WHMAX.ARATNE, J.—Mercantile Bank Ltd. v. Anver
Present: Wimalaratne, J., Sirimane, J., and Wijesundera, J-
MERCANTILE BANK LIMITED, Appellant, and A. H. H. M.
ANVER and others, Respondents
S. C. 30/71 (Inty)—D. C. Galle 2424/M. B.
Mortgage Act—Sections 2, 46, 48—Mortgagee of movables—Right to haverecourse to property other than the mortgaged movables—CiuilProcedure Code, Section 34.
It is open to the mortgagee of movable property, to have recourseto other property of the mortgagor if the amount realized by thesale of such mortgaged property is insufficient to satisfy the mortgagedebt.
“The Mortgage Act has no doubt improved the position of amortgagee of movables by incorporating special provisions regard-ing the mortgage of shares, life policies, book debts and motorvehicles (sections 73 to 104) and by safeguarding his rights in theevent of the mortgaged property being seized in execution by othercreditors (section 105). But yet the insecurity of a mortg-gpe ofmovables is still there, and that fact would have been in the mindsof the legislature when provision similar to section 46 was notenacted in relation to movables.” per Wimalaratne, J.
Appeal from a judgment of the District Court, Galle.
C. Ranganathan with K. N. Choiksy for Plaintiff-Appellant,
H. W- Jayewardena with A. Mamyitiya and Miss SriyanganieFernando for Defendants-Respondents.
Cur. adv. vult.
September 6, 1976. Wimalaratne, J.—
I have had the opportunity of reading the judgement of Wije-sundera J., and I agree with the conclusion reached by him thatin the case of a mortgage of movables, if the amount realised bythe sale of the mortgaged property is insufficient to satisfy themortgage debt., it is open to the mortgagee to have recourse toother property of the mortgagor.
Until the enactment in 1950 of the Mortgage Act (Cap 89)the common law permitted a mortgagee of both movables andimmovables to have recourse to other property of the mortgagor,if the mortgaged property was insufficient to satisfy the mort-gage debt.
Section 46 of the Mortgage Act makes it abundantly clear thatno decree in any hypothecary action upon any mortgage of landand no decree in any action for the recovery of any money dueupon any such mortgage shall order any property other than themortgaged land to be sold for the recovery of any moneys foundto be due under the mortgage. Although there is no similarprovision in relation to the mortgage of movables., the definition
t « a. tfa*riK trrrno*
WTMAL.AKATNE, J,—M err cant ile Bank Ltd. v. Anver
of “ hypothecary action ” in section 2, as meaning “ an action toobtain an order declaring the mortgaged property to be boundand executable for the payment of the moneys due upon themortgage, and to enforce such payment by a judicial sale of themortgaged property ”, has given rise to a doubt as to whetherin the case of mortgage of movables, the mortgagee has a rightof recourse to property other than the mortgaged movables.
Could there have been any reason for the legislature to havedrawn a distinction between movables and immovables and toalter the common law only in regard to immovables ? Quiteapart from the natural distinction between movables and immo-vables, it would appear that the method of creation of the twotypes of mortgages and the procedure for their enforcement aredifferent. These differences appear also to affect the types ofrelief available to the mortgagee.
The security afforded by movables for the repayment of a loanis subject to very serious infirmities. They are, as the name con-notes, movable, and can change from hand to hand with ease.Whereas immovables may be subject to a real charge, movableswill not be affected by such charges by reason of the maxim‘ mobila non habent sequelam ’.
In most cases they are not readily identified. It is not possibleto record prior transactions which have taken place in respect ofmovables. There is no means of indicating in a register or otherdocument with certainty that a particular movable which onemay wish to purchase has been the subject of an earliermortgage. A mortgagee of movables can therefore never havethat sense of security experienced by a mortgagee of land.
Whereas a mortgage of land has to be executed in conformitywith the Prevention of Frauds Ordinance, a mortgage of movablescan be created either by delivery or by a registered document.In the case of a pledge effected by delivery of the articles themortgagee may have continuous possession, and his possessionmay be sound ; but not so in the case of a mortgage created bya registered document. Registration only gives authenticity tothe document on the date it was registered, but the other infor-mation such as of earlier mortgages executed, is far from beingas reliable as the information relating to mortgages of land.
