PRIORITIES
Where there has been assignments of several interests in the same chose in action or
fraudulent assignment of the same chose in action by the assignor twice, the question arises as
to who should receive priority.
There are different rules governing priorities, where the assignment is a statutory assignment and where the assignment
is equitable. Statutory assignment is governed by the Order of Creation; equitable assignment is governed by the rule in
Dearle v Hall (1828). In the said case, the facts are: B had a life interest under a trust created by his father’s will yielding
certain amount per annum. In December 1808 he assigned this life interest to Dearle for certain amount. In September
1809 he assigned his life interest again to Sherring to secure an annuity. Neither Dearle nor Sherring gave notice of the
assignment to the executors of the will trusts. In March 1812, B assigned his life interest yet again, this time to Hall for
certain amount. In April 1812, Hall gave notice in writing to the executor of the assignment directing them to pay him
the income from thenceforth. In October 1812, Dearle and Sherring gave notice to the executors who refused to pay any
more money until their rights were ascertained. Held: Hall had priority. The assignments to him although subsequent in
date to those of Dearle and Sherring, had been notified to the trustees first and this gave priority.
The basic principle is that interest ranks in the order of creation- he who is earlier in time, is
stronger in law. Thus, pursuant to Mason v Rhodes (1885), if two legal mortgages were made
of the same property, they would rank in the order of creation. On the other hand, if there are
two competing equitable interests, then the general rule is that the first equitable interest
created will obtain priority, in accordance with the case of Philips v Philips (1862).
Rules on priorities are summarized as follows:
Legal v Legal Priority is in order of creation
Legal v Equitable If the legal interest came first in time, it will
receive priority for two reasons:
I. It was created first in time
II. Where the equities are equal, the law
prevails (WLG v Islington 1996)
Equitable v Legal If the equitable interest came first in time,
then it will take priority, unless the owner of
the legal interest was a bona fide purchaser
for value, without notice.
Equitable v Equitable Priorities depend on the rule in Dearle v Hall
Who is a purchaser?
In the case of Inland Revenue Commissioners v Gribble (1913), a purchaser was defined as
a person who acquires an interest in property by grant rather than operation of law. He does so
by providing consideration. Pursuant to Bassett v Nosworthy (1673), consideration needs not
be adequate but sufficient.
The purchaser does not obtain priority if the transfer of the legal interest amounts to a breach
of trust and he has actual or constructive notice of that breach of trust at the time of the
transfer (Marsh v Lee 1670). However, in the case of Attorney General v Biphosphated
Guano (1879), it was stated that the onus lay on the purchaser to prove that he was a bona
fide purchaser for value and also that he took without notice of the equitable interest. If that is
done, he can take property absolutely in accordance with the case of Pilcher v Rawlins
(1872), where it was held that bona fide purchasers for value of the legal estate without notice
of the equitable interest of the beneficiaries accordingly took free from their interests.
Notices:
Actual notice
Actual notice includes knowledge of all those facts which together reveal the existence, and
terms of any trusty (or other equitable interest), that exists in reference to property. Any fact
actually known falls within the definition of ‘actual notice.
Constructive notice
A purchaser is treated as knowing everything that he would have known if he had investigated
the title of the seller as he should have. A purchaser must make all enquiries that that a
prudent purchaser would make. In dealings with personalty the prudent or reasonable
purchaser can make very few enquiries, therefore constructive notice plays a minor role. In
Lloyd v Banks (1867), it was observed that a purchaser could not safely disregard information
from any source if a reasonable person would have acted on it.
Imputed notice
If a purchaser relies on an agent to investigate title to property on his behalf then whatever
that agent discovers, or should discover, is imputed to the purchaser.
Who should be Given Notice?
Normally the notice should be given to the debtor, trustees or other person who is under a duty
to pay the money to the assignor (Stephens v Green 1895).
The safest course in giving notice to trustees is to give notice to all the trustees, such notice
remains effective indefinitely even if all the trustees die or retire without communicating the
notice to their successors (Re Wasdale 1899).
In Ward v Duncombe (1893), it was held that notice given to one of several trustees gave
priority against subsequent equitable encumbrances created during that trustee’s trusteeship
and for that purpose remained effective after his death.
On the contrary, in Timson v Ramsbottom (1836), it was held that after the death of such
trustee, any encumbrances would take priority.
