1. This matter comes before a Full Bench under reference by Puranik, J., framed as follows:
Is a purchaser who has advanced money, as part of the consideration of sale in his favour, for paying off a prior mortgage but in whose favour there is no express agreement of subrogation in writing registered, entitled to claim subrogation as against a mesne incumbrancer under Section 92 of the Transfer of Property Act, as amended by Act 20 of 1929?
2. The question referred is not quite the question that falls to be considered in this case the facts of which are as follows:
3. A, the mortgagor, mortgaged property to B and later to C. B sued A on the mortgage and joined C as a party. The suit was successful, a decree for sale was obtained, and a sale was held; but before confirmation of the sale, the transaction that raises the present point was entered into between A and D whereby A sold the property for an amount more than sufficient to pay the decree and compensation to the auction-purchaser. That amount was Rs. 2,000. Of the Rs. 2,000, Rs. 1,700 was required to pay off the decree and the compensation. That left Rs. 300 which was to be paid to the vendor. The sale deed (Ex. 2 D-1) after reciting the subject matter of the sale, the fact of execution and sale in execution, says as follows (mortgagors speaking):
You have retained with you Es, 1,700 for satisfying the amount found due by us under the said decree, including sale commission. You should there out satisfy the said decree with sale commission and the residue, if any, should be returned to us.
4. Of the balance of Rs. 300, Rs. 200 is recited as having been paid that day, and Rs. 100 was to be paid on the date of registration. The sale deed was subsequently registered and the Rs. 100 paid, so that by that date the mortgagor-vendor had got all that he was entitled to, the purchaser had got a transfer of the property, and on the same day that the sale transaction was gone through, vendor and purchaser attended Court, and by the hand of the vendor the Rs. 1,700 was paid into Court in satisfaction of the decree and compensation, the auction sale was set aside and the property was released from mortgage. On those facts we are of the opinion that at the time the money was paid in satisfaction of the decree and thereby foundations laid for an application to have the sale set aside and property released from the mortgage, the purchaser had executed in his favour a sale deed which, being subsequently registered, became effective as from its date of execution. He was therefore in the position of the owner of the property as purchaser and accordingly he would fall within Section 91(a) of the Transfer of Property Act, as being a person, other than the mortgagee, who has an interest in the property mortgaged. The question therefore, that it is desirable to give an answer to is this:
“Is a purchaser of a property with whom is left a part of the consideration of the sale in his favour for paying off a mortgage but in whose favour there is no express agreement of subrogation in writing registered entitled to claim subrogation as against a later mortgagee under Section 92 of the Transfer of Property Act, as amended by Act 20 of 1929?”
5. The chief difficulty felt by the learned referring Judge arose out of the conflict between two recent Full Bench cases, one of the Madras and the other of the Allahabad High Courts, the former reported in 59 Mad 359 AIR 1936 Mad 171 , 160 IC 137 , 59 Mad 359 , 70 MLJ 1 (FB) and the latter in 54 All 897. AIR 1932 All 489 , 139 IC 107 , 54 All 897 , 1932 ALJ 627 (FB) That difficulty has now disappeared owing to 54 All 897 AIR 1937 All 588 , 1937 ALJ 659 & 840 (FB) having been overruled by AIR 1937 All 588. AIR 1937 All 588 , 1937 ALJ 659 & 840 (FB)
6. The last case cited, AIR 1937 All 588, AIR 1937 All 588 , 1937 ALJ 659 & 840 (FB) is a unanimous decision of five Judges; it concurs in the unanimous decision of three Judges of the Madras High Court in 59 Mad 359. AIR 1936 Mad 171 , 160 IC 137 , 59 Mad 359 , 70 MLJ 1 (FB) It might accordingly be considered superfluous to examine in any detail a branch of law so recently and so exhaustively discussed. Sulaiman, C.J's judgment in AIR 1937 All 588 AIR 1937 All 588 , 1937 ALJ 659 & 840 (FB) covers the whole subject and refers to all the statutory provisions and all the case law, and we do not wish to re-state what he had already said. At the same time, as our reasons for coming to this conclusion are somewhat different from those used in the above cases, we think it might be helpful in view of the frequency of this kind of transaction, if we analysed the positions that arise in this kind of case.
7. In the first place and at the threshold, we think it desirable to state that we are in complete agreement with Sulaiman, Page: 374C.J's. observation at p. 594 loc. cit., a when speaking of the rights of subrogation in such cases: “… the entire law is now contained in Ss. 91 and 92 and also in Ss. 95 and 101 of the new Act” (save that, we would add, a reference to S. 59-A which, whether it is to be regarded as defining ‘mortgagor’ in S. 92 or not, has to be borne in mind in construing this group of sections). We are no longer concerned with equitable principles but with statutory rights, and to that extent, decisions on the law as it stood before the amendment of the Transfer of Property Act in 1929 may be misleading.
