1. This case raises an important question as to the rights of a mortgagee of premises which at the time when the mortgage was executed were in the occupation of a tenant of the mortgagor. The material facts are as follows:
In 1907 two persons by name Hyam and Jones, who at that time were the owners of the premises in suit, No. 3-1 Mangoe Lane, let a portion thereof to the defendants as monthly tenants at the rent of Rs. 150 a month. On the 13th July 1914 Hyam and Jones mortgaged certain premises, including the premiss in suit to M.A. Sassoon and others. On the 13th January 1917 the mortgagees filed a mortgage suit against Hyam and Jones for an order for the sale of the mortgaged premises. On the 16th March 1917 M.A. Sassoon, one of the mortgagees, was appointed receiver of the said premises by order of the Court. On the 17th July 1917 a preliminary decree for sale was passed.
2. Now, Hyam was accustomed to make out the defendant's rent bills, and to obtain the rent up till the time when the appointment of the Receiver was made, and thereafter until the date of the agreement to which I am about to refer, the course adopted for the purpose of collecting the rent was that Hyam made out the rent bills and endorsed them to Sassoon and the money was collected by Sassoon's peon. In 1920 the premises in suit were in need of repair, and on the 7th June 1920 an agreement was entered into between Hyam and Jones on the one hand and the defendants on the other whereby the defendants advanced to Hyam and Jones Rs. 7,800 on that date, Rs. 1,500 on the 20th October 1920, and Rs. 2,500 on the 29fch December 1920 in order to provide funds for the repair and improvement of the premises while Hyam and Jones on their part undertook to expend the money advanced on repairs, and to treat the sums so paid as rent paid in advance. It was further agreed that after the work of repair and improvement had been carried out the rent payable should be increased to Rs. 200. After the 7th June 1920 no further rent bills were made out or rent collected. I find that this agreement was made, and that the above statement of facts correctly represents the arrangement which was made, and what took place in respect there of.
3. Further, although the defendants were not aware that the mortgage to Sassoon and others had been executed, I am satisfied on the evidence that the mortgagees were fully apprised of the nature of the agreement of the 7th of June 1920, and from the evidence adduced before me I draw the inference that the mortgagees gave their sanction to it. I am invited by the plaintiffs to come to a conclusion from the evidence that the mortgagees neither knew nor approved of this agreement, but, in my opinion, the natural and reasonable inference to be drawn is to the contrary effect. Sassoon was not only a mortgagee, but the receiver of the rents and profits derived from the mortgaged promises. I am at a loss to understand when Sassoon after the 7th June 1920 found that the rent was no longer being paid monthly as heretofore or at all why he did not protest and demand payment of the rent unless he was aware and approved of the agreement between Hyam and Jones and the defendants. In my opinion, the true view is that the Sassoon mortgagees fully understood, and were privy to, this agreement. In July 1921 Hyam and Jones were minded to pay off the Sassoon mortgage and on the 12th July 1921 they granted a mortgage of the said premises to the plaintiffs for six lakhs, and interest thereon at 12 per cent. On the same day with, the proceeds which resulted from the execution of the plaintiffs' mortgage Hyam and Jones (as appears from the petition of the Sassoon mortgagees dated 22nd February 1922) paid to the Solicitors for the said mortgagees a sum of Rupees 6,92,093 which admittedly was accepted by Messrs. Morgan & Co,, their attorneys, in full satisfaction of the Sassoon mortgagee's claim for principal and interest due under the decree passed in the mortgage suit. Thereupon Morgan & Co., gave to Hyam and Jones a receipt in the following terms:
Suit No. 270-16
M.A. Sassoon v. J.I.J. Hyam.
Received from Messrs. Hyam and Jones a cheque for Rs. 7,02,000 only, viz., Rs. 6,92,093-3 in full satisfaction of the plaintiff's claim for principal and interest; due under the decree herein and Rs. 9,906-13-2-0 on account of the costs of the suit. We undertake to refund excess, if any, on adjustment of the costs of his suit. (Stamped with a one-anna stamp and dated 12th July 1921).
