1. This appeal arises out of a suit brought by the plaintiff to recover Rs. 15,000 odd on a mortgage from defendant No. 1 by postponing an alleged mortgage executed by defendant No. 1 in favour of defendant No. 2, on the ground that the defendant No. 2, the original owner of the property, had, by surrendering the title-deeds into the hands of defendant No. 1 and suppressing the mortgage to himself and making it appear that the sale to defendant No. 1 was for a cash consideration of Rs. 32,000, afforded defendant No. 1 opportunity to raise money on the property by second mortgage as unencumbered.
2. The defence was that the defendant No. 1 had not really borrowed Rs. 13,000 from the plaintiff and the plaintiff was fully aware of the circumstances under which defendant No. 1 purchased and mortgaged the property in suit. Search having been made in the Registration Office the plaintiff was saddled with notice of defendant No. 2's mortgage and the possession of defendant No. 2 was also notice to the plaintiff. The defendant No. 1 did not appear, but the Court below passed an ex parte decree against him and dismissed the plaintiff's suit as against defendant No. 2, on the ground that the plaintiff was not deceived by any of the recitals in the deed of sale, that he had constructive notice of the mortgage to defendant No. 2, and that there was no gross negligence on the part of defendant No. 2.
3. Against this decision the plaintiff has appealed and the points raised for our consideration are:
1. Whether the defendant's mortgage is a real or fictitious one?
2. Whether the defendant is not estopped against the plaintiff by reason of certain recitals in the conveyance under which defendant No. 2 sold the property to defendant No. 1.
3. Whether defendant No. 2 has not forfeited his priority by reason of his having parted with the title-deeds and having been otherwise guilty of gross negligence so as to enable the defendant No. 1 to raise money on mortgage from the plaintiff on the footing that the property was unencumbered. It appears that the defendant No. 2, one Abdul Aziz an old man of 70, purchased the property which consists of 12 cottahs, 8 chittaks, 10 square feet of land with an old masonry dwelling house upon it, known as 81, Karrya Road, Ballygunge, in the suburbs of Calcutta, but included within the Calcutta Corporation bat not in the original jurisdiction of the High Court, for Rs. 22,000, in the year 1909.
4. The property not letting at its proper value the defendant No. 2 and his son, who is a mohurrir in the office of the Superintendent of Political Pensions and was' formerly Assistant Record Keeper in the Alipore Magistrate's Office, determined to sell it and, according to the sale-deed, to invest the cash proceeds in other property. The defendant No. 1 made an offer of Rs. 32,000 which was evidently accepted by the defendant No. 2 on the footing that the whole was going to be paid in cash, though the evidence on defendant No. 2's side is so conflicting as to what actually happened that it is difficult to assert anything in connection with it except that the defendant No. 2, his son and the Pleaders and other witnesses cannot all be speaking the truth.
5. The evidence of the Pleader Jiban Hari Mukerjee, who seems to have impressed the learned Subordinate Judge very much by his ingenuous ignorance of law and his far too frank admissions of careless neglect of his client's interests, is of extreme importance in elucidating the very extraordinary transaction whereby the property passed under a registered kabala with full consideration to the defendant No. 1 and yet is said to have remained in the possession of defendant No. 2 under a mortgage, which purported to be a simple mortgage, for the major portion of the consideration to be paid in instalments.
6. This mortgage is sought to be varied by evidence of an oral agreement changing it into a mortgage with possession. The arrangement alleged by defendant No. 2's son is that the defendant No. 1 agreed to pay Rs. 2,500 in cash but being unable to do so he paid Rs. 500 only in cash, and gave a hand-note for Rs. 2,000. This hand-note is not forthcoming and the evidence regarding it is conflicting, some saying it was in favour of the defendant No. 2's son, others saying it was in favour of the father.
7. For the balance Rs. 29,500 the defendant No. 1 executed a mortgage on the house to be paid in instalments without interest. Both the sale-deed and the mortgage were registered on the same day, viz., 26th July 1911, and they purport both to have been executed on the 25th July, but it is a curious and wholly unexplained fact that the sale-deed was executed in the Pleader Jiban Hari's office while the mortgage-deed was executed in the office which the defendant No. 2's son calls his office but is really a part of the Magistrate's office at Alipur, where the assembling of the parties for such a transaction must have been wholly unauthorised, and carried out in secret without the knowledge of Golam Mohiuddin's superiors.
