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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Anita mortgaged her land to Western Bank to secure the balance of her account up to a maximum of Rs. 5,00,000. She then mortgaged the same land to Priya, who had notice of the bank's mortgage, to secure Rs. 3,00,000. The bank's later advances took the balance to Rs. 7,00,000. For how much does the bank have priority over Priya?

The bank has priority for Rs. 5,00,000. Priority over a subsequent mortgagee with notice extends only to advances not exceeding the maximum expressed in the mortgage, so the excess Rs. 2,00,000 of the balance does not get that priority.

  1. ARs. 2,00,000
  2. BRs. 3,00,000
  3. CRs. 5,00,000Correct
  4. DRs. 7,00,000

Explanation

Section 79 postpones the later mortgage, made with notice, only up to the expressed maximum. The bank's priority is capped at Rs. 5,00,000. The remaining Rs. 2,00,000 of the balance does not enjoy priority over Priya's mortgage, so Rs. 7,00,000 is wrong.

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