1. This appeal arises out of a suit for foreclosure on a mortgage dated 12th August 1921 executed in the plaintiff's favour by two persons who are now represented by the first three defendants. There had been a previous mortgage on 21th March 1920 in favour of a co-operative society. On 22nd February 1934 defendant 4, who is the appellant in this Court, purchased the mortgaged property and, as part of the consideration for the sale, undertook to pay off the mortgage debt due to the co-operative society. He paid off that debt on 24th March 1933 by a payment of Rs. 174-11-0. The only question for decision in this appeal is whether defendant 4 can claim that he is subrogated to the rights of the prior mortgagee and that he is entitled to set up this prior mortgage as a shield against the subsequent mortgagee. The decision of this question depends on the interpretation of Section 92 of the Transfer of Property Act, which was inserted in that Act by the Transfer of Property Amendment Act (20 of 1929), which came into force on 1st April 1930. Para. 3, S. 92, runs as follows:
A person who has advanced to a mortgagor money with which the mortgage has been redeemed shall be subrogated to the rights of the mortgagee whose mortgage has been redeemed, if the mortgagor has by a registered instrument agreed that such, person shall be so subrogated.
2. Both the lower Courts have held that as there was no registered agreement that defendant 4 should be so subrogated his claim for subrogation must fail. Defendant 4 however relies not on that paragraph but on the first paragraph which runs as follows:
Any of the persons referred to in S. 91 other than the mortgagor and any co-mortgagor shall, on redeeming property subject to the mortgage, have, so far as regards rede ??? foreclosure or sale of such property, the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any other mortgagee.
3. Defendant 4 was undoubtedly one of the persons referred to in S. 92, which includes any person (other than the mortgagee of the interest sought to be redeemed) who has any interest in, or charge upon, the property mortgaged, or in or upon the right to redeem the same. Defendant 4 also redeemed the property subject to the mortgage. On the plain interpretation of S. 92 then defendant 4 would appear to have the same rights as the mortgagee whose mortgage he re-deemed against any other mortgagee.
4. It has been urged that this paragraph is subject to para. 3, but there is nothing in the section to suggest this, and para. 3 appears to be clearly intended to apply to persons who have advanced money to redeem a mortgage without themselves having acquired any interest in the mortgaged property. In his Law of Transfer in British India, in commenting on para. 3, S. 92, Sir Hari Singh Gour states in para. 2333, Vol. 2, Edn. 6.
A person who has purchaser the equity of redemption need not take the writing since his right to subrogation would accrue under para. 1,
and in my opinion this is the only possible interpretation of that paragraph. It has however been argued that defendant 4 in paying off the mortgage debt due to the co-operative society was only discharging a liability that he had undertaken and that by the performance of his own obligation he acquired no right of subrogation. For this proposition reliance has been placed on several cases, of which I may mention 1932 PC 99(1) and 62 Cal 677(2). Both these decisions however arose out of suits that were filed before Act 20 of 1929 came into force. The law as it now stands was discussed by a Full Bench of the Allahabad High Court in 54 All 897(3). In the course of that judgment at p. 901 the learned Judges remarked:
The doctrine of agency has much to be said against it. To start with, there does not appear to be any difference in principle between a case where a purchaser or a third mortgagee advances some money to the vendor or the mortgagor, as the case may be, and then pays off the first mortgage and the case where a purchaser or a third mortgagee professes to take the transfer for a larger sum than in the earlier case and keeps with him the money needed for paying off the earliest mortgage and actually does not hand over the money to the vendor or the mortgagor but uses the money to pay off the first mortgage. It is conceded that in the first case a subrogation does arise, but it is denied that it arises in the second case. The principle of subrogation has been brought into existence on the ground that the person who has discharged a burden should not lose the money spent on discharging the burden, and a subsequent mortgagee who has contributed nothing to discharge the burden should not have the benefit of the discharge for which he has not contributed.
5. Further on they observed:
Section 92, as it now stands after the amendment of 1929, does not recognise any doctrine of agency. It is couched in the simplest, widest and clearest language possible.
6. The doctrine of agency was also rejected in 30 NLR 164(4) where Niyogi, A.J.C, remarked at p. 169:
It is however contended that in agreeing to discharge the first mortgage the party paying off the charge simply acted as an agent of the mortgagor. He would indeed be an agent if the money which went to the discharge of the first debt belonged to the mortgagor. If the mortgagor was entitled to receive unconditionally Rs. 1,459-0-0 as the other sum of Rs. 791-0-0 so that he could do whatever he liked with it, then of course the money could be treated as belonging to the mortgagor and the paying encumbrancer discharging the prior mortgage with the amount of Rs. 1,459-0-0 paid by the mortgagor could be regarded as his agent. But when the amount of Rs. 1,459-0-0 was specifically set apart foe the redemption of the first mortgage, that sum cannot be treated as absolutely belonging to the mortgagor, for even, if he had himself take money he would have beau bound to apply it to the discharge of the first mortgage.
7. Subrogation is of two kinds, legal and conventional. Legal subrogation takes place by the operation of law when a mortgage-debt is paid off by some person who has an interest to protect. Conventional subrogation takes place when the person who pays off the debt has no interest to protect but advances the money under an agreement that he will be subrogated to the rights of the creditor so paid. The law relating to legal subrogation is now contained in para. 1, S. 92, and the law relating to conventional subrogation in para. 3. I hold that defendant 4 is entitled to claim subrogation under para. 1, S. 92, on the ground that he was one of the persons referred to in S. 92 and that he did in fact redeem the prior mortgage. The appeal is therefore allowed and the decree will be amended so as to make the plaintiff's right to foreclose conditional on his payment of Rs. 174-11-0 to defendant 4. The plaintiff must pay the costs of defendant 4 throughout. I fix 18th February 1936 as the date by which payment must be made.
R.M/R.K
8. Appeal allowed.