The Mortgage Act has no doubt improved the position of amortgagee of movables by incorporating special provisionsregarding the mortgage of shares, life policies, book debts andmotor vehicles (sections 73. to 104) , and by . safeguarding _ hisrights in the event, of. the mortgaged, property being- seized in
WXMAJLAftA'JONflS, Jr.—Mercantile Bank Ltd. v. Anver
execution by other creditors (section 105). But yet the insecurityof a mortgagee of movables is still there, and that fact would havebeen in Ihe minds of the legislature when provision similar tosection 46 was not enacted in relation to movables.
The procedure for enforcement of a mortgagee’s rights has alsoundergone a change after the Mortgage Act came into force. Asstated earlier, the Roman Dutch law allowed the mortgagee aright of recourse to the other property of the mortgagor if themortgaged property, whether movable or immovable, was in-sufficient to satisfy his debt. He had two actions available, apersonal action on the loan and a hypothecary action for therealisation of his security. The Civil Procedure Code, by section34(1) required every action to include the whole of the claimwhich the Plaintiff was entitled to in respect of ihe cause ofaction, and in terms of section 34(3) ,an obligation and a colla-teral security for its performance were deemed to constitute butone cause of action. The Mortgage Ordinance, No. 21 of 1927,however by section 16(1) provided that notwithstanding section34 of the Civil Procedure Code, a claim to all or any of theremedies of a mortgagee to enforce payment of the mortgagemoney may be joined to a claim in a hypothecary action, or thata separate action may be brought in respect of each remedy. Thiswas the position regarding the enforcement of mortgages, bothof movables and immovables, until the Mortgage Act replacedthe Mortgage Ordinance. That Act, by section 7 (1) provided thatnotwithstanding section 34 of the Civil Procedure Code, a claim• to enforce payment of the moneys due upon a mortgage may bejoined to a claim in a hypothecary action, or that a separateaction may be brought in respect of each such remedy. SubSection (2) makes it quite clear that the section applies to actionson mortgages of land only. So that in respect of actions onmortgages of movables, it was section 34 of the Civil ProcedureCode that was available, and in terms of that section the personalclaim on the loan and the hypothecary claim for realisation ofthe security had to be included in one action, and consequently,the Plaintiff would in the same action have been entitled, had hesucceeded, to a decree on the personal claim as well as to ahypothecary decree.
One of the most important matters considered by the MortgageCommission of 1943, under the Chairmanship of the late Air. L.M. D. de Silva was the proposal that in a mortgage of land themortgagee’s right to sell the property of his debtor should belimited to the property mortgaged. The Commission in itsSecond Interim Report (S.P. 5 of 1945) recommended (at page36) that ordinarily it should be so, but that there should also be
WUESU-NDERA, if,—Mercantile Bank Bid. v. Anver
provision for express renunciation of this right by the mortgagor.What is important to note for the purpose of the topic underconsideration is the fact that no such proposal had been con-sidered and no recommendation made in respect Of themortgage of movables.
I agree that the Plaintiff-Appellant’s appeal should be allowedand that the Plaintiff should have judgment as prayed for withcosts, both here and in the court below, subject to the restrictionof the liability of the 7th and 8th Defendants to a sum ofRs. 100,000.
The 1st to the 8th defdt. respdts. carry on a business inpartnership under the name, style and firm of A. R. AbdulHameed & Bros, at Nugaduwa Mills, Galle. The 7th and the 8thdefdt.respdts. being minors the 9th defdt.-respdt. was dulyauthorised by the District Court of Galle in case No. 1852 tocarry on the said business on behalf of the two minors, toobtain overdraft facilities for the partnership business on behalfof the minors upto a sum of Rs. 100,000, and to mortgage theinterests of the minors in the business for obtaining an overdraftup to a sum of Rs. 100,000. The defendant-respondents had anaccount with the Mercantile Bank, Galle, the plaintiff-appellant.The plaintiff-appellant on the 7th Sept., 1963 allowed overdraftfacilities up to a limit of Rs. 250,000 to the defendant-respondentswho mortgaged and hypothecated their stock in trade andmerchandise and “ movable property of every sort anddescription lying at Nugaduwa Mills, Galle ” by bond of thesame date, as security for the payment of this sum of money. Onthe 12th March 1964, the defendant-respondents were allowedanother sum of 250,000 by way of overdraft on their executing asimilar bond of that date as security for the payment of theoverdraft. On the 1st of October 1965, the plaintiff-appellantallowed an overdraft of a further sum of Rs. 100,000. Only the1st to the 6th defendant-respondents were parties to that bond.
