1. Though the right of the plaintiff' to call upon Jivraj Ratansi to execute a legal mortgage of the property, described or referred to in the agreement of 11th August 1865, depended on the plaintiff making a further advance of Rs. 27,000, to complete the Us. 65,000 agreed to be advanced, yet the deposit of the title deeds, though coupled with the expression in the agreement of the purpose of such deposit, as being to enable the plaintiff to get a proper mortgage-deed prepared, would, having regard to the fact that Rs. 38,000 had been already advanced on account of the Rs. 65,000, amount in law to an equitable mortgage to secure the Rs. 38,000, so far as concerned the property comprised in the deeds deposited or any of them: Keys v. Williams 3 Y. & Col. 55, Hockley v. Bantock 1 Russ. 141.
2. Upon, or shortly after, 11th August 1865 the plaintiff delivered the agreement and the title-deeds so deposited with him by Jivraj Ratansi to his (the plaintiff's) solicitors. He appears to have been advised by them that the title-deeds were not in order,--in this respect particularly, that there was difficulty in identifying the properties mentioned in the agreement of 11th August 1865, or at least some of them, with the properties mentioned in the title-deeds, and it was arranged that the deeds should be handed back to Jivraj with the view of clearing that difficulty. The plaintiff states that thereupon --the exact date, however, is not fixed--he told Jivraj Ratansi that he had been advised that the papers were not proper, or in order. He states that he said to Jivraj Ratansi, 'You should, therefore, bring other papers. He said he would bring other papers. After this conversation, the same or the following day, the deeds were given back to Jivraj's partner, Amarji Hemji. Amarji was told the papers were not complete, or proper; that he should bring others, complete, or proper; and that thereafter a further sum of money should be paid.' Amarji Hemji states that he received back the title-deeds 10 or 15 days after the execution of the writing, i.e., after 11th August 1865. All that this witness recollects as having been said to him on the occasion of giving back the deeds is, 'The papers are not proper. Do you give them over to your master (i.e., Jivraj Ratansi). 1 was not told in what respect the papers were not proper.' So the matter remained. No steps appear to have been taken by the plaintiff to cause Jivraj Ratansi to clear up the difficulties considered to exist, or to furnish further and better title, and the balance of the Rs. 65,000, viz., Rs. 27,000 was never advanced. The deeds so returned remained with Jivaraj Ratansi, and the agreement of 11th August 1865 with the plaintiff's solicitors. The inaction of the plaintiff is, I think, reasonably explained by the circumstance that, during the latter part of August and the month of September 1865, his attention was taken up with a serious criminal charge which had been brought against him, and on which he was committed for trial to this Court, and on 30th September 1865 he was convicted and sentenced to transportation. The assertion of a still existing right to an equitable mortgage, over the property to which the agreement of 11th August 1865, and the title-deeds deposited but returned, as agreed, purported to relate, seems to have been first made about November 1866, and then by the Government Solicitor, who, on behalf of Government, was engaged in procuring the execution of that part of the sentence, passed on the plaintiff, which ordered that the rents and profits of his moveable and immoveable property should be forfeited to Government during the period of transportation. In fact, Vallu Jairaj, the brother of the plaintiff, who, after the plaintiff was removed in February 1866 to the Andamans, acted as his attorney, does not seem to have been aware of the existence of the agreement of 11th August 1865, or of the deposit and return of the title-deeds, till about October or November 1866, though he had become aware from the plaintiff's account books of the advances to Jivraj Ratansi of the sums of Rs. 15,000, Rs. 15,000, and Rs. 8,000. The plaintiff states that he was able and willing at any time to have made the further advance of Rs. 27,000, making up the sum of Rs. 65,000; but that previous to his conviction and confinement on 30th September 1865, Jivraj Ratansi never applied for the same.
3. On 3rd September 1866 Jivraj Ratansi conveyed to the late Bank of Bombay (amongst other things) the premises against which the alleged equitable mortgage of the plaintiff is, by this suit, sought to be enforced, by way of mortgage, to secure the sum of Rs. 26,355 then due and owing by the said Jivraj Ratansi to the said Bank, with interest at 10 per cent, per annum, and the plaint states that he deposited with the Bank the title deeds of the said premises. It is not alleged in the plaint, nor is there a particle of evidence to show, that the Bank of Bombay, when they took the mortgage of 3rd September 1866, had notice, actual or constructive, of the alleged equitable mortgage of the plaintiff; and it will have been observed that the plaint itself states that on that occasion the title-deeds were delivered to them by Jivraj Ratansi.
