Priority of Mortgages and Tacking

Chapter-1
Introduction
The Principle of Priority is a principle of natural justice that if rights are created in favour of two
persons at different times, the one who has the advantage in time should also have the advantage
in law.

When there are two or more competing equitable interests, the equitable maxim qui prior est
tempore potior est jure (he who is earlier in time is stronger in law) applies. This means that the
first in time prevails over the others. Section 48 of the Transfer of Property Act embodies this
principle in legislation.

The transferor cannot prejudice the rights of the transferee by any subsequent dealing with the
property.

Therefore, when there are successive transfers with respect to the same property, the question
arises that who should proceed the other. In such a case, this section comes to rescue that the
latter transfer would be subject to prior transfer.

However, Sections 78 of the Transfer of Property Act is an exception to the above mentioned
principle, qui prior est tempore potior est jure (he who is earlier in time is stronger in law).

This section provides that,

1. where through the fraud, misrepresentation or gross neglect of prior mortgagee,

2. another person has been induced to advance money on the security of the mortgaged-
property,
3. the prior mortgagee shall be postponed to the subsequent mortgagee.
A property may be mortgaged to two or more persons. The mortgagor may mortgage the
property to one person for a certain sum of money and he may again mortgage the same property
to another person for another loan. The mortgagees one after the other are known as subsequent
mortgagees.

This is where tacking comes in place. Tacking means uniting securities given at different times.
Section 93 of the Transfer of Property Act deals with tacking -

No mortgagee paying off a prior mortgage,whether with or without notice of an intermediate

mortgage, shall thereby acquire any priority in respect of his original security; and, except in the
case provided for by section 79, no mortgagee making a subsequent advance to the mortgagor,
whether with or without notice of an intermediate mortgage, shall thereby acquire any priority in
respect of his security for such subsequent advance.

Hence, no mortgagee shall, by paying off a prior mortgage (whether with or without notice of an
intermediate mortgage) thereby acquire any priority in respect of his original security.

However, Section 79 of the Transfer of Property Act is an exception to this rule.

The right of tacking is applicable within certain limits under section 79 in respect of future
advances, section 79 provides that if a mortgage is made to secure -

a. future advances

b. the performance of an engagement, or

c. the balance of a running account.

Review of Literature -

1. Subject - Property , Title - Doctrine Of Priority in Property Law Author - Mr. Karandeep
Makkar, Publisehd by manupatra.com

The Article talks about the doctrine of priority in property law and the relevant provsions in the
Transfer of Property Act and also deals with the exceptions of the same.
 Chapter-2
Priority of Rights Created by a Transfer
2.1 The principle of priority as under Section 48 of the Transfer of Property Act

Section 48 of the Transfer of Property Act, 1882 is based on the maxim, qui prior est tempore
potior est jure, which means the one which is first in time is better in law. The transferor cannot
prejudice the rights of the transferee by any subsequent dealing with the property.

It is a principle of natural justice that if rights are created in favour of two persons at different
times, the one who has the advantage in time should also have the advantage in law. This rule,
however, applies only to cases where the conflicting equities are otherwise equal.

An owner of a property can assign either all or any of his rights in the property i.e., he may sell
the property, mortgage it or give it on a lease. Therefore, when he sells his property all of his
rights in the property are transferred to the transferee but when he lets it or mortgages it, only
some of the rights are transferred. Thus, it can be noted that the owner of a property can create
any number of transfers in respect of the same property either at the same time or at different
times.

Therefore, when there are successive transfers with respect to the same property, the question
arises that who should proceed the other. In such a case, this section comes to rescue that the
latter transfer would be subject to prior transfer.
However, this general rule applies only in the absence of a special contract or reservation
binding on the earlier transferee. If there is any special contract binding on the transferor and
the earlier transferee, the earlier transferee may lose hi priority.1

If two or more transfers are executed on the same date, then the evidence may be taken as to
which was executed first and that will have the priority.

2.2 Exceptions to the Rule of Priority

There are many exceptions to this rule -

1) Section 50 of the Registration Act gives priority to a subsequent registered deed over a
prior unregistered deed of which the registration is optional. However, this exception is
subject to the doctrine of notice.

