11.

WHERE THE EQUITIES ARE EQUAL THE FIRST IN TIME SHALL PREVAIL

The Maxim explained. The maxim means that when there is no legal estate in the field and the
question is as among the equitable estates only, the Pule is that the person whose Equity attached
to the property first will be entitled to priority over the other. Thus, if A enters into a contract, for
the sale of his house, with B and then with C, the interests of B and C both being equitable, B
will have priority over C because his equity attached to the property first. The true meaning and
effect of the maxim, have often been misunderstood. But the Court of Equity will not prefer the
one to the other on the mere ground of priority of time, unless and until it finds upon an
examination of their relative merits, that there is no other sufficient ground of preference
between them or in other words that these equities are in all respects equal and that if the one has
on other grounds a better Equity than the other. In applying the maxim, the courts must consider
the nature and coridition of their respective equitable claims, circumstances and manner of their
acquisition and the whole conduct of each party with respect thereto, in examining these points,
the Court may apply the test not of any technical rule but the same broad principles of right and
justice which the Court of Equity applies universally in deciding upon contested rights.

It follows from the explanation of this maxim that where several successive and conflicting
claims upon the same subject-matter are wholly equitable and neither is accompanied by the
legal claim which is held by a third person and neither possesses any special feature or incident
which would according to the settled doctrines of Equity give it a precedence over the other
irrespective of the order of time, the maxim applies ana priority of claim is determined by
priority of them.

The test. It is difficult to ascertain exactly the circumstances in which an earlier encumbrancer
will be deprived of his priority over the latter encumbrancer.

Vice-Chancellor Kinerdesly says, 28 "As between persons having only equitable interests, if
these interests are in all other respects equal, priority in time gives the better Equity.......In a
contest between persons having only equitable interests, of time is the ground ie, a Court of equi
priority of prefer the one to the other on the mere ground of of preference lastpriority of time
until it finds that there is no sufficient ground of preference between them."

The rule, however, is applicable only when equities are equal. So, if equities are unequal in the
sense that equity on the side of the person otherwise entitled to priority is worse, i.e. he is guilty
of anything unconscionable or unfair, he will lose his priority. An apt example of unequal equity
is furnished by the case of Rice v. Rice29. Maitland expresses the view that mere negligence is
sufficient for the
postponement of a merely equitable interest in property. Ashburner, on the other hand, maintains
that so far as the decision goes an equitable mortgagee has only been postponed where he has
been guilty of gross negligence.

Pomeroy, observes that "whether the same requirement of gross negligence applies to successive
interests which are all purely equitable or whether mere negligence is sufficient to effect the
priority, must be regarded as still unsettled by decisions."

Priorities. Priority means the right to enforce a claim in preference to others. The question of
priority arises when two or more persons have interest in the same property. Suppose a person
mortgages his property to, A,B,C,D, and so on. In such a case, and in a similar case where the
legal estate in the property resides in A and the equitable estate in the same property in B, the
question arises as to whose claim must first be satisfied.

The general rule is that:

1. A person in possession of the legal estate has priority over a person having only equitable
estate This is so because 'Equity follows the Law' 30

2. If neither claimant has the legal estate, then as between equitable interests, the first in time
prevails.

Purchases in good faith and for valuable consideration. This is an important point of distinction
between legal and equitable estates. An equitable interest will be enforceable against the holder
of a legal title only il the circumstances are such that the suitable claim affects the conscience of
the legal owner. Hence, inequitable interest will not be enforceable against a purchaser of the
legal estate, for value and without notice of the equitable interest. The requisites of a bona fide
purchase for value without notice are three31

1. The defendant must have the legal estate vested in himself, or in some person on his behalf.

2. He must have given value.

3. He must have had no notice of the equitable interest at the time when he gave his
consideration for the conveyance.

These conditions having been fulfilled, "a purchaser's plea of a purchase for valcable
consideration without notice is an absolute, unqualified.
unanswerable defence, and an unanswerable plea to the jurisdiction of the Court.

It may be noted that equitable titles have priority according to the priority of notice. If the notices
are received substantially, simultaneously, the dealings rank in the order in which they were
made.

Application of the Maxim in India. (1) Section 48 of the Transfer of Property Act is based on this
maxim. It provides that where a person proposes to create by transfer at different times rights in
or over the same immovable property, and such rights cannot all exist together, each later created
right shall be subject to the rights previously created. For instance, if A mortgages property first
to B and then to C, B's interest having been created first in point of time, will have priority over
C.

