Lender who provides funds to pay off secured lender steps into the latter’s shoes

In Ghana Commercial Bank v D.T. Chandiram ([1960] A.C. 732, PC) the following events happened:

16th July 1954               – Debtor created equitable mortgage over certain property in favour of B Bank

24th September 1954 – (At the instance of creditor X) a writ of fieri facias was issued for the attachment of the property (this had the statutory effect of rendering null and void any subsequent dealing with the property without the court’s leave)

27th October 1954      – Debtor created a legal mortgage of the property in favour of G bank

– G Bank paid B Bank the amount owed to it by the debtor

4th November 1954    – Debtor granted a lease to T

16th April 1955            – The property was sold to C at auction.

The question was whether T should pay rent to G Bank or C.

It was accepted that C had the same rights (and his interest in the property was subject to the same encumbrances) as creditor X.

It was also accepted that the legal mortgage was null and void as a result of the attachment.

Nevertheless, G bank had stepped into B Bank’s shoes for priority purposes:

‘their Lordships take the intention of the Ghana Bank to have been to replace the equitable charge by a valid and effective legal mortgage, but to keep it alive for their own benefit save in so far as it was so replaced’. (745, per Lord Jenkins).

C’s interest was subject to the equitable mortgage.

In any event, the equitable mortgage gave B Bank (and G Bank) no right to possession so the rent should be paid to C.

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