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Mangtulal Bagaria v. Upendra Mohan Pal Chaudhuri .
Factual and Procedural Background
The appeal is by the defendant (the representative-in-interest of Rajdeo) against a decree of the Subordinate Judge, 24-Parganas, dated 12 May 1928. The core facts stated in the opinion are:
- On 18 August 1916 Ashokenath Mitra executed an English mortgage of certain properties in favour of Mrs. Janaki Agnes Penelope Majumdar.
- After 18 August 1916 and before 1919 the mortgagor executed several other mortgages over the same properties; the mortgagor remained in possession.
- On 9 August 1918 the plaintiff obtained an assignment of the first mortgage from Mrs. Majumdar and later advanced further sums and took two other mortgages (the opinion states nothing depends upon those later advances).
- On 3 April 1919 the mortgagor granted a lease of flats Nos. 4 to 9 in No. 10, Elgin Road, to Rajdeo for 20 years at Rs. 400 per month with an option to renew for 5 years. Rajdeo (represented now by the appellant) was not a party to a later suit.
- One Nalinimohan Das Gupta obtained assignments of some mesne mortgages on 25 January 1920 and brought a suit in 1921 in which, by consent decree dated 6 March 1922, the properties were ordered to be sold and mortgagees paid out of sale proceeds; the consent decree described disposition of the proceeds of No. 10, Elgin Road, prioritising payment to the plaintiff under the first mortgage.
- In execution of the consent decree the plaintiff purchased No. 10, Elgin Road.
- The plaintiff then brought the present suit, principally seeking an order that defendants representing Rajdeo's estate be required to redeem him with regard to the interests under the 18 August 1916 mortgage, and in default that the property be sold free of the leasehold interest.
- The Subordinate Judge decreed that the 3 April 1919 lease was operative against prior mortgagees only as a month-to-month tenancy; defendants 1–3 and defendant 2 (the appellant) had the right to redeem the plaintiff and were allowed 30 days to redeem; in default the property would be sold free of the lease and proceeds applied as the plaintiff sought.
- This appeal challenges those conclusions and the resulting decree.
Legal Issues Presented
- Whether the plaintiff's purchase of the equity of redemption in execution of a consent decree (or by what amounts to a private treaty) resulted in a merger extinguishing the mortgage so as to prevent the plaintiff from enforcing the mortgage against Rajdeo or his representatives.
- Whether the conditions of sale (which notified the tenancy and contained a clause that the purchaser "shall not be entitled to raise any objection on that score nor will be entitled to ask for vacant possession") bound the plaintiff-purchaser to the lease such that the plaintiff cannot enforce the mortgage against the lessee.
- Whether the plaintiff's letter of 24 November 1925 (asking the estate manager to surrender the lease, give possession and pay rent to the purchaser) constituted an affirmation of the lease (by demanding rent) and thereby precluded the mortgagee from repudiating the lease.
- Whether under an English mortgage the mortgagor could validly grant a long-term lease (20 years with renewal) which would bind the mortgagee, or whether such a lease is beyond the mortgagor's power without the mortgagee's concurrence.
Arguments of the Parties
Appellant's Arguments (representing Rajdeo's estate)
- The appellant argued that the consent decree purchase by the plaintiff should be treated as a purchase of the equity of redemption which merged with the mortgagee's interest, extinguishing the mortgage so the plaintiff cannot enforce the mortgage against Rajdeo or his representatives.
- Reliance was placed on Smith v. Phillips (1837) and the principle in Toulmin v. Steere (1817) to support the contention that uniting the equitable mortgage and the equity of redemption prevents separation and enforcement against a lessee.
- The appellant also argued that the conditions of sale (specifically the clause denying entitlement to ask for vacant possession) bound the purchaser to the lease and thus the plaintiff is bound by its terms.
- It was further contended that the plaintiff's demand for rent (letter dated 24 November 1925) amounted to an affirmation of the lease and precluded repudiation of the lease by the mortgagee.
