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Perumal v. Kaveri And Ors.

Madras High Court

Sep 1, 1892

Judgment

Subsequent
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Structured Summary of the Provided Opinion

Factual and Procedural Background

The first defendant executed a mortgage (Exh. II) in favour of the second defendant in 1884 for Rs. 350; the document bore a written date of 28 July 1884 but was not signed by the first defendant until 5 December 1884, after criminal proceedings for cheating had been instituted by the second defendant. On 6 December 1884 the first defendant's vakil submitted a statement (Exh. VI) admitting execution of a document for Rs. 350 but claiming only Rs. 304-8-0 had been paid, after which the criminal complaint was dismissed as a civil dispute (Exh. T). The second defendant presented Exh. II for registration, but the District Registrar declined registration on 23 April 1885 after enquiry. The following day the first defendant executed a second mortgage (Exh. E) in favor of the first plaintiff for Rs. 1000, conveying possession of a portion of the same house and other lands.

The second defendant sued under Section 77 of the Registration Act seeking a decree directing registration of Exh. II (Suit No. 183 of 1885). He lost in the Court of First Instance but succeeded on appeal, and Exh. II was registered in December 1886. A subsequent suit (O.S. No. 89 of 1887) founded on Exh. II produced a decree for the second defendant, who caused the mortgaged house to be sold in execution and purchased it at that sale on 21 January 1889. The first plaintiff was not a party to O.S. No. 89 of 1887.

The first plaintiff then brought the suit that produced the present appeals, claiming to be in possession as mortgagee under Exh. E and praying (1) cancellation of Exh. II as fraudulent; (2) cancellation of the sale in execution of the decree obtained by the second defendant in O.S. No. 89 of 1887 as not binding on her even if Exh. II were genuine; (3) a declaration that she is entitled to redeem the mortgage on payment of the mortgage amount with interest; and (4) costs and other relief as required by the nature of the case.

The District Munsif recorded three issues, found against the first plaintiff on the question whether she was a bona fide mortgagee for valuable consideration, found in favour of the second defendant as to the validity of his mortgage, and dismissed the suit with costs. On appeal the Subordinate Judge found both Exh. E and Exh. II genuine and valid, set aside the decree of the Original Court, and granted plaintiffs a decree allowing them to redeem the second defendant's mortgage by paying what was due to him "until his purchase," and ordered the second defendant to pay plaintiffs' costs. The second defendant appealed this appellate decree.

Legal Issues Presented

Is the first plaintiff a bona fide mortgagee for valuable consideration from the first defendant?
Is the mortgage in favour of the second defendant (on which decree has been passed in O.S. No. 89 of 1887) a true and valid transaction for valuable consideration?
To what relief, if any, are the plaintiffs entitled?

Arguments of the Parties

Plaintiffs' Contentions

The first plaintiff claims to be a mortgagee in possession under Exh. E and seeks: (a) cancellation of Exh. II as fraudulent; (b) cancellation of the sale in execution of the decree obtained by the second defendant in O.S. No. 89 of 1887 as not binding on her even if Exh. II is genuine; (c) a declaration that she is entitled to redeem the mortgage by paying the mortgage amount with interest; and (d) costs and other relief as the case may require.
The second plaintiff (son of the first plaintiff) was joined because the second defendant alleged in his written statement that the suit was really brought by the second plaintiff in his mother's name on behalf of another relative (the first defendant), and that in O.S. No. 89 of 1887 the second plaintiff, who contested on behalf of the aunt, did not ask that the first plaintiff be made a party nor undertake to pay the sum due to the second defendant.