8. The Pleader Jiban Hari now wants to make out that he drafted the passage about the consideration for the sale with full knowledge of the intended mortgage and that he did not mention the mortgage because the mortgagee was to remain in possession.
9. The passage in the sale-deed is marked (L) and purports to be the statement of Abdul Aziz. It runs as follows:
I, being in need of money for purchasing other property, notified to sell the said property, and you having agreed to purchase the same for a consideration of Rs. 32,000 (thirty-two thousand rupees), I sell the said property for the said consideration to-day and by executing this deed in your favour, I do hereby agree and promise that all rights, ownership and interest and title which I had in the property sold, do hereby devolve upon you from to-day.
10. This he says was drafted on the vendor's son's instructions. As regards the other curious recital contrary to the facts marked (B) in the mortgage-deed, he says that it does not represent the arrangement come to between the parties immediately before the execution of the conveyance and the mortgage-deed, In the mortgage-bond the defendant No. 1 mortgagor says: The property is retained in my possession and I shall pay the Collectorate rent and the Municipal taxes, etc., from my own pocket. I deliver to you the documents mentioned in the schedule (go) below as your title-deeds.' Yet the Pleader says the arrangement immediately before the execution of the mortgage and the conveyance was totally different and that the deeds as they stand were drafted 2 or 8 or 4 or 5 days before the execution of the deeds'. Nevertheless he did not think it necessary to make any alteration in the drafts which, whatever their legal effect may be, are certainly calculated to deceive a subsequent mortgagee or purchaser, and were fraud pleaded in a case like this, the recitals would certainly be evidence for what they were worth of possible fraud and would, therefore, perhaps come within the purview of the judgment of Jenkins, J. in Monindra Chandra Nandy v. Troyluckho Nath Burat 2 C.W.N. 750, which we shall refer to more at length later on when we come to consider the question of 'gross negligence'. Now turning to the evidence of the old man Abdul Aziz it appears that he executed the sale-deed in Jiban Hari Pleader's office, which is near his dwelling-house in Kidderpur. He was not present when the mortgage-deed was executed and he says the hand-note for Rs. 2,000 was in favour of his son. All he got himself was Rs. 500 in cash and the registration receipt for the sale-deed to protect his mortgage. This, he would have us believe, he handed over to defendant No. 1 because he wanted to make a copy of the sale-deed.
11. The loan was for 5 or 7 days, yet the defendant No. 1 was allowed to retain it for two months and eventually use it to raise money from the plaintiff, though a copy could easily have been obtained from the Registration Office at very small expense.
12. But still more curious is the making over of a large number of documents, most of them in no sense documents of title, to the defendant No. 1 by the vendor's son independently of his father on the same flimsy excuse. One may well ask what could he want with promissory on-demand notes and plans of proposed privies and other works never executed, when he was not to have a day's possession of the premises. The learned Counsel for the respondent suggests that the defendant No. 2 and his son are endeavouring to place their case too high when they say defendant No. 1 never had possession and that what probably happened was that they resumed possession when defendant No. 1 ran away in September 1911 leaving the mortgage instalments unpaid.
13. But if that is so, not only is the evidence of the defendant No. 2 and his son but that of the candid Pleaders on whom the Subordinate Judge relies rooted and grounded in falsehood.
14. The absence of defendant No. 2 at the execution of the mortgage, its secret preparation as an after-thought in a Government office, where such a transaction had no business to be carried out, the hand-note of Rs. 2,000 to the son, though the documents recite that it was in favour of the father, convince us that the father, having accepted Rs. 8,503 as earnest money and agreed to the remainder being paid in instalments on simple mortgage-bond without interest, was put off with a present payment of Rs. 500 and left the rest of the negotiation to the son. The whole transaction is full of suspicion and supported and excused by evidence much of which is deliberately false.
15. Not only is the mortgage with possession incapable of proof in face of the registered document, but the evidence which is given in respect of it by the four most important witnesses in the case, the defendant No. 2, his son and his two Pleaders, is, as we have seen, false and has almost to be admitted to be false by learned Counsel in order to get over the legal difficulty of the passing of the property by sale on full consideration.
