1. This is a second appeal which raises a question which when properly understood, is not, to my mind, one of great difficulty. The suit is a suit by a mortgagee to enforce his mortgage by sale Defendant 1, Govind Prasad, is the mortgagor. Defendants 2 and 3, Bankey Lal and Mt. Ram Mukho, are mortgagees under the mortgage dated 18th August 1923 and are joined as defendants to the suit upon the footing of this mortgage being a puisne mortgage to that of the plaintiff. Defendant 4, Ram Charan, is also joined as a defendant to the suit upon the footing of his being also a puisne mortgagee under a mortgage dated 20th April 1923. It is with the priority of this mortgage dated 20th April 1923 that this appeal is concerned. The whole contest in the Courts below and in this appeal has been whether Ram Charan in respect of this mortgage is entitled to priority over the plaintiff's mortgage or not. Finally, the original mortgagee, Ratan Lal, who has transferred his mortgage to the plaintiff is made a party. I do not quite understand why he has been made a party but, for whatever reason it may have been, he is to be found as defendant 5 to the suit.
2. On 21st January 1923 Govind Prasad executed a mortgage over the property in question to Ratan Lal to secure a principal sum of Rs. 400 and interest. This is the mortgage in dispute. On 20th April 1923 Govind Prasad executed a second mortgage in favour of defendant 4 that is to say, the present appellant to secure a principal sum of Rs. 225 and interest. On 5th July 1923 Govind Prasad executed a third mortgage in favour of Ratan Lal to secure a principal sum of Rs. 1700 and interest and, finally, on 18th August 1923 he executed a fourth mortgage in favour of Bankey Lal and defendant 3 Mt. Ram Mukho. Incidentally, Bankey Lal has died during the pendency of these proceedings. Now, it is necessary for me to explain in somewhat greater detail how the mortgage of 5th July 1923 came to be executed. The mortgage of 21st January 1923 is the one which the plaintiff is endeavouring to enforce in this suit. It is quite a 'simple mortgage and no comment upon it is necessary. It is, as I have already said, to secure the principal sum of Rs. 400 with interest. The mortgage of 20th April 1923 which is the mortgage set up in these proceedings by Ram Charan as being paramount to the plaintiff's mortgage, is also quite a simple document securing the principal sum of Rs. 225 and interest. When we come, however, to the mortgage of 5th July 1923, it is necessary to go into it at rather greater length. By this document the mortgagor Govind Prasad recited that its purpose was:
In order to pay up the debts described below and to meet household expenses, I have borrowed Rs. 1700...from Lala Ratan Lal...with interest at the rate 1/8 per cent, per month.
3. So the purpose of the arrangement which gave rise to the mortgage of 5th July 1923 was in order to enable the mortgagor to pay up his debts. There are then set out those debts of the mortgagor which it is the purpose of this fresh mortgage to 'pay up.' First come two items a small sum of Rs. 50 due to Ram Charan and then the sum due to that gentleman upon the mortgage of 20th April 1923, which with interest at that time amounted to the sum of Rupees 239-1-0. These two sums together came to Rs. 297-1-0 due to Ram Charan and this is what the mortgagor says about it:
The total amount of Rs. S297-1-O'due under both the documents' one of which is the mortgage of 20th April 1923 'have been left by me with the creditor' that is with Ratan Lal for payment to Lala Ram Charan above named.
4. There then follow a number of other liabilities on the part of the mortgagor to various other people and among these we find the mortgage dated 21st January 1923 to Ratan Lal himself. The deed recites a small sum of Rs. 34-2-6 due to Ratan Lal and then goes on to recite the mortgage for Rs. 400 dated 21st January 1923 upon which at that time Rs. 433 was due for principal and interest. The deed proceeds in these words:
The total amount due under the two bonds afore, said comes to Rs. 467-2-6. This amount is payable by me, the executant, and has been set of against the amount of this bond.
