Transfer of Property Act (TPA)
Mortgage Securing an Uncertain Amount under Section 79: Priority for Advances Up to the Stated Maximum
A banker who lends on a running account cannot search the register before every cheque he honours. If each fresh advance lost its priority the moment a second mortgage was created, no overdraft facility secured on land would be workable. Section 79 solves the problem by a bargain the borrower publishes in advance: state a maximum in the mortgage deed, and every advance up to that figure keeps its priority over a later mortgagee, notwithstanding notice of the later mortgage. What the section protects is not the lender's ignorance but the ceiling he declared.
1. The Section
Section 79, TPA '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 so expressed.' |
2. The Act's Illustration
The banker's account A mortgages Sultanpur to his bankers, B & Co., to secure the balance of his account with them to the extent of ₹10,000. A then mortgages Sultanpur to C to secure ₹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 ₹5,000. B & Co. afterwards advance further sums, so that the balance against A exceeds ₹10,000. B & Co. are entitled, to the extent of ₹10,000, to priority over C — although they knew of C's mortgage when they made the later advances. |
3. The Four Requirements
- A mortgage of the kind the section names — one made to secure future advances, the performance of an engagement, or the balance of a running account. A mortgage for a fixed sum already advanced is outside the section.
- The maximum to be secured must be expressed in the mortgage itself. This is the heart of the provision: the figure is the notice the world gets, and a mortgage that names no ceiling attracts no protection under the section.
- A subsequent mortgage of the same property, made with notice of the prior mortgage.
- The consequence: the later mortgage is postponed to the prior mortgage in respect of all advances or debits not exceeding the maximum. Beyond the maximum the prior mortgagee has no such protection, and his later advances rank after the second mortgage.
4. What the Section Reverses
In English law the rule in Hopkinson v. Rolt is that a prior mortgagee who makes a further advance after notice of a subsequent mortgage loses priority for that advance: he is taken to have lent on a security he knew to be already encumbered. The rule is sensible where the ceiling is unknown, but it destroys the utility of a running account.
The position without section 79 | The position under section 79 | |
|---|---|---|
Further advance made before notice of the second mortgage | Retains priority | Retains priority |
Further advance made after notice, no maximum expressed | Loses priority for that advance | The section does not apply; the ordinary rule governs and priority is lost |
Further advance made after notice, within an expressed maximum | Would lose priority | Keeps priority — the express object of the section |
Further advance exceeding the expressed maximum | Loses priority | Loses priority as to the excess; the ceiling is the limit of the protection |
5. Why the Ceiling Matters
- It is a warning to the world. A second lender who searches the register sees not only that there is a prior mortgage but how far it may grow. He can price his risk, or decline it.
- It removes the need for the first lender to search. Having declared his ceiling, he may operate the account without checking the register before each advance.
- It confines the protection to what was published. Nothing beyond the stated figure is protected, so the first lender cannot expand his security silently.
- And it keeps the general rule intact everywhere else. Section 93 forbids tacking in terms, and expressly saves only the case provided for by section 79.
6. Section 79 and Section 93
The relationship between the two Section 93 provides that no mortgagee making a subsequent advance to the mortgagor, whether with or without notice of an intermediate mortgage, acquires any priority for that advance — 'except in the case provided for by section 79'. So section 79 is the single statutory exception to the prohibition of tacking further advances in India. Outside it, a further advance ranks from the date it is made, behind any mortgage created in the meantime. |
7. Worked Examples
The facts | Result |
|---|---|
A mortgages to a bank to secure the balance of a running account up to ₹20 lakh; A then mortgages to C, who has notice; the balance later rises from ₹8 lakh to ₹18 lakh | The bank has priority for the whole ₹18 lakh — it is within the stated maximum |
The same, but the balance rises to ₹25 lakh | The bank has priority up to ₹20 lakh; the excess of ₹5 lakh ranks after C |
The mortgage to the bank expresses no maximum, and further advances are made after notice of C's mortgage | Section 79 does not apply; the further advances made after notice rank after C |
C's mortgage was created without notice of the bank's mortgage | The section speaks of a subsequent mortgage made with notice; where C had none, his position is governed by the general rules of priority and notice |
The prior mortgage secures a fixed sum already advanced | The section has no application — it deals with future advances, engagements and running accounts |
8. Landmark Cases
📖 Hopkinson v. Rolt, (1861) 9 HLC 514 Held: A mortgage was given to secure a running account. The mortgagee, after receiving notice of a second mortgage, continued to make advances. The House of Lords held that the first mortgagee could not claim priority for advances made after he had notice of the second mortgage: as to those sums he had lent on a security which he knew was already encumbered. Ratio: At common law a further advance made after notice of an intermediate mortgage loses its priority — the rule that section 79 displaces where a maximum is expressed. |
9. Related Topics and Provisions
- Doctrine of Tacking, Section 93 — the prohibition to which section 79 is the exception
- Priority Between Mortgages — the general rule and its qualifications
- Section 78, TPA — postponement of a prior mortgagee for fraud, misrepresentation or gross neglect
- Section 48, TPA — priority by order of creation
- Notice under Section 3 — registration as notice of the prior mortgage and its ceiling
- Section 92, TPA — subrogation, where a later mortgagee redeems the first