Respondent's / Plaintiff's Position
- The plaintiff maintained that even though he purchased the equity of redemption, the mortgage interest remained alive and he was entitled to enforce the mortgage against the lessee; the purchase could be for his benefit and Section 101 of the Transfer of Property Act was cited to support that the mortgage may be kept alive.
- The plaintiff's purchase in execution of the consent decree did not necessarily effect a merger that extinguished mortgage rights, and the rights of the appellant to question the validity or amount of the mortgage were not in dispute.
- Regarding the conditions of sale, the plaintiff's position (as accepted by the court) was that the conditions gave notice of the tenancy but did not operate to bind the purchaser to accept the lease in a way that would defeat the plaintiff's rights as mortgagee.
- As to the letter demanding rent, the plaintiff argued (and the court accepted) that the letter was made in the context of seeking a compromise and was not a clear admission or affirmation of the lease's validity.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Smith v. Phillips [1837] 1 Keen 694 | Authority relied on to support that a mortgagee who purchases the equity of redemption unites interests so they cannot be separated (merger), thereby affecting an equitable lessee's claim. | The court noted the case was relied upon by the appellant but distinguished it, observing English authorities and subsequent development; the court rejected the submission that Smith v. Phillips required extinguishment of the mortgage in this case. |
| Toulmin v. Steere [1817] 3 Mer. 210 | Principle that uniting equitable mortgage and equity of redemption prevents separation (underlying Smith v. Phillips). | The court observed Toulmin v. Steere has never been followed in India and has been adversely commented upon; the doctrine was not applied to the facts of this case. |
| Whiteley v. Delaney [1914] A.C. 132 | House of Lords case that refrained from deciding correctness of Toulmin v. Steere; noted in discussion of merger doctrines. | The court noted Whiteley v. Delaney did not resolve the Toulmin principle; its limited treatment was used to show the English authorities did not compel acceptance of the merger argument. |
| Manhs v. Whiteley [1911] 2 Ch. 448 (trial observations of Parker, J.) | Observations on the merger question considered instructive. | The court cited Parker, J.'s trial observations reported in Manhs v. Whiteley as instructive on the merger issue, though not determinative. |
| Gokaldas Gopaldas v. Puranmal Premsukhdas [1884] 10 Cal. 1035 | Judicial Committee's view that Toulmin v. Steere doctrine is not applicable to Indian transactions except as part of law of justice, equity and good conscience; they did not apply the doctrine in that case. | The court relied on this decision to support the proposition that the Toulmin doctrine is not appropriate for Indian transactions and was not to be applied to defeat the plaintiff's mortgage rights here. |
| Dinobundhu Shaw Chowdhry v. Jogmaya Dasi [1910] 29 Cal. 154 | Indian case cited in the court's discussion of the applicability of the Toulmin doctrine and merger principles in India. | Referred to as authority showing Indian jurisprudence has not embraced Toulmin v. Steere as a general rule extinguishing mortgage rights upon purchase. |
| Mahomed Ibrahim Hossain Khan v. Ambika Pershad Singh [1912] 39 Cal. 527 | Another Indian decision cited in the context of merger and applicability of English doctrines. | Cited to support the view that English merger doctrine is not routinely applied in India to defeat mortgagee rights. |
| Liquidation Estates Purchase Co. Ltd. v. Willoughby [1898] A.C. 321 | Authority for the proposition that a mortgage is not necessarily destroyed where the incumbrancer buys the property subject to his charge. | Referred to by the court to support the position that purchase of the equity of redemption does not automatically cause merger and extinguishment of the mortgage. |
| Crosbie-Hill v. Sayer [1908] 1 Ch. 866 | Also cited to show mortgage survives a purchase of the equity in certain circumstances. | Used to reinforce the proposition that the mortgagee's purchase does not necessarily extinguish the mortgage, supporting the plaintiff's right to enforce the mortgage. |
| Section 101, Transfer of Property Act | Statutory provision referenced to show that a mortgagee's interest may be kept alive when purchase of the equity is for his benefit. | The court invoked Section 101 to explain that the plaintiff, having purchased the equity of redemption for his benefit, could keep the mortgage alive and enforce it against the lessee. |
