1. This is an appeal by the twenty-ninth defendant in a mortgagee's suit for sale. The plaintiff sued for sale on foot of a mortgage Ex. A dated 21st December, 1922, for a sum of Rs. 10,000. The twenty-ninth defendant was the holder of a mortgage(Ex. VIII) dated 19th July, 1922, for Rs. 5,000, but the amount due under this mortgage has been, from time to time paid up in the following manner; by a sale to the appellant himself under Ex. I dated 26th January, 1925, of some of the items comprised in the mortgage and certain other items for a sum of Rs. 3,250; again by a sale by the mortgagor's brother under Ex, XIII dated 8th February, 1925, for a sum of Rs. 3,500 out of which a sum of Rs. 2,500 was paid to the twenty-ninth defendant; and lastly, by a sale under Ex. II dated 21st December, 1926, by the mortgagor to the appellant for a sum of Rs. 3,075. It may be mentioned that between the dates of Ex. XIII and II, the twenty-ninth defendant had instituted a suit (O.S. No. 271 of 1926) for the balance then due under his mortgage after giving credit for the moneys received under Exs. I and XIIJ and it is the amount due under that decree that was satisfied by Ex. II.
2. In the present suit, the twenty ninth defendant claimed the benefit of S, 101 of the Transfer of Property Act in respect of the various mortgaged items of which he had become the purchaser. The lower Court allowed. him that benefit in respect of the properties covered by Ex. II but refused his claim in respect of the properties covered by Exs. I and XIII. This appeal relates only to the properties covered by Ex. I.
3. The reason given by the lower Court for negativing the plaintiff's claim in respect of the properties covered by Ex. I is that:
As the mortgage is not fully discharged, there can be no priority so far as Ex. I is concerned.
4. It is somewhat misleading to have the words 'subrogation','priority ', and 'keeping alive', indiscriminately used. For instance, in this case it is scarcely right to speak of the twenty ninth defendant's claim as one of priority in the strict sense, nor is it exactly one in the nature of subrogation. It seems to us that it is in terms covered by Section 101 of the Transfer of Property Act. The benefit of subrogation is ordinarily claimed by a person other than the prior mortgagee himself, on the ground that such person has discharged the prior mortgage. Here the claim is made by the prior mortgagee himself as against the puisne mortgagee. The section provides that any mortgagee may purchase or otherwise acquire the rights in the property of the mortgagor or owner, as the case may be, without thereby causing the mortgage or charge to be merged as between himself and any subsequent mortgagee and no such subsequent mortgagee shall be entitled to sell such property without redeeming the prior mortgage or otherwise than subject thereto. Prima facie, the case of the twenty-ninth defendant will clearly fall under the terms of the section. But the decision of the lower Court has been sought to be supported before us by the learned Counsel for the respondents on the ground that whether it is the case of a third party claiming subrogation or the case of a mortgagee claiming the benefit of Section 101, the principle is the same, namely, that it is only when the prior mortgage is wholly discharged by the particular transaction relied on, that such benefit can be claimed. That learned Counsel is of course right in his contention that it has been held in several cases both in this High Court and in the other High Courts that a right of subrogation cannot be claimed on the strength of a partial discharge of a prior mortgage. The question has arisen in a variety of circumstances and in some of them, the problem has been complicated by the difficulty of adjusting the rights of the prior mortgagee himself and of persons who paid off portions of the debts due to him if such equity is to be recognised in favour of the latter. It is not necessary for us now to say how far those cases may require reconsideration in the light of the observations of the Privy Council in Ayyareddi v. Gopalakrishnayya (1920) 46 M.L.J. 164 : L.R. 51 IndAp 140 : I.L.R. 47 Mad. 190 (P.C.). The language there used by their Lordships is clearly such as to entitle purchasers of the equity of redemption who pay off portions of a prior mortgage-debt to stand in the shoes of the prior mortgagee to the extent that they have so paid treating them as pro tanto assignees of the prior mortgage. The observations of Odgers, J., in Rajah of Kalahasti v. Venkatappa Nayanim Bahadur (1927) 27 L.W. 544 (F.B.) do not (it seems to us with all respect) explain away the clear language employed by their Lordships. There may be difficulties in giving effect to this doctrine