1. These second appeals arise out of two suits to enforce mortgage bonds, dated respectively 25th September 1894 and 1st October 1894. The appeals are with regard to the order of the District Judge in appeal disallowing the contract rate of interest and fixing an arbitrary rate of his own.
2. There are cross-objections by defendants second party who are purchasers of the equity of redemption under a kobala, dated the 5th April 1891, under which they paid off three prior simple mortgages created by Exts. A2, A3 and A4 and a prior usufructuary mortgage created by Ex. A3. They also paid off a puisne mortgagee with whom we are not concerned.
3. The kobalas recite the circumstances and mention the mortgages. The defendants second party have preserved the bonds and produce them. Under these circumstances the well-known principle of subrogation laid down in the Privy Council judgment in the case of Gokaldas Gopaldas v. Puranmal Premsukhdas 10 C. 1035 : 11 I.A. 126 seems to apply with the strongest possible force.
4. But both the lower Courts seem to have been pressed with the notion that the defendants second party had undertaken to prove affirmatively that there was a distinct agreement for subrogation between them and the mortgagors and that at the time they paid off the prior mortgages they expressed their intention to keep alive the prior securities for their benefit.
5. Of course, they were under no obligation whatever to prove any such facts. The presumption was enough until it was rebutted to give them the right and the circumstances recited in the kobalas clearly show that they intended to purchase the properties free of encumbrances and, therefore, to defeat any mesne encumbrances of which they might have no knowledge. The learned Judge says there might be another reason for keeping the bonds, viz., as vouchers of payment, but this is no argument against the doctrine of subrogation. There being a presumption that they kept them in order to keep alive the securities any additional reason for keeping them becomes irrelevant.
6. Then the Judge thinks that the recitals in the kobalas that there were no other encumbrances show that the defendants second party thought there were no other encumbrances and he says the pleadings and evidence are to the same effect. The recitals are, of course, statements of the mortgagors and it is because of the untrustworthiness of such statements that the presumption in favour of the purchaser who pays off all the mortgages he knows of enures to his benefit. If he purchases with his eyes, open knowing there are other prior encumbrances and does not pay them off, the presumption is greatly weakened. The circumstances, therefore, which the learned Judge thinks go against the presumption, are, in our opinion, strongly in its support. The plaintiffs are, therefore, only entitled to a decree on paying off what is due on the four prior mortgage bonds held by the defendants second party, and the case must go back to the lower Court for adjusting the principal amount of the decree on that footing. As regards the interest we can find no warrant in law for disturbing the contract between the parties. No penalty is either pleaded or proved and there is nothing unconscionable in the bargain which the defendants 1st party made with their eyes open.
7. The decision of the learned Judge in the Court below as regards reduction of interest will be set aside and interest allowed at the contract rate according to law.
8. As regards interest on costs it is settled law, Raj Kumar Singh v. Sheo Narain Sahu 12 C.W.N. 364 : 8 C.L.J. 152 : 35 C. 431, that the costs must be included in the account which is to be made up as a whole on the decree nisi, and the decree being thus for a lump sum, the costs which are indistinguishable from the rest of the sum due bear interest ipso facto at the Court rate until realisation.
9. The whole decree must, therefore, be remodeled according to the above directions. The costs in appeal in both Courts will abide the result.