Section 79 of TPA : Section 79: Mortgage To Secure Uncertain Amount When Maximum Is Expressed

Explanation using Example

John owns a property in the city and takes out a mortgage with Trusty Bank for up to $50,000 to cover his business expenses, which fluctuate over time. The mortgage agreement specifies that $50,000 is the maximum amount that can be secured by the property. Later, John decides to take an additional loan of $30,000 from Quick Loans Inc. for renovating his house, using the same property as collateral. However, Quick Loans Inc. is aware of the existing mortgage with Trusty Bank.

At the time John secures the second mortgage, he owes Trusty Bank only $20,000. In the following months, John's business requires more funding, and Trusty Bank extends additional credit that brings his debt to $45,000. Despite Quick Loans Inc. having notified Trusty Bank about their mortgage, Trusty Bank will have priority over Quick Loans Inc. for any amount up to $50,000, as per the original agreement, because Quick Loans Inc. took the second mortgage with knowledge of the first.