in certain circumstances where the assignment or discharge is not fractional but relates only to particular items comprised in the mortgage security. Whatever those difficulties may be when a stranger invokes the benefit of the doctrine of subrogation, we do not think any such difficulty arises where the claim is made by the prior mortgagee himself under the terms of Section 101 of the Transfer of Property Act. In such a case the sale undoubtedly stands good as between the mortgagor and the prior mortgagee and operates as a payment of the mortgage-debt as between them. But the section provides that as against the puisne mortgagee the prior mortgagee will still be entitled to keep his prior mortgage interest apart from the mortgagor's equity of redemption now vested in himself. We do not see any difficulty in applying that principle to circumstances like those of the present case. How the equities between the prior mortgagee and thepusine mortgagee are to be worked out, in apportioning the liability as between the several items comprised in the mortgages and in the sale is a matter which the executing court can conveniently determine at the time that the properties are directed to be sold or the sale proceeds have to be distributed. But there is no reason why we should hold that the prior mortgage must be treated as extinguished for the benefit of the puisne mortgagee. We may also point out that in this case, at the time that the plaintiff filed his suit on Ex. A, the prior mortgage in favour of the twenty ninth defendant had been wholly extinguished and two of the payments were the result of transactions between the mortgagor and the mortgagee himself. Thus, the complications which may arise by reason of the intervention of the rights of third parties or when the prior mortgage is in part still outstanding do not arise for consideration in this case.
5. Mr. Sanakra Ayyar, the learned Counsel for the respondents raised a contention that by reason of what happened in O.S. No. 271 of 1926 the appellant is now precluded either by the doctrine of res judicata or by the principle underlying Order 2, Rule 2 C. P. C. from invoking Section 101 of the Transfer of Property Act. As stated already, O.S. No. 271 of 1926 was instituted by the present appellant in 1926. The plaint proceeded on the basis that as a result of Exs. I, and Ex. XIII large portions of the mortgage debt had been paid off and that only the balance had to be sued for. In paragraph 9 of the plaint it was stated that the items conveyed under Exs. I and XIII had become the property of the mortgagee and 'regarding those items the plaintiff does not require any relief in this suit'. The present plaintiff had been impleaded as the eighth defendant in that suit and he remained ex parte. A decree for sale was passed in respect of the balance then found due under Ex. VIII and for sale of the properties that still remained unsold. On these facts we are unable to agree that any plea of res judicata arises. This is not the case of a person whose priority was endangered by another's claim and who yet failed to put forward that priority as a defence. The then plaintiff was perfectly justified in treating the sale under Ex. I as good and operating as a payment of part of the mortgage debt. It was open to the puisne mortgagee to accept that as a good sale and until he chose to say that that sale should not operate to his-prejudice, the twenty ninth defendant had no reason to complain as against the puisne mortgagee or put forward a claim contingently upon the mortgage under E c. A claiming that Ex. I operates as an extinction of the mortgage for his own-benefit. On the state of facts that existed at the time O.S. No. 271 of 1926 was instituted that suit was rightly framed', and no question of the effect of Ex. I as against the present plaintiff was raised or need have been raised in that suit. There is aceecdingly no basis for the plea of res judicata.
6. The facts in Mohamed Ibrahim Hossain Khan v. Ambika Pershad singh (1911) 22 M.L.J. 468 : L.R. 39 IndAp 68 : I.L.R. 1911 39 Cal. 527 (P.C.) which was relied on in this connection were different. It was the case of a person who admittedly held a mortgage later in date than that of the plaintiffs in the previous suit and who was impleaded as such later mortgagee. He contended that he had a claim for priority because he had discharged a mortgage earlier in date than the plaintiff's. But that claim he failed to put forward as a defence in the suit. Their Lordships in those circumstances held that it must have been pleaded in that suit and not having been pleaded must be taken to have been negatived by virtue of the operation of the Rule of constructive Res judicata. The facts of the present case are not parallel.
