Ramesam, Offg. C.J.
1. This is an appeal against the decree of my Lord the Chief Justice sitting on the Original Side in C.S. No. 483 of 1930. The facts out of which the suit arose are these: The plaintiff is the junior widow and the executrix of the estate of J. Rangiah Chetty who died on or about 21st June 1921, leaving a will under which he appointed the plaintiff as executrix. One C. Venkatasubbiah Chetty of Madras executed a promissory note dated 2nd June 1919 for Rs. 12,000 with interest at 9 per cent. in favour of the said Rangiah Chetty. It is alleged by the plaintiff that the said Venkatasubbiah Chetty deposited by way of equitable mortgage with the said Rangiah Chetty title-deeds relating to his immoveable properties and premises situated in Madras. Under a compromise decree in C.S. No. 38 of 1923 on the file of the High Court the right to the said promissory note and security represents the legacy due to the minor plaintiff in that suit; and it is vested in the plaintiff and defendant 5 in this suit as trustees for the said minor plaintiff in that suit. Certain payments were made to the plaintiff in respect of the promissory note and the present suit is to recover the balance due by sale of the properties covered by the equitable mortgage above mentioned. Defendant 1 is the widow of the said Venkatasubbiah Chetty. Defendant 2 is his brother-in-law, and defendant 3 is his brother.
2. The said three defendants are executors under the will of the said Venkatasubbiah Chetty. Defendant 4 is impleaded as a mortgagee of the suit properties under two mortgage deeds dated 26th June 1924 and 24th November 1924 for Rs. 15,000 and Rs. 5,000 respectively. Defendants 1, 2 and 4 raise the contention that the equitable mortgage on the basis of which the plaintiff files this suit is not valid as it is evidenced by a contemporaneous document which was not registered. The second issue in the case is, is the mortgage invalid as stated in para. 4 of defendant 1's written statement? Issue 5 is, is the mortgage in favour of defendant 4 binding on the estate of the deceased Chevula Venkatasubbiah Chetty? Issue 6 is, what is the amount due to the mortgagees? At the trial the document evidencing the deposit of title-deeds though not mentioned in the plaint was produced by the plaintiff as P.W. 1 but without giving any further information about it. Practically the one point considered by the trial Judge is the question whether this document dated 2nd June 1919 required registration. The document is Ex. 1. It is described as a collateral security bond. After mentioning the execution of the promissory note it proceeds thus:
I have this day deposited as collateral security with you the title-deeds of my house and ground.... I shall therefore pay you the principal and interest accruing due on the said promissory note from this date in full and redeem the said title-deeds. To this effect is the collateral security bond executed by me....
3. It is now settled by the Privy Council decision in Subramaniam v. Lutchman 1923 50 Cal 338 that if such a document requires registration the equitable mortgage falls to the ground. The document is on stamped paper and is attested. It is clear on the face of it that it was intended to be a formal document because it contains the terms of the transaction and it is not a mere letter reciting merely the past fact of the deposit of title-deeds. In Sundarachariar v. Narayana Ayyar 1931 54 Mad 257 the Privy Council observe that if the document is signed and delivered at such time and place and in such circumstances as to lead legitimately to the conclusion that so far as the deposit is concerned it constitutes the agreement between the parties, it requires registration. In the actual case before their Lordships they held that it was a mere memorandum and did not require registration.
4. The document therein, merely said, 'I have delivered to you the undermentioned documents as security.' It is clear that the document before us is a far more formal document than the one in that case. In Krishnaiya v. Ponnuswami Ayyar 1924 47 Mad 398, the document is described as 'collateral security letter,' that is, a letter mentioning the fact of collateral security being given. The judgment of Schwabe, C.J., was mainly based on the circumstance that the letter referred to the deposit in the past tense. In the present case the words 'from now' show that the documents were handed over along with the letter; and there are other circumstances already mentioned by me, namely that it contains all the terms of the transaction. The document in Surendramohan Ray v. Mahendranath Banerji 1932 59 Cal 781 is also a far less formal document. In Arunachalam Chetty v. Jagannatha Pillai 1926 24 MLW 659 it was held that the document required registration. In Muthiah Chetty v. Kothandaramaswami Naidu 1917 31 MLJ 347 the document described the terms and it was held that it required registration and was not admissible in evidence. The fact that the promissory note and the collateral document bear the same date may not always be conclusive; but in the present case in the absence of any other evidence and looking at the terms of the document, we understand that the title-deeds were handed over along with the letter. Anyhow, all the terms of the agreement are embodied in it. It is clear that Ex. I was intended to represent the agreement, of deposit. In our opinion it required registration. It follows that the plaintiff cannot recover the suit amount bysale of the mortgaged properties. It is conceded before us that there have been payments to the plaintiff at various times and on account of these payments no question of limitation arises; that is, even considering it as a mere money claim, the plaintiff's suit is in time and she is entitled to a money decree. The question then arises, how far is the plaintiff's claim on the said promissory note Ex. A subject to the mortgages executed in favour of defendant 4 When the appeal was originally argued before us it was suggested that defendant 4's mortgages were not fully binding on the estate, and to the extent they were binding they have been paid off and nothing is now due to him, and if so he has no locus standi to appeal against the decree in favour of the plaintiff or to raise the question in appeal that the plaintiff's mortgage is invalid. At the trial before the trial Judge defendant 4 did not appear and it is stated in the judgment:
Defendant 4 does not appear to prove his mortgages. His claim is therefore unproved but he will be entitled to sue to enforce his claim.
