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Doctrine of priority

Doctrine of priority

When there are successive mortgages in favour of different persons in respect of the same property, questions of priority arise as between the mortgages inter se. The property may be insufficient to meet all the incumbrances and so the question as to the order in which the liabilities are to be discharged in such cases assumes great importance. The earlier in time

will have priority. But if the earlier mortgagee by fraud, misrepresentation or gross negligence, induced another person to lend on the security of the mortgaged property, he forfeits his priority.

Suppose A mortgages his house to a bank to secure his overdraft to the extent of Rs. 10,000. When his overdraft is only Rs. 3,000, he mortgages the same house to X and borrows Rs. 8,000. Later on his overdraft with the bank rises to Rs. 12,000. The house is sold in enforcement of the bank's mortgage and fetches Rs. 13,000. How should the money be paid? If X had notice of the mortgage to the bank, the amount should be distributed thus: first to the bank Rs. 10,000 (though part of it was advanced after X's mortgage), then Rs. 3,000 to X. This is because the bank can claim priority for its subsequent advances also when the later mortgagee had notice of its earlier mortgage.If X had no notice of the bank's mortgage, first to the bank Rs. 3,000, then to X Rs. 8,000, then to bank Rs. 2,000. Here no priority can be claimed by the bank for the subsequent advance.

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