Court's Reasoning and Analysis
The court proceeded by addressing each principal contention raised on behalf of the appellant and explained why the Subordinate Judge's conclusions were correct. The core analytical steps were:
-
Merger Argument:
The appellant contended that the plaintiff's purchase of the equity of redemption (purchased pursuant to the consent decree) amounted to a purchase by private treaty that merged the equitable mortgage and the equity of redemption, thereby extinguishing the mortgage and preventing enforcement against the lessee. The court analysed the English authorities relied upon (Smith v. Phillips and Toulmin v. Steere) and Indian authorities. It observed that Toulmin v. Steere has not been followed in India and has been criticised; the Judicial Committee in Gokaldas Gopaldas declined to apply the doctrine to Indian transactions. The court therefore rejected the proposition that purchase necessarily caused merger and extinguishment of the mortgage. It held that the plaintiff, as mortgagee, was entitled to assert his rights and to claim that his mortgage interest had been kept alive, particularly as the purchase could be for his benefit (citing Section 101, Transfer of Property Act).
-
Effect of Conditions of Sale:
The appellant argued the conditions of sale bound the purchaser to the lease, relying on a clause that the purchaser "shall not be entitled to raise any objection on that score nor will be entitled to ask for vacant possession." The court agreed with the Subordinate Judge that the conditions served to give notice of the existing tenancy and its terms, but did not prevent the purchaser, in his capacity as mortgagee with an active mortgage interest, from enforcing the mortgage against the lessee. The court clarified that the purchaser would not be entitled to repudiate the sale because he did not obtain vacant possession, nor entitled to relief against parties to the suit on that ground; but this did not preclude enforcement of mortgage rights.
-
Letter Demanding Rent — Affirmation of Lease:
The appellant argued that a letter of 24 November 1925 asking the manager to surrender the lease, give possession and pay rent amounted to a demand for rent that affirmed the lease and precluded repudiation. The court noted (and accepted the Subordinate Judge's view) that the letter appeared to be written in the context of seeking a compromise and was not an unequivocal admission of validity of the lease. The fact that no rent was paid for more than a year after purchase and there had been no previous demand suggested the letter did not constitute an affirmation that would bar the mortgagee from asserting mortgage rights. The court therefore did not treat the letter as barring relief.
-
Validity and Nature of the Lease:
The court observed the Subordinate Judge was correct to treat the precise nature of the lease (20 years with renewal) as largely academic for the purposes of the decree made (which provided for sale in default of redemption rather than an ejectment decree). However, the court agreed with the Subordinate Judge that, under an English mortgage, the mortgagor could not, without the concurrence of the mortgagee, validly create such a long lease that would bind the mortgagee; a mortgagor who has created an English mortgage can only act as agent on behalf of the mortgagee. The court indicated that there was little evidence that such long residential lettings were usual, and that the lease was not granted in the ordinary course of management.
-
Disposition:
Having rejected the merger argument, found no binding effect of the conditions of sale that would prevent mortgage enforcement, and found the rent-demand letter not to be an unequivocal affirmation of the lease, the court concluded that the Subordinate Judge's decree should stand. The appeal was dismissed, with costs (but excluding costs of preparing certain exhibits already printed by the plaintiff). The court ordered the property to be sold in terms of the lower court's decree and directed the records be sent down without delay.
Holding and Implications
Core Ruling: The appeal is dismissed. The decree of the Subordinate Judge dated 12 May 1928 is affirmed.
Direct consequences and implications as stated in the opinion:
- The Subordinate Judge's decree that the 3 April 1919 lease is operative against prior mortgagees only as a month-to-month tenancy is upheld.
- The lower court's order allowing defendants (including the appellant as representative of Rajdeo) the right to redeem the plaintiff's mortgage within 30 days, and that in default the property be sold free of the lease with proceeds applied as directed, stands and is to be executed.
