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Puligoru Subbarama Reddi (Dead) and anr. Vs. Palamkota Krishniah Chetti and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1939Mad718; (1939)2MLJ16
AppellantPuligoru Subbarama Reddi (Dead) and anr.
RespondentPalamkota Krishniah Chetti and anr.
Cases ReferredDinabandhu Shaw Chowdhry v. Jogmaya Dasi
Excerpt:
.....as the events turned out, it would have been better to have kept it alive. the court could well have presumed an intention in favour of the purchaser to keep the discharged mortgages in force......in mohesh lal v. mohant bawan das will be an authority for the position that it will be guruva reddi's money and a payment by guruva reddi will be a discharge by the mortgagor and therefore it will not be open to him to say that he kept those mortgages alive. if it be viewed as the money of the first defendant paid through guruva reddi who may be treated as his agent for the said purpose, certainly when the first defendant paid rs. 1,200 into the hands of guruva reddi, it was with the object of discharging both the mortgages. that the agent committed fraud upon him will not displace the intention of the first defendant in discharging the mortgages. therefore if the facts do warrant an inference of an intention not to keep the charge alive, the charge cannot be treated as subsisting.....
Judgment:

Venkataramana Rao, J.

1. This second appeal arises out of a suit to erfforce a mortgage dated 10th January, 1924, executed by one Ganji Guruva Reddi in favour of one Dhupam Gangakka. The said mortgage has now become vested in the plaintiff by two successive transfers. The interest of the mortgagor is vested in defendants 1 and 2 by purchase. The main question for decision in this appeal is whether the first defendant is entitled to have priority over the mortgage sued on in respect of two prior mortgage debts discharged by him, namely, one in favour of Kathi Chandra Reddi and another in favour of Dhupam Narayana Reddi. The learned District Munsif decided the question in favour of the first defendant, but the learned Subordinate Judge reversed his decision. It is against this decision that the first defendant has preferred this appeal.

2. The relevant facts are not in dispute. The owner of the suit property which formed the subject-matter of the several mortgages in question was one Ganji Guruva Reddi who effected the suit mortgage in favour of Dhupam Gangakka who transferred it in favour of her son Ramiah, who again transferred it in favour of the plaintiff. On the 17th September, 1925, that is, subsequent to the date of the suit mortgage, the said Guruva Reddi borrowed a sum of Rs. 1,200 from the first defendant partly by selling a portion of the mortgaged property and partly by mortgaging a portion of the mortgaged property to him. The transactions are evidenced by two documents, Exs. E and F. Ex. E purports to be a deed of sale for Rs. 800 and the purpose of effecting the sale is, thus stated in the deed:

Kathi Chandra Reddi having died, his heir and brother Venkata Reddi, the said Chandra Reddi's sons (1) minor Bhathi Reddi and (2) Yanadi Reddi, being minors, by guardian and junior paternal uncle the said Venkata Reddi, obtained a decree against me in O.S. No. 173 of 1924 on the file of the District Munsif's Court, Tirupati and executed the decree in E.P No. 374 of 1925. For paying the said decree amount and costs, etc., and for paying the mortgage-debts of Dhupam Gangakka and others, I have received from you this day Rs. 800 excluding the amount received under the hypothecation deed executed in your favour separately this day, and for this amount, I have this day sold to you the house and site, etc.

3. Ex. F purports to be a mortgage for Rs. 400 and the purpose for which the mortgage was executed is thus stated:

Kathi Chandra Reddi, having died, his heir and brother Venkata Reddi, and his minor sons, Bhathi Reddi and Yanadi Reddi, by guardian and junior paternal uncle the said Venkata Reddi brought O.S. No 173 of 1924 on the file of the District Munsif's Court, Tirupati, obtained a decree and is executing the decree in E.P. No. 374 of 1925. For paying the said decree amount, etc., and for paying the mortgage amount of Dhupam Gangakka and others, I have received this day in cash Rs. 400 excluding the amount received by my selling the house, etc., in your favour. I have become indebted to that extent.

4. It will thus be seen from the recitals in these two deeds that the same purpose is stated in both. It has been concurrently found by both the Courts that from and out of the sum of Rs. 1,200 advanced by the first defendant two mortgages were discharged, namely, (1) the mortgage in favour of Kathi Chandra Reddi which resulted in O.S. No. 173 of 1924 on the file of the District Munsif's Court, Tirupati and (2) the mortgage in favour of Dhupam Narayana Reddi the discharge of which was one of the purposes for which the suit mortgage Ex. A was executed. The first defendant's plea is that the suit mortgage was a nominal transaction and the successive transfers including that in favour of the plaintiff were fraudulent and collusive transactions and therefore not binding on him and that he having discharged admittedly the prior mortgages was entitled to priority in respect thereof. The contention of the plaintiff is that the money advanced by the first defendant was for the purpose of discharging the suit mortgage as well and he having failed to discharge it is precluded from setting up any claim to priority. It is conceded by Mr. Rajah Aiyar that Section 92 of the Transfer of Property Act as amended by Act II of 1930 would not apply to the case in view of some recent decisions which will be binding on me and that the law to be applied will be the law before the amendment. I therefore do not think it necessary to go into the correctness of the interpretation of Section 92 of the Transfer of Property Act placed by my learned brother Varadachariar, J., and myself in the Full Bench decision reported in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 29 Mad. 359 .