Exceptions. But it may, however, be noted that the rule applies only where equities are equal. If
the normal claims of the plaintiff and defendant are not on an equality, the one who has the better
claim will be preferred, although his interest arose after the others.

(2) Section 78 of the Transfer of Property Act provides that where through the fraud,
misrepresentation, gross neglect of a prior mortgagee, another person has been induced to
advance money on the security of the mortgaged property, the prior mortgages shall be
postponed to the subsequent mortgage. For instance, where the prior mortgagee allows the
mortgagor to get hold of the title deeds some time after the mortgage, and the mortgagor,
representing that the property was free from encumbrances, creates a second mortgage in favour
of a person who believes in such representation, the prior mortgage will be postponed.

(3) Section 79 of the Transfer of Property Act, provides another exception to the above rule. It
enacts-
"If a mortgage, made to secure future advances, the performance of an engagement or the
balance of a running account, expressed the maximum to be secured thereby, a subsequent
mortgage of the same property shall, if made with notice of the prior mortgage in respect of all
advances or debts not exceeding the maximum made or allowed with notice of the subsequent
mortgage".

12. WHERE THERE IS EQUAL EQUITY, THE LAW SHALL PREVAIL

The Maxim-A part of the principle. This and the previous maxim must be taken together to
constitute a complete principle. The first applies to certain conditions of facts; the other
supplements its operation by applying additional facts by which equitable rights and obligations
might be affected. The two are in fact the counterparts of each other and taken together they form
the source of the doctrine concerning priorities, notice and purchases for valuable consideration
and without notice. For example, A having title to land, contrives by means of fraudulent
concealment to get money from X, Y and Z on the security of the land and then disappears. The
land is insufficient to pay all of them. X, Y and Z. are now left to dispute among themselves as to
the order in which they are to be paid.
The maxim explained.- This maxim expresses that if two persons have equal equitable claims
upon the same subject-matter or in other words, if each is equally entitled to the protection and
aid of the Court of Equity with respect to his equitable claim and one of them in addition to his
equitable claim also obtains the legal claim in the subject-matter, then he who thus has the legal
claim will prevail. The precedence of the legal claim might be worked out by the Court of Equity
refusing to interfere at all and thereby leaving the parties to conduct their controversy in a Court
of Law where, of course, the legal claim alone should be recognised.

This maxim means that the person in possession of the legal estate is entitled to priority over any
person having merely an equitable estate in that property. It is because that equity follows the
law.

In Thorndike v. Hunt, 32 it was observed that "If the defendant has a claim to the passive
protection of a Court equal to the claim which the plaintiff has to call tor the active protection of
the Court, he who has the legal estate will prevail." Thus the purchaser for value of the legal
estate without notice of a prior equitable interest, is entitled to priority in Equity to Law. For
"Equity follows the law."

Not only a purchaser for valuable consideration without notice of prior equitable right, obtaining
the legal estate at the time of his purchase, will be protected, but it has also been held that such a
purchaser, who has net obtained the legal estate at the time of purchase, may protect himself by
subsequently getting in the legal estate so long as he does not by the act become a party to a
breach of trust; as the equities of both parties are equal there is no reason why the purchaser
should be deprived of the advantage he may obtain at law by superior activity or diligence. 33

(a) Where the legal estate is subsequent to the equitable interest, it cannot get priority if the legal
owner takes the legal estate with notice of the equitable interest, for a purchase with notice
makes the purchaser a mala fide purchaser. 34

(b) Where the legal estate is prior to the equitable interest legal owner will lose priority by
participating in fraud or gross-negligence.

The law on the point has been clearly laid down in the case of The Northern Counties of England
Fire Insurance Co. v. Whipp, 35 as follows:

The Court will postpone a prior legal mortgage to a subsequent equitable mortgage -

"(i) where the legal mortgagee has assisted in or connived at the 'fraud which led to the creation
of the subsequent equitable estate;

(ii) when the legal mortgagee has made the mortgagor his agent with authority to raise money;
and the security given for raising such money has, by misconduct of the agent, been represented
as the first estate;
(iii) but the Court will not postpone the prior legal estate to the subsequent equitable estate on the
ground of mere carelessness or want of prudence on the part of the legal owner."

In case where either maxims, namely "where the Equities are equal, the first in time shall
prevail" and "where there is equal Equity, the law shall prevail" does not apply because "equities
are not equal" the guiding maxim is "where equities are unequal, he who has the best equity
takes precedence."

