PRIORITY AND THE DOCTRINE OF NOTICE
LPP 403 EQUITY AND TRUST 1
2020/2021 SESSION
Learning objectives
Student should be able to explain what priority is
Discuss adequately what the doctrine of bona fide
purchaser for value is
Define notice
Criterion for distribution of my 100,000
gift
Criterion
A
Criterion Criterion
B 100,000 D
Criterion
C
INTRODUCTION
▪What is the importance of this doctrine
▪When there are two or more competing interests in property, and the
various competing interests cannot be satisfied by the total value of the
property
▪Maitland said ‘ when a man having title to land contrives by means of
fraudulent concealment to get money from a number of different
persons on the security of the land, and then disappears, and the
lenders are left to dispute amongst themselves who ought to be paid
first and the money is insufficient to pay all of them
Another instance could arise where members of a family
have sold family property to different persons at different
times and these persons all have competing claims on the
same property
See Ogunbambi v Abowaba (1951 13 WACA 222)
Categories of interests
-Legal interests e.g. Interest of a trustee, legal mortgagee
--equitable interests e.g. interest of a beneficiary, equitable lien,
equitable mortgage, equitable charge, estate contracts, restrictive
covenants, equitable easement etc.
-Let’s assume there are two informal sales of the same property at
different times to two different people, this would create equitable
interests in the same property in favour of the purchasers
In this instance, whose interest will rank higher than the
other one?
This will be determined by the relevant rules in law and
equity
Rules of priority
The temporal order rule
▪Competing legal interests
▪The general principle is that priority is to be determined by
the order in which the competing interests are created
▪Qui prior est tempore, potior est jure: he who is first in time
is stronger in law(note that this rule is subject to some statutory
provisions concerning registration of land and the doctrine of bonafide
purchaser for value of the legal estate without notice of any existing interest)
As between adverse claimants of a legal interest, he who is
prior in time is stronger in law.
Registration
This rule is subject to statutory provisions relating to registration of interests on land and the
doctrine of bona fide purchaser for value of legal estate who has no notice of the existing
interest
The rules relating to registration accord priority to the first registered
instrument
The statutory provisions can be classified into two-
Those operating in the old Western Region(Ekiti, Osun, Oyo, Ondo,
Edo, Ogun, Edo and Delta states AND those operating in the other
parts of Nigeria
In the Old Western Region, Registration is governed by the Land Instrument Registration Law
1959 and the Property and Conveyancing Law 1959
These laws require that certain instruments relating to land MUST be registered
The effects of failure to register these instruments is to render the document void, inadmissible,
and to cause the document to lose priority from the date of registration
Documents that must be registered include:
Estate contract
Certificate of purchase
Power of attorney
Deed of appointment or discharge of trustees which contain a vesting declaration affecting land
but not a will
Property and Conveyancing Law 1959
Estate Equitable Equitable
contract easement charge
Restrictive
S. 193 PCL
covenant
Applications of the rule
▪Let the students form groups of 6 in each group and
brainstorm on the possible instances where this rule
becomes necessary
Application of the rule
Legal
Mortgage
B
Legal
mortgage
A Sale
Applications of the rule
▪Where two trustees of a trust property have sold the
trust property to different persons at different times
▪Where a landed property was sold at two different
auctions under two different writs issued by different
Tribunals of competent jurisdictions
▪It was held that the plaintiff who bought the landed
property in the earlier auction which was a day
before the second auction had, in point of time,
obtained a better title and that the subsequent sale
to the defendant had no effect
Rules of priority
▪Competing Equitable Interests
Where each of the rival claimants has only an equitable interest in
the property, provided the equities are equal(can you mention
some equitable interests)
▪The basic rule ‘he who is first in time is stronger in law’ applies.
▪Cave v Cave (facts a trustee, in breach of trust,
purchased land with trust fund and the
conveyance was made in his brother's name.
However, the equitable right of the beneficiaries
under the trust attached to the land. The brother
made a legal mortgage to X and later an equitable
mortgage in favour of Z.
▪Neither X nor Z had notice of the beneficiaries
right under the trust
Class activity
Class activity (Let the students in groups identify the interests in the
case and the order of priority)
▪As between the equitable rights of the beneficiaries and
the equitable interest of Z, the former prevailed being
earlier in time.
