Principle of Apportionment | Property Law - CLAT PG PDF Download

Introduction

• Sections 36 and 37 of the Transfer of Property Act outline the principle of apportionment.
• Section 36 states that in the absence of a contract or local usage to the contrary, all periodical payments such as rents, annuities, pensions, and dividends are deemed to accrue due from day to day and are apportionable upon the transfer of interest. However, these payments are only payable on the specified payment days.
• Apportionment is the division of a common fund among several claimants and can be classified into apportionment by time and apportionment by estate.

Apportionment by Time

• Apportionment by time involves the division of periodical income from a property between the transferor and transferee on a day-to-day basis.
• Unlike the general rule of transfer of interest as per Section 8 of the Act, which applies to the entire property, apportionment of periodical income is based on the principle that all periodical income accrues and is apportioned daily.
• Section 6 of the Act emphasizes that apportionment is applicable only between the transferor and transferee, without holding the tenant liable.
• According to the concept of transfer in the Act, when property is lent to multiple owners, no individual owner can demand a specific share of rent or eviction solely based on co-ownership rights.
• Sections 36 and 37 should be understood in conjunction with Section 8 of the Act. Section 8 states that all interests, including rents and profits, are transferred from the transferor to the transferee. In cases where income accrues daily, the transferee receives income daily from the date of transfer. However, if income does not accrue daily and consists of periodical payments, the amount is apportioned between the transferor and transferee.

Apportionment by Estate

• Section 37 of the Transfer of Property Act deals with apportionment by estate. It states that when property is divided and held in several shares due to a transfer, any obligation related to the property as a whole passes from one owner to several owners. In such cases, the corresponding duty must be performed in favor of each owner in proportion to the value of their share in the property, unless there is a contract to the contrary among the owners.
• Conditions for apportionment by estate include:
  • The person obligated to fulfill the duty must have notice of it.
  • The obligation must be of a severable nature.
  • The severance of the obligation should not increase the burden significantly.
• Apportionment by estate involves the division and transfer of property among multiple owners who are responsible for fulfilling obligations attached to their respective shares of the property.
• Section 36 focuses on apportionment by time, while Section 37 addresses apportionment by estate.
• In cases of tenancy, if the tenant is not informed about separate payments to each owner, they are liable to pay only once.

Illustrations

• (a) A sells a house in a village to B, C, and D, with E as the tenant paying an annual rent of Rs. 30 and delivering one fat sheep. B provided half the purchase money, while C and D contributed one quarter each. E must pay Rs. 15 to B, Rs. 7.50 to C, and Rs. 7.50 to D, and deliver the sheep as per their joint direction.
• (b) In the same case, each house in the village is required to provide ten days' labor each year on a dyke to prevent flooding. E agreed to perform this work for A as part of his lease. B, C, and D individually require E to perform the ten days' work for each house. E is only obligated to do a total of ten days' work, as directed by B, C, and D collectively.

Doctrine of Priority / Priority of Rights

Section 48

• Section 48 of the Transfer of Property Act addresses the determination of relative rights and priorities among successive assignees of the same or overlapping rights. In cases of competing equitable interests, the principle of qui prior est tempore potior est jure(he who is earlier in time is stronger in law) applies, meaning the first in time prevails.
• The section is based on the principle that no one can convey a title greater than what they possess. If rights are created in favor of two individuals at different times, the one with the advantage in time should also have the advantage in law, but this applies only when the conflicting equities are otherwise equal.
• Section 48 emphasizes that a person who has already made a transfer cannot derogate from their grant and deal with the property free from the rights established under the earlier transaction. The section does not offer protection to a subsequent transferee who is unaware of the prior transfer.
• The Madras High Court in the case of Duraiswami Reddi v. Angappa Reddi ruled that the prior transferee could enforce their rights even if their document was registered later and regardless of the subsequent transferee's bona fide transactions without knowledge of the first transaction. The priority of the first transferee would only be postponed if the later transferee could establish informative circumstances like fraud, estoppel, or gross negligence.
• In K.H. Nathan v. Maruthi Rao, the Supreme Court determined that the mortgage deed became effective from the date of registration and would take precedence over a transfer that occurred between the execution and registration of the earlier transaction.
• In cases of successive transfers of the same property, the later transfer is subject to the prior transfer, reinforcing the principle of priority based on time.

Applicability of the Rule

• When there is a conflict between a mortgagee by deposit of title-deeds and a subsequent purchaser, the principle in Section 48 of the Transfer of Property Act applies.
• Section 48 of the Transfer of Property Act is absolute and does not allow for exceptions.