5. What happened, therefore, was this. Ratan Lal had been given a completely new mortgage to secure Rs. 1700. That Rs. 1700 was to be applied by the mortgagee in this way by retaining out of it sufficient to discharge all the prior encumbrances other than his own and by himself retaining out of it sufficient to discharge the encumbrances in his own hands, that is to say, those two to which I have just referred including the mortgage of 21st January 1927. When all those encumbrances had been discharged or satisfied, that would have left a balance of Rs. 71-12-6 in the hands of Ratan Lal and that sum was received by the mortgagor in cash. Now, there is this to be observed about that transaction. The scheme of it was that the whole of the prior encumbrances were to be wiped out of their existence by being satisfied. The mortgagee, Ratan Lal, by retaining the mortgage monies in his own hands instead of advancing them to the mortgagor and by undertaking out of them to pay off the various encumbrances and to satisfy his own, constituted himself a trustee of those monies to be applied to those purposes. If that had been done, and it was manifestly the intention of the parties that it should be done, the result would have been that the mortgage of 5th July 1923 would have remained as the one and only subsisting mortgage on this property and no question would ever have arisen. But what in fact happened was this: Ratan Lal, instead of paying off the encumbrances which he had undertaken to pay out of the monies he retained, left them unsatisfied and in particular he left unsatisfied the mortgage of 20th April 1923 in favour of Ram Charan which that gentleman is now endeavouring to enforce in this suit. If Ratan Lal had done what he ought to have done Ram Charan's mortgage would have been discharged in the year 1923 and we should have heard nothing about the question with which I am dealing in this appeal. In consequence of Ratan Lal's default, Ram Charan has not been paid off, and when in the present suit in the year 1940 he ventures to rely upon his mortgage he is met by Ratan Lal with the plea that he, Ratan Lal, is entitled to rely upon his own mortgage of 21st January 1923 in priority to that of Ram Charan. I will deal with the answer to that claim in a moment after I have related a little further the history of the matter.
6. On 16th November 1928 the mortgage of 21st January 1923 was transferred by Ratan Lal to the present plaintiff Raghubir Saran. On 24th August 1939 Ram Charan filed a suit to enforce his mortgage of 20th April 1923 and to that suit he made parties Ratan Lal and Mt. Ram Mukho as well of course, as the mortgagor, Govind Prasad. The present plaintiff, Raghubir Saran, was not made a party to that suit although the first mortgage had been transferred to him on 16th November 1928, In this suit Ram Charan set up as against the mortgagee under the mortgage of 21st January 1923 the same priority as he is setting up in the present suit and the Munsif who heard it determined that be was entitled to priority. There was then an appeal by Mt. Ram Mukho and a cross appeal by Ram Charan, but that appeal and cross appeal never came to fruition because the question was ultimately compromised as between Ratan Lal and Ram Charan by Ram Charan admitting that the mortgage of 21st January 1923 had priority to his mortgage of 20th April 1923. This, of course, was an exceedingly curious transaction because it was a compromise affecting the priority of the mortgage of 21st January 1923 entered into with a person who had no interest left in that mortgage at all. The real owner of that mortgage was the plaintiff, Raghubir Saran, and he was not a party either to the suit or to the compromise, although, be it said, be had made every effort to be joined as a party to those proceedings. Eventually, as a result of a Letters Patent appeal to this Court it was held that the compromise as between Ram Charan and Ratan Lal was an effective and a binding compromise.
7. Then this suit was filed on 21st August 1933. I have already explained the framework of the suit. It is a suit by Raghubir Saran as the owner of the mortgage of 21st January 1923 to enforce that mortgage in priority to Ram Charan's mortgage and also to that of Mt. Ram Mukho. It is quite clear, to my mind, on the pleadings that this suit is to enforce the mortgage of 21st January 1923 and nothing else although in the particulars of the mortgage on page 1 of the plaint I find the mortgage of 5th July 1923 is also included. It is quite clear from the amount of principal and interest claimed that the suit relates only to the mortgage of 21st January 1923 and I understand that this position is accepted by all parties. The material plea raised against the plaintiff is the plea by Ram Charan that his mortgage dated 20th April 1923 in the events which have happened has priority to the plaintiff's mortgage and that is the issue which has been tried in the Court below and which I have to try here.
