Subrogation, and the Abolition of Tacking

Two elements are essential there and both are commonly missed: the agreement, and that it be by a registered instrument. A refinancing lender who takes no such registered agreement gets no subrogation, and is left an unsecured creditor.

The closing limit. No right of subrogation arises unless the mortgage in respect of which it is claimed has been redeemed in full. Part payment gives nothing.

The two kinds are usually distinguished as legal subrogation, arising by operation of the section in favour of the persons named, and conventional subrogation, arising from a registered agreement.

Section 93: tacking prohibited

No mortgagee paying off a prior mortgage, whether with or without notice of an intermediate mortgage, acquires any priority in respect of his original security; and, except in the case provided for by section 79, no mortgagee making a subsequent advance, whether with or without notice of an intermediate mortgage, acquires any priority in respect of his security for that advance.

Tacking was the English practice by which a lender holding the first and third mortgages could "tack" the third onto the first and squeeze out the second. Section 93 abolishes it.

Two separate prohibitions live in the section and an answer should keep them apart.

One, paying off a prior mortgage does not promote your own. A third mortgagee who buys out the first does not thereby lift his third mortgage above the second. He does step into the first mortgagee's shoes as to the first mortgage, by subrogation under section 92; what he cannot do is carry his own later debt up with it.

Two, a later advance does not share the earlier priority. The single exception is section 79, the mortgage that expresses a maximum.

Section 94: rights of a mesne mortgagee

Where property is mortgaged for successive debts to successive mortgagees, a mesne mortgagee has the same rights against mortgagees posterior to himself as he has against the mortgagor.

Mesne means intermediate. A second mortgagee among three is a mesne mortgagee: he has people ahead of him and people behind him. The section tells him that, looking backwards down the queue, he is in the position of a mortgagee facing a mortgagor. So he may foreclose or sell against those later than himself exactly as he could against the borrower.

It is the tidy counterpart of section 92: subrogation tells him what he gets by paying off those ahead; section 94 tells him what he already has against those behind.

Section 95: the redeeming co-mortgagor's expenses

Where one of several mortgagors redeems the property, he is entitled, in enforcing his right of subrogation under section 92 against his co-mortgagors, to add to the mortgage-money recoverable from them such proportion of the expenses properly incurred in the redemption as is attributable to their share in the property.

Without it, the co-mortgagor who acts would be out of pocket for the costs of rescuing everyone's property. The section makes the others bear their share of the expenses, in the same proportion as their share of the property, on top of their share of the debt.

Section 96: mortgage by deposit of title-deeds

The provisions which apply to a simple mortgage apply, so far as may be, to a mortgage by deposit of title-deeds.

This is a short section carrying a lot of law. Because Chapter IV is written mostly around named forms, the equitable mortgage would otherwise be left with almost no rules. Section 96 supplies them wholesale by assimilating it to the simple mortgage, which means, among other things, that the remedy is sale and not foreclosure.

A worked example

Pravin mortgages his factory at Chakan three times: first to a bank for Rs. 50 lakh, then to Qamar for Rs. 30 lakh, then to Rekha for Rs. 20 lakh. Sameer stands surety for the bank's loan, and Tara has bought the equity of redemption.

Who may redeem the bank? Under section 91, Qamar and Rekha, as persons having an interest in the property; Tara, as a person interested in the right to redeem; and Sameer, as a surety. Pravin may of course redeem as mortgagor.

Rekha pays the bank in full. Under section 92 she is subrogated to the bank's rights and holds the first mortgage, with all the bank's rights against Pravin and against the other mortgagees.

Does her own third mortgage move up? No. Section 93 prohibits tacking: paying off a prior mortgage gives her no priority in respect of her original security. She now holds a first mortgage of Rs. 50 lakh and a third mortgage of Rs. 20 lakh, with Qamar's Rs. 30 lakh in between.

Pravin pays the bank instead. No subrogation. He owed the debt, so payment discharges it, and Qamar moves up.

A new financier lends Pravin the money to pay the bank. He is subrogated only if Pravin has agreed by a registered instrument that he shall be. Without that registered agreement he has no security at all.

