LECTURE 3

Priority of Charge

Ain

ul Ja

ria - LA

W 3

11

1

1

SUBSEQUENT CHARGES

Sec 241(2): The powers conferred by sub-section (1) shall include power to create second and subsequent charges.

2

Ain

ul Ja

ria - LA

W 3

11

1

Priorities to first registered charge Sec 244(2): A chargee having the custody of any

issue document of title or duplicate lease shall, on the written request of the proprietor or lessee, and within such reasonable period as is specified in the request, produce the same at any Registry or Land Office so specified for any purpose for which it is required under any provision of this Act.

3

Ain

ul Ja

ria - LA

W 3

11

1

PRIORITY OF CHARGES

A charge is given priority in order of creation

Priority goes to the charge registered first in time.

4

Ain

ul Ja

ria - LA

W 3

11

1

ALTERING PRIORITY OF CHARGES

The priority of registered charges can be changed through agreement by using the following methods:

a.by consolidation (S.245 NLC) b.by tacking (S.246 NLC ) c.by postponement (S.247 NLC)

5

Ain

ul Ja

ria - LA

W 3

11

1

CONSOLIDATION OF CHARGES Developed in equity to fetter the right

of the common law mortgagor to redeem on payment of part of his debt owing to a mortgagee who had taken security over several assets of the mortgagor

Relief against forfeiture of one property by preventing the mortgagee from foreclosing another property was dependant on the discharge by the mortgagor of all his liability to the mortgagee over all other properties mortgaged to secure the loan

6

Ain

ul Ja

ria - LA

W 3

11

1

Therefore, if relief is required the mortgagor must pay all the mortgages simultaneously.

Consolidation is not encouraged in Torrens System

7

Ain

ul Ja

ria - LA

W 3

11

1

RESTRICTION ON CONSOLIDATION S.245 NLC

Priority of charges can be determined by consolidation as provided under S.245 NLC – which generally refers to the consolidation of two or more charges. This Section restricts consolidation

8

Ain

ul Ja

ria - LA

W 3

11

1

Consolidation normally takes place where the chargor had charged two pieces of land A&B. Normally relief would only be given if money is paid for both pieces.

Chargor will not be allowed to pay for “A” alone. He must pay for B also. Under NLC it is provided for the right to consolidate only if both parties consent to the transaction

9

Ain

ul Ja

ria - LA

W 3

11

1

CONSOLIDATION

If a chargee is registered as proprietor of charges over different properties belonging to the same chargor, the chargee can refuse to discharge one charge without the chargor simultaneously (at the same time) discharging or paying off all the other existing charges

10

Ain

ul Ja

ria - LA

W 3

11

1

TACKING OF CHARGE S.246 NLC

Tacking means chargor’s or borrowers loan will increase chargee will obtain priority over other chargees

11

Ain

ul Ja

ria - LA

W 3

11

1

when there is tacking transaction, the chargee offering tacking facilities will gain priority in respect of original sum and also in respect of further advances.

tacking which leads to priority over other chargees will take place in accordance to S.246(2) NLC

12

Ain

ul Ja

ria - LA

W 3

11

1

CONDITIONS

making of advance is expressly authorised by the prior charge or to secure a balance from time to time due to chargee.

The loan is made with consent of the subsequent chargee. In these cases the chargee may tack.

Any subsequent chargee must investigate instrument and see whether there was any authorisation for tacking in the first charge.

13

Ain

ul Ja

ria - LA

W 3

11

1

Tacking will give priority to the further advances to the subsequent chargees.

If there is a specific authorization for tacking in the first charge - it means that the chargee has a right to make further advances to rank in priority

If prior charge does not expressly authorise further advances then tacking may be possible if the subsequent chargee consents to giving of further advances.

This of course will enable the chargee to have priority for the tacked amounts

14

Ain

ul Ja

ria - LA

W 3

11

1

POSTPONEMENT OF CHARGES – S.247 NLC

Postponement of the priority of a charge in relation to competing interests depending on the date of registration

Before a charge can be postponed, it must be registered

Postponement of a charge may change the priority by allowing the subsequent charge to take the place of the prior charge. Thus if the charge postponed is the first charge, postponement will give the subsequent charge priority as the first charge 15

Ain

ul Ja

ria - LA

W 3

11

1

PROCEDURE

This will be carried out on Form 16C. The former subsequent chargee will pursue the

remedies on default of his charge, which would have been those of the prior chargee

16

Ain

ul Ja

ria - LA

W 3

11

1