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Report No. 70

Chapter 77

Mortgage to Secure Uncertain Amount When Maximum is Expressed

Section 79

77.1. Introductory.- Section 79 reads-

"79. If a mortgage made to secure future advances, the performance of an engagement or the balance of a running account, expresses the maximum to be secured thereby, a subsequent mortgage of the same property shall, if made with notice of the prior mortgage, be postponed to the prior mortgage in respect of all advances or debts not exceeding the maximum, though made or allowed with notice of the subsequent mortgage."

In the illustration to the section, A mortgages Sultanpur to his bankers, B & Co., to secure the balance of his account with them to the extent of Rs. 10,000. A then mortgages Sultanpur to C, to secure Rs. 10,000; C having notice of the mortgage to B & Co., and C gives notice to B & Co. of the second mortgage, the balance due to B & Co. does not exceed Rs. 5,000. B & Co. subsequently advance to A sums making the balance of the account against him exceed the sum of Rs. 10,000. B & Co. are entitled to the extent of Rs. 10,000 to priority over C.

77.2. Significance.-

We have referred to the general principle of law that where the equities are equal, the first in time shall prevail.1 This rule has been enacted in section 48 with reference to transfer of property in terms that are applicable to all interests in immovable property. The same general rule is recognised by section 93, which provides specifically that a mortgagee making a subsequent advance to the mortgagor, whether with or without notice of an intermediate mortgage, shall not thereby acquire any priority in respect of his security for such subsequent advance. But this provision is made subject to the rule laid down in section 79, quoted-above.

1. See discussion as to section 78.

77.3. Rationale.-

As was pointed out in a Calcutta case,1 section 79 follows the dissenting judgment of Lord Cranworth. Lord Cranworth, in his dissenting judgment in Hopekinson v. Rolt, (1861) 9 HLC 539 (540): 11 ER 829, observed:

"Mortgages are but contracts; and when once the rights of parties under them are defined and understood, it is impossible to say that any rule regulating their priority is unjust. If the law is once laid down and understood, that a person advancing money on a second mortgage, with notice of a prior mortgage covering future as well as present debts, will be postponed to the first mortgagee, to the whole extent covered or capable of being covered by the prior security, he has nothing to complain of. He is aware, when he advances his money, of the imperfect nature of his security and acts at his peril."

1. Durga Prasad v. Mario Galstaun, AIR 1955 Cal 194 (204).

77.4. Conditions.-

The section, in effect, enables a prior mortgagee to tack on his mortgage a further advance made by him and thus gain priority over an intermediate incumbrance, provided two important conditions are fulfilled1:-

(a) the prior mortgage is one made to secure further advance, the performance of an engagement or the balance of a running account and expresses the maximum to be secured thereby, and

(b) the subsequent encumbrancer has notice of the prior mortgage.

1. AIR 1920 Pat 251 (254).

77.5. No Change. On an examination of the case law,1 we do not think that the section needs any change.

1. Durga Prasad v. Mario Galstaun, AIR 1955 Cal 194 (199, 204), para. 39; AIR 1921 Mad 459 (460); Baijnath v. Daleep Narain, AIR 1920 Pat 251 (254).

The Transfer of Property Act, 1882 Back

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