Second Defendant / Appellant's Arguments

The plaint should have been rejected for inconsistency because the plaintiffs sought, alternatively, to avoid the mortgage evidenced by Exh. II or to confirm it and claim a right to redeem depending on findings of fact.
The Subordinate Judge was not justified in converting a suit framed as a declaratory action into a decree for redemption; authority relied upon by the Subordinate Judge (Sankana Kalana v. Virupakshapa Ganeshapa) was not a sound basis in this Court.
The Subordinate Judge erred in granting plaintiffs a decree for redemption of the whole house when Exh. E covered only a portion of the house.
By reason of his purchase at the court-sale, the second defendant acquired not only the interest he had as mortgagee under Exh. II but also the mortgagor's right of redemption; accordingly the first plaintiff cannot maintain a suit for redemption against the second defendant (who stands in the mortgagor's shoes), and the equities that belonged to the mortgagor now belong to the second defendant.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Narayanasami v. Ramasami, I. L. K, 14 M, 172	Permits a defendant who is a stranger to a transaction to raise inconsistent pleas as to matters not necessarily within his knowledge.	The court analogised this authority to conclude that a plaintiff who is not a party to the underlying transaction may seek alternative relief dependent upon factual findings; this was used to respond to the inconsistency objection to the plaint.
Sankana Kalana v. Virupakshapa Ganeshapa, I. L. R, 7 B, 146	Was relied upon by the Subordinate Judge as authority for converting a declaratory suit into a decree for redemption (i.e., granting substantive relief beyond a mere declaration).	The opinion notes the case was accepted by one judge (Pinhey J.) with expressed disapproval; the present Court treats the authority as weak and not a sound basis to support the Subordinate Judge's indulgence.
Venkatanarasammah v. Ramiah, I. L. R, 2 M, 108	Represents authority in this Court against the indulgence of converting a declaratory suit into a decree for redemption.	The Court cites this decision as the controlling authority in its own jurisdiction that militates against the Subordinate Judge's granting of a redemption decree in a mere declaratory suit.
Raghunath Prasad v. Jurawan Rai, I. L. E, 8 A, 105	Supports the proposition that a purchaser of the mortgagor's interest (including the equity of redemption) acquires the equities of the mortgagor and that a prior mortgagee cannot maintain a suit for redemption against such a purchaser.	The Court invoked this authority to conclude that the second defendant, as purchaser at the court-sale, stands in the mortgagor's place and that the first plaintiff is not entitled to maintain a suit for redemption against him; at most she could retain possession of the share mortgaged to her until redeemed by the second defendant.

Court's Reasoning and Analysis

The Court recited the findings at the two lower levels: the District Munsif negatived the claim that the first plaintiff was a bona fide mortgagee and affirmed the validity of the second defendant's mortgage, dismissing the suit; the Subordinate Judge reversed, finding both mortgages genuine and granting plaintiffs a decree allowing redemption by payment to the second defendant up to his purchase, also awarding costs to plaintiffs.

On second appeal the Court examined three principal strands of argument and the governing authorities:

On the objection of inconsistency in the plaint (that plaintiffs alternatively sought to impeach Exh. II or to confirm it and claim a right to redeem), the Court observed existing authority allowing inconsistent pleas by a party who is a stranger to the transaction (citing Narayanasami v. Ramasami) and concluded that a plaintiff not party to the underlying transaction may seek relief in the alternative depending upon factual findings. This addresses the formal sufficiency of the plaint.
On the conversion of a declaratory suit into a decree for redemption, the Court considered the Subordinate Judge's reliance on Sankana Kalana v. Virupakshapa Ganeshapa but noted that in that authority one judge expressed disapproval and that the only authority in this Court (Venkatanarasammah v. Ramiah) was against granting such indulgence. Accordingly, the Court found the Subordinate Judge's procedure unsupported by controlling precedent in this Court.
On substantive property rights following the court-sale, the Court analysed the effect of the second defendant's purchase at the sale in O.S. No. 89 of 1887. Although the first plaintiff was not bound by that decree (she was not a party and Section 85 of the Transfer of Property Act requires making certain persons parties), the Court held that the second defendant, as purchaser of the mortgagor's equity of redemption, acquired the equities of the mortgagor and therefore stood in the mortgagor's place. The Court reasoned that if the mortgagor (or first mortgagee) could have conveyed the interest by private sale to the second defendant and thereby prevented a separate redemption suit by the first plaintiff, the second defendant's purchase at the court-sale should have the same effect. The first plaintiff's remedy is limited to retaining possession of the share of the house mortgaged to her until redeemed by the purchaser; she cannot maintain a suit to redeem against the purchaser who holds the mortgagor's rights (citing Raghunath Prasad v. Jurawan Rai).

A concurring judge elaborated further doctrinal points: when the right arising from a first mortgage is united with the mortgagor's equity of redemption by purchase at a court-sale, the two rights become vested in the same individual, extinguishing the prior separate right of the second mortgagee to redeem the first mortgage. The court-sale extinguishes the first mortgage and the only right that survives for the second mortgagee is the right to be redeemed. Additionally, because the plaintiff is a usufructuary mortgagee in possession, she is not entitled to redeem after the extinction of the first mortgage. These doctrinal observations reinforced the result that a declaratory decree for redemption could not be supported on the facts found.

Holding and Implications

APPEAL ALLOWED; DECREE OF THE LOWER APPELLATE COURT SET ASIDE; DECREE OF THE DISTRICT MUNSIF RESTORED.