8. In the second place, it is desirable to stress the difference between S. 101 and S. 92. S. 101 is dealing with merger. We will take, throughout the following analysis, letters to indicate the various persons. A is the mortgagor-vendor, B the 1st mortgagee, C the second mortgagee, D the alienee whose rights we are considering. If D acquires B's interest and then A's interest, he will be prior to C in right of B's interest and postponed to C in right of A's interest. If there be a merger of B's with A's interest, D would be postponed. S. 101 prevents merger and gives D priority. S. 92 on the other hand is creating a right of subrogation so that in certain circumstances D stands in B's shoes, not because he has acquired B's interest, but because out of his money B's mortgage debt has been redeemed, i.e D has redeemed B's mortgage.
9. We are of the opinion that ‘mortgagor’ in S. 92 is not limited to the very person who effected the mortgage but includes those persons deriving title from him by transfer of his equity. This conclusion is not founded upon the new S. 59-A (which may or may not apply to S. 92 according as that section, read in with S. 91, is regarded as “expressly providing” “otherwise” than is provided in S. 59-A), but on the meaning of the term as it is used in S. 92 according to its proper construction. Any other construction would lead to very curious results: see 46 MLJ 74 AIR 1924 Mad 453 , 80 IC 363 , 46 MLJ 74 (mortgagee), and 21 All 223 (1899) 21 All 223 , 26 IA 45 , 7 Sar 472 (PC) for cases where, even before the passing of S. 59-A, the terms “mortgagor” and “mortgagee” were held to include persons other than the persons who were originally parties to the mortgage.
10. We put on one side cases where A sells to D an enoumbored estate as an unencumbered estate and then D discovers B and redeems B out of D's own moneys. Whether D, in such a case would be prior to C would depend on whether D is regarded as a “mortgagor” simply because he had bought, not an equity but an alleged unencumbered free-hold from A whom D was treating as a vendor-owner but who turns out to be a mortgagor. It may well be that question would have to be resolved in different ways according as it were held that S. 59-A applied or not, and if it applied, whether the words “as such” should or should not be read in the section between the words at the end, viz. “them” and “respectively”. That however is a question which has not been argued before us, the answer to which is not obvious and which it would be dangerous and useless to express an opinion about in this reference.
11. In a case such as the present, A can sell to D either an unencumbered estate or an encumbered estate. In the latter case, he will normally be selling an equity of redemption and all that D will get is what A had and on the transfer D will be in A's position and will be the mortgagor within the meaning of S. 92. If thereafter D pays off B, he will not be subrogated to B's rights so as to have priority over C. Different considerations will arise if the circumstances were such that the purchaser could not be regarded as the mortgagor after the transfer, if such a case could arise.
12. On the other hand, if A is not selling an equity of redemption but unencumbered free, hold (disclosing the existence of B but suppressing the existence of C), the position will be that A will be obliged to redeem B not merely because of S. 55(1)(g), but because of the nature of the interest he is selling (for he is selling as an unencumbered estate, an estate stated to be encumbered by B's mortgage) and C not being redeemed, A will be liable to D — (because of the provisions of S. 55(1)(g) — for the loss D suffers as a consequence of the existence of C's mortgage (which, if registered, D will be deemed to have notice of).
13. If it is part of the bargain between A and D that D shall retain so much of the price as is necessary to pay off B, that in our opinion makes no difference. We find some difficulty in concurring with the view expressed in AIR 1937 All 588 AIR 1937 All 588 , 1937 ALJ 659 & 840 (FB) at page 595, viz.:
…. when a person with whom money has been left for payment to a prior mortgagee pays it off, he is really not himself redeeming the mortgage but redeeming it as the agent of the mortgagor and has in substance advanced money to the mortgagor with which the mortgage has been redeemed.
14. We prefer to express the matter thus: Where D has bought an unencumbered tree-hold on terms that a disclosed encumbrance is to be paid off, the vendor A must redeem that encumbrance. If A, instead of receiving the price and utilizing: part of it to pay off mortgagee B, agrees that D shall pay B, A is not borrowing from D but A is contracting with D that B shall be paid off by A out of the price due to him in a particular mode, that is, by D for and on behalf of A. In this particular case, it is clear that A paid off because it was A who, D being by his side, took the money, retained by D, from D, and paid it into Court. It would make no difference in our opinion if D's hand had paid the money into Court. The money was money due to A as part of the price; the obligation, whether viewed from the point of view of B to D to redeem, was on A, A's agreement with D as to the mode of payment off was mere machinery designed to secure that A did not abscond. If the above analysis is correct, A is the person redeeming. Therefore this is a case of a mortgagor redeeming. Therefore no right of subrogation arises.