The amount outstanding on these overdrafts and the interestdue up to the 31st of December 1969 amounted to Rs. 588, 029/91.Alleging that the defendant-respondents failed and neglected topay this sum the plaintiff-appellant filed action (a) to recoverthis amount, restricting the liability of the two minors toRs. 100,000, (b) to have the mortgaged property declared boundand executable for the payment of the amount due, (c) indefault,for the sale of the property and (d) for an order that thedefendants respondents pay the plaintiff appellant any balanceamount left outstanding subject to the restriction regarding thetwo minors.
WIJESUlvDERA, .X.—Mercantile Bank Ltd. v. Anver
The learned District Judge of Galle after trial entered judgmentin favour of the plaintiff appellant that the mortgaged property
be sold in default of payment of the amount claimed, butdismissed the other relief claimed that the defendant-respondentsbe ordered to pay any balance left outstanding and furtherdecided that the plaintiff appellant was not entitled be excussany property other than the property mortgaged, in this action.In his view the action filed by the plaintiff-appellant is ahypothecary action within the meaning of section 2 of theMortgage Act, Cap. 89, and therefore payment can only beenforced by the sale of the mortgaged property. To determinewhether this view is correct it is necessary to consider certainprovisions of the Mortgage Act.
Part 2 of the Mortgage Act provides for hypothecary actionson mortgages of land and sec. 4 makes the provisions of part 2applicable ONLY to a mortgage of land, to any hypothecaryaction in respect of any land and to any action to enforce paymentof any moneys due upon a mortgage of land. In this part there aretwo other sections viz. 46 and 48 which are relevant. Sec. 48 (1)provides that in a hypothecary action, if the court finds that themortgage should be enforced, the decree shall order the landmortgaged to be sold in default of payment. Sec. 46 furtherenacts:— “No decree in any hypothecary action upon any
mortgage of land and no decree in any action for the
recovery of any moneys due upon any such mortgage shall order
any pi’operty other than the mortgaged land to be soldand
no property whatsoever other than the mortgaged land shall be
sold” Sec. 2 of the Act defines land and sec. 46 further
states that an action for the recovery of any moneys due upona mortgage includes any action to recover the money secured bythe debt whether the cause of action is based on the mortgage
or not. The words used are “ no decreeshall order ”. They
are emphatic and the prohibition is unqualified. The result isonly the mortgaged land can be sold in default of paymentwhatever be the form of action to recover the debt due on themortgage.
In the case of mortgaged movables, the section corresponding tosec. 48 (1) is section 107 which provides “where in a hypothecaryaction in respect of mortgaged movables the court finds that themortgage should be enforced, the decree shall order the movablesbe sold in default of payment.” The two provisions are the sameand the decree according to both, orders the property mortgagedto be sold. The question naturally arises what is to happen if theprice realised by the sale is insufficient to satisfy the debt. In thecase of mortgaged land there is an answer. Section 46 prohibitsthe court, in any action arising out of the mortgage, from entering
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48fiWIJESUNDERA, J.—Mercantile Bank Ltd. v. An"er
a decree for the sale of any property other than the mortgagedland in default of payment of the debt. But in the case ofmortgaged movables there is no provision similar to section 46.This omission is significant and we have to look elsewhere forthe answer.
The learned Attorney for the defendant-respondents submittedthat the action of the plaintiff-appellant was a hypothecaryaction and the only decree a court can enter in terms of sec. 107of the Act is a decree for the sale of the property mortgaged.Section 2 of the Act defines a hypothecary action to mean anaction to obtain an order declaring the mortgaged property tobe bound and executable for the payment of the money dueupon the mortgage and to enforce such payment by a judicial saleof the mortgaged property. In the plaint, the plaintiff-appellanthas come into court both on the money claim for the amount due,and on the mortgage. He has clearly set out both claims and hasprayed for the sum due, for an order declaring the mortgagedproperty bound and executable for the payment of the sum due,for a sale in default of payment, and for an order directing thedefendant-respondents to pay any balance due after the sale.Then this action is not an action only to obtain an order declaringthe mortgaged property bound and executable for payment ofthe debt and for the sale of the property in default of payment,but also one where on a money claim on the principal obligationthe plaintiff-appellant prays for an order that the defendant-respondents be directed to pay the balance due after the sale.Then it is not a hypothecary action as contemplated in section 2of the Act. Then section 107 is no bar.to order the relief, inaddition to the sale of the mortgaged property, claimed by theplaintiff-appellant.