5. We then passed the following order:
Before we dispose of this appeal we would like to have findings on issues 5 and 6 in the case. No findings have been given upon these issues by the learned trial Judge. From the affidavits filed before us we find the case originally came up before Madhavan Nair, J., before the summer vacation of 1931. It was adjourned for a short time, that is, posted in July 1931. When defendant i wanted an adjournment the other side did not consent. Then later on he produced medical certificates and obtained adjournments of the trial of the suit. The case then came on before Stone, J. Then again it was adjourned from' time to time. Finally the case came up in the special list of eases in September 1932. From the affidavits filed before us we are satisfied that defendant 4 was continually ill on these days. We do not think it is likely that a number of medical certificates would have been given to him if the illness had been feigned or false. But at the time when the case was actually taken up for trial it looks as if do formal application for adjournment was actually made. But probably the fact of defendant 4's illness was mentioned to the learned Judge. Both parties seem to be under the impression that it is only a question of law that is to be tried before the learned Judge. The learned Judge also seems to be under the impression that it is enough to try the second issue. It is clear from the fact that at the end of his judgment the learned Judge says that defendant 4 would be entitled to sue to enforce his claim; he thought that all the interests of justice are best served by making this remark in favour of defendant 4 while on the one hand not adjourning the case. But we do not think this is a satisfactory disposal of the case. It was suggested before us that defendant 4 must prove his mortgages and the learned Judge also seems to be under that impression by the use of the sentence in the last paragraph of his judgment. The plaintiff alleges that at an examination of the Registrar's office it was found that defendant 4 was claiming under 'two mortgages executed in his favour by defendants 1 to 3 on 26th June 1924 for Rs. 15,000 and on 24th November 1924 for Rs. 5,000 carrying interest at 12 per cent per annum.' And on this ground he was made a party defendant to the suit. Issue 5 also shows that no question about the genuineness of defendant 4's mortgages was intended to be raised. The issue runs thus : 'Is the mortgage in favour of defendant 4 binding on the estate?' In our opinion therefore there is no question of proving those two mortgages. The mortgage documents may be at once exhibited without further proof.
It is stated before us by the junior advocate for the appellant that before the case came on for trial inspection was given of the originals to the advocates for the respondents. It is true that only typed copies were actually given to the respondents as the respondents' advocate-says but we have no doubt that the originals-were available for inspection; and if there are any endorsements of payment on the back of the documents they would have been at once made a note of by the plaintiff's side. We make these remarks because it is now stated that the documents were afterwards lost by defendant 4, and a complaint has been made to the police but not with much effect. We accept this statement because we do not see any purpose in defendant 4 suppressing documents in the conditions we have mentioned. But the question still remains how much sum is due to. him. He admits receipt of a large sum of Rs. 10,000 and odd on 25th March 1927 and after deducting this amount and any other sum that may turn out to be paid, an account must be taken of what is still due to him. And then there is the other question as to how far his debt is binding on the estate. Only if he has got a subsisting interest it would be useful for us to enter into the question whether the equitable mortgage in favour of the plaintiff is valid If no sum is due to defendant i, then he has no locus standi for carrying on the appeal. But if he has any sum due to him, however small it is, then he has a locus standi and then there is no purpose in asking him to prove his claim in another case, but the whole thing must be disposed of in this case. We direct that the costs entailed by an additional hearing by which we mean the hearing fee and the fee payable to counsel but not expenses incurred' for summoning witnesses or amounts payable on documents and the like should be paid by the appellant in any event The finding will, be submitted on or before the 15th August. Ten days for objections.
