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Case Number

Second Appeal No. 509 of 1925.

Advocates

Mr. S. Narayana Aiyangar for the Appellant.
Mr. K. V. Sesha Aiyangar for the 1st Respondent.

Judges

Wallace
Srinivasa Aiyangar, JJ.

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Smart Summary

Structured Summary of the Opinion — Second Appeal concerning Mortgage and Subrogation

Factual and Procedural Background

The respondents (plaintiffs) instituted an ordinary suit for sale of mortgage security under a deed of mortgage. The 3rd defendant, who had purchased at auction one item and part of another item covered by the suit mortgage, defended on the ground that prior to the mortgage there was an attachment executed under a money decree obtained against the 1st defendant; the suit mortgage was executed while that attachment was in force and the 3rd defendant had purchased the items at the sale conducted pursuant to that attachment. The central factual dispute before the courts was whether the plaintiffs were entitled to be subrogated to the right, title and interest of a prior mortgagee whose mortgage had been paid off using moneys advanced by the plaintiffs under the suit mortgage.

The lower appellate Court held that the plaintiffs were entitled to such subrogation and granted a mortgage-decree in favour of the plaintiffs for Rs. 200 with interest. The present (Second) appeal was brought by the 3rd defendant challenging that result.

Legal Issues Presented

Whether the plaintiffs were entitled to be subrogated to the right, title and interest of the prior mortgagee whose encumbrance was discharged with moneys advanced by the plaintiffs under the suit mortgage.
Whether the plaintiffs could be non-suited on the ground that they had not pleaded subrogation in the plaint and had not amended the plaint after the defence raised the attachment, particularly in light of authorities cited for that proposition.
Whether the discharge of the prior encumbrance was only a partial discharge (as contended by the appellant) or a complete discharge when Rs. 200 was paid.
Whether, as an equitable relief, execution of the mortgage-decree should first proceed against suit properties not purchased by the 3rd defendant, with the 3rd defendant's purchased properties to be sold only if a deficiency remains.

Arguments of the Parties

Appellant's Arguments (3rd defendant)

The plaintiffs' plaint was a simple suit on a mortgage and contained no reference to the prior encumbrance or any claim to subrogation; relying on Mohesh Lal v. Mohant Bawan Das and Maharaj Singh v. Balwant Singh, the appellant argued that failure to plead subrogation precluded recovery on that footing.
The lower appellate Court erred in holding that the plaintiffs were entitled to subrogation; the appellant contended that the party claiming subrogation must make out affirmatively that there was an intention to keep alive the prior mortgage when it was paid off.
The appellant argued that the person who pays off the prior encumbrance and claims subrogation must have had notice of the intermediate encumbrance or obstacle (the attachment) for relief to be appropriate.
It was further contended that the discharge of the prior encumbrance was only a partial discharge and therefore did not support full subrogation.
Finally, the appellant sought an equitable direction that execution be first pursued against properties not purchased by the 3rd defendant, leaving the appellant's purchased properties to be sold only if a deficiency remained.

Respondents' Arguments

The respondents treated the matter throughout in both lower Courts and on appeal as being a question of subrogation; it was pointed out for the respondents that both lower Courts had dealt with the subrogation question substantively.
Implicitly, the respondents relied on documentary evidence (Ex. A) and the terms of the deed (including a covenant that the mortgagee should obtain a first mortgage) to show that moneys advanced were used to discharge the prior encumbrance and that subrogation was therefore appropriate.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mohesh Lal v. Mohant Bawan Das	Authority relied on by appellant to argue that plaintiffs who do not plead subrogation cannot recover on that footing.	The Court noted the appellant relied on this authority but observed that the pleading objection was not taken in the lower Courts and that both lower Courts treated the case as raising the subrogation issue; accordingly the Court declined to non-suit the plaintiffs solely on that pleading ground.
Maharaj Singh v. Balwant Singh	Also relied on by appellant for the proposition that failure to plead subrogation bars recovery.	As with Mohesh Lal, the Court declined to apply this as a bar because the point had not been taken in earlier stages, and the matter had been tried on the subrogation issue.
Dinobundhu (Dinohundhu) Shaw Chowdhry v. Jogmaya Dasi	Illustrates that where a prior mortgage is paid off with the plaintiff-mortgagee's moneys and the circumstances indicate an intention to keep the prior mortgage alive for the plaintiff's benefit, subrogation may be appropriate.	The Court found the facts of the present case very similar to that case (including payment to discharge the prior mortgage and contractual language implying that result) and concluded the present case was not distinguishable; the Court therefore agreed with the lower appellate Court's allowance of subrogation.
Gokaldas Gopaldas v. Puranmal Premsukhdas	Leading authority on subrogation, stating that intention to be ascribed may be a question of justice, equity and good conscience and need not always be express.	The Court relied on the principle that intention need not be express and that subrogation is governed by considerations of equity and good conscience; it rejected the appellant's contention that an express intention or prior notice of the intermediate encumbrance was an absolute prerequisite.