4. On completion of the transaction the title-deeds were handed to Hyam and Jones Solicitors. Subsequently it transpired, according to the computation made by Morgan & Co., that the claim of the Sassoon mortgagees by mistake had been underestimated to the extent of Rs. 25,779-8-3 and on the 2nd March 1922 the said mortgagees applied by petition to the Court for an order for the sale of the mortgaged premises for recovery of the amount alleged still to be outstanding in respect of the sum due under the said mortgage-decree. An order for sale was made, and pursuant thereto, on the 24th March 1923, at an auction sale held by the Registrar of the High Court, the plaintiff purchased the mortgaged premises including the premises in suit for Rs. 1,00,000 subject to the mortgage dated 12th July 1921 in favour of the plaintiffs (see condition of sale XV, the order of 26th April 1228, and the order of 17th May 1923). It appears that the mortgage to the plaintiffs was executed on the 12th July 1921, and not on the 12th July 1922. But, in my opinion, for the purpose of this suit, it is immaterial upon which of those dates it was granted. On the 28th March 1923 B. N. Basu & Co., Solicitors for the plaintiffs, wrote to the defendants the following letter:
Re. 3 and 3-1 Mangoe Lane.
We are instructed by our clients Messrs, Tilokechand of No. 8-3 Rupchand Roy Street, Calcutta, that at a sale held by the Registrar of the High Court on the 24th instant, the above property was sold and our clients Messrs. Tilokechand were declared the highest bidders and purchasers at the sale. We are instructed to call upon you not to pay any rent to any person other than our client. Should you do so, such payment will be entirely at your own risk and penalty and will not be recognized by our client.
(Sd.) B.N. Basu & Co.
5. On the 31st May, the current rent not having been paid to the plaintiffs, the plaintiffs' Solicitors again wrote to the defendants:
Re. 3-1 Mangoe Lane.
We are instructed by our clients Messrs. Tilokechand the owners of the above premises, to call upon you, which we hereby do, to quit and vacate the portion of the said premises occupied by you on expiry of the month of June 1923. Should you fail to vacate in pursuance of the above notice, legal proceedings will be taken to eject you without further reference. You have not paid rent for the above permises for a long time.
6. Now, the defendants did not vacate the premises as requested in accordance with the said notice to quit, or at all. If the agreement between the mortgagors and the defendants of 7th June 1920 is valid and binding upon the plaintiffs, the plaintiffs by reason of the Calcutta Rent Act are not entitled to eject the defendants. The question therefore, which I have to determine is whether or not the agreement of 7th June 1920 is valid and binding upon the plaintiffs. The plaintiffs contend that if the payments made by the defendants in June, October and December 1920 are to be treated as payments of rent in advance the payment of rent to a mortgagor, before it has accrued due, does not bar the claim of a mortgagees of the premises, after notice of his interest therein has been given to the tenant to recover the rent accruing there from as and when it falls due. On the other hand, if these payments are not to be treated as payments of rent, but as advances to Hyam and Jones as landlords from the defendants as tenants, upon the terms that on the dates when the rent becomes due, such advances were to be treated as the fulfillment of the tenant's obligation to pay rent, the plaintiffs contend that such a transaction amounted to a collateral agreement which will not affect or control the mortgagees' rights and interest in the premises and is one which the plaintiffs as mortgagees or as auction purchasers are not under any obligation to respect.
7. As regards the first contention, if the premises upon which it is based are sound, I am not disposed to disagree with, the conclusion which is drawn therefrom. But, in my opinion, these sums were not, and are not to be regarded as having been paid as rent for this reason : that on the dates when the rent becomes payable, the landlords, having assigned the reversion, had rendered themselves incapable of giving a valid release of the same, or a valid discharge for the sums so paid as rent. Payment of rent to them was not payment of rent to persons entitled to receive it, and such payments would afford no defence to a claim for payment of the rent by the person to whom the reversion had been transferred. As Mr. Justice Wilier pointed in De-Nicols v. Saunders  5 P.C. 58.