Direct consequences and implications (as articulated in the opinion):

The appellate decree that had allowed the plaintiffs to redeem the second defendant's mortgage was set aside; the District Munsif's original dismissal of the suit was restored.
Plaintiffs were directed to pay the second defendant's costs throughout.
The Court held that the first plaintiff, not being a party to O.S. No. 89 of 1887, is not bound by that decree; nevertheless the second defendant, as purchaser at the court-sale, acquired the mortgagor's equities and therefore the first plaintiff cannot maintain a suit for redemption against him—at most she may retain possession of the share of the house mortgaged to her until it is redeemed by the purchaser.
The Court concluded that a declaratory decree for redemption could not be supported on the facts found, and explained the doctrinal basis for why a second mortgagee's right to redeem ceases when the first mortgage is extinguished by sale.

The opinion applies existing authorities and doctrinal principles to the facts; it does not announce a novel legal rule beyond the synthesis and application of precedent cited.

Show all summary ...

1. The following are the facts of this case:-- First defendant mortgaged the plaint house to 2nd defendant in 1884 under Exh. II for a sum of Rs. 350. Exh. II was written on the 28th July 1884, but was not signed by 1st defendant till 5th December of that year--after criminal proceedings had been instituted against 1st defendant by 2nd defendant for cheating (see Exh. W). On the 6th December 1884, 1st defendant's Vakil put in a statement (Exh. VI).admitting that 1st defendant had executed the document for Rs. 350, but pleading that she had only been paid Rs. .304-8-0. The complaint of 2nd defendant was thereupon dismissed, on the ground that the dispute between the parties was of a civil nature (Exh. T). 2nd defendant then presented the document for registration; but 1st defendant denied its execution and the District Registrar, after enquiry, declined to register it. This was on the 23rd April 1885. On the following day 1st defendant executed to the 1st plaintiff the document E mortgaging to the latter, with possession, a portion of the same house and several lands, for a sum of Rs. 1000.

2. In consequence of the District Registrar's refusal to register Exh. II 2nd defendant instituted a suit (No. 183. of 1885) for a decree directing its registration (under Section 77 of the Registration Act), and, though he failed in the Court of First Instance, he succeeded in the Appellate Court, (see Exh. XII). The document II was accordingly registered in December 1886; and O. S. No. 89 of 1887 was subsequently instituted thereon, and resulted in a decree in favor of 2nd defendant who caused the house in question to be sold in execution of the decree and himself purchased it at that sale on the 21st January 1889. First plaintiff was not made a party to the Suit No. 89 of 1887. Hence her suit out of which this second appeal has arisen, in which, claiming to be in possession as mortgagee under Exh. E, she prays (1) for cancellation of Exh. II as fraudulent; (2) for cancellation of the sale in execution of the decree obtained by 2nd defendant in O. S. No. 89 of 1887, as not binding on her "even if it be held that the mortgage-deed of 28th July 1884 (Exh. II) is genuine;" (3) for a declaration that she is entitled to redeem the said mortgage on paying the said mortgage amount with interest up to date ; and (4) for costs and such other further relief as the nature of the case may require.

3. Second plaintiff, who is son of the 1st plaintiff, was added as a party in consequence of 2nd defendant's allegation in his written statement that the suit was really brought by this 2nd plaintiff, in the name of his mother but on behalf of his junior aunt the 1st defendant. It is further explained in the 2nd defendant's written statement that the reason of his not making 1st plaintiff a party to his suit No. 89 of 1887 was because the document E under which she claims, was "executed fraudulently and without consideration;" and it is added that her son, the 2nd plaintiff, who contested that suit on behalf of his aunt, the 1st defendant, "did not ask that plaintiff (i.e, 1st plaintiff) should be made a party thereto, nor did he say that he would pay the sum due to this defendant."

4. The following issues were recorded by the District Munsif:

(1). Is the 1st plaintiff a bona fide mortgagee for valuable consideration from 1st defendant ?

(2). Is the mortgage in favor of 2nd defendant, on which decree has been passed in O. S. No. 89 of 1887, a true and valid transaction for valuable consideration ?

(3). To what relief, if any, are plaintiff's entitled ?

5. The District Munsif's finding on the 1st issue was in the negative and on the 2nd in the affirmative. He consequently dismissed the suit with costs.

6. On appeal the Subordinate Judge has found both E and II to be genuine and valid--and, on the ground that 1st plaintiff not having been a party to O. S. No. 89 of 1887 is not bound by the decree passed in that suit, he has set aside the decree of the Original Court and given one in favor of the plaintiffs,

"allowing them to redeem the 2nd defendant's mortgage by paying him what is due to him under his decree until his purchase."

He has also directed 2nd defendant to pay plaintiff's costs.

