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INTRODUCTION-

Mortgage is the one kind of transfer and it is the one kind of title transfer of specific
immovable property. Mortgage is a conveyance of title to property that is given as
security for the payment of a debt or the performance of a duty and that will become
void upon payment or performance according to the stipulated terms 1. In the words of
Mahmood J.2, “mortgage as understood cannot be defined better than by the definition
of adopted by the Legislature in Sec. 58 of the Transfer of Property act.” According to
section 58(a) of the Transfer of Property Act 1882, “A mortgage is the transfer of an
interest in specific immoveable property for the purpose of securing the payment of
money advanced or to be advanced by way of loan, an existing or future debt, or the
performance of an engagement which may give rise to a pecuniary liability” 3.

 The transferor is called a mortgagor;


 The transferee a mortgagee;
 The principal money and interest of which payment is secured for the time being
are called the mortgage-money; and
 The instrument (if any) by which the transfer is effected is called a mortgage-
deed.

CONSIDERATION

MORTGAGOR MORTGAGEE
LAND

In the case4 of Salehon V. Muhammad, it was held that A mortgage is a transfer of


interest which comes into existence, when the contract of mortgage is entered into and
not necessarily when the consideration is paid.

1
Bouvier. (1914). Bouvier's Law Dictionary. Michigan: Franklin Classics.
2
Gopal v. Parsotam, (1883) 5 All 121 (137) (FB).
3
Shukla, S. N. (2014). The Transfer of Property Act. Allahabad: Allahabad Law Agency
4
PLD 1958 (WP) Lah. 1023
Elements of Mortgage:
1. There must be transfer of an interest;
2. There must be specific immovable property intended to be mortgaged;
3. The transfer must be made to secure the payment of a loan or to secure the
performance of a contract.

DOCTRINE OF PRIORITY-
S.48 Priority of rights created by transfer.—Where a person purports to create by
transfer at different times rights in or over the same immoveable property, and such
rights cannot all exist or be exercised to their full extent together, each later created
right shall, in the absence of a special contract or reservation binding the earlier
transferees, be subject to the rights previously created.5

MEANING
“Purports to create” means that the rights so created can’t co-exist. “Rights over the
same property” means that the rights created for one of the two transferees do not
express the entire interest. In such a case, doctrine of priority can’t be used, as one of
the two transferees takes nothing, so the transferees can’t give as well. “Cannot exist
together,” means that the two interests cannot be beneficially enjoyed without
prejudicing each other. “Special”

PRINCIPLE
It is the 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 has an advantage
in law. This rule however, applies only to the cases where the conflicting equities are
otherwise equal.6 Section 48 of the TP Act is founded upon the important principle that
no man can convey a better title than what he has. If a person has already effected a
transfer, he cannot derogate from his grant and deal with the property feel from rights
created under the earlier transaction. Section 48 is an absolute in its terms and does
not contain any protection or reservation in favour of a subsequent transferee who has
no knowledge of the prior transfer.7

PRIORITY OF MORTGAGE
Section 78 and 79 deal with priority of mortgage. They deal with the exceptions of the
rule of priority. Priority applies where the same mortgaged property is mortgaged or
transferred subsequently affecting the interest of the prior mortgagee. A property may
be successively mortgaged to several persons in such cases besides the rights of
mortgagor and mortgagee the inter se rights and duties of mortgagees themselves are
involved and priority, marshalling are such rights.