It is clear that the Common Law authorities which say that payment before notice is good against a mortgagee, and which are represented by Watts v. Ognoll  Cro. Jac. 192, have no application to the present case, they apply only to a person fulfilling his obligation to one who, at the time it is fulfilled, is the apparent reversioner, which is similar to payment to a creditor who has assigned the debt without notice to the debtor.
These oases depend upon a rule of general jurisprudence not confined to cases in action, though It seams to have been lost sight of in some recent cases, viz., that if a parson enters into a contract, and without notice of any assignment, fulfils it to the person with whom he made the contract, ha is discharged from his obligation J that is a rule which is declared rather than enacted by Anne, Order 16, Section 10. That Statute did away with the necessity for attornment, but protected the tenant in cases where he had paid the rent due from him before notice of the assignment; this provision of the Statute, however, clearly applies to the fulfilment of an obligation to pay rent imposed by the lease. There has bean no such payment here for payment of rent before it is due is not a fulfilment of the obligation imposed by the covenant to pay rent, but is, in fact, an advance to the landlord, with in agreement that on the day when the rent becomes due such advance shall be treated as a fulfilment of the obligation to pay the. rent.
8. Although the correctness of this decision appears to have been doubted by Farwell, L.J., in Green v. Rheinberg  104 L.T. 149, in my opinion the ratio decidendi of Mr. Justice Willes' judgment which was repeated by the Court of Common Pleas to which decision he was a party in Cook v. Guerra  7 C.P. 132, is unimpeachable and is an accurate statement of the law. Sea Ashburton v. Nocton  1 Ch. 274.
9. As regards the second contention which counsel for the plaintiffs has urged before me, I find as a fast that the agreement of the 7th June 1920 was prior in date to the mortgage of the 12th July 1921 and, in my opinion, the plaintiffs must be deemed to have received constructive notice of this agreement before they became parties to the mortgage, and are under an obligation to the defendants to respect the terms thereof. The equitable principle to be applied in the circumstances of this case may be gathered from a perusal of the following cases : Daniels v. Davison  16 Ves. Jun. 249; Allen v. Anthony  1 Mer. 282; Barnhart v. Greenskeilds  9 Moo. P.C. 18; Holmes v. Powell  8 Deg. M. & G. 572; Morrogh v. Aileyne  7 Eq. 487; Hunt v. Luck  1 Ch. 45; Hunt v. Luck  1 Ch. 428; Green v. Rheinberg  104 L.T. 1419 and Ashburton. v. Nocton  2 Ch. 211; Ashburton v. Nocton  1 Ch. 274. In cases where the proprietary title to premises in the occupation of a tenant is assigned, it is incumbent upon the assignee to make enquiries of the tenant as to the extent of his rights and interest in the premises. If the tenant, in answer to such an enquiry, represents his rights in the premises, to be other than those which he possesses no doubt in a case where the assignee has accepted the assignment in reliance upon such a representation he will thereafter be precluded as against the assignee from asserting his rights to be other than those which he has stated. But assuming that a correct answer is received, or that; no enquiry is made by the assignee, in either case, in my opinion, the assignment will be subject to the tenant's rights and interests in the premises. And the principle is to be applied alike in cases where the assignee is a mortgagee as in cases where he is a purchaser of the premises. See Green v. Rheinberg  104 L.T. 149. It would offend the conscience were it to be held that the rights of the tenants in such circumstances were subject to defeasance or curtailment and, in my opinion, the mortgagor by transferring his interest in the reversion is not entitled thereby to resile from his agreement or to derogate from his grant and the assignee takes the reversionary interest subject to the rights and interest of the tenant in the premises. In Daniels v. Davison  16 Ves. Jun. 249, Lord Eldon (Lord Chancellor) observes that
there is considerable authority for the opinion I hold, that, where there is a tenant in possession under a lease, or an agreement, a person, purchasing part of the estate, must be bound to enquire, on what terms that person is in possession.