4. In the month of February 1867 the Bank caused the premises so mortgaged to them to be put up for sale by public auction, under the power in that behalf contained in their mortgage-deed. At the auction, which was held on 15th February 1867, a notice was read aloud, and explained to those assembled at the sale, on behalf of the Government Solicitor, to the effect that the properties in Kazi Sayad Street, Nos. 8 and 9, then put up for sale, were subject to a lien, under the said agreement of 11th August 1865, and then vested in the Secretary of State, for the sum of Rs. 38,000 advanced by the plaintiff to Jivraj Ratansi, and interest. It is stated in evidence that one Sundardas Mulji and the defendant Gokuldas Madhavji were (amongst others) present at the said auction. As to Sundardas Mulji, there is no contradiction of the statement that he was present. The presence of Gokuldas Madhavji, however, at this auction which is deposed to by Vallu Jairaj, the brother of the plaintiff, and by Keshavji Jadhavji, (who, though subpoenaed on behalf of the defendant Gokuldas Madhavji, and who is a maternal uncle of the plaintiff, was not called by either of the parties, but was called and examined by myself) was denied by the defendant Gokuldas Madhavji. Though I should be disposed to believe, in the circumstances of the case, had it been necessary to decide the point, that the defendant Gokuldas Madhavji was present at this sale, yet, for reasons which will hereinafter appear, it is not necessary to express any decided opinion on this matter. The sale, owing probably to the reading of the said notice, was not proceeded with.
5. On 24th April 1868 the Bank of Bombay, in exercise of their power of sale, conveyed the property in question in this suit to Sundardas Mulji in consideration of Rs. 4,000, and in this conveyance the trustees, under Act XXVIII of 1865, of Jivraj Ratansi & Co., joined. Now, whether or not Sundardas Mulji was present at the abortive auction of 15th February 1867, and heard the notice read, the evidence shows clearly that, before he completed his purchase, he had notice that Government, on behalf of the plaintiff, and as being interested in the rents and profits of his estate, claimed to have a lien, or charge, on the property, to secure the Rs. 38,000 advanced by the plaintiff to Jivraj Ratansi.
6. On 20th February 1872 Sundardas Mulji, in consideration of Rs. 7,000, conveyed the premises in Kazi Sayad Street, the subject of this suit, to the defendant Gokuldas Madhavji.
7. The case of the plaintiff, therefore, stands thus: He is entitled to an. equitable mortgage on the house No. 9, in Kazi Sayad Street, the legal and apparent owner of such house being, at the time of the making of such equitable mortgage, the defendant Jivraj Ratansi. Jivraj Ratansi fraudulently avails himself of the fact of having received back the title deeds, for the purpose of clearing up the supposed difficulties in his title, to mortgage the property to the Bank of Bombay, by a legal conveyance. The Bank of Bombay have no notice, at or before the time their mortgage was executed, of the fraudulent conduct of Jivraj Ratansi, or of the claim of the plaintiff or the Government to have a charge in equity on the property, and they receive from Jivraj Ratansi the title-deeds of the property. The Bank, in April 1868, sell and convey the property, for a valuable consideration to Sundardas Mulji who, however, had notice of the plaintiff's claim, and Sundardas Mulji, in February 1872, sells and convoys the property for a valuable consideration to the defendant Gokuldas Madhavji, who also, according to the plaintiff's case, had notice of the plaintiff's claim, by reason of his (the said defendant's) presence at the auction of February 1867. There is no other fact in evidence, except this alleged presence of Gokuldas at the auction, which goes to prove that, when he purchased from Sundardas in February 1872, he had notice of the plaintiff's claim. If, then, as he states himself, he was not present, the case of the plaintiff falls at once to the ground, as he would in that case be entitled to rely on the position of being himself a purchaser for valuable consideration without notice. I am of opinion, however, that, even assuming the other alternative, which the plaintiff contends for, viz., that Gokuldas was present, to be true, the case of the plaintiff must fail, and for the following reasons:
8. The ground of the rule of equity, that a purchaser of property, though for valuable consideration, and taking the legal estate, yet with notice of the prior right of a third person, purchases subject only to the right of which he so had notice, is placed by Lord Hardwicke in the leading case of Le Neve v. Le Neve 1 Amb. 436 on this, that the taking of a legal estate, after notice of a prior right makes a person a mala fide purchaser; that there is a kind of fraud on his part in this, that, knowing that a prior purchaser has the clear right to the estate, he takes away his right by getting the legal estate. The Lord Chancellor states further that fraud or mala fides is the true ground on which the Court is governed in cases of notice.