16. He at first endeavoured to defend the retention of possession on the ground that the non-payment of Rs. 2,500 in cash justified it.
17. But the acceptance of a hand-note and a mortgage as full consideration negatives this and there was no attempt to support the Fleader witness's absurd contention that possession could be retained until the instalments of the mortgage were paid.
18. This is one point on which we find the defendant No. 2's case is damaged by false evidence, and another portion of the evidence which we cannot believe is the story of the receipt and documents being made over bona fide to the defendant No. 1 for taking copies. It is perfectly clear that the title-deeds were handed over to him on execution of deed of sale and that in the subsequent mortgage-deed executed in another place he undertook to return them.
19. By the most extraordinary carelessness the old man Abdul Aziz and his incompetent Pleader, Jiban Hari Mukerjee, left the receipt for the deed of sale in defendant No. l's hands with all its false and misleading recitals and the question before us is, whether the plaintiff cannot plead an equity to postpone the mortgage to defendant No. 2 which appears to contain perfectly true recitals, though the defendant No. 2 and his witnesses have taken so much trouble to prove that they are false.
20. Now we have to ask ourselves what is the meaning of all this apparently foolish misrepresentation and false statement. Ordinarily speaking such conduct would be evidence of fraud, but it is difficult to see what object was sought to be attained by this chicanery and the plaintiff is of course unable to assign any fraud because he knows nothing of the secret dealings of the parties. But if there was no fraud, it is difficult to avoid the inference that there was gross and culpable negligence in fact, and the sorry figure cut by the Pleader who is responsible for the documents in the witness-box lends colour to that inference.
21. On the facts proved by the evidence for the plaintiff we have no hesitation in holding with the learned Subordinate Judge that the plaintiff was induced to advance Rs. 13,000 to defendant No. 1, on the strength of the clear title in his hand and that the evidence, which is amply sufficient, is not recalled nor even impugned in cross-examination. The learned Counsel for respondent urges that both plaintiff and defendant No. 2 have been defrauded by defendant No. 1 and that defendant No. 2 stands to suffer a very heavy loss compared with plaintiff, who took a speculative mortgage with the usual risks. The defendant No. 2's mortgage on the other hand was consideration for a valuable property belonging to the defendant No. 2 and he should not be the loser by postponement. This is on the merits. But on the law he strenuously argues that there is no defect in form in the conveyance and that although the recitals in it might be a very good answer to a claim for an unpaid vendor's lien it is no answer to a valid registered mortgage. It is argued upon the authority of Mohindra Chandra Nandy v. Troylockho Nath Burat 2 C.W.N. 750, to which we have already referred, that there must be fraud or something indicating fraud to bring the case within Section 78 of the Transfer of Property Act, and that although the rule in this Court, contrary to the view held by the Bombay Court, is that registration is not per se notice, yet where there has been a search there is an irrebutlable presumption that the searcher had notice of the registered encumbrance, and for this the case of Akhoy Kumari Debi v. Kanai Lal Kundu 10 Ind. Cas. 618 : 17 C.W.N 224 is relied on and the reasons given by Dart in his work on Convincing. A mere case of carelessness, such as it is argued occurred here, would not have such serious consequences particularly in a country where transfers of property are registered. Moreover the plaintiff, it is alleged, has been guilty of neglect of the plainest duties of a mortgagee in not demanding requisitions of title though he acted through a Calcutta Solicitor, in not searching the Municipal Registers and not seeking for an explanation of the absence of any express words showing payment of the consideration-money in cash. It was also argued, as we have seen, that possession is notice.