5
The Transfer of Property Act, 1882, No. 4, Acts of Parliament, 1993.
6
S. Arunachalam v. Sivan Perumal Asari, A.I.R. 1970 Mad. 226 at p. 230.
7
(1945) I M.L.J. 425: A.I.R. 1946 Mad. 140.
SECTION 78:
It deals with priority which reads as follows,
“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.”8

Rights of Subsequent Mortgagees:


A property may be mortgaged to two or more persons one after another it largely
depends on the value of property. For instance, if the net value of the property exceeds
Rs. 5000/- then owner of it may secure it for a mortgage with A for Rs. 500/-and with
B subsequently for Rs. 600/- and with C for Rs. 700. Here A is the first mortgagee and
B and C are subsequent mortgagees. If in the case of non-payment of mortgage money,
the property is sold off then the question will arise that which mortgagee will be paid
first. The question is answered in section 48 of the Act under doctrine of priority which
is based on maxim Qui prior est tempore potior est jure which means that prior in time
is prior in rights. That means the first mortgagee will be paid first and subsequent
mortgagee will be paid in the subsequent order of priority.
But section 78 deals with the exception of the rule of priority. It provides 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. For instance, if
A mortgage to B and then concealing the fact of the first mortgage mortgages the same
property to C.C inquires about the first mortgage from B who does not tell about it then
in such case due to fraud B’s claim shall be postponed after C. Three different kinds of
misconduct are mentioned in the section and each of them shall make this section
applicable. This exception of priority is an extension of principle of estoppel which is
based on a misleading statement made either by act or declaration of the person
concerned.
Cases under section 78 are followings:
Fraud
The term ‘Fraud’ is defined under section 17 of Indian Contract Act,1872 and has the
same meaning in the Transfer of Property Act,1882 as well. It requires an intent to
deceive, or an intent to induce a contract, by-
a) False suggestion of a fact known to be false, or not believed to be true or reckless
without caring whether it is true or false, without a genuine belief in its truth;
b) Active concealment of a fact, with knowledge or belief of the fact.9
This is based upon the principle that a man may not take advantage of his own wrong.10
In order to affect the mortgagee with the consequences of the fraud of his agent, it
must be shown that the relation existed at the time when the fraud was practiced, and

8
The Transfer of Property Act, 1882, No. 4, Acts of Parliament, 1993.
9
United Motors Finance Co. v. Addison & Co. Ltd., A.I.R. 1937 P.C. 21 at p. 23.
10
Abouloff v. Oppenheimer, 10 Q.B.D 1295 at p. 301.
that the fraud was committed by him while acting within the scope of the authority. It
is not necessary to prove any express command or privity of the master, 11 who is
presumed to have noticed of all facts brought to the knowledge of his agent, which he
can’t be allowed to rebut.12
Misrepresentation
Not only fraud but misrepresentation also entails displacement of priority. This word
has been defined in sec. 18 of the Indian Contract Act.13
Misrepresentation means misstatement of facts without any dishonest intention for
instance making a statement knowing it to be untrue but believing it to be true is a
misrepresentation but if a statement is made knowing and believing it to be untrue then
it is fraud.
Gross Negligence
The term is not defined in the Act. It means that failure on the part of prior mortgagee
to take such reasonable precautions against the deception of a subsequent mortgagee
which makes it unjust that the prior mortgagee should retain his title.14 A simple
negligence is innocent and without any dishonest intention a breach of the duty.
However, gross negligence is something which is apparent on the face of transaction.
For example, In Llyods Bank Ltd. v P.E. Guzdar and Co.15 a person secured loan
from bank by deposit of title deeds. Subsequently convincing the bank he took the title
back so as to sell the property and pay the loan of bank. He again mortgaged with
another bank by deposit of title deeds. Normally such deeds are endorsed and intended
purchaser may make an inquiry from the bank and sale may be executed in the
presence and monitoring of creditor after mortgage and before redemption does not
give title deed to anyone. In this case the prior mortgagee committed gross negligence
so subsequent mortgagee will get priority over him.
Notice
However, section 78 does not apply if the subsequent mortgagee was having notice of
prior mortgage. Notice of prior mortgage can’t be assumed to be inducement to
subsequent mortgagee to advance money. Also, a mortgagee need not go out of his
way to give notice of his security when he hears that the mortgagor is dealing with the
property. But if there is any constructive fraud direct or indirect of the mortgagee, he
is postponed to the subsequent mortgagee.

SECTION 79:
It provides another exception of rule of priority. In this section, a subsequent mortgagee
having notice of the prior mortgage is postponed as regards further advances made
subsequently by the prior mortgagee.