- Costs of the appeal are awarded against the appellant, but the costs of preparing Exhibits 11 and 12 of the respondents' portion of the paper-book are to be excluded from the costs assessed because they had already been printed by the plaintiff.
- The property is to be sold in terms of the decree of the lower court and the record is to be sent down without delay.
The opinion does not announce or claim to establish a new legal precedent; it applies and distinguishes existing English and Indian authorities to resolve the specific factual and procedural questions before the court.
Additional formal notations in the opinion: Panton, J. agreed with the judgment (noted in the opinion). The concluding line records: "Appeal dismissed."
B.B Ghose, J.:— This is an appeal on behalf of the defendant against the decree of the Subordinate Judge, 24-Parganas, dated 12th May 1928. The facts giving rise to the suit, out of which this appeal arises, may be shortly state thus: One Ashokenath Mitra mortgaged certain properties to Mrs. Janaki Agnes Penelope Majumdar by an indenture dated 18th August 1916. The mortgage was in the form of an English mortgage. After that date and before 1919, which date would he relevant with regard to the appellant's title, the mortgagor executed several other mortgages with respect to those very properties which were mortgaged to Mrs. Majumdar. The mortgagor, however, was allowed to remain in possession of the mortgaged properties. On 9th August 1918, the plaintiff obtained an assignment from Mrs. Majumdar of her first mortgage. Subsequent to that date, the plaintiff advanced further sums to the mortgagor and took two other mortgages from him. Nothing, however, depends upon that fact. One Nalinimohan Das Gupta obtained an assignment of some of the mesne mortgages from the mortgagees by a document dated 25th January 1920, and he brought a suit on the original side of this Court on his mortgage in 1921. In that suit, all the other mortgagees, including the first mortgagee, were made parties and, by a consent decree, it was directed that all the properties would be sold and the mortgagees paid off out of the sale proceeds. The sums due to each of the mortgagees were mentioned in the consent decree. Directions were given for the sale of the properties by the Registrar, and it was directed that the properties would be sold free from all incumbrances in favour of the mortgagees, who were parties to the suit. The property, in question, in this suit is No. 10, Elgin Road, and the direction with regard to that property in the consent decree was that the sale proceeds of that property should be first applied in payment of the amount due to the plaintiff under the mortgage of Mrs. Majumdar and certain other directions were given which it is not necessary here to mention.
2. Before that suit was brought, the mortgagor, Ashoke, granted a lease of fiats Nos. 4 to 9 in the premises No. 10, Elgin Road, on 3rd April 1919, in favour of a gentleman named Rajdeo at a rent of Rs. 400 per month for 20 years with an option of renewal for 5 years after the expiry of the term. Rajdeo and before the present suit was brought and his interest is represented by the present at appellant, who has been appointed administrator of the estate left by him. Defendants 1, 2 and 3 are his heirs. Neither Rajdeo nor any person representing ??? estate was a party to the consent decree or in the suit of 192. This consent decree was dated 6th March, 1922. In execution of that decree, the property No. 10, Elgin Road, was sold and purchased by the plaintiff.
3. The plaintiff brings this suit with several prayers, the most important of which is that the defendants representing Rajdeo's estate should be required to redeem him with regard to his interests under the assignment of the mortgage of Mrs. Majumdar dated 18th August, 1916 and, on their failure to do so, the property might be sold free from the lease hold interest. There were certain other prayers which are unnecessary for mo now to state, because the decree as made by the Subordinate Judge has not been questioned by any cross-objection on the part of the plaintiff. The defendant, by which expression I mean the representative-in-interest of Rajdeo, raised several questions in defence. The other defendants were the several other mortgagees or their representatives, who have no concern with the matter now in issue. The principal contentions of the parties in the Court below are covered by issues 5 to 8, and the questions raised before us fall within those issues.