5. The mere fact of a charge having been paid off does not decide the question whether it is extinguished. If a person personally liable to pay pays it, it must prima facie be deemed to be extinguished. This will be the obvious case of the mortgagor because the mortgagor cannot set up his own encumbrance against any subsequent encumbrance which he himself has created. The principle underlying this is stated by Lord Justice Fletcher Moulton in Manks v. Whiteley (1912) 1 Ch. 735

The two encumbrances were created by the mortgagor and embodied obligations on his part to discharge the two debts, and therefore he could not be allowed to set up the fact that he had fulfilled the one obligation to-shield himself in any way from the performance of the other.

6. This principle is also extended to the case of a person 'who has assumed the duty of paying the debt either by a contract with the mortgagor or with those who have succeeded to his rights'. There may be an express covenant to pay the later mortgage also against which the prior mortgage is sought to be set up or it may be the case of the money being left in the hands of a purchaser or a mortgagee with directions to pay. In those cases the prior mortgage is deemed to be extinguished. Brown v. Stead (1832) 5 Sim. 535 : 35 R.R. 186 : 58 E.R. 439 and Govindasami Thevan v. Doraisami Pillai : (1910)20MLJ380 are cases where a purchaser or mortgagee covenanted to pay the debts. Narayanasami Naidu v. Narayana Rao (1893) 4 M.L.J. 17 : I.L.R. 17 Mad. 62 and Chidambara Nadan v. Muni Nagendrayyan : (1920)39MLJ445 are cases where the money had been left with a purchaser or mortgagee. It may be that in the case of such a purchaser or mortgagee the mortgages he discharged will be kept alive against an unknown encumbrance or a known encumbrance which he has not undertaken or was not directed to discharge. It is well settled that if the owner of an estate pays off a charge on the estate which he is not personally liable or under no obligation to pay, it is always open to him to extinguish it or to keep it alive and if no intention is expressed one way or the other, it is presumed that he intended to keep the charge alive. The intention to the contrary can be inferred from the terms of the purchase or mortgage-deed in cases where the purchaser or the mortgagee advances money for the purpose' of discharge or from legitimate evidence. Tested in the light of these principles, the question in this case is whether the contention of the first defendant is sustainable. There can be no doubt that though a sum of Rs. 1,200 was advanced under two separate documents they formed part of one transaction. They were both executed on the same date for one and the same object, namely, for the discharge of mortgages existing on the property. In fact the recitals in the document clearly show that one document refers to the other. The two documents may therefore be treated as one deed. The substance of the transaction is that a sum of Rs. 1,200 was intended to be advanced by the first defendant and received by Guruva Reddi for the purpose of discharging specific mortgages including the mortgage sued on. It was intended that the first defendant should get in the one case property free from encumbrances and in another a first mortgage on the property for the amount advanced. Therefore the intention as appearing from the terms of the document is clearly to extinguish all the mortgages including the mortgage sued on. There is no distinction made between one mortgage and another. If at all an intention should be presumed in favour of the first defendant, it must be to the effect that all the mortgages must be deemed to be kept alive against any unknown encumbrance and not that one mortgage should be kept alive against the other mortgage. The case really in my opinion is governed by the principle enunciated by me in my judgment in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359

Therefore, if as in this case, a person advances money or covenants to discharge three encumbrances, payment of two prior encumbrances cannot be availed of by him as a shield against the third.

7. The decision of the division bench of the Calcutta High Court reported in Surjiram Marwari v. Barhamdeo Persad (1905) 2 C.L.J. 288 is also in point. In that case a conveyance was executed for the purpose of discharging a mortgage in favour of one Narku Singh and also a mortgage in favour of the appellants therein. The evidence was that the mortgage in favour of Narku Singh was discharged but not the mortgage in favour of the said appellants. The question that arose was whether the vendees could claim priority in respect of the prior mortgages of Narku Singh. It was held that they could not. Mookerjee, J., after dealing with the case-law on the subject, proceeded to deal with the matter thus:

The deed recites that the property was conveyed free of the encumbrances in favour of the appellants and Narku Singh and that the vendors had received in full the consideration and by payment to the encumbrancers would get the property released from the mortgages. There was no reason for keeping alive either of these charges, as there was no other incumbrance intermediate in date between them and the conveyance. The intention, on the other hand, of the purchasers was to acquire the property free from these charges, the existence of which had been ascertained, and the amount due upon each had been carefully specified.... Along with this circum stance, we must take the recital that the creditors were, under the terms of the conveyance, to be paid by the vendors and not by the purchasers.... Under these circumstances, I find it impossible to hold that there was any intention on the part of the purchasers to keep alive the security in favour of Narku to be used a9 a shield against the security of the appellants, should any occasion arise.