Court's Reasoning and Analysis

The Court's analysis proceeded in a sequence of discrete steps:

Pleading Objection: The Court first addressed the appellant's contention that the plaintiffs had not pleaded subrogation in the plaint. Although the plaint contained no reference to the prior encumbrance or subrogation and no amendment had been sought after the defence raised the attachment, the Court observed that the subrogation issue had been treated as the central question by both lower Courts and that the pleading point had not been taken earlier in the trial Court or the lower appellate Court nor specifically in the grounds of appeal to the present Court. Given this history, the Court held that it would not be in the interests of justice to non-suit the plaintiffs on that ground alone.
Comparison with Precedent (Dinobundhu Shaw Chowdhry v. Jogmaya Dasi): The Court compared the facts with those of the cited precedent and found them very similar. It examined Ex. A (the mortgage document) and noted that although some language was not translated, a portion of the document particularized items of consideration and included payment in discharge of the prior mortgage. The Court interpreted this as more than an indication of the mortgagor's borrowing purpose; it carried an implied obligation on the mortgagor to discharge the prior encumbrance, and the deed also contained a covenant that the mortgagee should obtain a first mortgage over the properties. Taken together, these elements supported an inference that the advance was intended to discharge the prior encumbrance for the benefit of the advancing mortgagee.
Intention and Notice: The Court rejected the appellant's broader proposition that it is incumbent on the party claiming subrogation to affirmatively prove an intention to keep the prior mortgage alive in express terms. Citing the leading authority (Gokaldas Gopaldas v. Puranmal Premsukhdas), the Court observed that intention may be ascribed and need not be express; subrogation is to be assessed by considerations of justice, equity and good conscience. The Court also rejected the argument that the claimant must have had notice of the intermediate encumbrance (the attachment) before relief could be granted, reasoning that the equitable principle would not require such notice as a precondition and that a person acting bona fide in ignorance may be particularly deserving of equitable relief.
Partial Discharge Argument: The Court addressed the contention that the discharge of the prior encumbrance was only partial and found no foundation for it in the record. There was no showing that any balance remained unpaid at the time Rs. 200 was paid; accordingly, the Court saw no reason to treat the discharge as partial. The Court also noted that this point had not been taken earlier.
Equitable Relief As To Execution: Recognising the appellant's equitable claim, the Court directed a modification of the decree to provide that suit properties not claimed by the 3rd defendant should be sold in the first instance, and the properties in which the 3rd defendant had an interest should be sold only if a deficiency remained. This adjustment was accepted by the Court as an equitable measure responsive to the appellant's position.
Costs and Final Disposition: Because the respondents had not referred to or relied upon subrogation in their plaint and because the appellant obtained some relief by way of the modification of the decree, the Court ordered that each party in this second appeal bear their own costs.

Holding and Implications

Holding: Decree Modified.

The Court agreed with the lower appellate Court that, on the facts presented and applying the equitable principles of subrogation as discussed in the cited authorities, the plaintiffs were entitled to be subrogated to the right, title and interest of the prior mortgagee whose encumbrance was discharged with moneys advanced by the plaintiffs. The decree in favour of the plaintiffs for Rs. 200 with interest (as granted by the lower appellate Court) stands, subject to the following modification in execution:

Suit properties not purchased by the 3rd defendant are to be sold in the first instance.
Properties in which the 3rd defendant is interested (having been purchased by the 3rd defendant at the attachment sale) are to be sold only if there is still a deficiency after the sale of other properties.
Each party in this second appeal is to bear their own costs.

