Transfer of Property Act Section 79 — Mortgage to secure uncertain amount when maximum is expressed
CHAPTER IV OF MORTGAGES OF IMMOVEABLE PROPERTY AND CHARGES — Priority
General
Summary
If a first mortgage is taken to cover future loans, work to be done, or the changing balance of an account, and it states a maximum amount that it will secure, then any later mortgage on the same property will rank behind the first one—as long as the later lender knew about the first mortgage. This is true even if the first lender makes new advances or allows new debits after learning about the later mortgage, as long as the total amount secured does not go beyond the stated maximum. In other words, the first mortgage keeps its priority up to its declared cap, regardless of when the actual money is lent.
Official Text
If a mortgage made to secure future advances, the performance of an engagement or the balance of a ru nning 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 ac count against him exceed the sum of Rs. 10,000. B & Co. are entitled, to the extent of Rs. 10,000, to priority over C.