22. To deal with the last point first. It is now conceded that the right to possession passed absolutely to the vendee defendant No. 1 by the sale-deed and the plaintiff has, in our opinion, clearly established that when he went to see the property with a view to advancing money on it, the defendant No. 1 had the key, opened the door and showed the premises. From enquiries on the spot he came to know that defendant No. 1 was in possession. The Subordinate Judge is in error in saying that the plaintiff's deposition shows that he merely paid a flying visit for a few minutes and asked a casual neighbour who the owner was and came away. The whole incident of the broker and the key which is unrebutted is ignored by the learned Subordinate Judge. The defendant No. 2 has to admit through his learned Counsel that he must have given possession to defendant No. 1, otherwise he would be guilty of defrauding the defendant No. 1 by taking money and a hand-note from him and a mortgage wholly without consideration. That being so, the gravest suspicion falls on the whole transaction, the recitals in the documents being false, the evidence being false and the transaction being carried out in a most irregular manner at a most irregular place. The Pleader, who is the first witness to the mortgage-deed, admits that he was not present at its execution but signed it later on the admission of the executant. Whether the son of defendant No. 2 wanted to defraud defendant No. 1 and get Rs. 2,500 for an inoperative sale is not now before us inasmuch as defendant No. 1 does not appear, but it is quite clear that at that time defendant No. 1 had no fraudulent intention. His fraud, if any, had its first inception when his pecuniary difficulties pressed hard upon him and the negligence of the defendant No. 2 and his son gave him the opportunity of deceiving the plaintiff. Upon this it has been argued for the respondent that you cannot get damages for an innocent misrepresentation of Common Law. Perry v. Peek 14 App. Cas. 337 : 58 L.J. Ch. 804 : 61 L.T. 265 : 38 W.R. 33 : 54 J.P. 148 : 1 Meg. 293 and in Appeal Cases (1902) in the House of Lords, Lord Halsbury is referred to as saying that it is not your duty to guard against criminal offences. It cannot be negligence to trust a person who can only take advantage of yon by means of a crime. Now the answer to the first part of this contention is that no one is seeking damages for misrepresentation or negligence in this case. A purely equitable relief is sought for here and we have nothing to do with any question of damages or compensation at Common Law. In the same way the criminal act of fraud, if any, was committed by defendant No. 1 against the plaintiff and not against defendant No. 2. Defendant No. 2 was never deceived. He accepted full consideration for his sale and thought he had made a very good bargain The agreement, if it had any force at all, would tell in the plaintiff's favour, but there is nothing to show that defendant No. 1 is amenable to the criminal law.
23. He did not seek out the plaintiff or make any representation to him. The plaintiff saw the property, satisfied himself as to the possession, placed the verification of title in the hands of his Solicitor and there is nothing on the record to show that the defendant No. 1 ever brought himself within the clutches of the Indian Penal Code. Indeed the respondent had to admit that it would be very difficult on the facts to get a verdict of cheating against the defendant No. 1. The defendant No. 2 had secured what he considered a very good bargain for his rather unprofitable property.
24. The Pleader Jiban Hari Mookerjee says both parties were his clients and the whole transaction was open and above board.
25. The son of defendant No. 2 says he had known the defendant No. 1 two years before the sale. He had a new arat of jute business at Munshigunj in Dacca District and a press and tailoring business in Calcutta. Nothing was then known of his being unable to meet his liabilities. Defendant No. 2 does not seem to have any very good case for sympathy on the merits. That being so, let us examine the legal contentions which arise on the Subordinate Judge's judgment.
26. We are not called upon to hold that the prior mortgage of defendant No. 2 was not a bona fide and valid document, through the circumstances under which it was created and the conduct of the defendant No. 2's son in respect of it are suspicious. The first important question of law is as to notice.
27. Section 3 of the Transfer of Property Act says;' A person is said to have notice of a fact when he actually knows that fact or when but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it.' Now it is perfectly certain that plaintiff did not actually know that the property was mortgaged to within a few rupees of its nominal and greatly enhanced value. If he had, he would have been mad to have advanced Rs. 18,000 on it, and being a money-lender, it is not likely that he was blind to his own interest. The only way in which this substantial finding of ignorance in fact could be met would be by arguing, as it was argued, that defendant No. 1 was colluding with the plaintiff to rob defendant No. 2. There is no evidence of this and the Subordinate Judge has rightly held that there is strong evidence to the contrary, though he is wrong in saying that there are a host of independent witnesses' on the point. If in fact, therefore, he did not know, how is he to be saddled with constructive notice? In two ways, it is argued: (1), because he had a search made in the Registration Office and (2) on the authority of Akhoy Kumari Debi v. Kanai Lal Kundu 10 Ind. Cas. 618 : 17 C.W.N 224 that resulted in a presumption of notice of the contents of the book and it could not be rebutted by the mere statement that though a search was made it was unsuccessful.