Implications: The decision resolves the dispute between these parties by upholding the plaintiffs' right to subrogation on the facts and by imposing an equitable sequencing of execution sales to protect the interests of the 3rd defendant. The opinion does not articulate any broader rule beyond its application of established precedents on subrogation and equity; it does not purport to set a new precedent.

K. V. S. — Decree modified.

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Andi Thevan v. Nagayasami Chettiar

This Second Appeal arises from a suit instituted by the respondents before us, as plaintiffs, on a deed of mortgage. It was an ordinary suit for sale of the mortgage security. In the defence raised on behalf of the 3rd defendant who was the auction-purchaser of one item and part of another item covered by the suit mortgage, it was contended that in execution of a money decree obtained against the 1st defendant an attachment had been effected of the suit items and that the suit mortgage was made at a time when such attachment was in force and that as the 3rd defendant purchased the suit items at the sale held in pursuance of such attachment the suit mortgage could not prevail against the purchaser. On these facts the further and the only question that arose was whether the plaintiffs would be entitled to be subrogated to the right, title and interest of a previous mortgage of the said items whose mortgage was paid off with the moneys advanced by the plaintiffs on the suit mortgage. The lower appellate Court having held that the plaintiffs were so entitled gave a mortgage-decree in favour of the plaintiffs for the sum of Rs. 200 with interest thereon. The present appeal is by the 3rd defendant.

The learned vakil for the appellant has argued at considerable length before us taking two points. The first point may be briefly referred to and disposed of and that was that the plaintiffs' suit as it was originally laid was a simple suit on a mortgage. There was no reference in the plaint whatsoever to the previous encumbrance or the discharge of it, much less to any rights of subrogation claimed by the plaintiffs. In these circumstances it was argued by the learned vakil for the appellant-3rd defendant relying upon Mohesh Lal v. Mohant Bawan Das and Maharaj Singh v. Balwant Singh that the plaintiffs having failed to plead their rights as on subrogation are not entitled to recover on that footing. It must also be observed that after the defence was raised on the ground of the attachment no application for amendment of the plaint was made on behalf of the plaintiffs. But it is clear, as pointed out by the learned vakil for the 1st respondent, that the matter was treated in both the lower Courts as one only for the determination of this question of subrogation. This particular objection on the ground of pleading does not appear to have been taken either in the trial Court or in the lower appellate Court. It has not been taken specifically even in the grounds of appeal to this Court. If the point had been taken, it might have been open to the plaintiffs to ask for a formal amendment of the plaint. But when we see that the point was not taken on behalf of the defendant-appellant and substantially both the lower Courts have dealt with the question as though a direct issue was raised in respect of it, we are not satisfied that it would be in the interests of justice to non-suit the plaintiffs on the mere ground that the plaint did not contain any averments with regard to it.

The next question that was argued was that the lower appellate Court was wrong in holding that the plaintiffs were entitled to be subrogated to the right, title and interest of the prior mortgagee. The facts of this case are very similar to the facts of the case reported in Dinobundhu Shaw Chowdhry v. Jogmaya Dasi. In that case also there was an attachment before judgment and their Lordships held that as the previous mortgage was paid off and discharged with the moneys advanced by the plaintiff-mortgagee and, as the intention was also clear that he paid off the previous mortgage not for the purpose of extinguishing it, it must be assumed that he must have intended to keep it alive because it was clearly to his advantage to do so. The only distinction between that case and the present one that was emphasized and argued before us was that in that case payment and discharge of the prior mortgage is stated to have been pursuant to an agreement entered into between the mortgagor and the mortgagee that with the moneys being advanced the prior mortgage should be discharged. In the present case though the language of the document, Ex. A is not very clear, still we find that in a portion of the document, which has not been translated there is reference to the particulars of the receipt of consideration and one of the items of consideration so particularised is payment in discharge of the prior mortgage. The reference to the prior mortgage is not merely indicative of the purpose for which the mortgagor was borrowing under the mortgage, but it is clear that the reference to it as part of the consideration carries and involves an implied obligation on the part of the mortgagor who was borrowing the money to pay off and discharge the prior encumbrance. There is also no doubt that, as in the case in Dinobundhu Shaw Chowdhry v. Jogmaya Dasi in the present case there is also a covenant in the deed of mortgage that the mortgagee should obtain under the suit instrument a first mortgage over the properties. If that was the intention between the contracting parties, an implied obligation on the part of the mortgagee to pay off and discharge the prior mortgage would undoubtedly have to be inferred. On principle therefore the present case is not really distinguishable from the case in Dinohundhu Shaw Chowdhry v. Jogmaya Dasi. A great deal of argument was addressed by the learned vakil for the appellant for the purpose of showing that it is incumbent on the party claiming rights of subrogation to make out affirmatively that there was the intention on his part to keep alive the prior mortgage that is paid off and discharged.

