Rule in Dearle v Hall

The rule in Dearle v Hall (1828) 3 Russ 1 is an English common law rule to determine priority between competing equitable claims to the same asset. 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 first priority claim.

Although the original decisions related to interests under a trust, most modern applications of the rule relate to the factoring of receivables or multiple grants of equitable security interests.

The rule has been subject to some scathing criticism, and has been abrogated in a number of common law countries in the Commonwealth.

The rule in Dearle v Hall has been controversial almost since its inception. In 1893, Lord Macnaghten said "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." 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.

The actual decision in Dearle v Hall, on its facts, is relatively uncontroversial. The beneficial owner of a trust fund assigned it first by way of security to A, and then outright to B, in each case for valuable consideration. A had not given notice of his assignment to the trustees of the fund and, accordingly, when B made enquiries of them, he did not discover the existence of the assignment to A because the trustees were not aware of it. B did give notice of the assignment to the trustees, and then A subsequently also gave notice to them. Plumer MR and, on appeal, Lord Lyndhurst LC each decided that B took priority over A.

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