4. The Subordinate Judge has made a decree to this effect, that the lease of 3rd April 1919, in favour of Rajdeo is operative against the prior mortgagees as a lease from month to month and that defendants 1 to 3 and defendant 2, who is the appellant before us, have the right to redeem the mortgage of the plaintiff, and they were allowed 30 days for redeeming the plaintiff; in default, the property was to be sold free of the lease and the sale-proceeds applied as prayed for by the plaintiff. In appeal on behalf of defendant 21, who, as I have already stated, now represents the estate of Rajdeo, several points have been taken. The first point that has been argued is that the mortgage decree passed on consent, in execution of which the plaintiff purchased the property, cannot be considered as a mortgage decree which would entitle the plaintiff to enforce all the rights of a purchaser under a mortgage decree. In other words, the purchase by the plaintiff amounts to a purchase by private treaty. That being so, as the plaintiff, who was the first mortgagee, has purchased the equity of redemption with notice of the lease in favour of Rajdeo, the lease is binding upon him and he cannot seek to enforce the mortgage as against Rajdeo or his representative, as the mortgage has become extinguished, the two interests having been united in the same person. In support of this contention the learned advocate on behalf of the defendant relies on the case of Smith v. Phillips . [1837] 1 Keen 694. In that case, the Master of the Rolls held that the mortgagee, who was the defendant in the case, by becoming the purchaser of the equity of redemption, had united the interests of the equitable mortgage and the equity of redemption and these two interests having been united could not be separated and, therefore, the plaintiff who had an agreement for lease from the mortgagor was entitled to have his equitable charge satisfied out of the united interests which constituted the equity of redemption. In other words, that case proceeded upon the principle enunciated in Toulmin v. Steere . [1817] 3 Mer. 210. It is hardly necessary to point out that the principle laid down in Toulmin v. Steere has never been followed in this country and it has been adversely commented on in several cases, even in the House of Lords. Although in the latest case of Whiteley v. Delaney . [1914] A.C 132, the House of Lords refrained from expressing any opinion as to whether Toulmin v. Steere was correctly decided, it being unnecessary to do so, as on the facts it was found that there was no merger the observations of Parker, J., as he then was, in the trial Court, reported in Manhs v. Whiteley . [1911] 2 Ch. 448., are instructive with regard to the question. It is, however, unnecessary to pursue the matter further, as in Gokaldas Gopaldas v. Puranmal Premsukhdas . [1884] 10 Cal. 1035, their Lordships of the Judicial Committee observed that the doctrine of Toulmin v. Steere is not applicable to Indian transactions, except as the law of justice, equity and good conscience, and their Lordships did not apply the doctrine to that case: see also the cases of Dinobundhu Shaw Chowdhry v. Jogmaya Dasi . [1910] 29 Cal. 154 and Mahomed Ibrahim Hossain Khan v. Ambika Pershad Singh . [1912] 39 Cal. 527. A mortgage is not necessarily destroyed where the incumbrancer buys the property which is subject to his charge, though he takes no distinct steps to keep it alive. The cases of Liquidation Estates Purchase Co. Ltd. v. Willoughby . [1898] A.C 321 and Crosbie-Hill v. Sayer . [1908] 1 Ch. 866 may be referred to in support of this proposition. It is not, therefore, a sound proposition that, because the mortgagee purchased the equity of redemption, it may be by what amounts to a private treaty, it necessarily causes a merger of the mortgagee's interest. The plaintiff as mortgagee, therefore, is entitled to assert his right as such mortgagee against the defendant and may claim that his mortgage interest has been kept alive notwithstanding his purchase of the equity of redemption, as this was for his benefit: see Section 101 of the Transfer of Property Act. The only thing that the defendant may say is that he is not bound by any of the terms of the consent decree, that is, as regards the validity of the mortgage or as regards the amount due under the mortgage and so forth. Those matters, however, are not in dispute. Not being a party to the suit, his right of redemption is kept alive and the lower Court has made a decree allowing him to redeem the mortgage. The appellant's contention, therefore, that the plaintiff has no right to enforce the mortgage in this suit must fail.