2) In a suit for partition, if the receiver under the direction of the Government mortgages the
whole or part of the estate, the mortgagee would be entitled to priority over an execution
creditor by whom the property was attached after the commencement of the suit for
partition.2

3) Where transfer deed is executed through fraud, misrepresentation, or gross negligence of

prior transferee (mortgage), the priority of the prior mortgage will be postponed.(Section
78 of the Transfer of Property Act, 1882, discussed in detail in next chapter.)

1
B. Sivaraman v. S. Ramalingam, AIR 2007 Mad 221
2
Herumbo Nath Banerjee v. Satish Chandra, (1906) 33 Cal 1175
 Chapter-3
Postponement of Prior Mortgagee
A property may be mortgaged to two or more persons. The mortgagor may mortgage the
property to one person for a certain sum of money and he may again mortgage the same property
to another person for another loan. The mortgagees one after the other are known as subsequent
mortgagees.

The rule regarding priority of mortgages is that "He who is first in time is first in law" (qui prior
est tempore, potior est jure). Therefore, when the property is sold in default of payment of loan,
the first mortgagee is paid first and the other mortgagees are paid successively in the same order
of priority.

Section 78 of the Transfer of Property Act, 1882, is an exception to the general rule of priority. It
reads -

78. Postponement of prior mortgagee.—Where, through the fraud, misrepresentation or gross

neglect of prior mortgagee, another person has been induced to advance money on the
security of the mortgaged property, the prior mortgagee shall be postponed to the subsequent
mortgagee.

It says that where a subsequent mortgage is induced to give money to the mortgagor due to
fraud, misrepresentation or gross neglect of the mortgagee prior to him, the prior mortgagee
shall be postponed to the subsequent mortgagee i.e., the subsequent mortgagee will be repaid
earlier than the prior mortgagee. The mortgagee later in time will be paid before the person
earlier in time.

3.1 FRAUD
Fraud means an act done with the intention of deceiving another person. Fraud occurs where
there is dishonest intention. Active concealment of a fact is fraud only when there is duty to
speak.

When there is no duty to speak keeping silence is no fraud.

For example, where A mortgages his property at first to B and when he subsequently tries to
mortgage it to C again, C inquires from B whether the property has any prior encumbrance, he
conceals the fact of his own mortgage. Here, B has committed fraud, and therefore he will be
postponed to subsequent mortgagee C

3.2 MISREPRESENTATION
Misrepresentation is defined in Section 18 of the Indian Contract Act 1872. It includes cases
where there is no intent to deceive. An omission to notify the prior encumbrance in a ale
proclamation, even if an innocent mistake, would amount to misrepresentation if the purchaser
was thereby misled to his prejudice. If the Mortgagee stands by and sees another lending money
on the same estate without giving notice of his first mortgage, it is a misrepresentation, and he
will lose his priority.

3.3 GROSS NEGLIGENCE

A negligence so grave that it cannot be believed that a person of ordinary prudence would have
committed it, is known as gross negligence. Negligence must be the proximate cause of the
change of position.

3.4 LIABILITY OF MORTGAGOR NOT AFFECTED

Questions of priority only arise between successive mortgagees. They do not affect the liability
of the mortgagor. This is illustrated by case of Padarath Halwai vs. Ram Nain3-

There was a first mortgage of villages A and B to S: second mortgage of village to L;

third mortgage of villages A and B to S, for the amount due on the first mortgage and a further

3
(1915) ILR 37 All 174
advance; and a fourth mortgage of village to L. L sued on the second and fourth mortgages for
sale of villages A, making S a party. The court by mistake overlooked the priority of the first
mortgage to S and directed the sale proceeds of village A to be paid first to satisfy the second
mortgage, then first and then the fourth mortgage. The second mortgage was fully satisfied, and
the first mortgage was partially satisfied by the proceeds of the sale.

3.5 RES JUDICATA

A claim to priority may also be lost by res judicata.

When a puisne mortgagee sued to redeem a prior mortgagee and the latter omitted to set up an
earlier mortgage to which he was subrogated, a suit subsequently brought on that mortgage
against the puisne mortgegee is barred by res judicata.
 Chapter-4
Prohibition of Tacking
4.1 Section 93 of the Transfer of Property Act, 1882

When a subsequent mortgagee (puisine) discharges the legal mortgagees' (first mortgagee) claim,
he subrogates himself to first mortgagees claim on such mortgaged property. This is called
tacking.