28. We may accede to this narrow proposition, although it is based upon fresh decision by which, as the learned Judges point out, we are not bound. But it was sought by learned Counsel to erect this very simple presumption by way of caution against fraud into an irrebuttable presumption that the person who had a search made had notice in every case and if we held otherwise, we were strongly pressed to refer the decision cited to the full Bench. In support of this contention we are referred to Dart on Vendors and Purchaser?, page 901, where he says: 'The duty of the solicitor being to inform the client of the defect in the title, the presumption that he has done so is sui juris et de jure, the danger of perjury being too great to admit of the presumption being rebutted by evidence.' The passage in Dart has, of course, no reference to this question of registration and search. That is, as the Judges in Akhoy Kumari Debi v. Kanai Lal Kundu 10 Ind. Cas. 618 : 17 C.W.N 224 point out, a simple presumption of fact depending on the circumstances of the particular case.
29. We cannot put it better than in the words of the learned Judges themselves as to what was then before them. They say: 'all that is said here is that a search was made but without success. There is no attempt made to explain this want of success, no suggestion of any special or qualifying circumstance which would justify the treatment of the case as exceptional.'
30. Here very much the reverse is the case.
31. All the title-deeds were before the attorney and he approved the title. He was then instructed to search for encumbrances and he employed the managing clerk of the defendant No. l's attorney to make the search. To excuse his conduct he states' that this Haripado Chatterji is joint clerk of himself and Romesh Babu, the attorney of the common adversary defendant No. 1. He admits that the plaintiffs ordinarily search through their own man, Upendra Talukdar. He being away the attorney was asked to make the search and he admits, that the responsibility for the search is theoretically his. When he employs the principal clerk of the attorney of defendant No. 1 who was strongly interested to see that the encumbrance was not discovered, we can easily see how easily this Haripado, who identified defendant No. 1 at the Registration Office on the 21st September 1911 and then described himself as managing clerk of Romesh Chandra Bose solicitor and nothing else, could be induced by defendant No. 1 to suppress the encumbrances. No man of the plaintiff was allowed to go with him though plaintiff has numerous men looking after his legal business.
32. The evidence in regard to this search is so suspicious that we are inclined to agree with the Subordinate Judge that it is extremely doubtful whether there was any search at all. At any rate no presumption can be raised against the plaintiff on a search made by the managing clerk of the enemy's attorney.
33. Secondly, it is said Section 3 does not apply on account of gross negligence. Now this is alleged to be the non-inspection of the Municipal papers, not obtaining requisitions of title, and not requiring an explanation of the absence of express words as to the passing of consideration.
34. The Municipal papers have been printed by the respondent in a separate book and they show nothing except that Abdul Aziz was registered in 1909, and that he paid the taxes for the quarter before the sale and for the quarter after, the house being admittedly unoccupied by a tenant. The sale was in the middle of the quarter and so was the disappearance of defendant No. 1. So that nothing would appear from the Corporation papers and the plaintiff was entitled to assume from the recent transfer from Abdul Aziz, to defendant No. 1 in July that the name of Abdul Aziz would still appear during the quarter July to September, and the registers could show him nothing.
35. Requisitions of title are a matter for the solicitor. He was instructed to get them but informed the plaintiff on the title-deeds that the title was good.
36. The sale-deed was registered at a mofussil office and there is no practice outside Calcutta, and certainly no such presumption as that laid down by Dart for England, that the solicitor has made requisitions of title. In this case the fact remains that he had not, though he appears to have made the plaintiff believe that he had and appears to have been acting hand in glove with defendant No. l's attorney to the detriment of the plaintiff. Neither the Attorneys for the plaintiff nor the Pleaders for the defendant No. 2 come very well out of the witness-box. As regards the recitals in the sale-deed, whatever may be the strict legal effect of such statements in England, we are unable to hold that the plaintiff was put upon any enquiry as to the consideration by reason of the absence of a memorandum of consideration. It may have been the duty of the Attorney Sailendra to look into the matter, but his evidence shows he clearly, neglected his duty and makes light of his responsibility. We are of opinion that the words used were deliberately inserted to give the impression that the consideration had passed in cash, and we derive from Jiban Hari Pleader's evidence that that was the original suggestion made to satisfy the old man, defendant No. 2.
