1. The vakil for the appellants has not attempted to support the sale deed, Exhibit A, before us; but has confined himself to arguing that the Subordinate Judge was wrong in refusing to allow his client a charge on the property to the extent of the money paid by him in satisfaction of the decree in O.S. No. 56 of 1906 which was brought on a mortgage executed by the owner of land, (the appellant's brother) in favour of one Raman Ambalagaram prior to Exhibit A.
2. The Subordinate Judge rejected this claim on two grounds:
(1) that the prayer for a charge is not maintainable in this suit brought primarily to enforce the sale under Exhibit A;
(2) that the plaintiff being a mere 'volunteer' cannot claim to be subrogated.
3. As regards the first, the Subordinate Judge depends on Kuttichettiar v. Subramania Chettiar I.L.R. (1909) M. 485. In the present case the plaintiff has in his plaint sued in the alternative for a declaration of his charge, and has taken an issue on it in the original court, while no objection was raised on the ground of misjoinder of causes of action. In such circumstances the ruling quoted appears inapplicable.
4. The second point requires fuller consideration. The principles on which the right of subrogation should be applied have been discussed at length by a Bench of the Calcutta High Court in Gurdeo Singh v. Chandrekat Singh and Chandrekat Singh v. Rash Behary Singh I.L.R. (1907) C. 193 and I cannot do better than quote the remarks of Mookerjee J. who has thus tersely summarised the matter.
The doctrine of subrogation is not applied for the mere stranger or volunteer, who has paid the debt of another, without any assignment or agreement for subrogation, being under no legal obligation to make the payment, and not being compelled to do so for the preservation of any rights or properties of his own.
5. In the present case there was no assignment or agreement and the only question is whether, in view of the facts of the case, the appellant can be deemed to have been under any legal obligation to discharge the decree in O.S. No. 56 of 1906, or whether he was obliged to do so for the preservation of any right of his own.
6. The facts are briefly these: On the 19th September 1900 the owner of the property, Raman Ambalagaram sold it to the plaintiff, who was his brother, under Exhibit A for a nominal consideration of Rs. 400. Of this Rs. 41-.8-0 is recited as paid in cash the balance was represented by the debts due by the vendor under a promissory-note and two hypothecation deeds which the vendee was to discharge. The Subordinate Judge has found this sale to be collusive and voidable at the instance of the defendant. Possession did not pass under it and not a pie of consideration was paid under it at the time till seven years later. So far as appears, it was a purely nominal transaction.
7. On the 16th December 1900 the plaint lands were attached by the defendant in execution of a decree against Baman Ambalagaram but they were not brought to sale till the 28th February 1908 when they were purchased by the defendant himself, the sale being confirmed on the 30th March 1908.
8. Meantime the mortgagees under one of the hypothecation deeds referred to in Exhibit A filed a suit (O.S. No. 56 of 1903 on the file of the Negapatam District Munsif) for the recovery of the amount due on the deed and the plaintiff was impleaded as a subsequent purchaser of the hypotheca. The result was a decree (Exhibit VI) dated the 19th March 1907. This directs the defendants in the suit to pay the plaintiffs in the same the amount due under the suit hypothecation bond with interest and costs, failing which the hypotheca were to be brought to sale in the usual way. It was represented to us that this decree makes the present appellant personally liable for the amount due under the hypothecation deed but a careful consideration of the document has convinced me that this is not the case. The decree is not drawn up in the form given in the schedule to the present, Code of Civil Procedure. But I feel no doubt that it was intended and understood as simply a decree for the realisation of the mortgage amount by sale of the hypotheca. It is specifically recited that the present appellant was impleaded only as a subsequent purchaser and it is obvious that, as such, he could not possibly have been held personally liable for the mortgage amount.
9. Subsequently, as appears from Exhibits E and F, the decree-holders took steps to bring the property to sale. The sale was however stopped on payment of Rs. 100 by the appellant on the 19th April 1907. The appellant made a subsequent payment of Rs. 50 and the decree was finally satisfied by a payment by the appellant of Rs. 205 on the 13th March 1908. This latter date, it may be remarked, is 14 days after the Court sale to the defendant, and 17 days before its confirmation. It is in respect of these payments that the plaintiff claims subrogation.
