1. On 23rd August 1910 the predecessor-in-title of the plaintiffs let the premises in suit, now known as No. 7-2, Halliday Street, Central Avenue, Calcutta, to the predecessor of defendants 1 and 2 for a term of 61 years. On 7th May 1923 defendants 1 and 3 mortgaged the said lease by way of sub-demise to defendant 3. On 20th August 1923 the plaintiff through his solicitors informed the defendants that he regarded the lease of 23rd August 1910 as having been determined by reason of the execution of the mortgage of 7th May 1923, which he alleged operated as a breach of the sixth covenant in the lease to be performed by the lessees. On 30th June 1925 defendants 1 and 2 became insolvent, and subsequently, pursuant to an order of Court, the official assignee in the Court of the Judicial Commissioner of Sind was added as a party defendant.
2. Two defences have been raised by defendants, one involving an issue of fact, the other an issue of law. The issue of fact is whether by the acceptance of rent, after the plaintiffs had become aware of the mortgage, the forfeiture (if any) was waived. The issue of law is whether, having regard to the terms of the lease and the mortgage, and in particular the fifth and sixth covenants in the lease and Clause 3 of the mortgage, a forfeiture of the lease took place.
3. The fifth covenant by the lessee is to the following effect:
5th. That the said lessee shall be at liberty or shall have the full power and authority without having recourse to previously securing to that effect the consent of the said lessor, written or verbal, to underlet the said demised land and the buildings, structures, sheds, godowns, stables or any portion thereof to be so erected and built by them as aforesaid.
6th. The said lessees, shall have no power, save amongst themselves as hereafter mentioned to assign transfer or in any way to alienate their right, title and interest in the demised land and the buildings so to be erected by them thereon as aforesaid created by virtue of these presents.
4. Clause 3 of the mortgage runs as follows:
3. In further pursuance of the said agreement and for the consideration aforesaid the mortgagors do hereby demise and sub-let unto the mortgagee all the hereditaments and premises-comprised in and demised by the said lease and more fully described in Schedule A hereunder written (which is valued at Rs. 10,000) and covenant to hold the same unto the mortgagees for the unexpired residue of the term of 61 years-granted by the said lease subject to the proviso that this sub-lease shall terminate forthwith as and when the amount of money advanced by the mortgagee shall be repaid with interest hereinbefore mentioned and all costs as between attorney and clients and all dues for the time-being as hereinbefore and hereinafter mentioned, either by the mortgagors personally or by realization of rents and profits by the mortgagee himself and from the tenants now occupying or those who will occupy in future less the expenses and costs of realization and all other payments to be incurred and paid in connexion therewith.
5. In the mortgage it is further provided:
That if the mortgagors shall repay to the mortgagee all principal moneys interest and costs charges and expenses as aforesaid on the days and in the manner aforesaid or in the event of the principal money with interest thereon having fully been reimbursed through the rent profits and income of the premises then and in such case the mortgaged premises and the premises sub-let shall at any time thereafter at the request and cost of the mortgagors be respectively reconveyed or surrendered to them or their respective heirs, administrators and assigns or as they may direct.
6. Now, the danger into which one is tempted to fall in construing these documents, I think, is that one is prone to regard them in the light of the events that have occurred. It so happens that the lessees who became the mortgagors are now insolvent, and the lessors are experiencing great difficulty in obtaining payment of their rent. The official assignee, although, as I am informed, he has not disclaimed the lease, has not filed a written statement, the reason being that it would probably not be worth the creditors while to contest the suit having, regard to the mortgage.
7. I conceive it to be my duty, however, to construe these documents, not in the light of the knowledge that I now possess - for it is easy to be wise after the event - but having regard to the circumstances that existed at the time when they were executed.
8. It is admitted by learned Counsel for the defendants that the effect of Clause 3 of the mortgage was to create a mortgage by way of sub-demise of the whole of the term created under the lease, and it is further conceded that for certain purposes a sub-demise of a term without the. reservation of any part of the residue thereof is treated as an assignment of the term : Beardman v. Wilson (1868) 4 C.P. 57.
