Charles Arnold White, Kt., C.J.
1. The facts are stated in the judgment of Sankaran Nair J. The learned Judge held that the plaintiff (I refer to the plaintiff-company as the plaintiff) could not claim priority as regards the sum of Rs. 1,600 odd, the amount of the further advance made by the plaintiff at the time of the execution of the mortgage of August 1903, (Ex. O) This finding was not contested by the plaintiff (the respondent). The question for us is : Was the learned Judge right in holding that as regards the sum of Rs. 1,080 odd, the amount remaining due from the mortgagor to the plaintiff at the time of the mortgage of August 1903, the plaintiff had priority over the fourth defendant - in other words, did the mortgage of August 1903 operate so as to extinguish the plaintiff's mortgage rights under the decree obtained by him in February 1900, (Ex. H.) nr the suit brought on his equitable mortgage of 1895? In September, 1900, i.e., after the plaintiff had got his decree on his equitable mortgage of 1895, the fourth defendant obtained a decree for sale (Ex. B) on a mortgage of the equity of redemption of the property in question which had been executed in June, 1899. This decree was executed by the fourth defendant who bought the property in execution. The sale was subject to the plaintiff's rights as mortgagee and in the fourth defendant's application for execution the plaintiff's rights were reserved.
2. There can be no question that before (Ex. O) was executed the plaintiff had priority over the fourth defendant as regards any balance remaining due to him under his equitable mortgage of 1895. Is (Ex. O) to be construed as a surrender of his mortgage rights as against the puisne encumbrancer (the fourth defendant), so as to convert the fourth defendant into a first mortgagee by virtue of his mortgage of June 1899, and relegate the plaintiff to the position of second mortgagee?
3. A document dated nth March 1902 (Ex. I) is in evidence, which is a notice given to the plaintiff on behalf of the fourth defendant of the decree obtained by the fourth defendant in September 1900 (Ex. B). The case for the plaintiff was that no notice which was legally binding on the plaintiff had been received. It does not seem to me to be very material whether the notice was received or not. If the plaintiff had no knowledge of an encumbrance, it is difficult to say that he intended to give that encumbrance priority over an earlier subsisting encumbrance in his favor. On the other hand the fact that notice had been received (if it was received) would render it unlikely that the plaintiff should have been content to surrender his mortgage rights as against the fourth defendant without consideration, or for a consideration which seems inadequate. The terms of the mortgage of 1903 may have been as between the mortgagor and the plaintiff more advantageous than those of the equitable mortgage of 1895. But this would not have compensated the plaintiff for the loss of his mortgage rights as against the fourth defendant. What the plaintiff purports to give up (by Ex. O) as against his mortgagor is all his rights under his mortgage decree of February 1900 (Ex. H) and under an agreement. The agreement is recited in the instrument as an agreement which had been sanctioned by the court, under which the sale under the plaintiff's decree was postponed on certain terms. The instrument contains a covenant by the mortgagor that he has power to convey free from encumbrances.
4. With regard to this question of intention I think the view taken by Sankaran Nair J. was right. The plaintiff gave up his right to sue on his mortgage of 1895, but he did not give up his rights as a secured creditor in respect of the unpaid balance which would of course include the right to set up his security as against the puisne encumbrancer. I do not think we ought to hold, as we were asked by the appellant to hold, that the rights of the parties were the same as if the mortgagor had paid off the plaintiff. It may be that, as suggested on behalf of the respondent, the form in which Ex. (O) was drawn was intended to meet the decision in Venkata Subramania Iyer v. Koran Kannan Ahmad I.L.R. (1902) M. 19. However this may be, the effect of Ex. (O) was unquestionably to put an end to the plaintiff's subsisting judgment-debt against his mortgagor, but the fact that the debt was extinguished leaves open the question whether the security was put an end to. The law is thus stated in Bawani Koer v. Mathura Prasad (1907) 7 C.L.J. 1 : 'As laid down by their Lordships of the Judicial Committee in Gokul Das v. Rambox , Mohesh Lal v. Bawan Dass and Dinobundo v. Jamaya , and by the House of Lords in Thorne v. Cann (1895) A.C. 11, and Liquidation Estates Purchase Co. v. Willoughby (1898) A.C. 321, the question whether a mortgage which has been satisfied is to be construed as extinguished or kept alive for the benefit of the person who makes the payment, is simply a question of intention to be determined with reference to the surrounding circumstances as they exist at the time when the mortgage is discharged. The principle upon which this doctrine is founded is that, although ordinarily when the interests of the mortgagor and the mortgagee are united in the same person it is not necessary for him to keep them distinct equity will keep them distinct, where from the intentions of the party either express or implied, it is for his benefit that they should be so kept. It depends upon the intention, actual or presumed, of the person in whom the interests are united, and this person will be presumed to intend that which is most to his advantage. Consequently, where the mortgagee institutes an action to enforce his security, proceeds to judgment, sells the premises, and purchases them himself, it does not necessarily follow that he intends that his title under the mortgage should merge in the equity of redemption.' This principle was recognized in In re Jenning's Estate (1885) 15 Ir. R. 277 where it was held that where an equitable mortgagee by deposit of title deeds took a bond to secure the same debt and entered up judgment thereon he did not thereby forfeit his security or defeat its priority. I may also refer to the judgment of this Court in Purnamal Chand v. Venkatasubbarayalu I.L.R. (1897) M. 486 and the judgment of the Calcutta High Court in Gopal Chander Sreemony v. Herembo Chundar Haldar I.L.R. (1889) C. 523. See too GHOSE on Mortgages, Vol. I, p. 475 4th Edn.
5. The decision in Ramakrishna Sadasiv v. Choth Mal I.L.R. (1888) B. 348 is no doubt in point and is an authority in the appellant's favour. But in the case before us I am not prepared to hold that it was the intention of the plaintiff to give up his mortgage rights as against the fourth defendant. The judgment in Commercial Bank of Tasmania v. Jones (1893) A.C. 313 no doubt lays down the general principle that a party may be entitled to the benefit of a contract which operates as a novation though he was no party to the contract. This, however, does not affect the rule that the law imputes to a person the intention to act according to his interest.
6. I think the learned Judge was wrong in holding that the plaintiff was entitled to redeem the fourth defendant in respect of the fresh advance made under Ex. (O) since this advance was made after the fourth defendant had obtained his decree for sale. Except as regards this, the appeal is dismissed. Plaintiff and fourth defendant will pay and receive proportionate costs.
7. These months from this date will be allowed for redemption.
8. I agree.