10. After careful consideration I think the Subordinate Judge was right in disallowing it. The plaintiff was neither under a legal obligation to make the payments nor had he any right of his own which it was necessary for him to protect. It cannot be held that he enjoyed any interest in the property by reason of the nominal and collusive sale deed, Exhibit A, executed 7 years before which had never been given effect to, and for which no consideration had ever passed.
11. The appellant's Vakil has relied on two cases Syamalarayudu v. Subbarayadu I.L.R. (1897) M. 143 and Palamalai Mudaliar v. The South Indian Export Company I.L.R. (1909) M. 334 as being cases similar to the present in which subrogation was allowed. But a perusal of the judgments in these cases shows that in each the person claiming subrogation ,was at the time of making payment a transferee of the property for valuable consideration. He may have been guilty of fraud or misconduct in connection with the transfer which might render it voidable at the instance of another party but he had paid consideration for the transfer and was possessed, at the time he discharged the mortgage, of a substantial interest on the property. The payments for which subrogation was claimed were necessary to protect that interest. This, as it seems to me, is a very real distinction between those cases and the present one.
12. I consider that the Subordinate Judge's decision was right, and would dismiss the appeal with costs.
13. The defendant is in possession of property purchased, in Court sale. The plaintiff claimed possession of the same property which he said had been sold to him prior to the Court sale on which the defendant relies. Alternatively, the plaintift claimed a lien on the property for the monies paid out by him (on the basis of his having been the valid purchaser of the property) in order to discharge a mortgage then subsisting on it. I agree that the case of Kutti Chettiar v. Subramania Chettiar I.L.R. (1909) M. 185 is distinguishable on the ground referred to by my learned brother. It has been found that the alleged purchase by the plaintiff was inoperative. The only question therefore is whether the plaintiff is entitled to a lien on the property for the sums so paid by him.
14. The alleged sale to, the plaintiff was by Exhibit A, executed on the 19th September 1900. The consideration for that sale purported to be Es. 400 made up of four items one of which was the payment off of the mortgage to which I have alluded and under which Rs. 190 were stated to be due on the property from the ostensible vendor of the plaintiff. It has been found that the plaintiff paid no portion of the consideration for the alleged sale at the time when Exhibit A was executed. In 1906 however, the mortgagee, instituted suit against the plaintiff and his ostensible vendor on the basis of the mortgage. A decree was then passed for the sums due on the mortgage, and the plaintiff who was the 2nd defendant in that suit discharged the mortgage claim by paying Rs. 355 which included Rs. 190 for the principal mortgage debt, about Rs. 45 for costs and the rest for interest on the said Rs. 190. I agree with my learned brother that on the true construction of the decree, the plaintiff was not bound personally to pay the amount of the decree but in the view, that I take of this case, that question is not of much importance and it may be assumed that the construction suggested by the plaintiff is correct and that the plaintiff permitted a decree against himself personally.
15. It is argued on behalf of the plaintiff that he is entitled to a charge on the property for the said sum of Rs. 355 by operation of the doctrine of subrogation, or by operation of the principle laid down in, or forming the basis of, Section 70 of the Contract Act. Hence, the question may shortly be stated to be whether under the circumstances of this case a nominal and collusive transferee without consideration, who being sued jointly with his ostensible transferor by a person holding a mortgage in the property, pays off the mortgage debt in satisfaction of the decree passed in favour of the mortgage, is entitled as against a subsequent purchaser for value to have a lien on the mortgaged property for the sum which he has so paid off.