7. Nor is there any force in the plea under Order 2, Rule 2 Civil Procedure Code. But we need not discuss the plea under Order 2, Rule 2, because the bar under Order 2, Rule 2 cannot in any event preclude the twenty ninth defendant from relying upon his rights under Ex. I as a shield when he is only the defendant in the suit.
8. The result is that this appeal is allowed and the decree of the lower Court modified by recognising the appellant's claim even in respect of the items purchased by him under Ex. h The plaintiff (respondent) will pay the appellants' costs in this Court. We do not propose to interfere with the lower Court's direction as to costs there. As indicated already, the extent to which the mortgaged properties included in Ex. I should be made liable to contribute for the appellant's benefit or the amount which the appellant will be entitled to be paid out of the proceeds in the event of those properties being brought to sale free of incumbrances, will be fixed by the executing Court.
Appeal No. 153 of 1932.
9. The Judgment of the Court was delivered by
10. This is an appeal by the second defendant, who is the son of a mortgagor, against the decree holding that the properties allotted to the son in a partition between the father and the son are also liable to be proceeded against on foot of a mortgage executed by the father. The binding character of the debt as against the son has been found by the lower Court in favour of the mortgagee and that finding has not been attacked before us. Nor has it been attempted to show that the circumstances in which the debt was contracted were not such as to justify a mortgage. The only argument urged before us turned upon the limits of the application of the doctrine of substituted security.
11. The relevant facts necessary to lead up to the question argued before us are the following. The first and third defendants were undivided brothers and the first defendant mortgaged certain items of property under the suit mortgage Ex. A. In a partition between the first and third defendants and the second defendant as a minor represented by his father, some of the items comprised in the mortgage fell to the share of the third defendant and certain items not comprised in the mortgage fell to the share of the branch of defendants 1 and 2. In a subsequent partition between defendants 1 and 2 some of the items that came to this branch in the partition between one and three defendants have been allotted to the share of the second defendant. The point urged by Mr. Venkatarama Aiyar on behalf of the appellant was that the reasons justifying the exoneration of items allotted to another sharer at a fair partition will equally apply as between father and son and not merely as between brothers or other co-sharers. We do not think that that is the real test for the application of the rule. The items allotted to other sharers in a partition are exonerated from a mortgage executed by one of the co-owners because such other sharers are not bound by that mortgage and the doctrine of substituted security is invoked to fasten the mortgage on the properties which are allotted to the mortgagor in the partition between himself and his co-sharers. Where, as in the present case, the mortgage by the father is binding on the son as well, the father and son must, for the purposes of the rule, be regarded as a single legal entity with the result that all the properties allotted to this branch at the partition, as between itself and another branch, will become subject to the mortgage in favour of the mortgagee. The subsequent partition between the father and the son wdl no more defeat the rights of the mortgagee than it will affect the operation of a mortgage executed by the father specifically charging items held jointly by himself and his son.
12. It may be that the doctrine of substituted security may not avail as against Court auction-purchasers or even perhaps against alienees for value without notice. But as between father and son, this is not the legal position at all. It is not right to speak of the mortgagee's right against the father in such a case as a personal right or a personal equity. He has undoubtedly a charge on the substituted properties, whether it will amount to a mortgage within the definition of Section 58 of the Transfer of Property Act or not, and as long as the debt is one binding on the son, the charge will be equally one binding upon the son.
13. Mr. Venkatarama Ayyar argues that at the partition between the father and the son due provision had been made for the discharge of the mortgage debt from out of the extensive properties allotted to the father's share. Whatever claims this may give rise to as between the father and the son, that cannot affect the rights of the mortgagee in the present case any more than it can affect the rights of a formal mortgagee from the father.
14. The decision in Muthia Raja v. Appala Raja : (1910)20MLJ393 does not help the appellant's contention. The debt itself in that case was one not binding on the other sharers. The present question was therefore not raised, nor could it have been raised jn that case.
15. The appeal therefore fails and is dismissed with costs of the first respondent.