The society's 384,000 mortgage borrowers are missing out on payments of around £200m - or £500 each - because the C&G believes they have to be excluded from any payout, whether it floats on the stock market or submits to a takeover. But David Gilchrist, general manager of the Halifax Building Society, which is planning a stock market flotation, said on Friday: "It remains our view that borrowers can benefit.''
The Halifax, advised by its lawyers Linklaters & Paines, is going ahead with plans to merge with the Leeds society and float the combined group, rewarding borrowers with free shares.
The Halifax opinion is likely to strengthen calls from borrowers for the C&G to opt for flotation rather than pursue its plan to be taken over by Lloyds Bank.
Andrew Longhurst, chief executive of the C&G, last week re-iterated that the society could not pay a penny to borrowers whether it was sold to Lloyds or floated independently.
The C&G has written to its 1.2 million saving and borrowing members over the past few days, urging them to vote in favour of the Lloyds deal. Depositors are being promised payments of between £513 and £13,500 each.
Meanwhile, the Government has unveiled plans to reform the building society industry, giving societies more powers to compete directly with the high- street banks, but making them more accountable to their members.
The Building Societies Commission is expected to rule on the Halifax's plans next month. Mr Gilchrist said the Halifax would take the issue to court if necessary. "If the plan is thought to be dubious in any way, we would want to have a court action to clarify it."
A C&G spokeswoman said of the Halifax view: "Interpretation of the Building Societies Act isn't an exact science."
The Linklaters view is particularly relevant, because it also advises Lloyds. Linklaters declined to comment.