In the case of Sitaram v. Rajnarain, it was established that the priority between a mortgagee and a subsequent purchaser is determined by Section 48.

• Section 41 does not protect the mortgagee's position if there is no evidence of negligence on their part.
• Priority rights are determined by the combination of Section 48 of the Transfer of Property Act and Sections 47 and 49 of the Registration Act.
• Overemphasizing Section 49 of the Registration Act alone undermines the significance of Section 47 and Section 48.
• Once a document is registered, Section 49 becomes irrelevant, and the document is effective from the date of execution due to Section 47 of the Registration Act.
• The charge held by the Plaintiff under the indemnity clause in the partition deed does not have priority over the charge held by Defendant 1.
• A subsequent lease cannot disadvantage an existing tenant.

Equality of Partition

• When partitioning property within a joint family, it may not be feasible to divide the properties equally due to variations in their values. For instance, one member might receive a property of greater value while another receives a property of lesser value.
• To address this disparity, there needs to be a mechanism for equalizing the shares, often involving a payment from the member receiving the more valuable property to the one receiving the less valuable property. This concept is legally recognized and is known as "provision for owelty" or "equality of partition."
• The provision for owelty is regarded as a lien, granting the co-sharer who receives owelty a claim on the excess property allocated to another co-sharer.
• When a co-sharer is awarded owelty during a partition to equalize shares due to an excessive allotment of immovable property to another co-sharer, this provision typically establishes a lien or charge on the land taken in the partition.
• This lien or charge can be explicitly created through the terms outlined in the partition decree. Even if no explicit charge is mentioned, the lien may still exist by implication due to the very nature of the partition.
• The co-sharer who receives an excessive allotment of property in the partition cannot claim ownership of the properties included in their share without being bound by the obligation to pay owelty to the other co-sharers.

Exceptions to the Rule

• Salvage Charges: Salvage charges related to advances made for the preservation of encumbered property take precedence over all other charges, regardless of their date. When a court authorizes a Receiver to borrow money on a mortgage with a first charge on the property, this charge supersedes earlier mortgages, provided the loan is for the purpose of preserving the property.
• Estoppel: The rule of prior tempore yields to the principle of estoppel. For instance, if the first mortgagee is a witness to the second mortgagee, even without proof of knowledge of the second mortgage's details, the first mortgagee is subordinated to the second encumbrance. Similarly, if a registered purchaser is present during the possession transfer to an unregistered purchaser, the registered purchaser is postponed.
• A party paying off a prior mortgage can use that mortgage as a defense against a subsequent mortgage if their intention was to keep the prior mortgage active. No subsequent mortgage is legally required to notify prior encumbrancers of their encumbrance.
• The principle is similar in England, and Hindu law does not mandate such notice. The lack of action by equitable encumbrancers does not delay their encumbrance.
• By the Registration: An instrument takes effect from the date of execution, regardless of its compulsory registration status. When multiple deeds are executed on the same day and their execution order is unclear, all deeds become effective simultaneously.
• In cases where deeds with different dates are registered on different days, priority among them is determined by the deed dates, not the registration dates. If a deed is lost after execution but before registration, and a replacement deed is needed, the first purchaser may be entitled to a decree based on their sale-deed.
• By notice: Section 78 outlines situations where the rule may be deviated from. For instance, Section 50 of the Registration Act, 1877, did not prevent the holder of a subsequent registered deed from having priority over an earlier unregistered deed if the holder of the registered deed had notice of the earlier deed at the time of its execution.
• In cases where a bona fide contract for property sale is made, and a third party later purchases the property with notice of the prior contract, the title of the party claiming under the prior contract prevails over the subsequent purchaser, even if the latter's purchase is registered and they have possession.
• If a person intends to take a mortgage that must be executed by registered deed and finds someone other than the intending mortgager in possession, the possession is sufficient to alert the prospective mortgagee to the title of the person in possession.
• If the title of the person in possession is that of a prior mortgagee under a non-compulsory registrable document, the second mortgagee cannot obtain priority over the first mortgagee by registering their mortgage.
• Possession in specific cases serves as notice of the title of the person in possession, and a party intending to deal with the property must investigate the nature of the possession. If they assume the occupant is a tenant and later discover that the occupant purchased the land, the subsequent transferee is bound by the notice of the purchase.
• By decree or order: A decree or order concerning a property does not automatically take precedence over registered deeds. A decree or order based on an unregistered prior deed against the mortgagor, obtained after a registered transfer of the mortgaged property, does not have priority over the registered transfer.