6. Findings have now been returned by Anantakrishna Ayyar, J., to the effect that some of the items making up the consideration for Ex. 2 are binding on. the estate and all the items contained in Ex. 3 are also binding. He also observed as follows:
Defendant 4 is not an entire stranger who relying on the representations made by the executors, lent money bona fide for purposes believed to be binding upon the estate. Here defendant 4 knew about the estate from 1923. He was assisting defendant 1 in the management of the estate. He was friendly with her as-admitted by him.
7. It is unnecessary to quote the rest of his observations, because it is now admitted that it is not altogether correct to say that he utilised for his own purposes the moneys borrowed by defendant 1, from the Nidhi of which he is the president. The learned Judge then referred to the decision in Hunoomanpersaud Panday v. Mt. Babooee Munraj Koonwearee (1854) 6 MIA 393 and says that the burden is on defendant 4, to prove that the debts are binding on the estate. It is unnecessary to pursue this line of thought in 'this Court because Mr. Venkatarama Sastri who appeared for the respondents conceded that as between the executors and defendant 4 the whole of the debt may be taken to be binding on the estate, but so far as the plaintiff and defendant 4 were concerned the plaintiff being a creditor of Venkatasubbiah Chetty, but defendant 4 being only a mortgagee from the executors, defendant 4's mortgages cannot have precedence over the plaintiff's claim except to the extent that they are shown to be in discharge of claims against the deceased testator himself. This contention is based upon the fact that after the death of the testator his debts have precedence over the legacies and though the executors have full power to deal with the estate both for the purpose of paying off debts and for paying legacies and though a bona fide purchaser or mortgagee from the executors may be protected, still the purchaser or mortgagee from the executors with full knowledge of all the facts as in this case, viz., that the debts of the deceased are not paid, can get no precedence over the creditors' claim even by taking a mortgage from the executors. Greender Chunder Ghose v. Mackintosh (1880) 4 Cal 897 and Williams on Executors p. 6487 are relied on. See also Laxmidas v. Ismail Gafoor 1927 28 Bom LR 1262 and Namberumal Chetty v. Veeraperumal Pillai : AIR1930Mad956 . I think these authorities support the learned advocate's contention.
8. The mere fact that an executor has given a mortgage gives no precedence to such a mortgage over the claims of creditors if the mortgagee knew the condition of the estate and knew that the claims of the creditors were not satisfied. In the present case Ex. 2, the earlier of defendant 4's mortgages, actually refers to the equitable mortgage created in favour of J. Rangiah Chetty and the transaction purports to be effected subject to it. But as appears from the earlier part of this judgment, the equitable mortgage now turns out to be invalid. It was also contended by Mr. Venkatarama Sastri that the mortgages themselves in favour of defendant 4 are beyond the competence of the executors because under the will of Venkatasubbiah Chetty, Ex. 7, dated 16th January 1920, the executors were prohibited from selling the two houses. Clause 10 of the will prohibits such a sale and directs that the rents shall be collected and added to the estate. The testator contemplates that his debts and legacies should be paid out of the income and prohibits the sale of the properties The mortgages Exs. 2 and 3 empower the mortgagee to sell the mortgaged property privately without seeking the aid of the Court. With reference to Clause 10 of the will and with reference to the particular terms of the mortgages in favour of defendant 4 it is contended that the transactions are beyond the competence of the executors. I think this contention also must be upheld. It is idle to draw the distinction that the transactions are only mortgages and not sales. A mortgage necessarily ends in a sale if the money is not paid off and no mortgagee will ever take a mortgage if it does not contain such a power. Usually the sale is through the aid of Court, but in this case in default of payment of the debt the mortgagee himself can sell the property. In Bennett v. Wyndham (1857) 23 Beav 521 Romilly M.R. observed:
I think the word 'sale' virtually includes within it the word 'mortgage' which is practically a sale, and which cannot be resorted to without giving to the mortgagee a power of getting possession of the estate if the charge is not paid off when required; for whether there is a power of sale contained in the mortgage or not, the mortgagee would have the power of foreclosure which is incidental to a mortgage, and the effect is practically the same.
These observations show that we should look at the spirit of the transaction whether the mortgage ends in a sale through the aid of a Court of law or in a private sale without the aid of a Court; in either case the sale is an incident of the mortgage and is equally against the prohibition contained in the will. We therefore think that however much the mortgage of the 4th defendant may be valid as between him and the executors, they are invalid in so far as any precedence is claimed over the claims of creditors such as the plaintiff except to the extent that part of the consideration for the mortgages also represents moneys to due the creditors of Venkatasubbiah Chetty.
