equity, the grantee will only get an

equitable interest; the legal interest will then become outstanding in the

grantor. Where a subsequent purchaser succeeds in getting a transfer of

the legal estate from the original or common grantor he, the subsequent

purchaser, becomes vested with the legal interest which will override the

equitable interest, if, in acquiring the legal estate, the subsequent pur-

chaser did not have notice of the prior existing equitable interest at the

time of his purchase, and he gave valuable consideration for the estate. If

the subsequent purchaser can establish that he was a bona fide purchaser of

6Snell’s Equity, Sweet & Maxwell, London, 1990, 29th edn., p. 45; 2000, 30th edn., p. 46.

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