Rekha pays the bank only Rs. 40 lakh of the Rs. 50 lakh. No subrogation: the mortgage must be redeemed in full.

Qamar's position against Rekha. Qamar is a mesne mortgagee. Under section 94 he has the same rights against Rekha, who is posterior to him, as he has against Pravin.

Now change the facts. Suppose the factory belonged to Pravin and two brothers as co-mortgagors, and Pravin alone redeems, spending Rs. 2 lakh in costs. Under section 95 he may add to the mortgage-money recoverable from each brother the proportion of those expenses attributable to that brother's share.

And the bank's security was an equitable mortgage by deposit of title-deeds. Section 96 applies the simple-mortgage provisions to it so far as may be, so its remedy is sale, not foreclosure.

What it does NOT mean

The mortgagor is not subrogated. His payment discharges the debt.

Part payment gives nothing. The mortgage must be redeemed in full.

A lender who refinances is not automatically subrogated. He needs the mortgagor's agreement by a registered instrument.

Subrogation does not promote the redeemer's own debt. Section 93 forbids exactly that.

Section 93 is not absolute. Section 79, the expressed maximum, survives it.

Section 94 does not help a mesne mortgagee against those ahead of him. It gives him rights against posterior mortgagees; for those ahead he must redeem and rely on section 92.

Section 95 covers expenses, not a bonus. Only the proportion properly attributable to the co-mortgagors' share.

Distinctions

Quick revision

• s.91: besides the mortgagor, redemption may be sought by anyone with an interest in or charge upon the property or the right to redeem (not the mortgagee being redeemed), a surety, and a creditor with a decree for sale in an administration suit.
• s.92: those persons, other than the mortgagor, and any co-mortgagor, are subrogated on redeeming, and take the redeemed mortgagee's rights as to redemption, foreclosure and sale.
• Conventional subrogation needs the mortgagor's agreement by a registered instrument.
• No subrogation unless the mortgage is redeemed in full.
• s.93: tacking is prohibited. Paying off a prior mortgage gives no priority to your own security, and a later advance gets no earlier priority, except under s.79.
• s.94: a mesne mortgagee has the same rights against posterior mortgagees as against the mortgagor.
• s.95: a redeeming co-mortgagor may add the co-mortgagors' proportionate share of the expenses of redemption.
• s.96: the simple mortgage provisions apply, so far as may be, to a mortgage by deposit of title-deeds.

Test yourself

1. Who may sue for redemption besides the mortgagor? Any person other than the mortgagee of the interest sought to be redeemed who has an interest in or charge upon the mortgaged property or upon the right to redeem it; any surety for the mortgage-debt or part of it; and any creditor of the mortgagor who has obtained a decree for sale of the property in a suit for the administration of his estate.

2. Why is the mortgagor excluded from subrogation? Because the debt is his. When he pays, it is discharged, and there is no subsisting security for him to be subrogated to.

3. A third mortgagee pays off the first. What does he hold? The first mortgage, by subrogation under section 92, together with his own third mortgage. Section 93 prevents him from gaining any priority for the third, so the second mortgage still ranks between them.

4. What must a financier who lends money to pay off a mortgage obtain? An agreement by the mortgagor, by a registered instrument, that he shall be subrogated to the redeemed mortgagee's rights. Without it he acquires no such right.

5. Is partial redemption enough for subrogation? No. The section provides that no right of subrogation arises unless the mortgage in respect of which it is claimed has been redeemed in full.

6. What is tacking, and what is the one surviving exception? Tacking was the practice of joining a later security to an earlier one so as to squeeze out an intermediate mortgagee. Section 93 prohibits it, except in the case provided for by section 79, where the prior mortgage expresses a maximum.

7. What rights does a mesne mortgagee have against those later than himself? The same rights he has against the mortgagor, under section 94.

8. What does section 96 achieve in one line? It applies the provisions governing a simple mortgage, so far as may be, to a mortgage by deposit of title-deeds, which is why the equitable mortgagee's remedy is sale.