10. Again in Allen v. Anthony  1 Mer. 282, Lord Eldon re-stated the principle, which was an interesting case in which a bill was filed in Chancery by the owner of the fee simple of an estate for an account of timber felled by the defendant on the estates of the plaintiff and for incidental relief. It appeared that the predecessor of the plaintiff in 1799 had agreed to demise to one Izard for 21 years, at a certain rent, the premises in question, with reservation to herself and her heirs of all the timber and limber-like tress and liberty to cut and carry away the same. Nine years later the defendant obtained possession of the promises under an execution in an action brought by him against Izard, and in the following year 1809 the then owner of the estate, Sarah Kier, agreed to sell to the defendant all the timber except fruit trees for 200. Subsequently Sarah Kier conveyed the reversion to Archer from whom the plaintiff's father purchased it, and the question in the case was whether the proprietary interest of the plaintiff in the estate was subject to the agreement which had been made by Sarah Kier with the defendant.
11. In the course of his judgment Lord Eldon observed:
It is so far settled as not to be disputed, that a person purchasing, where there is a tenant in possession, if he neglects to inquire into the title, must take, subject to such rights as the tenant may have; Douglas v. Wliitterwrong  7 Ves. Jun. 436 N. And there is no doubt that, if the defendant had been untitled to the trees on the estate, under the agreement by which he held the estate itself, the plaintiff would be bound by the authority of the several cases in which it has been so decided. But the question here is, whether there is any difference in the case when the right of the tenant to the timber arises by a contract made independent of, and posterior to, the contract under which he holds possession of the estate, and on the best consideration that I am able to give to the subject, I think it would be going on a distinction much too thin to determine that he may be restrained from the exercise of that right in the latter case, although he could not have been so restrained if his title to the timber had been coincident with his title to the possession of the estate. There is no more reason in the one case than in the other to say that the purchaser was not bound to make enquiry as to the nature and extent of the tenant's interest. He must, therefore, suffer the consequence of his neglect to take that obvious precaution.
12. In Barnhart v. Greensheilds  9 Moo. P.C. 18, Mr. Pemberton Leigh (afterwards Lord Kingsdown), stated the principle thus:
With respect to the effect of possession merely, we take the law to be, that if there be a tenant in possession of the land, a purchaser is bound by all the equities which the tenant could enforce against the vendor, and that the equity of the tenant extends not only to interests connected with his tenancy, as in Taylor v. Stibbert  2 Ves. Jun. 437, but also to interests under collateral agreements as in Daniels v. Davison  16 Ves. Jun. 249 and Allen v. Anthony  1 Mer. 282 the principle being the same in both classes of cases; namely, that the possession of the tenant is notice that he has some interest in the land, and that a purchaser having notice of that fact, is bound, according to the ordinary rule, either to enquire what that interest is, or to give effect to it, whatever it may be.
13. The language of Lord Eldon in Daniels v. Davison  16 Ves. Jun. 249 is to the same effect, and when some years after he had again to consider the circumstances, he states the rule in these words:
It is so far settled as not to be disputed that a parson purchasing, where there is a tenant in possession if he neglects to enquire into the title, must take subject to such right as the tenant may have.