It is, however, essential to note here that this maxim applies in case of a conflict between a legal
and an equitable estate, whereas the previous maxim i.e., "where Equities are equal, the first in
time takes precedence", is applicable in cases where there is no legal estate in the field and the
question is among the equitable estates only.

The law shall prevail.- We will discuss here the principal clause of this maxim viz., "the law
shall prevail". This part of the maxim means that the legal estate prevails over the equitable
estate. In other words, the person in possession of legal estate is entitled to priority over any
person having merely an equitable estate in that property. This is so because of the maxim:
'Equity follows the law.'

Where the equities are equal.- The part 'where equities are equal' qualifies the latter part of the
maxim i.e., 'the law shall prevail.' It means, therefore, that the rule as enunciated above holds
good only when equities are equal.

Application of the maxim.- One of the most frequent and important consequence and application
of this principle is the doctrine that where a purchaser of property for a valuable consideration
and without notice of a prior equitable claim in the same subject-matter, obtains the legal claim
in addition to his equitable claim, he becomes entitled to a property both in Equity and at law, for
example, suppose that a trustee possessed of the legal rights in the property conceals that trust
and represents himself as the legal and beneficial owner of the property and on that footing sells
and conveys it to a bona fide purchaser for value who has no notice whatever of the trust, this has
an equal Equity with the defrauded beneficiary and by reason of possession of the legal estate, it
prevails over him.

The doctrines of "ELECTION", "MARSHALLING" and "SET-OFF of Indian Law" are based on
this maxim.

1. Election.-Election may be defined as the equitable accommodation of two inconsistent or

contradictory bequests or benefits, one of which the donor has, strictly speaking, no power to
bestow without the consent or co-operation of the other. For example, where a person grants his
own property X to A and by the same instrument grants to B a property named Y belonging to A
whether believing the latter property to be his own or not, a case of election arises, and equity
will not alle propertclaim property X while retaining his own, property Y and A would be put to
his election that is to say, he would be required te decide whether be put to his electifavour of the
instrument, or against the instrument. The doctrine of election is based on the principle that he
who accepts the The doctrine of elections must adopt the whole of it, conforming to al provisions
and renouncing every right inconsistent with it.
2. Marshalling.- Where there are two creditors of the same debtor, and one creditor has a right of
resort to two funds of the debtor for payment of his debt, and the other creditor has a right to
resort only to one fund, the Court will demarshal" or arrange the funds that both the creditors are
paid as far as possible. It will, therefore, order the first creditor to be paid out of the fund against
which the second creditor has no claim, so far as that fund will extend, so as to have as much as
possible of the second fund for payment of the second creditor, and, if the first creditor has
already paid himself out of the second the Court will allow the second creditor to stand in his
shoes and resort to the first fund to the extent to which the second has been exhausted by the first
creditor.

This doctrine comes into operation very frequently when the assets of a deceased person have to
be administered. The doctrine has been stated by Lord Eldon in Aldrick v. Cooper36 thus:

"If a creditor has two funds, the interest of debtor shall take to that which paying him, will leave
another fund for another creditor."

Set-off.- There can be set-off between bts accruing in the same rights. Equity allows a set-off
when the credit is mutual, i.e., when the party incurring the second debt did so in reliance on the
former debt as a means of discharging it.

Application of Maxim in India.- The principle of this maxim has been incorporated in Sections
40 and 78 of the Transfer of Property Act, 1882, the former being a case of 'prior' equitable and
'subsequent' legal estate, while the latter includes a case of prior legal and subsequent equitable
estate. The relevant portion of Section 40 runs as follows:-"Where a third person is entitled to the
benefit of an obligation arising out of contract and annexed to the ownership of immovable
property, but not amounting to an interest therein or an easement thereon, such right or
obligation may be enforced against a transferee with notice thereof or gratuitous transferee of the
property affected thereby, but not against a transferee for consideration and without notice of the
right of obligation, nor against such property in his hands."

Illustration

A contracts to sell Sultanpur to B. While the contract is still in force he sells Sultanpur to C who
has notice of the contract. B may enforce the contract against to the same extent as against A.
Section 78 of the Transfer of Property Act, 1882, provides as follows "Where through the fraud,
misrepresentation or gross neglect of a prior mortgagee, another person has been induced to
advance money on the security of the mortgaged property, the prior mortgagee is to be postponed
to the subsequent mortgagee." It may be noted that under both Sections 40 and 78 of the Transfer
of Property Act, 1882, the maxim, "where the equities are equal, the law shall prevail" has been
applied. While Section 40 is a case of prior equitable and subsequent legal estate, Section 78 is a
case of prior legal and subsequent equitable estate.