1. This appeal arises out of a suit filed on foot of a mortgage, dated 7th April, 1923 executed in favour of the plaintiff by Sengoda Goundan, father of defendants 1 to 3. The fourth defendant was impleaded as he purchased the mortgage properties in an auction sale held in execution of a money decree obtained against the mortgagor and is in possession. Defendants 1 to 3 did not contest the claim. The fourth defendant raised various defences. First, he pleaded that the suit mortgage bond was not supported by consideration and that it was a collusive transaction between the mortgagor and the plaintiff who was his near relation, intended to screen the properties as the mortgagor was then heavily indebted. Secondly he pleaded that besides the plaintiffs' mortgage there were two prior mortgages which were paid off by him and that he is entitled to priority by reason of such payment over the suit mortgage. These two contentions are made the subject of two issues. The first issue was found in favour of the plaintiff but the second issue was found in favour of the fourth defendant and a decree was accordingly passed, providing for the priority in respect of the payments made by the fourth defendant towards the earlier mortgages. The fourth defendant has filed this appeal. In appeal he repeats his contention that the suit mortgage bond was nominal and was not supported by consideration. He raised certain questions of detail in the working out of the priorities which will be referred to later on.
2. Taking up the first question, vis., whether the suit bond was supported by consideration we see no reason to differ from the conclusion of the learned trial Judge. [His Lordship dealt with the evidence and concluded :] The result is that the first contention in appeal fails.
3. Coming to the second contention, the first point argued is that the fourth defendant is entitled not merely to the amount paid in respect of the prior mortgages but is also entitled to the sums due on the original mortgages which were discharged by him though by payment of a smaller amount; in other words that he is entitled to the benefit of any remission given by the two mortgagees. It is unnecessary to discuss this question at any great length because no such point seems to have been raised in the lower court. The learned Advocate for the appellant now refers to a registered receipt which shows that so far as the first mortgage was concerned, viz., Ex. Ill, the actual sum due at the time was more than Rs. 900 but that a portion was given up and the mortgagee gave a full discharge on receipt of Rs. 900 only as shown by the endorsement in Ex. III. But this receipt was never proved in the lower court and never exhibited. It was not before the learned trial Judge and no complaint is made in the grounds of appeal in connection with its not being exhibited. That being so, we must disallow this ground.
4. Another ground taken in appeal is that the interest allowed to the plaintiff in the lower court was penal and excessive.
5. This again was not made the subject of an issue in the court below and does not seem to have been raised there. This also is therefore disallowed.
6. The next point argued before us is that the 'fourth defendant should be allowed interest on the sums he paid up to the date of payment. He purchased the suit properties in court auction for Rs. 850 subject to the three mortgages, viz., the plaintiffs' mortgage and the two earlier mortgages, viz., Ex. II. There are two items of suit property. The first item was purchased for Rs. 550. It was subject to all the three mortgages. The second item was purchased for Rs. 300. It was subject only to the plaintiffs' mortgage. The point raised by the appellant now does not concern the second item but concerns only the first item. The facts relating to the payment of the mortgages over the first item are these. The fourth defendant has paid off the whole of the first mortgage and is certainly entitled to priority in respect of that payment. As to the second mortgage the plaintiff paid Rs. 100 and the fourth defendant paid the rest of the amount and they are entitled to rank equally in respect of these payments without any priority as between them but they will be entitled to priority in respect of these payments over the suit mortgage. The question now raised is whether the fourth defendant is entitled to add the interest on his payments up to the date of payment. The learned Advocate for the appellant relies on Ayyareddi v. Gopalakrishnayya (1920) 12 L.W. 101. The head-note seems to support him but on an examination of the facts of the case what the actual decision is is not very clear. One complication in that case is that the crops also were mortgaged to the second mortgagee. This does not mean anything unless the land was mortgaged with possession to the second mortgagee for if there was no possession, the mortgage of the crops would be futile. Anyhow whether he had possession or not he obtained a decree. That decree was paid off by defendants 4 to 7. At that stage the only right of defendants 4 to 7 is by reason of subrogation to get the amount paid with interest but accounting for such portion of the profits of the land as did not represent the proportionate part referable to the purchase money they paid. The contention that the contesting defendants in that case are not entitled to any interest at all is certainly not sustainable. All that could have been asked was that a fraction of the profits must be given credit to but the contention does not seem to have been raised in that form. The argument was that the contesting defendants were not entitled to any interest at all by reason of the enjoyment of the profits. In that form the contention was disallowed, but I do not think that the case can be regarded as an authority for more than this. The learned Advocate for the appellant also relied on Ghose on Mortgage, 5th Edition, page 556. The learned author observes:
If the sale effected a transfer of the mortgagor's estate though subject to encumbrances, the purchaser would not be liable to account as mortgagee in possession because he would then stand in the place of the owner.