7. In this second appeal by 2nd defendant it is contended, firstly, that the plaint ought to have been rejected on the ground of inconsistency, seeking, as it did, to avoid the mortgage evidenced by Exh. II or to confirm the same and declare plaintiff's right to redeem. It has been held that it is open to

"a defendant who is a stranger to the transaction to raise inconsistent pleas as to matters not necessarily or properly within his knowledge,"

Narayanasami v. Ramasami, I. L. K, 14 M, 172. Similarly, it must, I think, be open to a plaintiff, who is not a party to the transaction in respect of which the allegations are made, to come into court seeking relief in the alternative--dependant upon what may be found by the court to he the true facts of the case.

8. It is next contended that as the suit was brought for a declaration merely, the Appellate Court was not justified in giving a decree for redemption. The Subordinate Judge has referred as authority for his procedure to the case reported in I. L. R, 7 B, 146, Sankana Kalana v. Virupakshapa Ganeshapa. It is to be observed, however, that the procedure was acceded to even in that case by Pinhey J, one of the two judges who took part in it, with an expression of disapproval and only because "the thing had been allowed so often in the Bombay High Court" that he did "not consider it either necessary or advisable to formally differ " from his brother judge on the point in that case. In this Court, however, the only authority that I have been able to find is against the indulgence allowed to the plaintiffs by the Subordinate Judge. See Venkatanarasammah v. Ramiah, I. L. R, 2 M, 108.

9. It has, however, been further contended on behalf of the appellant that as only a portion of the plaint house is included in 1st plaintiff's mortgage-deed E, the Subordinate Judge is in error in giving to plaintiffs a decree for redemption of the whole of the house. Further, stress is laid on the circumstance that 2nd defendant has by reason of his purchase at the court-sale acquired, in addition to the interest possessed by him as mortgagee under Exh. II, also the right of redemption which includes the right to redeem the mortgage to 1st plaintiff under Exh. E.

10. Although in consequence of 1st plaintiff not having been made a party to O. S. No. 89 of 1887 (as required by Section 85 of the Transfer of Property Act) she is not affected by the decree in that suit, yet 2nd defendant, as purchaser of the right of redemption which belonged to the mortgagor, is entitled to all the equities that belonged to the said mortgagor. If the mortgagor had by private sale transferred his interest in the property to 2nd defendant, 1st plaintiff could not have maintained a suit for redemption against the latter and I am of opinion that she is equally unentitled to maintain a suit for redemption against 2nd defendant, the purchaser at the court-sale, who now stands in the shoes of the motgagor. All that 1st plaintiff is entitled to is to retain possession of the share of the house mortgaged to her till it is redeemed by 2nd defendant. Of. Raghunath Prasad v. Jurawan Rai, I. L. E, 8 A, 105.

11. I would therefore allow this appear, and, setting aside the decree of the Lower Appellate Court, restore that of the District Munsif and direct plaintiffs to pay 2nd defendant's costs throughout.

Muthusami Aiyar, J.

12. I am also of opinion that upon the facts found the declaratory decree for redemption cannot be supported. Ordinarily, a 2nd mortgagee has a right to redeem the 1st mortgage, but this right ceases when the 1st mortgage ceases. When the right arising from the 1st mortgage is united with the mortgagor's equity of redemption by purchase at a court-sale, a confusion of the two rights arises by their vesting in one and the same individual. The doctrine that a purchaser who pays off a pre-existing mortgage can use it as a shield only keeps the security alive for his protection. Again, the 2nd mortgagee's right to redeem the prior mortgage is in its nature a right to consolidate the two securities into one as against the mortgagor and to hold them together until they are redeemed and there can be no right to consolidate when the 1st security ceases to exist by payment or by a court-sale which extinguishes the first mortgage. At the date of the court-sale in O. S. No. 89 of 1887, three distinct rights were in existence, those founded on the first and second mortgages and the mortgagor's equity of redemption. The interest which passed by the court-sale was whatever the mortgagor and the 1st mortgagee could convey together and the result is that the rights that survived the actual sale are only two; viz., the equity of redemption vested in the original owner against the 2nd mortgagee and the latter's right to be redeemed by him. Otherwise, there would be this anomaly: if the 2nd mortgagee is allowed to redeem the 1st mortgage and purchaser by paying him the purchase money, there would be no one entitled afterwards to redeem the 2nd mortgage. The original mortgagor cannot redeem because as between him and the 1st mortgagee, he ceases to be the owner by the sale of his whole interest in the property. If the purchaser can redeem the 2nd mortgage, the latter can have no right to redeem the former. The sale under the order of the court extinguishes the 1st mortgage and the only right which survives it in the 2nd mortgagee is the right to be redeemed. The case should be treated as if the original mortgagor conveyed his whole interest in the property by a voluntary sale in extinction of the first mortgage. Moreover, the plaintiff is a usufructuary mortgagee in possession of the house and, as such, he is not entitled to redeem after the extinction of the 1st mortgage. For these reasons I concur in the decree proposed by my learned colleague.