▪But as between the beneficiaries' right and X's claim, the
latter prevailed in accordance with the maxim that where
the equities are equal the law prevails. Thus, equity not only
follows the law, it also gives recognition to the superior
strength of the law
Modifications of the rule
The modifications were brought about by the application of some maxims of
equity (the maxims may modify)
Maxim 1
Where there is equal equity the law prevails
▪The import of this maxim is that as between adverse claimants, where one has
the legal interest and the other has an equitable interest, the claimant of the
legal interest will be preferred provided there is 'equal equity’
▪(equality as used here means the absence of any circumstance that would affect
the conduct of one of the claimants that would make his claim lesser than the
other)
▪In Ajose v Harwoth, the plaintiff had earlier got an equitable interest before the
defendant who got a legal interest in the property, the court found that the latter
claim of the df ranked higher than that of the pf
Class activity
Latec Investments Ltd v. Hotel Terrigal Property Ltd. (1965) 113 C.L.R. 265).
▪In the above case, a vendor of a leasehold property issued and endorsed receipt
for the payment of the purchase money in the deed of conveyance, when in
actual fact, no money had been paid; and, the title deeds in respect of the
property were delivered to the purchaser, who, subsequently deposited it with
the defendant to secure an advance, thus creating an equitable mortgage in
favour of the defendant who had no notice of the want of payment. The
purchaser then absconded without paying either the plaintiff-vendor or the
defendant-equitable mortgagee.
▪Identify the interests created in the case and who should be preferred
1. interest of the purchaser- legal interest
▪2.interest of the defendant which is an equitable interest(equitable mortgage)
▪3. interest of the vendor- equitable interest(lien)
Class activity (cont’d)
▪The total value of the property was not enough to satisfy
the interests of the vendor and mortgagee
▪Court’s decision
▪Are their equities equal?
▪What is the conduct of the parties?
▪The possession of the title deeds by the equitable
mortgagee which was acquired in good faith without any
prior knowledge of the vendor’s lien gave the equitable
mortgagee a better standing and thus his interest prevailed
over that of the vendor
What can affect the rule of priority?
1. Fraud and Negligence
▪Where the owner of a legal estate has connived in a fraud which led
to the creation of a subsequent equitable mortgage, the court will
postpone the legal mortgage to the equitable one
▪Such connivance may be inferred from an omission on the part of
the legal owner in keeping the title deeds to the property(that may
be one of the reasons for the decision in Latec’s case)
Doctrine of notice
Just as the name implies, it means knowledge or cognizance
It is a principle of equity which states that when a person takes an
estate with notice that someone else had a claim on it at the time of
the transfer, that claim can be asserted against the new owner
Under the doctrine of notice, the interest of any prior owner will be
postponed to that of a bonafide purchaser of the legal estate for
value who had no notice of the earlier interest
▪Once the plea of bona fide purchaser of the legal estate for value
without notice is sustained by the court, any other claims or
interests will be postponed
Salient point of the doctrine
▪Bona fide
▪This means good faith i.e the purchaser must act in good faith
▪He cannot be said to have good faith where he had knowledge that there
was a prior interest and still went ahead with the purchase of the legal
estate
▪Illustration
▪(An example of a trustee who created an equitable mortgage in favour of
Mr. A and then conveyed the same property to Mr. B. if B knew of the prior
equitable mortgage at the time of getting the legal mortgage and still
went ahead to enter into the legal mortgage, he cannot be said to have
acted in good faith
Salient points of the doctrine
▪Purchaser for value
▪The person who has acquired this estate and wants to rely on this
doctrine must have given value for the interest
▪He must have given value for the property
▪Without notice
▪There are basically three types of notice
Types of notice
1. Actual notice
This is said to occur where the purchaser is deemed to have notice of
the facts that have come to his knowledge
e.g a caution notice pasted on the property, writ of summons pasted
on the property is suggestive of the existence of some interests that
have been taken before the law courts for resolution
A purchaser is not affected by equitable interest if he had no notice
of it
Constructive notice
▪where the purchaser would have discovered the existence
of the equitable interest if he had used ordinary diligence
and care in investigating the property and its title, he is
deemed to have notice of that interest even though he
wasn’t actually aware of it
▪This notice makes it necessary for a purchaser to
thoroughly investigate the vendors title
Imputed notice
Where a purchaser has engaged an agent to act on his
behalf, he is believed to have notice of all the facts of the
transaction coming to the knowledge of the agent
So whatever information has come to the knowledge of the
agent is also imputed to the principal
Where such information is obtained by a person who is not
the agent of the purchaser, such notice will not be imputed
to the purchaser
Ask your questions
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