14. In Holmes v. Powell  8 Deg. M. & G. 572 Lord Justice Knight Bruce states the principle in somewhat different language. In the course of his judgment he observer:
I apprehend that by the law of England when a mm is of right and de facto in the possession of a corporeal hereditament, he is entitled to impute knowledge of that possession to all who deal for any interest in the property conflicting or inconsistent with the title or alleged title under which he is in possession or which he has a right to connect with his possession of the property. It is equally a part of the law of the country, as I understand it, that a man who knows or cannot be heard to deny that he knows another to be in the possession of a certain property, cannot for any civil purpose, as against him at least, be heard to deny having thereby notice of the title or alleged title under which or in respect of which the former is and claims to to be in that possession.
15. Lord Justice Swinfen Eady in Ashburton v. Nocton  1 Ch. 274 laid down that:
A pre-payment will be good, as to the amount of the rent which becomes actually due before notice has been given to the tenant by the mortgagee, although not as to the residue; Cook v. Guerra  7 C.P. 132. Green v. Rheinberg  104 L.T. 149 was a clear case, as there the landlord had, prior to the mortgage, released the rent to the lessee and tenant in possession, and under the doctrine of Daniels v. Davison  16 Ves. Jun. 249 the subsequent mortgagee was affected with notice of the interest which the tenant had in the land. If the arrangement between mortgagor and tenant for pre-payment of rent, or for setting off future rent against money due from the mortgagor to the tenant, be made subsequent to the date of the mortgage, such arrangement will be treated as a collateral bargain between those parties and not binding upon the mortgagee.
16. The decision in Municipal Permanent Building Society v. Smith  22 Q.B.D. 70, to which I was referred, turned upon the true contraction to be given to certain sections of the Conveyancing Act of 1881, and. is not an authority adverse to the principle of law to which I have referred. The plaintiffs admitted in the plaint which they filed in this suit that at the date when they became auction purchasers of the premises they were first mortgagees of the same and purchased the same subject to their mortgage.
17. Did the plaintiff's obtain any higher rights against the defendants than they possessed as first mortgagees by becoming purchasers at the auction sale? What was it that they purchased? The property subject to their own mortgage, and the rights and interest of the defendants in the premises. In other words, they purchased for one lakh the equity of redemption of the premises being or including the interest of the mortgagors therein. Bat if the interest which they possessed as first mortgagees was subject to the rights of the defendants under the agreement of 7th June 1920, did they become exempted from their obligations under the agreement of 7th June 1920 by acquiring subsequently the equity of redemption? In my opinion, clearly not. I go further and say that as at the date when they purchased the equity of redemption the mortgagor's interest in the premises was subject to the agreement, the interest of the mortgagors which in effect the purchasers acquired at the auction sale, was saddled with the mortgagor's obligation under the agreement. It was further contended that by acquiring the property at the auction-sale the plaintiffs became entitled to the interest of the Sassoon mortgagees and that as the Sassoon mortgage was not subject to the agreement of the 7th June 1920 (having been executed on a date prior to that on which the agreement was entered into) their interest as assignees of the Sassoon mortgage was not affected thereby. For the reasons which I have given, in my opinion that is not the true effect of the transaction, but assuming this contention to be so far in accordance with the fact that it might reasonably be urged that after the purchase the plaintiffs stood in the place of the Sassoon mortgagees, in my opinion, the plaintiffs remained equally bound by the agreement of the 7th June.
18. As I have already stated the Sassoon mortgagees were aware and approved of the agreement of the 7th June 1920 and if a mortgagee is privy to, and has sanctioned a collateral agreement between the mortgagor and the tenant see the observations of Denman, C.J., in Evans v. Elliot  9 Ad. & E. 342, in my opinion, a subsequent assignee of the mortgagee's interest is not to be permitted to assert that his interest in the premises is not affected by the agreement, because the agreement was entered into at a date subsequent to that on which the mortgage was executed. Upon what basis of reason or fairness is a contention to the contrary to be supported? I can see none and I know of no authority in favour of so inequitable a proposition. On the contrary, in my opinion, the principles and authorities to which I have referred are opposed to any such contention. For these, reasons, in my opinion, the plaintiff's claim cannot be sustained and the suit must be dismissed.