7. In our opinion this passage has nothing to do with the point now in question. That does not relate to a case where the purchaser has afterwards paid a prior encumbrance and claims interest on it. All that the passage says is that he is not bound to account like a mortgagee in possession. So understood one can take no exception to it. But the point that now arises is where such a purchaser pays off a prior encumbrance and claims interest on his payment whether he is not bound to account for a portion of the profits. The passage relied on does not touch on this question. When a person purchases property worth, say, Rs. 5,000 subject to an encumbrance of Rs. 1,000, certainly he is entitled to one-fifth of the profits representing the return on the amount he paid and the other four-fifth of the profits as interest on the prior mortgage which he is expected to pay off. If after his purchase he pays off the prior mortgage he becomes the complete owner of the profits representing the return on both the payments, or if, on account of the existence of an intermediate mortgage there is no complete merger, one portion of the profits represents the return on the original price he paid and the other portion of the profits should go towards the interest on the payment he made towards the prior mortgage, i.e., he pays himself, he himself standing in the shoes of the prior mortgagee. If this portion of the profits amount to more than the interest due to him, it may be he need not account for the balance and to this extent the above passage in Ghose may support him. But that is not so in this case. Where the interest exceeds that portion of the profits, he should give credit to that portion of the profits and claim only, the balance of the interest.
8. The learned Advocate for the respondent relied on Bappu v. Venkatachalapathi Aiyar, Lakshmana Aiyyr & Sons : AIR1934Mad227 and the particular passage relied on is at page 611:
Even since the purchase under Ex. VII the purchaser and his successors have been in possession and enjoyment of the property covered by the sale deed. That being so, the claim for subsequent interest is obviously untenable. The third defendant would therefore be entitled to Rs. 200 alone and nothing for subsequent interest.
9. In cases where the profits received are more than the subsequent interest, this conclusion is correct and one must assume that in that case the profits as more than enough to cover the subsequent interest. Therefore subsequent interest was totally disallowed. But in cases where the portion of the profits not referable to the purchase money paid is not enough to pay the subsequent interest, the claim for subsequent interest should not be completely disallowed. The interest should be allowed but a deduction made on account of the fraction of the profits received. Vide Muthammal v. Razu Pillai I.L.R.(1917)Mad. 513. In the present case the fourth defendant paid Rs. 550 towards the first mortgage item. The item is about 10 acres and the profits must be much larger. Deducting roughly five per cent, as representing the return on the purchase money and substracting Rs. 27, the rest of the profits of the land must be deducted towards the interest which the fourth defendant claims for his payments towards the first and second mortgages. If he wishes to avoid the trouble of accounting for the profits, the best thing for him would be not to claim interest in which case he need not account for the profits. He is certainly not bound to account for any surplus profits after deducting the interest where the profits exceed the interest.
10. We make a decree accordingly, i.e., if the fourth defendant claims interest, he should account for the profits after deducting Rs. 27 1/2. We modify the lower Court's decree accordingly. The appellant has failed on the first point. The second point does not seem to have been raised in the Court below in the form in which it is now raised and he has not succeeded on it fully. He should pay the costs of the respondents and bear his own. The fourth defendant will have three months for electing whether he will claim interest.
11. In Clause 5 of the decree for the words 'the defendants' the words 'Defendants 1 to 3' will be substituted as the fourth defendant is not personally liable.