5. The next point urged is that, by reason of the conditions of sale, the plaintiff is bound by the lease. The conditions of sale with regard to this property are set forth in para. 21, Ex. B. The learned Subordinate Judge seems to me to be quite right in his view that the conditions only give notice to any person who would purchase premises No. 10, Elgin Road, about the existence of the tenancy and that it was for a term of 20 years with a further covenant for renewal for five years. The learned advocate for the appellant relies upon the closing sentence of that clause which runs thus (that the purchaser)
“shall not be entitled to raise any objection on that score nor will be entitled to ask for vacant possession.”
6. It is contended that the person purchasing the property will be bound by the terms of the lease and, as the plaintiff purchased the property, he is bound by all the provisions of the lease. There are two answers to this contention. The first is, as stated by the learned Subordinate Judge, that the purchaser would not be entitled either to repudiate the sale, because he does not get vacant possession, nor would he be entitled to ask for any relief against any party to the suit, for not being able to get vacant possession of the property purchased. The next answer is that the plaintiff, as purchaser of the equity of redemption, may not repudiate the lease created by the mortgagor but, as the mortgagee's interest in the plaintiff is alive, he may, as such mortgagee, enforce his mortgage, as against the lessee and that is the relief that has been given to him by the lower Court. Nothing can be said against that right of the plaintiff as mortgagee by reason of the conditions of sale.
7. Another point was urged, which does not appear to have been taken in the Court below, either in the written statement or in the issues, that, by asking for rent from the lessee, the mortgagee has affirmed the lease and is, therefore, precluded from repudiating it. This demand is contained in a letter dated 24th November 1925, addressed to the Official Receiver, who was then acting as the manager of the estate left by Rajdeo. A copy of the plaint in this suit was annexed to that letter and the manager was asked to surrender the lease and give possession of the premises and to pay rent to the purchaser from the date of his purchase. It is contended on behalf of the respondents that this letter was addressed with the object of bringing about a compromise. If action had been taken according to that letter, the suit would not have been brought. It is not a demand for rent acknowledging the validity of the lease. That seems to be so, because, although no rent was paid for more than a year after the purchase of the equity of redemption by the plaintiff, there was no previous demand for rent. But the decree that has been made by the Court below affirms the existence of the lease, although it has been stated that it is operative only as a lease from month to month. The question as regards the nature of the lease would have been material, only if there had been no order for sale of the property in default of redemption but a decree had been made for possession if the defendant failed to redeem.
8. It seems to me that the question as regards the validity of the lease, according to the terms on with it was granted, is only academical, having regard to the form of the decree made by the lower Court. It is, however, necessary to state that the Subordinate Judge is quite right in his view that the mortgagor had no right to create such a lease as he did in favour of Rajdeo. The Subordinate Judge points out that there was no evidence adduced by the defendant to show that residential houses, or rather flats in Calcutta, are ordinarily let out for such a long time as 20 years with a right of renewal. It seems that this lease was not granted in the usual course of management. Whatever may be the rights of a mortgagor under a simple mortgage to grant leases in the usual course of management, there is considerable difficulty on the part of a mortgagor, who has created an English mortgage, to grant such a lease as this. Such a mortgagor can only act as agent on behalf of the mortgagee, and without the concurrence of the mortgagee such a lease cannot be binding on the mortgagee. But, as I have already stated, there is no decree in ejectment on the ground that the lease is not binding on the mortgagee. There has been a decree for sale of the property on failure of the defendant to redeem and the extent of his interest seems to me to be a purely academical question. On all these grounds, this appeal must it and dismissed with costs. In assessing the costs, the costs of preparing Exs. 11 and 12 of the respondents' portion of the paper-book must be excluded, as they have already been printed by the plaintiff. The property will be now sold in terms of the decree of the lower Court. Let the records be sent down without delay.
Panton, J.:— I agree.
R.M/R.K
9. Appeal dismissed.
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