The learned Attorney for the defendant-respondents submittedthat it was open to the plaintiff appellant to come and shouldhave come by way of a separate action obviously in case theproceeds of the sale are insufficient to wipe out the debt. In thebonds in question there is the obligation to repay the overdraftsubject to various terms and conditions, and for securing therepayment of the overdraft, the defendant-respondents havemortgaged and hypothecated certain properties, which arewithout dispute movables. Section 34(3) of the Civil ProcedureCode provided : “ For the purpose of this section an obligationand a collateral security for its performance shall be deemedto constitute but one cause of action. ” Then the plaintiff appel-lant was obliged to sue both on the principal obligation torepay the overdraft, and on the mortgage in the same action.
WIJESUN'DERA, J.—Mercantile Bank Ltd. v. Anver
Section 7 of the Mortgage Act which empowers a mortgagee tobring a separate action on the money claim and another on themortgage has no application as that provision applies only tomortgages of land.
There remains to consider the common law. In the Roman-Dutch Law a mortgage is a right over another’s property whichserves to secure an obligation. This same concept is taken overto the Mortgage Act of 1949, when it defined in section 2 amortgage as to include any charge on property for securingmoney or money’s worth. Both these definitions are wide enoughto include any type of property. Other terms have been usedto denote special mortgages, e.g., the word pledge denotes amortgage of movables. A.mortgage then is accessory to a prin-cipal obligation which is generally to pay money. If theprincipal obligation is not discharged <c a mortgagee or a pledgeemay execute upon property as has been bound to him. ” Wille :The law of Mortgage and Pledge in South Africa, p 173. Theproceeds of the sale of the property must first be applied inreduction or discharge of the debt due on the mortgage or thepledge, p 179. The learned author then continues on the samepage, relying on among others Voet 20.5.12 “ if the proceeds ofthe sale of the mortgaged property are not sufficient, to satisfythe mortgage debt, and the mortgagee while having no security,still has a personal action against the mortgagor for the balance.”The word mortgage here from the context includes a mortgageof movables as well. Reference to the title from Voet in vol. 3Gane’s translation p 625 confirms this. In the case of Wijesekeraf-us. Ra-wal 20 N.L.R. 126 the question Sampayo J. had to considerwas whether a mortgagee “ has a right to sell unmortgagedproperty before exhausting the mortgaged property ” p. 127.The learned Judge said that even if a decree “ does not speci-fically direct that the mortgaged property be sold in default ofthe payment of the debt, the creditor should first realize themortgage and can resort to the other property only for the-deficiency, unless of course the debtor otherwise consents ” p 128.The question had obviously been considered in relation to themortgage of land. But in coming tc^ that conclusion the learnedJudge has relied upon the opinions of some Jurists, who seemto have been considering the mortgage of movables as well,—Teferred to as “ goods ” at one place. Then unless there is someagreement to the contrary or some statute prohibiting it, amortgagee can recover any deficiency from the mortgagor, ifthe sale of the mortgaged property does not realize sufficientmoney to satisfy the debt by resorting to the other property,whatever be the nature of the property. But the Mortgage Act"by section A6 took away this right of a mortgagee of land andprohibited the sale of other property of the mortgagor to satisfy
SHARVANAND A, J.—Muthukumaraaamy v. Parameshwary
the mortgage debt. There being no such statutory provision in the-case of mortgaged movables in the Act, it is open to themortgagee of movable property to claim any balance after thesale of the mortgaged movable and to realize it by the sale ofthe other property of the mortgagor.
In the result the appeal is allowed. I set aside that part ofthe judgment and decree where it is ordered that the recoveryof the sum due be enforced only by the sale of the mortgagedproperty and in its place order that, in default of the paymentof the amount due, the mortgaged property be sold and thedefendant-respondents pay to the plaintiff-appellant, if theproceeds of the sale of the mortgaged property be insufficientto satisfy the total sum due, any balance amount subject onlyto the restriction of liability of the 7th and the -8th defendant-respondents to a sum of Rs. 100,000. The plaintiff-appellant willbe entitled to the costs of this appeal.
Sirimane J.~I agree.
MERCANTILE BANK LIMITED, Appellant, and A. H. H. M. ANVER and others, Responden