The Rule in Dearle v. Hall

INTRODUCTION

The rule in Dearle v. Hall [1]is an English equity rule to determine priority between competing equitable claims to the same assets. [2]Where there are successive interests in pure personality, their priority will be determined by the rule. Under the rule, priority among equitable assignees depends upon the order in which notice in writing is given to the debtor or trustee.

 

Fact of the Case

Peter Brown made a will and directed his executors to sell the residue of his personal and real estate and invest the proceeds and pay the interest there out to Zachariah Brown. Zachariah Brown then assigned his interest first to Dearle in 1808, then to Sherring in 1809, and in 1812 sold it to Hall.

Before Hall purchased, he instructed his solicitors to investigate Brown’s title. The investigation did not reveal earlier dealings with Brown’s interest. Hall served a written notice of his assignment to the executors. Subsequently, the executors received notice of the two earlier assignments.

The question for determination was: who was entitled to priority? The court decided in favor of Hall. [3]The court’s obiter read that:

‘…Where the owner of an equitable interest in pure personality creates more than one incumbrance on it, the priority of the incumbrancer does not depend on the dates of creation of their respective incumbrance but on the dates on which the trustees received notice of the incumbrances, subject to the qualification that a later incumbrancer who has notice of an earlier incumbrance at the date of taking his security cannot obtain priority by behind the first to give notice to the trustees’.

 

The rule broadly provides that where the equitable owner of an asset purports to dispose of his equitable interest on two or more occasions, and the equities are equal between claimants, the claimant who first notifies the trustee or legal owner of the asset shall have a priority claim.

Although the original decisions related to interests under a trust, most modern applications of the rule relating to the factoring of receivables or multiple grants of equitable security interests. However, for this rule to be invoked four things must happen and they are:

  1. For the rule to apply there must be a trustee or a fund holder who is to discharge the liability; there must also be a person who has or has had a beneficial interest in the fund.
  2. Also, for the rule to apply, the assignor must have assigned his beneficial interest to two or more successive assignees or charges.
  3. The subsequent or later assignee must not have had notice of the earlier assignment.
  4. Notice must be given to the trustees. Where the trustee is more than one notice ought to be given to all of them even though notice to one is a notice to all as long as that one remains a trustee at the time of successive assignment.[4]

 

According to Professor J.O Fabunmi, he opined that: Priority will depend upon the order in which notice of the dealings was received by the person entitled to receive it; if notice is received substantially simultaneously, priority will depend upon the order in which the interest was created.[5]

 

Does the maxim ‘where the equities are equal; the first in time shall prevail’, apply here?

This maxim governs questions of the priority of rival equitable claimants to the same property. It is expressed thus: ‘qui prior est tempore potior est jure’.

It is designed to resolve the problem of priority and conflict. Thus, where the competing interests are equitable, then the equities are said to be equal, and therefore, the first in time would prevail.

In other words, the time of acquisition of interest becomes the deciding factor as to which one takes priority. Thus, the equitable interests rank in the order of their creation.[6]

This maxim together with the maxim ‘where there is equal equity, the law shall prevail’ provides the foundation for the doctrine of notice.

The court gave judicial blessings to it in Cave v. Cave.[7] It is pertinent to note that this maxim does not apply under the Dearle v. Hall rule.

Priority under this rule is determined not by the order in which the assignment was created but by the order in which the successive assignee gave notice of their assignments to the debtor, trustee, or another person liable to pay[8].

 

Application in Nigeria

In Nigeria, the rule is mostly governed under the “priority of interest” heading. By virtue of S.16 of the Land Registration Act which provides that non-registration of any instrument affecting land would result in loss of priority of that interest.

Thus, the Act affects the Temporal Order rule such that what is material now is not the date of creation but the date that the instrument was registered.

In Amankra v. Zankley (1963) 1 All NLR 304, the same vendor conveyed the same property to the plaintiff and defendant. The plaintiff claimed that the land was conveyed to him in August 1957 and he registered the deed in September 1957.

The defendant claimed that the land was conveyed to him in May 1957 but he registered in March 1960. The court held that even though the defendant was earlier in time, he loses priority because he registered it later.

 

CONCLUSION

Since its inception, the rule has been subject to some scathing criticism and has been abrogated in a number of common law countries in the Commonwealth. In 1893, Lord Macnaghten said in the case of WARD v. DUNCOMBE,

” I am inclined to think that the rule in Dearle v Hall has on the whole produced at least as much injustice as it has prevented.”[9]

But this has not stopped it from being extended from a rule regulating the priority of interests in trusts to the regulation of the priority of proprietary interests in debts and other similar intangibles, such as rights under contracts, which is considerably more important in terms of modern commerce.

 

About the Author 

Oliver Azi is a penultimate student of law at the University of Jos, with vast experience in debating/mooting; legal and creative writing; and a keen research interest in law and society. A vast reader with a readership of about 50 books per year. He has written for lawyers, NGOs and several clients in both the United Kingdom and Netherlands. He has interned with top tier litigation law firm, D.D Dodo & Co—Abuja; G.M Kuttu, SAN & Co—Jos; alongside, Great Ark Attorneys, Jos.

He can be reached at [email protected] or on whatsapp at 081099114989

 

REFERENCE 

[1]Dearle v. Hall(1828) 3 Russ 1

[2]Property under law is broadly classified as ‘realty’ or ‘personalty’. Personality can again be divided into ‘tangible and intangible’. This classification is important when transfer of such property is contemplated. For example, a tangible property is a property that can be physically possessed, such as table, chair etc. These tangible properties, which are generally referred to as ‘choses in possession’ can be stolen. They can be possessed and if intended, possession and ownership of them will pass by physical delivery. But intangible property cannot be physically possessed; such property includes debt, copyright, shares in companies, patent and design. These are generally referred to as ‘choses in action’.

[3]Adewale Taiwo & Oluwatoyin Akintola, ‘Introduction to Equity and Trust‘ (1st Edition, Princeton & Associates Publishing Co. Ltd, 2016) p. 101

[4]Adewale, Supra.

[5] Johnson O Fabunmi, ‘Equity and Trust in Nigeria’ (2nd Edition, Obafemi Awolowo University Press Limited, 2011) p. 99

[6] These two maxims have, however, lost some of their importance since the introduction in the 1925 of the system of registration of certain interest in the land of Britain.

[7] (1880) 15 Ch.D 639

[8] Emphasis Mine

[9] Ward v Duncombe (1893) AC 369

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