15. It follows that (1) where A sells an equity, or (2) where A sells as an unencumbered estate a property burdened by a disclosed mortgage, the payment of which is provided for out of the sale price, then in neither case does a right of subrogation in favour of D arise. D can, however, get into B's shoes in at least two ways: (1) by first acquiring B's rights and then A's rights, when S. 101 applies; or (2) by lending money to A to enable A to pay off B. In this second case D would be subrogated to B if the agreement was reduced to writing and the writing registered. We feel that the result thus arrived at, not only follows from the statutory provisions but is desirable from a practical point of view.
16. If the present argument succeeded, and it were held that D was subrogated, D would, in many cases, not suffer from C's undisclosed mortgage and A would not be liable to D (for in the case supposed D would have suffered no damage) on his covenant for freedom from incumbrances despite his fraud. As matters now stand, D will always have his remedy against A, if A sells without disclosing the existence of C. That is the purchaser's true remedy. Different considerations apply where D is a subsequent mortgagee or other person falling within Section 91 of the Transfer of Property Act, or a transferee in circumstances that cause him not to be in the position of a mortgagor. We are not to be taken as founding our opinion simply upon agency. Whether there is simple agency will depend on circumstances: see 30 NLR 164 AIR 1933 Nag 155 , 144 IC 969 , 30 NLR 164 at p. 169; 29 Cal 154 (1902) 29 Cal 154 , 29 IA 9 , 6 CWN 209 (PC) and 39 Cal 527. (1912) 39 Cal 527 , 14 IC 496 , 39 IA 68 (PC)
17. Normally, in a case of this type, there will be a contractual obligation which will impose an obligation hardly distinguishable from agency save that the obligee's obligation is wider. If A had pledged a valuable jewel with X on which pledge there was owing Rs. 1,700 and the sale of the unencumbered property to D had been for (say) Rs. 2,000, and it had been agreed that D should not pay Rs. 2,000 to A but should pay the price in the following way, Rs. 300 to A and Rs. 1,700 to X to the credit of A's account, D in making such a payment to X, would not be acting merely as A's agent but under the terms of the sale contract. If he failed to pay to X, A would not be limited to the rights he would have had, had D been his agent. He would, inter alia, have an unpaid vendor's lien to the extent of the Rupees 1,700. It makes no difference that instead of A being indebted to X he is indebted to B except that there will be obvious differences when it comes to working out the rights and remedies which arise if D does not pay off the Rs. 1,700. The result then will be that D will get not an unencumbered estate (which he bought) but an Page: 376encumbered estate. D will not, however, have any remedy against A, for the continuance of the encumbrance is due to D's own failure to pay over part of the price in the way agreed. Our present view is not in agreement with 31 NLR Sup 169 AIR 1936 Nag 32 , 161 IC 551 , 31 NLR Sup 169 which follows 54 All 897, AIR 1932 All 489 , 139 IC 107 , 54 All 897 , 1932 ALJ 627 (FB) though we agree with the learned Judge who decided that case that this case falls within para. 1 and not para. 3 of S. 92. We do not found this conclusion on AIR 1932 PC 99 AIR 1932 PC 99 , 137 IC 475 (PC) or 62 Cal 677 AIR 1936 Cal 42 , 161 IC 48 , 62 Cal 677 which held that under the old law a discharge of a legal liability does not found any right of subrogation. We proceed entirely on the ground that cases of the type, here analysed, are cases of mortgagor's redemption.
18. We must not be taken as deciding that para. 3 of S. 92 outs down para. 1. It is true that 59 Mad 359 AIR 1936 Mad 171 , 160 IC 137 , 59 Mad 359 , 70 MLJ 1 (FB) and AIR 1937 All 588 AIR 1937 All 588 , 1937 ALJ 659 & 840 (FB) contain observations which suggest that it does. As our analysis, though arriving at the same conclusion as regards the absence of any right in an alienee of a mortgagor as such by purchase to be subrogated, has pursued a different course from that followed in either of the above cases, it does not follow from this case that there is any such cutting down. A lender might well have a statutory subrogation right under para. 1 as falling within the class delimited by S. 91 and not as being “a person who has advanced money”, or, he might only have a conventional right of subrogation. In this latter case, he would come in only in virtue of para. 3 and then his contract must be in writing registered. Thus, our answer to the question referred and to the modified question posed is in the negative. The matter is referred back to the learned Judge who made the reference for disposal of the matter in the light of the above.
D.S/R.K
19. Answer in negative.