9. From this point of view it has become necessary to examine the nature of the consideration for Exs. 2 and 3. It is practically conceded before us that items 1, 3 and 4 of Ex. 2 ultimately represent debts due by Venkatasubbiah Chetty, and the mortgagee may be considered as subrogated to the position of the original creditors. But items 2 and 5 are debts contracted by the executors. So far as items 3 and 4 are concerned, the recitals in the document itself are good evidence. This is not a case like the case of a widow or a guardian executing a document so as to bind a reversioner or a minor. An executor may make representations to a mortgagee and in the present case all the evidence that is referred to shows that the representations are true. We, therefore, think that items 3 and 4 are traced back to the creditors of Venkatasubbiah Chetty and therefore rank along with the plaintiff's claim. But the second item is only in respect of a legacy and must yield precedence to the debts of the testator. Similarly the 5th item starts only with the executors and could not be traced to the creditors of the deceased. Similarly too the document Ex. 3 cannot be traced to the creditors of the deceased. But so far as items 1, 3 and 4 are concerned, they rank at least equally with the plaintiff's claim, though so far as the plaintiff is concerned the mortgage may not be binding on the plaintiff as a mortgage.
10. There is only one other matter. A sum of Rs 10,000 was paid to the 4th defendant as the result of a former suit by the Official Trustee; some amounts also have been paid to the plaintiff. The principle on which these items should be adjusted was practically conceded before us: (Williams on Executors, Vol. 2, p. 6487). In accordance with the accounts appended to this judgment [See page 261] the plaintiff will first be entitled to Rs. 13,132 and out of the balance both the parties will be entitled in the proportion of their debts, viz.
Rupees 3,304-12-9 with |
further interest at 9 per |
cent and Rs. 2,092-9-0 |
with further interest at | up to
12 per cent. and if there | 25th July 1935
is still a balance left, de- |
fendant 4 will be entitled |
to take it. |
Rs. as. ps.
Amount due to plaintiff for principal ... ... ... ... 12,000 0 0
Interest thereon from January 1920 to 25th March 1927 (87 months) ... 7,830 0 0
Total Rs. ... 19,830 0 0
Amount received by plaintiff ... ... ... 5,400 0 0
Interest thereon up to 25th March 1927 ... ... 2,256 3 8.
Total 7,656 3 3
Amount due to appellant ... ... ... ... ... 9,130 0 0
Interest thereon from 26th June 1924 to 25th March 1927 (33 months)... 3,012 9 0
Total Rs. 12,142 9 0
Amount received by appellant on 25th March 1927 ... ... ... 10,050 0 0
Amount payable to plaintiff in that proportion towards his total ... 16,525 0 0
Amount to be credited towards this as received ... ... ... 7,656 8 3.
Balance payable to plaintiff in that proportion on 25th March 1927 ... 8,869 0 0
Interest on Rs. 8,869-0-0 from 25th March 1927 to 25th July 1935 (100 months)
at 9 per cent per annum ... ... ... ... ... 6,651 0 0
Total Rs. 15,520 0 0
Deduct amount received by plaintiff after 25th March 1927 1,500 0 0
Interest thereon up to date ... ... ... 888 12 0
2,388 12 0
Balance payable in the first instance ... ... ... ... 13,132 0 0
Balance duo to appellant on 25th March 1927 ... ... ... ... 2,092 9 0
Balance duo to plaintiff on 25th March 1927 if Rs. 8,869-0-0 had been paid
that day ... ... ... ... ... ... ... 3,304 12 9
After paying Rs. 13,132-0-0 out of the sale proceeds to the plaintiff, the remaining amount should be divided between the plaintiff and defendant 4 in the proportion of Rs. 3,304-12-9 with interest thereon at 9 per cent per annum from 25th March 1927 and Rs. 2,092-9-0 with interest thereon at 12 per cent from 25th March 1927. If money is left over after paying the said amounts, the appellant will receive it towards the balance duo under Exs. II and III.
It is necessary to mention one matter. After the whole argument was closed it was represented to us that there are other creditors who up to now have not taken any action. They are not parties to this suit. We do not think that we can adjourn this suit to enable them to be made parties at this stage. It is possible that the claims of some of them are barred. So far as the plaintiff and defendant 4 are concerned, the form of the relief we have given practically takes the form of relief in an administration action as between them only and as if there are no other creditors. But when there are other creditors, our adjudication does not bind them. They can take separate action impleading these parties and get the appropriate relief. Our judgment binds only the plaintiff and defendant 4. Each party will bear its own costs throughout.