To such a proposition so largely stated we cannot possibly accede. In the leading case on the subject of subrogation in Gokaldas Gopaldas v. Puranmal Premsukhdas their Lordships of the Judicial Committee speak of the intention being ascribed. A similar expression occurs in many other cases that deal with the subject.

From such an expression it is clear that the intention need not always be express or even capable of being directly inferred. It is clear also that their Lordships of the Judicial Committee in the case in Gokaldas Gopaldas v. Puranmal Premsukhdas clearly put it as a question of justice, equity and good conscience. It was also contended by the learned vakil for the appellant that the person who pays off the prior encumbrance and claims subrogation must have had notice of the intermediate encumbrance or obstacle having regard to which the question arises. On the decided cases it seems to us that no such principle can possibly be postulated. If the real question should be one of justice, equity and good conscience, the principle cannot be that it is only when the party has notice of the obstacle or intermediate encumbrance that relief can be given to him. On the other hand, it would seem that it is only when a person acts bona fide in ignorance that he can be said to be in greater need of equitable relief. In the present case, if the plaintiff-mortgagee had been aware of the real state of facts, namely the attachment order that had been issued by the Court there would have been no doubt whatever that he would have expressly stipulated for the previous encumbrance being kept alive for his benefit. In these circumstances, it is difficult to say why such an intention should not necessarily be ascribed to him even if it should be equitable to do so. We have therefore come to the conclusion that on the main features the case is not distinguishable from the case in Dinobundhu Shaw Chowdhry v. Jogmaya Dasi. In the result we agree with the lower appellate Court with regard to this question of subrogation.

Two other questions were also raised by the learned vakil for the appellant. It was contended that the discharge of the prior encumbrance was only a partial discharge. There is no foundation for such an argument. It has not been shown that at the time when Rs. 200 was paid in respect of the prior encumbrance there was any balance left over and unpaid. The expression partial discharge would have no meaning or significance otherwise. If therefore at the time of making the payment of Rs. 200 for the purpose of discharging the previous encumbrance the mortgagor paid to the prior encumbrancer from his own pocket all the interest due and from the amount of the mortgage paid the balance, namely, the principal amount, there is no reason why such discharge should be regarded only as a partial discharge even when it admittedly resulted in a complete discharge of the prior encumbrance. Further, this point also does not appear to have been taken at any earlier stage.

Lastly it was argued that in any case the 3rd defendant-appellant would be entitled to an order that the plaintiffs-respondents should be directed to proceed in execution of the mortgage decree in the first instance only in respect of items of plaint properties not purchased by the 3rd defendant. That is undoubtedly an equitable order to which the appellant may be entitled and it is not opposed. We, therefore, direct that the decree passed by the lower appellate Court be modified by directing that the suit properties not claimed by the 3rd defendant be sold in the first instance, and the properties in which the 3rd defendant is interested be sold only if there should still be a deficiency in the amount due. As we are satisfied that the respondents are really to blame in not having referred to and relied upon the subrogation in their plaint and having regard to the fact that the appellant has in any case obtained some relief before us, the proper order for costs would be that each party in this second appeal do bear his own costs.

K. V. S.Decree modified.

Andi Thevan v. Nagayasami Chettiar

Structured Summary of the Opinion — Second Appeal concerning Mortgage and Subrogation

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (3rd defendant)

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Andi Thevan v. Nagayasami Chettiar

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