“Mortgage to secure uncertain amount when maximum is expressed-

11
Barwick v. English Joint Stock Bank, 2 Eq. 259 at p. 265.
12
Brohmo Dutt v. Dharmo Dass, I.L.R., 26 Cal. 381 at p. 317.
13
Act IX of 1872.
14
Dharam Mohan v. Pramath Nath A.I.R. 1932 Cal. 238 .
15
AIR 1930 Cal 22.
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.”16

Meaning

“If a mortgagee… express the meaning to be secured thereby”: the fixing of the mixing
of a maximum limit secured by the mortgage does not necessarily create any obligation
on the mortgagee top advance up to that limit. It is merely a security for “future
advances” which may or may not be made. As it is, the section is intended to apply to
cases where the maximum is fixed and secured by the mortgage. Hence, where the
mortgage is given for an undefined sum, so as to secure a general balance of a floating
account without the maximum amount being fixed, the section will be clearly
inapplicable. “If made with notice of prior mortgage”: For if the subsequent mortgagee
has no notice of the prior mortgage he can’t be postponed.

Scope of Section 79 and 93

It is significant to note that this section is also an exception of section 48 which deals
with priority and section 93 also. Section 93 provides that a prior mortgagee can’t take
any subsequent advances on the basis of original mortgage. But section 79 provides an
exception of this rule. U/s 79 if a mortgagor mortgages an already mortgaged property
and subsequent mortgagee is having notice of prior mortgage then he is postponed as
regards to further advances made subsequently by the prior mortgagee. The rule may
be explained by example where A mortgages Palampur to his banker B (first
mortgagee) for Rs. 10,000 and then mortgages Palampur to C (subsequent mortgagee)
for Rs. 10,000. But C has notice of prior mortgage. On the date of execution of second
mortgage the balance of first mortgage is Rs. 5,000. B advances Rs. 5,000 to A. then,
B is entitled for priority over C. But if B forwards Rs. 7000 then it will exceed the
maximum amount to be secured and expressed in first mortgage as Rs. 5000 have
already been forwarded and total outstanding mortgage money shall be Rs. 12,000 and
section 79 shall not apply due to excess of Rs. 2000.

CONCLUSION
Mortgage is a transfer of an interest in specific immovable property as a security for the
repayment of a monetary liability. This liability could be arising out of money already advanced
or to be advanced; it could be future debt or it could be pecuniary liability arising out of the
non-performance of any engagement. A mortgage corresponds to the Hypotheca of Roman
Law. The s.48 enunciated the general rule Qui prior est tempore potior est jure which
means that prior in time is prior in rights. This general rule determines the rights of
various mortgagees but it is equally well settled in section 78 of transfer of property
Act that the prior mortgagee may lose his priority through fraud, misrepresentation or
gross negligence. Section 79 as also section 93, Transfer of property Act, only deal with
the question of priority, i.e., question of adjustment of the rights of the different
morgages. To conclude, these sections deal with the question as to what would be the
position of intermediate mortgage, what are the circumstances under which such
intermediate mortgage would have priority over the subsequent advances in respect of

16
The Transfer of Property Act, 1882, No. 4, Acts of Parliament, 1993.
the first mortgage and what are the circumstances under which the prior mortgagee
may lose his priority.

BIBLIOGRAPHY
BOOKS

Bouvier. (1914). Bouvier's Law Dictionary. Michigan: Franklin Classics.

Rao, G. C. (2009). Law of Transfer of Property. Lucknow: Eastern Books Company.

Rashbehary, G. (2013). The Law of Mortgage in India. Kolkata: Kolkata Books Agency.

Row, S. (2013). Transfer of Property Act. New Delhi: Universl Law Publishing.

Sarathi, V. P. (2011). Law of Transfer of Property. Lucknow: Eastern Book Company.

Shukla, S. N. (2014). The Transfer of Property Act. Allahabad: Allahabad Law Agency.