9. The earlier cases on the subject were chiefly cases where one conveyed the legal estate in landed property to another, by way of sale, mortgage, or settlement in consideration of marriage, but which property he had previously conveyed or charged, in favour of a third person, by a mode which, for want of a formal deed, or other defect, did not pass the legal estate. There the second purchaser, mortgagee, or object of the settlement, though taking the legal estate, which had not previously passed from the vendor or settlor, and though giving a valuable consideration, yet was held to take the legal estate, only subject to any right of such third person of which he had notice at the time of paying the consideration or taking the conveyance. The act of the vendor or settlor, in conveying or charging property he had already conveyed or charged in favour of a third person, was held to involve a fraud on the right of that third person; and one who accepted a conveyance or charge from the vendor or settlor with notice of such prior right, though taking the legal estate, and giving valuable consideration, yet, by reason of the notice he has had of such prior right, was treated as an accomplice in the fraudulent conduct of the vendor or settlor, and as holding his estate subject only to the right of which he has had notice. But where a person for valuable consideration accepted a conveyance or charge, without any notice of the right of a third person, which rendered the act of the vendor or settlor in conveying or charging the property a fraud in contemplation of law, then, though the vendor or settlor may be guilty of a fraud, the purchaser is not his accomplice, and Courts of Equity have seen no ground for interfering with the position of advantage which his holding of the legal estate confers upon him, namely, the right to the possession, enjoyment, and disposal of the property. I say disposal, as it would he a very insufficient protection of such a purchaser's right to say he may hold the property undisturbed, but may not dispose of it to the best advantage. In other words, such a purchaser's conveyance to another of the legal estate, with its attendant advantages, is no more a fraud on the right of the third person, of which right he had no notice when the property was conveyed to him, and that, too, though he may have received notice of such right after his acquisition of the property, than was the acquisition itself by him of the property. And it is well settled that such a purchaser has the right to convey to one who, at the time of the property being conveyed to him, has notice of the right of the third person. In other words, though having notice, he protects himself by reason of taking from one who had no notice, and this by the necessity of protecting the right of free disposal by the latter. It may be considered that, though having notice, such a purchaser does nothing fraudulent in accepting what his vendor had a right to convey. The ground, however, generally given for the principle that a purchaser with notice is entitled to protect himself under a conveyance from one who had no notice, is the very practical one already referred to; that to hold otherwise would be, possibly, seriously to impede, or even wholly to prevent, the bona fide purchaser without notice from disposing of his property at all. Though, so far as appears, the precise question arising here, whether a purchaser with notice from one who also had notice, but had purchased from one who had no notice, is to be protected, as was his immediate vendor, by the right of the first vendor, has not arisen, yet I am of opinion, on a consideration of the authorities (many of which are cited in the notes to the case of Le Neve v. Le Neve 2 Wh. & Tud. 28 that the ground on which a purchaser with notice is allowed to protect himself by reason of having purchased from one who had none, viz., the securing to the purchaser without notice the full benefit of what he had innocently acquired, must be held to protect a subsequent purchaser, however remote, though having notice. I think the proposition in Kerr on Fraud, p. 253, though not, of course, in itself an authority, is supported by the, principles on which the cases on this branch of the rules as to notice are based, the proposition, namely, The bond fide purchaser of an estate for valuable consideration purges away the equity from the estate in the hands of all persons who may derive title under it, with the exception of the original party whose conscience stands bound by the meditated fraud. If the estate becomes re-Vested in him, the original equity will attach to it in his hands. 'The case of Cartel v. Carter 3 K. & Joh 617, which in Bates v. Johnson (Johns. 316) is further observed upon and adhered to by the learned Judge who decided it, though not considered satisfactory by at least one of the Judges of appeal who decided the case of Pikher v. Rawlins L.R. 7 Ch. Ap., 259, was a peculiar one. It was not concerned with the question what protection is to be given to an assignee, proximate or subsequent, from a purchaser without notice: and, even if it cannot be said that the authority of the decision has been disclaimed by the Court of appeal, it is one of so peculiar a character, that it cannot, in my opinion, govern the present case, which appears to be governed by well-settled rules and principles.
10. Without, therefore, expressing any opinion on several other points raised in defence, I am of opinion that, assuming that the defendant Gokuldas Madhavji had, at the time of his purchase, notice of the plaintiff's equitable mortgage, yet that, deriving title under the Bank of Bombay, who were purchasers for value without notice, he holds the property in question free from the alleged right of the plaintiff as equitable mortgagee under the deposit of title-deeds of August 1865. The decree is that the plaintiff's suit be dismissed with costs.