11. I am of the same opinion, and I will express it quite briefly. The document Ex. 1 is, in my opinion, a good deal more than a mere record or memorandum of the deposit of title-deeds. On its face it bears the description of 'collateral security bond which is an altogether inapt description of a mere memorandum. It recites that the executant has pledged as collateral security title-deeds in respect of the promissory note for Rs. 12,000 executed that day by him in favour of his creditor. Further it contains a covenant to pay the amount due and to redeem the mortgaged deeds. The document is on stamped paper, as is required by the Stamp Act in the case of a document relating to a deposit of title-deeds. And it appears that the execution of the promissory note, the deposit of title-deeds and the execution of the document all took place on the same day. All these circumstances I think bring the document within the test laid down by their Lordships in Sundarachariar v. Narayana Ayyar 1931 54 Mad 257 where it was said:
Their Lordships are of opinion that no such memorandum can be within the section unless on its face it embodies such terms and is signed and delivered at such time and place and in such circumstances as to lead legitimately to the conclusion that, so far as the deposit is concerned, it constitutes the agreement between the parties.
12. With great respect therefore, I beg to differ from the learned trial Judge, and I hold that Ex. 1 embodies the contract between the parties. As such it required registration and is incapable of proof without it. While therefore plaintiff cannot claim to be a mortgagee it has to be seen whether the appellant's mortgage given to him by the executors can be set up by him against the plaintiff and other simple creditors of the estate. It must be taken to be settled that an executor has full right to mortgage as well as to sell the property of his testator : Earl Vane v. Rigden (1870) 5 Ch App 663. This power is likewise given to an executor by Section 307(1), Succession Act, but subject to the exception introduced by the section in the case of the executor of a Hindu testator when the will puts a restriction on the executor's power to dispose of the property. I feel no doubt that the mortgage given by the executors to the appellant, containing as it did a power to sell, was a contravention of the restriction contained in the will against the sale of the property. It follows that the mortgage not having received the permit of the Court, as required by Section 307, was voidable at the instance of any other person interested in the property. It happens that an order to sell one of the mortgaged houses had been previously made by the Court for the payment of a prior mortgage created by the testator. But this sanction cannot be regarded as validating the subsequent mortgage created by the executors, because assuming that the order could be treated as made under Section 307, the section requires that the disposal of property by the executor must be in the manner specified in the Court's order.
13. An order to sell would not therefore, be a sanction to a mortgage : and of course it would not be a sanction for the mortgage of the other house. It has been contended that the plaintiff as an unpaid creditor is not a person interested in the property who can avoid the mortgage. I think he is. A creditor has a right of priority of payment of his debt over the payment of legacies; and Section 361, Indian Succession Act, gives an unpaid creditor the right to call upon a legatee to refund the legacy paid to him by the executor. It may be observed that Section 361 embodies the English rule of law which will be found stated in Williams on Executors, Edn. 12, p. 987, thus:
An unsatisfied creditor can compel a satisfied legatee to refund, whether the legacy was paid voluntarily or by compulsion. He has this right whether the testator's estate at the time of his death was or was not sufficient to satisfy both debts and legacies; and the assets were handed over to the legatee by the personal representative in ignorance of the creditors demand.
14. Such being the position of an unpaid creditor I think he must be treated as a person who has an interest in the testator's property for the purpose of Section 307. Then it was contended that Article 91 barred his claim; but this Article relates to a suit to cancel or set aside an instrument, and I am clearly of opinion that it is unnecessary for a creditor to take that step to maintain his right against an unauthorized mortgage of the estate by an executor. All that the section means is that such a mortgage will not avail to deprive the creditor of his right to payment of his debts out of the testator's estate.
15. As regards the respective rights of the plaintiff as the appellant to receive payment of the amounts due to them they will be entitled to get payment along with other unsatisfied creditors in the same degree with valid claims in proportion to the amount of their debts. But I think that it would be just if we should apply the rule in administration suits and direct that since the appellant has been paid a sum of Rs. 10,000 odd towards his claim no further payment be receivable by him from the estate until the plaintiff and other creditors of the same class have been paid proportionately. Any payment already received by the plaintiff must be taken into account and the appellant will be only entitled to payment of the amounts which have been allowed to him in this appeal. With regard to the costs of the appeal I agree that as both parties have to some extent fought a losing battle, each should bear the costs of the appeal.