8. Mr. Somayya attacks the correctness of this decision and also my observations in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 , on the ground that it is only in cases where a person advancing money covenants to pay the debt, he will be deprived of the benefit resulting from the payment of an earlier charge and not in any other case. He strongly relied upon the observations in Govindasami Thevan v. Doraisami Pillai : (1910)20MLJ380 , namely:

The rule as to subrogation only applies when the purchaser has not covenanted to discharge the previous encumbrance.

9. Mr. Somayya therefore argued that as the first defendant in this case has not covenanted to discharge any of the encumbrances and the obligation was undertaker by the vendors, it must be presumed that his client intended to keep alive the mortgages in favour of Chandra Reddi and Dhupam Narayana Reddi. Mr. Somayya relied also upon a number of other cases in support of his contention some of which I shall deal in the course of the judgment. In Govindasami Thevan v. Doraisami Pillai : (1910)20MLJ380 , the learned judges were dealing with a case where a person has covenanted to pay two mortgages but had only discharged one and in such a case they inferred that the intention could not have been to keep alive the first mortgage, the object being to discharge both. Any observations made by them must be, understood with reference to the facts they were dealing with. In fact they approved the decision in Surjiram Marwari v. Barhamdeo Persad (1905) 5 C.L.J. 288. The distinction contended for by Mr. Somayya has really no substance because the question in each case is what was the intention of the parties. In this case either the money with which Chandra Reddi and Narayana Reddi were paid may be taken to be the money of Guruva Reddi or the money of the first defendant. The decision in Mohesh Lal v. Mohant Bawan Das will be an authority for the position that it will be Guruva Reddi's money and a payment by Guruva Reddi will be a discharge by the mortgagor and therefore it will not be open to him to say that he kept those mortgages alive. If it be viewed as the money of the first defendant paid through Guruva Reddi who may be treated as his agent for the said purpose, certainly when the first defendant paid Rs. 1,200 into the hands of Guruva Reddi, it was with the object of discharging both the mortgages. That the agent committed fraud upon him will not displace the intention of the first defendant in discharging the mortgages. Therefore if the facts do warrant an inference of an intention not to keep the charge alive, the charge cannot be treated as subsisting because as the events turned out, it would have been better to have kept it alive. Mr. Somayya strongly relied upon the decision in Gokaldas Gopaldas v. Puranmal Premsukhdas to show that Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81 was considered to be wrong both in England and in India and therefore the legitimate inference is that if from the consideration money for a sale of property it was intended to discharge certain encumbrances and an earlier encumbrance was discharged but not a later one, the presumption must be that the earlier encumbrance should be deemed to have been kept alive as it would obviously be for the benefit of the purchaser. It seems to me that neither of the cases suggests this inference; on the other hand, the observations of Lord Herschell go strongly against the contention of Mr. Somayya. In Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, it was decided that a purchaser who took a conveyance purporting to be free from encumbrances could not set up a mortgage which had been paid off out of the purchase money against an encumbrance subsequent in date of which he had constructive notice. It will be seen from the terms of the transaction in that case that the parties intended to discharge two mortgages in favour of Welby and the annuity which was subsisting on the property was never intended to be discharged. The purchaser had neither covenanted to pay the annuity sued on nor was it intended that it should be discharged out of the purchase money. The Court could well have presumed an intention in favour of the purchaser to keep the discharged mortgages in force. But Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81 decided otherwise. Lord Herschell in explaining Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, indicated that that case may be justified on a certain view of facts; that is, that the purchaser intended to discharge all the encumbrances including the annuity and if so, the discharge of an earlier incumbrance would not entitle a purchaser to keep it as a shield against a later encumbrance. Lord Herschell remarks thus:

In Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, the owner of the equity of redemption had purchased the property with the intention of paying off all the mortgages upon it and thought all the mortgages had been paid off out of the purchase-money. One mortgage had been omitted; but so far from the intention there being to keep any of the mortgages alive, the intention was to extinguish all the mortgages and it was believed that such intention had been successfully accomplished. Thome v. Canon (1895) A.C. 11 .

10. Though in fact the annuity was not intended to be discharged Lord Herschell assumes that it must have been and on that view the decision may possibly be correct. If the above observations of Lord Herschell are applied to this case, it is clear that the first defendant had purchased the property and advanced money upon the mortgage with the intention of paying all the mortgages on it and thought that all the mortgages were paid off or would be paid off out of the purchase money, but the mortgage sued on had been omitted. Nevertheless as the intention was not to keep any of the mortgages alive, it would not be open now to the first defendant to set up the mortgages that had actually been discharged as shield against the plaintiff's mortgage. The case in Dinabandhu Shaw Chowdhry v. Jogmaya Dasi (1901) 12 M.L.J. 73 : L.R. 29 IndAp 9 I.L.R. 29 Cal. 154 was relied on. It will be seen from that case that the amount was advanced to discharge both mortgages and both the mortgages were discharged but still both of them were kept alive as against an unknown encumbrance, an attachment which was subsisting in that case. That decision is no authority for a case where one of the mortgages which was intended to be discharged had not been discharged and the vendors had spent away the money intended for it.

11. The conclusion of the learned Subordinate Judge is right whatever may be the reasoning on which it is based. I therefore dismiss the second appeal with costs.

12. Leave refused.


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