8. Now, to my mind, the answer is a comparatively simple one. One has to bear clearly in mind what the transaction which I have already explained was between the parties. As I have said, it is abundantly plain that, broadly speaking, the whole intention of the arrangement which led to the mortgage of 5th July was to do away with all the prior encumbrances of what ever sort and kind, leaving the mortgage of 5th July as the only outstanding mortgage. Not only that, but the machinery for doing it was provided by leaving monies in the hands of the mortgagee who thereby constituted himself a trustee or at any rate covenantor for seeing that the transaction was carried through. Had the mortgagee done what he ought to have done, then Ram Charan's mortgage would have long since disappeared, as also the mortgage of 21st January 1923 would have long since disappeared, and Ratan Lal would have remained as the first and only mortgagee of the deed of 5th July 1923. The only reason that all this was not accomplished was that the mortgagee himself defaulted in doing what he covenanted to do, namely, to pay off the prior encumbrances and to treat his own as satisfied.
9. As far as the mortgage of 21st January is concerned, Ratan Lal held in his hands the money to satisfy both the principal and the interest due on it and be had covenant, ed to apply that money in that way. Now that it suits his convenience to have the mortgage of 21st January kept alive for his benefit, he is quite prepared to come to this Court and to plead his own default as the reason why the mortgage of 21st January was never paid off and to ask the Court to treat his own breach of covenant as a reason why that mortgage should be treated as being still in existence for his benefit. Ram Charan was, of course, completely unaffected by the arrangement which was come to by the deed of 5th July. His rights as mortgagee were not in any way impaired by it because it was not a bar to that arrangement. When Ram Charan, therefore, seeks to set up his mortgage, the plaintiff meets it by seeking to revive his own first mortgage which, but for his own breach of trust or his own default, would have been merged long ago in the mortgage of 5th July as it was intended to be. I can imagine nothing more opposed to every equitable principle, as I understand equitable principles, than to allow such a claim to prevail.
10. It has been suggested by the learned Additional Civil Judge of Moradabad that Section 92, T.P. Act, has some application to this case. But for myself, I cannot bring myself to think it has any application to the case at all. Section 92 refers to the right of subrogation which is acquired by a co-mortgagor and certain other classes of persons who redeem property from a mortgage for the benefit of other persons. Here the very thing that is being complained of is that Ratan Lal did not redeem the mortgage when he ought to have done. The outstanding fact is that the mortgage of 21st January never was redeemed and that the mortgagee, having money in his hands entrusted to him to do it, deliberately retrained from doing it. No question of subrogation arises. Nor, in my judgment, does Sec. 101, T.P. Act, in terms apply to this case, although I think its principles are very relevant to it. The principle underlying Section 101, T.P. Act, and of the section which the present one replaced is very well known. It is the old principle of equity, as it has been developed in England, that the union or merger of two estates will not be permitted to produce a result which is manifestly unjust to the parties bringing about that union or merger and which obviously they never intended. I do not refer to the well-known case inToulmin v. Streere (1817) 3 Mer 210 because even in England that case can no longer be taken to represent the law. But the principle is expressed in the equally well-known case in Adams v. Angell (1877) 5 Ch D 634. In that case is to be found the well-known passage in the judgment of Sir John Jessel:
Now in a Court of Equity it has always been held that the mere fact of a charge having been paid off does not decide the question whether it is extinguished. If a charge is paid off by a tenant for life, without any expression of his intention, it is well established that he retains the benefit of it against the inheritance. Although he has not declared his intention of keeping it alive, it is presumed that his Intention was to keep it alive, because it is manifestly for his benefit. On the other hand, when the owner of an estate in fee or in tail pays off a charge, the presumption is the other way, but in either case the person paying off the charge can by expressly declaring his intention, either keep it alive or destroy it. If there is no reason for keeping it alive, then, especially in the case of an owner in fee, equity will, in the absence of any declaration of his intention, destroy it; but if there is any reason for keeping it alive, such as the existence of another encumbrance, equity will not destroy it. So, in the case of a purchase, there is no doubt that the purchaser who pays off a charge, though merely equitable may have it assigned to a trustee for himself, and it will protect him against mesne encumbrances if there are any.