16. It is necessary, in the first instance to point out that the plaintiff here claims to fix a charge on the property and his claim is not merely personal as against those with whom he had dealings, Sections 69 and 70 of the Contract Act do not refer to any charge or lien upon any property, and seem to contemplate at least primarily only a personal liability. No legislative provision contained in any Act was cited to us directly covering the point, but there are decisions of this Court which seem to recognise the right of subrogation in the wider sense in which it is understood in the Courts of the United States. Some decisions' of those Courts are referred to by Mookerji, J. in Gurdeo Singh v. Chandrikah Singh and Chandrikah Singh v. Rash Behary Singh I.L.R. (1907) Cal.193. It seems desirable to refer to the exposition of the law of subrog ation based on those decisions owing to the absence of any statutory.definition of the right, and inasmuch as the English authorities seem to contemplate mainly one form of subrogation, viz., the substitution of the insurer to the rights of the assured [see Smith's Mercantile Law, 10th Edition, pages 502, 503 and Encyclopaedia of Laws of England (Sub verb). Though subrogation was a creation of the Civil Law, it seems never to have been recognised to its full extent by the Common Law. See the Cyclopaedia of (American) Law and Procedure, Vol. 37, p. 365 citing Curante v. Eannaco 65 N.Y. App. Div. 435 : 72 N.Y. Sapp. 1048.
17. Subrogation in its wider signification has been defined 'as a substitution, ordinarily the substitution of another person in the place of one creditor, so that the person in whose favour it is exercised succeeds to the rights of, the creditor in relation to the debt. More broadly, it is the substitution of one person in the place of another, whether as creditor, or as the possessor of any other rightful claim. The substitute is put in all respects in the place of the party to whose rights he is subrogated.' See the Cyclopaedia of (American) Law and Procedure, Vol. 37, pp. 363, 364 citing Townsend v. Cleveland Fire Proofing Co 18 Ind. App. 568 : 47, N.E. 707 The right so defined ' does not necessarily rest on Contract or Privity, upon principles of natural equity, and does not depend upon the act of the creditor, but may be independent of him and also of the debtor.' It is, however, a purely equitable right, and ' there must, in every case where the doctrine is invoked, in addition to the inherent justice of the case, concur therewith some principle of equity jurisprudence as recognised and enforced by Courts of equity. Where the rights of subrogation exists it is subject to prior equities and all the rules of equity.'
18. It has been pointed out that one mode in which the question may be considered where the right of subrogation may be claimed, is to determine whether the person claiming it is a mere volunteer, or stranger : for if so then the right cannot-at least in the great majority of cases-be claimed. As I understand the law, the rule is merely a test for the application of the general principles stated above-being one aspect of the wider question whether subrogation can be claimed in the particular circumstances of the case-of principles of justice, equity and good conscience. That test may not be in some cases be conclusive, not the most convenient, or direct method of arriving at a decision. It may be that a person cannot be described as a stranger, and yet he may not be entitled to the right. There may be other cases (though they would be rare) where the right is given to a person who can be taken out of the category of a volunteer, if at all only by subtleties and fictions. Hence the determination of the question whether or not the person claiming subrogation is a stranger may often be a circuitous and uncertain means for arriving at a decision on the real point.
19. In deciding whether in any particular case it would be equitable to allow the right of subrogation, regard should in my opinion, be had to Sections 68 to 72 of the Indian Contract Act, which illustrate how relations - resembling those created by contract may arise subrogation (when it does not arise out of contract) creates such a relation. Regard should also be had to the recognised principles by which Courts of Equity are guided one of such principles material to the present case is that the party seeking the assistance of the court must come before it with clean hands.
20. The application of this general statement of the law to the facts of the present case will be best considered in connection with the decided cases in which the right of subrogation in the wider sense has been recognised.
