Doctrine of Tacking
What is Tacking in mortgages
Overview
The doctrine of tacking is a legal principle that allows a mortgagee (lender) to combine multiple mortgages on the same property into a single mortgage, thereby consolidating and increasing their security interest. It enables the mortgagee to tack or add subsequent mortgages to their existing mortgage, effectively creating a priority position over other creditors or subsequent mortgagees.
Tacking is the union of two securities on the same property by the mortgagee who has a legal estate. This union is achieved in such a manner and with such a result that the intermediate equitable purchaser is prevented from claiming a title to redeem.
It is expressly prohibited under Section 93 of the Transfer of Property Act, 1882. However, under Section 79 of this Act tacking, to some extent, is permitted. The details are as follows.Meaning of Tacking
The word “tack” is related to is a French term “fache” which means “clasp”, “nail”, it literally means, add or append. Tack in a legal sense means “to annex some prior lien to a first lien, thereby acquiring priority over an intermediate one.”
Definition of Tacking
Tacking is defined as:
The uniting of securities given at different times, so as to prevent any intermediate purchaser from claiming a title to redeem or otherwise discharge one lien, which is prior, without redeeming or discharging the other liens also which are subsequent to his own title.
This term is particularly applied to the action of a third mortgagee, who by having the first lien and uniting it to his own, gets priority over the second mortgagee.
Application of The Doctrine of Tacking
Tacking is, expressly prohibited under Section 93 of the Transfer of Property Act, 1882, and it is permitted with an exceptional case under Section 79 of the same act.
This means that a mortgagee paying off a prior mortgage, with or without notice of an intermediate mortgage, cannot acquire any priority in respect of their original security. Similarly, a mortgagee making a subsequent advance to the mortgagor, with or without notice of an intermediate mortgage, cannot acquire any priority in respect of their security for that subsequent advance.
However, Section 79 of the Transfer of Property Act, 1882, provides an exception to the general rule of tacking prohibition. Section 79 allows for tacking in limited circumstances. It states that where a mortgagee advances further money to the mortgagor, under the same mortgage deed and with a stipulation that it shall be added to the original amount secured by the mortgage, the mortgagee may have priority in respect of the additional amount.
Analysis of Section 93 of Transfer of Property Act, 1882:
Section 93: Prohibition of Tacking:
Section 93 of the Transfer of Property Act, 1882, sets out a general prohibition on tacking in mortgage transactions. It states that a mortgagee paying off a prior mortgage, with or without knowledge of an intermediate mortgage, does not acquire any priority in respect of their original security. Similarly, a mortgagee making a subsequent advance to the mortgagor, with or without knowledge of an intermediate mortgage, does not gain any priority in respect of their security for that subsequent advance.
The provision of Section 93 ensures that mortgagees cannot leapfrog over existing mortgagees by paying off prior mortgages or making subsequent advances. It upholds the principle of equal priority among mortgagees and aims to protect the rights of prior mortgagees.
It is stated in this section that:
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 cases 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.”
Where A mortgaged his property to B in 1874 and to C in 1877, and thereafter again to B, B obtained a decree on both his mortgages, without impleading C, got the property sold and took the sale proceeds in satisfaction of both the mortgages. It was held that C could claim to recover the surplus proceeds of the sale after satisfying the mortgage of 1874.
Exception of Section 93 of Transfer of Property Act, 1882:
Section 79: Limited Exception to Tacking:
Section 79 of the Transfer of Property Act, 1882, provides a limited exception to the general prohibition of tacking. It applies when a mortgage is created to secure future advances, the performance of an engagement, or the balance of a running account, and the mortgage document expressly states the maximum amount to be secured.
Under Section 79, if a subsequent mortgage is created on the same property with notice of the prior mortgage, the subsequent mortgagee will be postponed to the prior mortgage in relation to advances or debits that do not exceed the maximum amount specified in the mortgage agreement. However, the subsequent mortgagee may still have priority over the prior mortgage for any advances or debits that exceed the specified maximum.
Section 79 aims to strike a balance between the rights of the prior and subsequent mortgagees by preserving the priority of the prior mortgage within the specified maximum limit. It allows the subsequent mortgagee to have priority only for the portion of advances or debits that fall beyond the maximum amount.
Provision of S.79, Transfer of Property Act, 1882 had enacted an exception to the rule of priority, making the subsequent/intermediate mortgage as part of the first mortgage, if the advanced amount was within the fixed minimum limit, provided the subsequent/ intermediate mortgagee had the notice of the first mortgage.
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 advances 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.
Implications and Applications:
Protection of Prior Mortgagee:
The doctrine of tacking, as outlined in Section 93, ensures that prior mortgagees are protected and their priority position is maintained. It prevents subsequent mortgagees from gaining priority by paying off prior mortgages or making subsequent advances.
Consolidation of Security Interest:
Section 79 enables mortgagees to consolidate their security interest by allowing for tacking within the specified maximum amount. It provides a level of certainty and control for mortgagees when providing future advances or running accounts.
Limitations on Subsequent Mortgagees:
Subsequent mortgagees must be mindful of the prior mortgage and its terms. Section 79 limits their ability to claim priority for advances or debits within the specified maximum amount, emphasizing the importance of due diligence and knowledge of existing mortgages.
Conclusion:
The doctrine of tacking in mortgage transactions, governed by Section 93 and Section 79 of the Transfer of Property Act, 1882, establishes important principles and exceptions related to priority and security interests. While Section 93 prohibits tacking in most cases, Section 79 provides a limited exception for future advances and running accounts within the specified maximum amount. Understanding the nuances of these provisions is crucial for mortgagees, subsequent mortgagees, and other parties involved in mortgage transactions.