11. This is a principle which is well recognized and (see Elizabeth Thome v. Stephen Cann (1895) 1895 AC 11) in which it was applied without hesitation in the House of Lords. Nor is the principle unknown in India. It has been applied time and again in Indian cases as a measure of justice, equity and good conscience. Now, applying that principle here what is the result. Do we find an intention that the mortgage of 21st January should be kept alive? We find nothing of the sort. We find an expressed intention that the mortgage of 21st January should be destroyed and extinguished, because, but for the default of the predecessor-in title of the present plaintiff it would have been wholly unnecessary to keep it alive and it would have been actually and positively destroyed as it was intended to be. How therefore can the plaintiff now come to Court and claim on equitable principles that there was an intention that the mortgage be kept alive and that therefore he should now be given the benefit of its protection? There is an authority of this very Court which is, upon its facts and the principle which it applies, almost exactly in point here. It is the case in Lachman Prasad v. Lachmeshwar Prasad, ('22) 9 AIR 1922 All 76. In that case a mortgage was executed on 18th June 1908. On 25th August 1914 the mortgagor sold the equity of redemption In the mortgaged property together with certain other property to a person who, in effect, was the mortgagee. There, prima facie we should have a merger of the mortgaged property in the equity of redemption. The amount due on the mortgage was actually left in the hands of the purchaser who happened in that case not to be the mortgagee himself but to have been the mortgagee's father, it being a joint Hindu family. Exactly the same position therefore arose as in this case. The means to discharge the mortgage were left in the hands of the purchaser and there was an express intention that the money so left should be used for the sole purpose of discharging the mortgage and the learned Judges who decided that case held that the equitable principle of keeping alive a mortgage did not apply. They say:
Under existing circumstances when Bhairon Prasad covenanted to retain in his own hands out of the total purchase money of Rs. 30,000 a sum estimated as sufficient to pay off the mortgage of 18th June 1908 in favour of his own son, it seems to us that the trial Court was right in holding that the said mortgage was thereby paid off and extinguished.
12. Putting it in another way, it is only an application of another maxim of equity that equity will regard as having been done that which ought to have been done. Equity will, in my judgment, in this case regard the mortgage of 21st January as having been paid off and extinguished because it ought to have been paid off and extinguished and because it was part of the bargain that it should be. For these reasons, in my judgment, the plaintiff's mortgage cannot be allowed to have priority over the mortgage of defendant 4 Ram Charan. It has, I understand, already been determined that the mortgage of Mt. Mukho dated 18th August 1923 has priority both to the mortgage of Ram Charan and of the plaintiff. That position is, I understand, accepted by all parties. In my view therefore the proper result of this litigation is that there must be a declaration that as against the mortgaged property the priorities of the respective mortgages are, first the mortgage dated 18th August 1923 in favour of Mt. Mukho, secondly the mortgage dated 20th April 1923 in favour of defendant 4 Ram Charan and thirdly the plaintiff's mortgage dated 5th August 1923.
13. I shall accordingly allow this appeal and set aside the decree of the Court below. A fresh decree will have to be drawn up and in drawing that decree it should be prefaced by a declaration that the property in suit in the events which have happened, stands charged at the date of commencement of this suit with the following encumbrances in the following order of priority: (1) With the principal, interest and mortgagee's costs, charges and expenses secured by the mortgage dated 18th August 1923 in favour of Bankey Lal and defendant 3 Mt. Ram Mukho. (2) With the principal sum of Rs, 225 and interest and mortgagee's costs, charges and expenses secured by the mortgage dated 20th April 1923 in favour of defendant 4 Ram Charan. (3) With the principal sum of Rs. 1700 and interest and mortgagee's cost charges and expenses secured by the mortgage of 6th July 1923 in favour of Ratan Lal of which said mortgage the plaintiff, Raghubir Saran is now the transferee. The remaining part of the decree will, of course, follow the usual lines of a mortgage decree in a case in which there are decrees and encumbrances. The appellant is entitled to his costs of this appeal and in both the Courts below. I have been asked for leave to appeal under the Letters Patent, but I do not think it is a case which justifies it.