Chidambara Nadan v. Musuvathi Muni Nagendrayyan

JUDGMENT

The facts which give rise to this appeal are somewhat complicated and consist in a series of mortgages created in succession over the same property. The mortgages with which we are concerned are four in number. The first dated the 17th June 1905 is a mortgage for Rs. 1,000, in favour of one Balasubramania Nadar and another, the second dated 4th June 1908 is a mortgage for Rs. 500 in favour of the plaintiff's predecessors in title and it is this mortgage that they seek to enforce in this suit. The third was a mortgage dated 8th June 1908 in favour of the Madura Nidhi Company for Rs. 1,000 and by that mortgage the mortgagees were directed to discharge the debt under the first mortgage to Balasubramaniya Nadar. The last mortgage dated 1st July 1908, was for Rs. 400 in favour of the 6th defendant That mortgage directed payment by the 6th defendant of Rs. 250 to Balasubramaniya Nadar, the first mortagagee, the third mortgagee, the Nidhi Company, having already discharged his debt to the extent of Rs. 1000, the total due under his mortgage on the date of payment being Rs. 1,250 with accumulation of interest. The 6th defendant paid off the third mortgage in favour of the Nidhi Company and he now claims by virtue of these facts that he is entitled to stand in the shoes of the first mortgagee and claim priority, in light of that mortgage, to the present plaintiff, the second mortgagee.

The question is one that has been much discussed and it would be idle to say that the expression of opinion to be found in the cases are all consistent and easily reconcileable. The first case of importance is the decision of the Privy Council in Mohesh Lal v. Mohant Bawan Das. Their Lordship there applied the rule laid down by Jessel, M. R. in Adams v. Angell and that the question whether a person who provides money to pay off a former charge as consideration for a second charge to himself keeps alive that former charge for his own benefit, or extinguishes it is a question of intention. To a large extent it may be said that that is a question of fact and there may be express declarations of intention which conclude the matter. But usually there is no such expression of intention and certain presumptions have to be made with regard to what the intention of the parties is likely to have been.

The argument for the appellant is that where the consideration for a second charge takes the form of payment of a first mortgage by a second mortgagee, the payment is made by him merely as an agent of the owner of the equity of redemption and the money must be regarded as the money of the owner of the equity of redemption and the payment as his payment. It is common ground that the rule to be followed is that laid down by the Privy Council in Gokaldas Gopaldas v. Puranmal Premsukadas and that is that a man having a right to act in either of the two ways, i.e, either to extinguish or keep ative a charge shall be assumed to have acted according to his interest. In that case their Lordships treated the payment by the subsequent mortgagee to be his own payment, so that his interest was what was to be looked at and there can be no doubt that the interest of a subsequent encumbrancer must always be to keep alive a prior charge which he has paid off for his own benefit. The trouble has arisen from this that their Lordships in Mohesh Lal v. Mohant Bawan Das appear to have treated it as a general rule that when a mortgagee is directed to apply the loan in discharge of a prior mortgage, the presumption is that the payment is to be regarded as primarily the payment of the mortgagor and that his interest can only be to extinguish the first charge. On a careful consideration of that case, we have come to the conclusion that it lays down no such general rule, but merely decides on the facts of that case, one of which was that there was a running account between the mortgagor and the second mortgagee who acted as his banker, that it was proved that the intention was to extinguish the prior charge and not to kept it alive. There was no doubt in that case the fact that the banker took over possession of the mortgage, when he paid it off, but their Lordships held that he took possession of it merely as a receipt, for it was endorsed with the recital of his discharge and that it was merely the case of an agent taking a receipt on behalf of Hs principal, when he made a payment for him, which of course it would be his duty to do. They declined to take the view in that case that the taking possession of the prior charge was any evidence of an intention to keep it alive for the benefit of the subsequent encumbrancer. We think that this was no more than a finding of fact upon the peculiar circumstances of that case. We venture to think that it is an error to treat Mohesh Lal v. Mohant Bawan Das, as laying down a hard and fast presumption, that where a subsequent encumbrancer in accordance with the directions from the mortgagor pays off a prior encumbrancer, the payment must be treated as made solely as the agent of the mortgagor and that the intention accordingly must be presumed to be to extinguish the prior security. That in our view, would be in conflict with the decision of the Privy Council in Gokaldas Gopaldas v. Puranmal Premsuka Das, and that with a long series of cases in this and the other Courts of India, of which we may take as an example the latest decision of this Court (Seshagiri Aiyar and Moore, JJ., in Abarthoraman Kutti v. Ittikaparambilathan. We think that the observations of Sreenivasa Iyengar, J. in Muthammal v. Razu Pillai are obiter and with respect to that learned judge, we think they are coloured by a view of the effect of the decision in Mohesh Lal v. Mohant Bawan Das(4) which we regard as erroneous.

In the present case the subsequent mortgage contained not merely a direction that the latter encumbrancer should discharge the earlier mortgage, but should take it back, with the endorsement of payment thereon. Were it necessary so to decide, we are prepared to hold that such a direction points to an intention of keeping that charge alive. For, there is no hint that the instrument is to be received by the mortgagee merely as the agent of the mortgagor, as a receipt, and handed back to him. But apart from that, we think that a long series of decisions in the Indian Courts which we believe to be in entire conformity with the decision of the Privy Council in Gokaldas Gopaldas v. Purammal Premsukh Das. have established the rule that in the absence of special circumstances to show the contrary, such as we believe existed in Mohesh Lal v. Mohant Bawan Das, the presumption is when a subsequent encumbrancer pays off a prior encumbrance, with the consideration money of his own encumbrance, he does so with the intention of keeping the prior encumbrance alive. It is obvious that in the vast majority of cases such an arrangement would be made for the protection of the subsequent mortgagee. The mortgagor probably wants the money for himself, rather than to discharge his existing debts and the origin of such a stipulation is most likely to be a distrust felt, by the subsequent mortgagee, as to the use to which the moneys would be put if he handed them direct to the mortgagor, who, instead of discharging the prior encumbrance, might squander the money for his own purposes. We think that a mortgagee who inserts in the mortgage bond the stipulation that he and not the mortgagor shall pay off the prior encumbrance can in the absence oi any indication to the contrary be rightly presumed to have wished to make that payment by his own hand with a view to keep the prior encumbrance alive, for his own benefit. We are therefore of opinion that the Lower Courts were right and that the appeal must be dismissed with costs.

C. K.Appeal dismissed.