37. It does not, therefore, matter whether the words according to strict English rules of convincing can bear that interpretation in law. The question is that the parties on the one side intended to be believed and the parties on the other side were induced to believe by the words used. On the whole, therefore, we are able to find as a fact that plaintiff had no notice of the defendant No. 2's prior encumbrance, that steps were taken throughout the transaction to keep that knowledge from the plaintiff and that he cannot be saddled with constructive notice by reason of any search improperly made by a man from the enemy's camp, or any omission to make enquiries which were infructuous in the one case, and on the face of the documents superfluous in' the other.
38. The other main point of law on which the Subordinate Judge has held against the plaintiff is with regard to the application of Section 78 of the Transfer of Property Act.
39. That section says: 'Where, through the fraud, misrepresentation or gross neglect of a prior mortgagee, another person has been induced to advance money on the security of the mortgaged property, the prior mortgagee shall be postponed to the subsequent mortgagee.'
40. Now there is no allegation or proof of any actual fraud on the part of the prior mortgagee in this case, though his conduct is such as it is difficult to explain without assuming that he had the intention to deceive some one to his own or his son's advantage; nor is there any misrepresentation as defined in Section 18 of the Contract Act, though there is a great deal of misrepresentation in the ordinary sense of the word. The question remains, is there any gross negligence'
41. Now whatever definition we take of the three ingredients in the section, fraud, misrepresentation or gross negligence, it is clear that the section makes them disjunctive and that one cannot be defined in terms of the other or others. They are three different kinds of conduct and are in, no way co-extensive. The ruling, therefore, in Monindra Chandra Nandy v. Troylockho Nath Burat 2 C.W.N. 750, which was the decision of a single Judge sitting on the original side of this Court and governed more directly by English practice and precedents than we are, cannot be taken to mean as was argued by learned Counsel that there is no postponement apart from fraud. The learned Judge, who after holding the offices of Chief Justice of Bombay and of this Court has now been elevated to the Judicial Committee of the Privy Council, cannot be for one moment suspected of ignoring the clear distinction drawn by Section 78 of the Transfer of Property Act between the three different kinds of conduct which raise an equity against the prior mortgagee.
42. It is true that the English cases which he cites not as authorities but guides do seem to import the idea of fraud, if only by implication, although the distinction drawn by Section 78 is clearly made by Lord Justice Turner in Hunt v. Elmes 2 De G.F. & J. 578 : 30 L.J. Ch. 255 : 7 Jur. (n.s.) 200 : 3 L.T. 796 : 9 W.R. 362 : 45 E.R. 45 : 129 R.R. 204, but all that is derived from those cases is that the mere omission on the part of the mortgagee to take and keep the title-deeds is not of itself gross negligence and the existence of gross negligence must be determined according to the circumstances of each case, and one of the circumstances to be taken into consideration here is the fact that in this country a universal system of registration exists. Some remarks follow which might be construed to imply that the learned Judge was re-importing the Bombay view that registration is notice, into this Court which has always held to the contrary, but a careful consideration of the facts of that case precludes us from ascribing any such intention to the learned Judge.
43. The Maharani in that case was not the owner of the property.. She took a mortgage after every proper enquiry and perfected her title by registration, and the only fact against her was that her agent followed the mofussil practice and returned the title-deeds to the mortgagor. Here the owner while transferring his property by sale took particular pains to conceal what the real consideration was, and though he registered the mortgage, deliberately suppressed all reference to it in any statement of consideration and for some unknown reason made it appear on the face of the title-deeds that there was no such mortgage. His handing over the sale-deed to defendant No. 1 enabling him to give an equitable mortgage to plaintiff in Calcutta, where the parties reside, and actually inducing him to advance Rs. 13,000 on the strength of the title-deeds was, therefore, we think, gross negligence, and we are fortified in this opinion by the more recent case of Walker v. Linom (1907) 2 Ch. D. 104 : 76 L.J. Ch. 500 : 97 L.T 92, where Parker, J., as he then was, points out that the fraud mentioned in the older cases cannot have been such conduct as would justify a Judge or Jury in finding there had been actual fraud but such conduct as would justify the Court of Chancery in concluding that there had been fraud in some artificial sense, just as in the case now before us it is difficult to account for the duplicity and concealment of the defendant and his son on any other supposition than that they intended to defraud some one, but at the same time on what we can only gather from the record there is nothing to show what that fraud was or in fact whether there was any fraud in the ordinary sense of the word at all.