9. Therefore, for purposes such as creating privity of estate between the lessor and the under-lessee, or liability to pay rent, or to perform covenants running with the land, Clause 3 of the mortgage is to be regarded as an assignment of the term. That, however, does not conclude the matter in favour of the plaintiffs, for the question that I have to consider is a very different one, namely, whether Clause 3 amounted to a breach of the sixth covenant by the lessee. In other words, was the effect of the mortgage that the lessees,
assigned, transferred, or in any way alienated their right, title and interest in the demised land and buildings,
and that the lease for that reason became liable to forfeiture.
10. As I construe the fifth and sixth covenants of the lease it was contemplated that the lessees should be entitled to under-let, and by way of under letting to part with the possession of the demised premises and the buildings thereon if they were so minded; and it is conceded, that if under Clause 3 of the mortgage one single day at the end of the term created by the lease had been excluded from the term created by the sub-demise, no forfeiture would have occurred. Nevertheless, the plaintiffs are entitled to insist upon their legal rights.
11. I do not think that it was the intention of the parties to the lease of 23rd August 1910, however, that a transaction in which the term was mortgaged, whether the mortgage was a legal or equitable one, should work a forfeiture under the sixth covenant in the lease. The Court leans against forfeitures, and, in my opinion, the principle of law to be applied is that laid down by Abbott, C.J., and Bayley, J., in Doe v. Hogg (1824) 4 D. & R. In the course of his judgment Bayley, J. observed:
The question in Crusoe v. Bugby (1771) W. Bl. 766 was whether the fact of the lessee having granted an under-lease of the premises worked a forfeiture, and the Court said that the Courts have always held a strict hand over these conditions for defeating leases. Very easy modes have always been countenanced for putting an end to them....The lessee has only deposited the lease as a security, which it was competent for him to do. There is no parting with the legal interest within the meaning of the covenant, because the lessee might at any time redeem the indenture by paying off the encumbrance upon it.
12. In Russell v. Beecham (1924) 1 K.B. 525 the principle laid down in Doe v. Hogg (1822) 4 D.& R. 226 was followed and applied by the Court of Appeal in England, and in that case their Lordships observed that
the authorities have decided that 'assign' means 'part with absolutely'
13. Applying the principles enunciated in those cases to the fifth and sixth covenants in the lease, in my opinion the parties intended and agreed that by way of. sub-demise or otherwise the lessee should be entitled to part with possession of the land and premises demised, so long as they did not absolutely transfer the whole of their right, title and interest therein.
14. In my opinion, it cannot reasonably be contended that under the mortgage of 7th May 1923 the lessees parted absolutely with the whole of their right, title and interest in the said premises. I need not enumerate or discuss the several clauses of the mortgage, but it appears to me to be clear that the execution of the mortgage was not a breach of the sixth covenant; and I cannot bring myself to believe, upon a true construction of the sixth covenant in the lease, that it was intended or agreed by the parties thereto that where the term was mortgaged as security for a loan in such a way that upon re-payment the term should be surrendered to the mortgagors, the mortgage should operate as a forfeiture of the lease.
15. In my opinion, what really has happened is that the lessors, finding that the lessees have become insolvent, are now attempting to take advantage of the ruling that a sub-demise of the whole of the term of a lease for certain purposes operates as an assignment in order to regain possession of the premises that they had demised in 1910 for 61 years.
16. In my opinion, upon a true construction of these documents, this attempt must fail, and the suit will be dismissed with costs on scale No. 2, including the costs of the original defendant Lala Raghumull, which will be paid to the executors who have been substituted as defendants in his stead.
17. As my decision upon the construction of the document is in favour of the defendants, it becomes unnecessary to determine the issue of fact as to whether or not after the forfeiture occurred it was waived by the lessors, nor do I determine whether, having regard to the state of the pleadings, it was open to the defendants to raise the issue of waiver.