The doctrine of tacking used for the purpose of squeezing out an intermediate mortgagee has
never been recognised in India.

Tacking means uniting securities given at different times.

For Example - if there are successive mortgages, a property is mortgaged to B, C and D. D may
redeem B and get subrogated to the rights of B. But he only takes priority over C in respect of
B's mortgage and not in respect of his own mortgage. Under the doctrine of tacking D acquires
priority over C not only in respect of B's mortgage which he has paid off but also in respect of
his own mortgage.

Tacking was abolished in India by the Transfer of Property (Amendment) Act, 1929.
Section 93 of the Transfer of Property Act reads-

93. Prohibition of tacking.—No mortgagee paying off a prior mortgage, whether with or
without notice of an intermediate mortgage, shall thereby acquire any priority in respect of his
original security; and, except in the case provided for by section 79, no mortgagee making a
subsequent advance to the mortgagor, whether with or without notice of an intermediate
mortgage, shall thereby acquire any priority in respect of his security for such subsequent
advance.

This section is the same as Section 80 before the amending act of 1929. The section has been
renumber 93 and placed after 92, as the principle of tacking is closely allied to that of
subrogation.

Under Section 93, no mortgagee shall, by paying off a prior mortgage (whether with or without
notice of an intermediate mortgage) thereby acquire any priority in respect of his original
security.

No mortgagee making a subsequent advance to the mortgagor (whether with or without notice of
an intermediate mortgage) can thereby acquire any priority in respect of his security for such
subsequent advance, except in case of Section 79.

4.2 Section 79 of the Transfer of Property Act, 1882 (Exception of tacking)

The right of tacking is applicable within certain limits under Section 79 in respect of future
advances. Section 79 of the Transfer of Property Act reads -

79. Mortgage to secure uncertain amount when maximum is expressed.—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 debits not exceeding the maximum, though made or allowed with
notice of the subsequent mortgage.

Illustration - 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. At the date 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.

Section 79 provides that if a mortgage is made to secure -

1) future advances
2) the performance of an engagement, or
3) the balance of a running account

expresses the maximum to be secured thereby, a subsequent mortgage of the same property if
made with notice of prior mortgage, is to be postponed to the prior mortgage in respect of all
advances or debits not exceeding the maximum, though made or allowed with notice of the
subsequent mortgage.

This section contains the second exception to the general rule of priority of former mortgagee.
For the application of the rule the following conditions should be satisfied -

1. The maximum amount should have been secured through the first mortgage.

2. The second mortgagee has notice of the prior mortgage;

3. The first mortgagee advances more money within the maximum limit after the second
mortgage has been affected.
 Chapter-5
Conclusion
The following can be concluded from the project -

 Section 48 of the Transfer of Property Act, 1872 lays down the basic doctrine of priority
in property law.

 It is based on the maxim qui prior est tempore potior est jure which means that
subsequent dealings with the transferor of the same property cannot be to the prejudice to
the roghts of the transferee over the same property.

 However there are a number of exception to this rule.

 Section 78 of the Transfer of Property Act is one of the exceptions and says that where,
through the fraud, misrepresentation or gross neglect of prior mortgagee, another person
has been induced to advance money on the security of the mortgaged property, the prior
mortgagee shall be postponed to the subsequent mortgagee.

 Where there a multiple mortgages involved, tacking comes into picture. Tacking is
prohibited in India under Section 93 of the Transfer of Property Act.

 However, the right of tacking is applicable within certain limits under Section 79 in
respect of future advances.
 Bibliography

Books referred -
1. Property Law by Dr. Poonam Pradhan
2. Textbook on the Transfer of Property Act by Avtar Singh
3. The Transfer of Property Act (Mulla) by Sir Dinshaw Fardunji Mulla
4. B.B. Mitra and Sengupta on Transfer of Property Act

Web links -

1. http://www.lexisnexis.com/
2. https://indiankanoon.org
3. http://heinonline.org/
4. http://www.manupatrafast.com/
5. http://www.legalemperors.com/
6. http://advocateselvakumar.com/