21. Much reliance was placed on the case of Syamalarayudu v. Subbarayudu I.L.R. (1897) M.P. 143. There the owner of the property entered into two separate agreements to sell the property at different times with two persons. The later agreement was ante-dated by an illegal act of the plaintiff so as to make it appear that his rights had priority. It is argued that this case shows that a valid charge may be made upon property even by reason of payments made by a person who has been guilty of an illegal act for the purpose of depriving another of his right to purchase that property ; and that, therefore, payments made in satisfaction of a decree passed against a person who has taken a transfer of the property in his name (though without consideration) and who is subsequenty sued on the basis of his being the transferee of the property, have a greater claim to be considered as a charge upon the property after it is transferred to another purchaser. It seems to me, however, that one distinction between the case reported in Syamalarayudu v. Subbarayudu I.L.R. (1897) M.P. 143 and the present case is overlooked in this argument. In that case the liability of the rightful purchaser to pay the mortgage was established in the very suit in which the sale to him was upheld. When the rightful purchaser's rights in the property accrued, the property was still subject to the mortgage, which was discharged by the nominal purchaser, though is true that the object for so discharging the mortgage was to strengthen the colourable purchase. On the other hand, in the case with which we have now to deal, the person who is sought to be charged with the mortgage debt was not a party to the suit on the mortgage and he has had no opportunity of contesting its validity or effect. Again here the payment off of the mortgage debt, which was made long after the ostensible sale, was, in fact, a portion of the consideration for the sale. In the reported case the liability had been discharged apart from (though in one sense as a sequel of) the transaction vitiated by fraud, and it was explicitly held that the act of discharging the existing liability on the property, under the mortgage was an Act lawful in itself and that it did not form part of the fraud. Here a liability was purported to be taken upon himself by a person for the purpose of defrauding creditors, and it was only by discharging, or appearing to discharge that liability so taken upon himself that effect was given to the fraud this is the only payment made for giving colour to the nominal sale which has been found to be fraudulent. Where an act is in itself lawful and is quite distinct from the original fraudulent transaction, it may stand on a better footing than an act which forms part of the fraud : though the validity of acts of the former class may be impaired when their connection with the fraud is so close as to make them indistinguishable from those acts which form integral portions of the fraud, the question being one of degree.
22. Finally, in Syamalarayudu's case the purchaser had agreed to purchase subject to the mortgage, and he was not charged with a liability which he had not contracted to meet the result of subrogation in that case was that a liability which had existed between the rightful purchaser and the vendor was merely transferred in favour of a third party and such transfer did not put the rightful purchaser in any worse position than when he had contracted to purchase.
23. The next case on which reliance was placed was Palamalai Mudaliar v. The South Indian Export Company Limited I.L.R. (1909) M. 334. In that case also prior to the transfer in question there was a valid mortgage decree subsisting on the property not a personal decree againt the parties), and the sale, though it was held to be voidable at the instance of creditors, was not a. mere nominal transaction without consideration but the transferee had satisfied that decree so as to make the satisfaction endure to the benefit of the mortgagor and of his creditors.
24. The Court held (not without some debt) that the sale was voidable at the instance of the creditors inasmuch as it had the effect of defeating or delaying them, it followed therefore almost as a corollary that in so far as the sale had not delayed or defeated the creditors, but was actually for their benefit should be upheld.
25. Another head of argument on behalf of the appellant was that but for the payment off of the mortgage by the plaintiff, the defendant would have been liable to pay it off, that the defendant must be taken to have purchased the property subject to the mortgage, and that the plaintiff was entitled to claim from him the sum in respect of the liability for which the defendant was relieved by the acts of the plaintiff. But that does not seem to me to represent the true state of facts. The real question for us is whether, when the defendant purchased the property, there was any charge, subsisting in favour of the plaintiff or any one else against the property. In considering the question, it is clear that the case of both parties was that the original mortgage had been discharged and the property was held discharged from the mortgage; the plaintiff claimed to hold the property so discharged himself, and the defendant claimed that it was held by his judgment-debtor. It may be that in the Court sale in which the defendant purchased the property the biddings were lower than they would have been, had there not been these doubts whether the property did or did not belong to the plaintiff. But there was no question that the mortgage had been discharged. It has been now held that it did not belong to the plaintiff. The fact that the value of the property was depreciated by a fraudulent transaction to which the plaintiff was a party, seems to me to be no reason for assisting the plaintiff as against an innocent third party.
26. Considering the facts of this case broadly, it seems to me that as between the plaintiff and the defendant it would not be equitable to permit the plaintiff to have the discharge that he claims' and that to do so would be going beyond any decision to which our attention had been drawn.
27. I agree, therefore, that the appeal should be dismissed with costs.