44. Then, again, as regards the ridiculous story that the defendant No. 1 was allowed to keep the title-deeds for two months to make copies which he had undertaken to make in five or seven days, Parker, J., says : There are subsequent cases which suggest that at any rate in cases of postponement based on no enquiry having been made for the deeds, fraud is not necessary. It is for example clear from the case of Oliver v. Hinton (1899) 2 Ch. 264 : 68 L.J. Ch. 583 : 48 W.R. 3 : 81 L.T. 212 : 15 T.L.R. 450 that a purchaser obtaining the legal estate but making no enquiry for the title-deeds or making enquiry and failing to take reasonable means to verify the truth of the excuse made for not producing them or handing them over, is, though perfectly honest, guilty of such negligence as to make it inequitable for him to rely on his legal estate so as to deprive a prior incumbrancer of his priority.'
45. On that case Lindley, M.R., said that to deprive a purchaser for value without notice of a prior encumbrance of the benefit of the legal estate it is not essential that he should be guilty of fraud.
46. Here defendant No. 2 or his son, who did all his business for him, had full notice by default in the instalments that defendant No. 1 was not a good paymaster and might be unscrupulous in raising money for his needs, yet he persistently neglected to secure the return of the title-deeds, being put off with flimsy excuses that copies could not be taken owing to certain deaths in the family. As the learned author of Fisher on Mortgages points out at page 573, Section 1122 of his work, Parker, J., reviews elaborately all the previous authorities and displaces the more narrow view previously held as to the necessity for fraud being shown.
47. The only other English cases we need refer to is that of Colyer v. Finch 5 H.L. Cas. 905 at p. 924 : 26 L.T. Ch. 65 : 3 Jur. (N.S.) 25 : 10 E.R. 1159 : 101 R.R. 442, where Campbell, L.J., says : 'Cases are very different to deal with when you are obliged to use vituperative epithets (like 'gross') in order to enunciate a principle. What constitutes gross negligence' is always excessively difficult either to define, or, by way of anticipation, to illustrate, but it appears to me at present, that none of the cases, as far as I am aware of them, would entirely justify what was done by the mortgagee here' and under the circumstances of that case he held, as we must hold under the circumstances of this case, that the leaving of the title-deeds with defendant No. 1 was an act of gross negligence. Of Indian cases we have had cited before us and considered the cases of Madras Building Company v. Rowlandson 13 M. 383, the same case in appeal Shan Maun Mull v. Madras Building Company 15 M. 268 : 2 M.L.J. 95, Rangasami Naikan v. Annamalai Mudali 31 M. 7 : 3 M.L.T. 87 : 17 M.L.J. 499, Manji Karimbhai v. Hoorbai 8 Ind. Cas. 752 : 35 B. 342 : 12 Bom. L.R. 1044 (the last on the question of notice). All these cases deal with the points on the particular facts and circumstances of those cases, but what we derive from them is that, in a case like the present, neglect to recover the title-deeds by a vendor from a vendee who has secured the greater part of the purchase-money to the vendor by giving him a mortgage on the property itself, when the vendor has full notice that the vendee is impecunious and a bad paymaster, and whereby the vendee is enabled to obtain a second mortgage on the property by deposit of the title-deeds, is gross and culpable negligence, and is rendered more so by a deliberate suppression of the existence of the mortgage in the sale-deed and a suggestion that the purchase-money was required in cash and paid accordingly.
48. Further that registration not being in itself notice, a search made by the clerk of the solicitor to the vendee who has an interest to conceal the encumbrance from the second mortgagee cannot saddle the latter with notice of the encumbrance. These two findings dispose of the appeal, which must accordingly be decreed so far as the lower Court refused to give relief to the plaintiffs against defendant No. 2 and it will be declared that the mortgage-bond of the 25th July 1911 to the defendant No. 2 be postponed to that of the 21st September 1911 in favour of the plaintiffs, that this day six months be fixed as the time for the defendants Nos. 1 and 2 jointly or severally to pay to the plaintiff the sum due on his mortgage with interest and costs and if the amount is not paid on that date, the mortgaged property will be sold.