019-NLR-NLR-V-14-GOONATILLEKE-v.-JAYASEKARA-et-al.pdf
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Present: Hutchinson C.J. and Grenier J.Jan. e, 1911
GOONATTLLEKE v. JAYASEKERA et al.
385—C. R. Galle, 6,074.
Mortgage of immovables—Subsequent acquisition of title by mortgagor—
Mortgage to another person after acquisition of title—Land pur-chased by prior mortgagee at Fiscal's sale—Third mortgage beforeFiscal’s conveyance to prior mortgagee by owner, to pay off puisne .mortgagee's tlecree—Legal subrogation—Priority.-
A, who acquired, title to a land in December, 1903, speciallymortgaged it to B in April, 1903. In May, 1904. A mortgaged the■ same land to C. In April, 1905, B obtained a mortgage decreeon his bond, and at the Fiscal’s sale bought the land in December,
1905, and obtained a Fiscal’s transfer in December, 1906. InMarch, 1906, A, in order to pay off C, who had obtained a mortgagedecree against him, mortgaged the land to D. In November, 1906.
D sued A on his bond and bought the land himself. In an actionfur declaration of title by B against D, held that B had a superiortitle.
Grenier J.—Under the Roman-Dutch Law a person may mort-gage property of which he is not the owner at the date of themortgage, whether that property consists of movables or immov-ables. When such a mortgage is effected, the first mortgage ispreferential to any subsequent mortgage after the mortgagor hadacquired ownership.
1
THE facts are set out by Hutchinson C.J. in his judgment asfollows :—
This is an action for declaration of title to land. The plaintiffclaims under a Fiscal’s conveyance to him on a sale of the mortgagor’sinterest under a mortgage decree ; the first defendant claims undera Fiscal’s conveyance to him on sale under another mortgage decree ;the other defendants are lessees under the first. On April 8, 1903,H.W. Disanayake purported to mortgage the land to the plaintiff ;the deed was registered on April 20, 1903. Disanayake had notitle then, but he acquired title to the land in December, 1903.March 1,19C4, Disanayake mortgaged the same land to Gunasekera;the deed, which contains no reference to the prior mortgage, wasregistered on November 3, 1904. April 20, 1905, the plaintiff, inan action on .his bond against the mortgagor, obtained a mortgagedecree. December 14, 1905, the land was sold in execution underthat decree and was bought by the plaintiff, who obtained a Fiscal’stransfer December 11, 1906, registered December 14, 1906. March30,1906, Disanayake, in order to pay off Gunasekera, who obtained
Vou XIV.*
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10J. X, A #3848 (11’49)
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Jan. e, mi a mortgage decree against him, mortgaged the land to the firstGoonaUUeke defendant. November 13, 1906, the first defendant sued Disa-v.Jayasekera nayake on his bond ; he obtained a mortgaged decree, under whichthe land was sold in execution and bought by him, and he dulyobtained a Fiscal’s transfer. The Commissioner of Requests heldthat the plaintiff had priority, and gave judgment for him.
The defendants appealed.
The case first came on for argument before Wood Renton J., whoreserved it for argument before a Bench of two Judges.
A. St. V. Jayewardene, for the defendants, appellants.—Thelearned Judge is wrong in holding that the title acquired by Disa-nayake in December 1903, accrued to the benefit of the plaintiff,whose mortgage was executed in April, 1903. Voet says (20, 3, 6)that where a person* specially mortgages another’s immovables ashis own and afterwards acquires title to the same, they are onlybound to the creditor by the tie of mortgage in so far as futureproperty has also been included in a clause of general hypothec, andif the mortgagor after having acquired the ownership speciallymortgage the immovables to another, the latter creditor would bepreferent. By Ordinance No. 7 of 1871 general conventionalmortgages have been abolished, so that by our law a mortgage bya person of another’s property c eates no charge at all over it. Theprinciple that the subsequent acquisition of title relates backto render a previous mortgage valid applies only to movables,[Grenier J., referred counsel to Voet 20, 4, 31 ; Berwick 424.] Theprinciple there laid down is the principle of the Roman Law. Voetstates what the Roman-Dutch Law is in 20, 3, 6, for he begins thesection with the words “ by our usages.” Don Carolis v. Jamis1 isan authority in favour of the appellant.
If the title acquired by Disanayake in December, 1903, does notaccrue to the benefit of the plaintiff, it follows that what plaintiffbought at the Fiscal’s sale under his writ was the land subject to themortgage in favour of Gunasekera. The land was mortgaged tofirst defendant for the purpose of paying off the mortgage decreein favour of Gunasekera ; the mortgage bond in favour of firstdefendant was executed before plaintiff obtained a Fiscal’s transfer,and therefore before Disanayake was divested of his title. Therebeing no proof of the registration of the seizure under plaintiff’swrit, the mortgage in favour of first defendant is valid as againstplaintiff.
The first defendant is entitled to stand in Gunasekera’s place byright of legal subrogation. This right of subrogation is known tothe Roman and Roman-Dutch Law. (Voet 20,4,34, 35 ; Digest 20,5, 1, 5.) Our law on the point is similar to the Roman Law anddifferent from the Roman-Dutch Law (see Jayawardene's Mortgage,1 (1909) 1 Cur. L. R. 224.
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pp. 85-87) ; according to our law, although the posterior mortgageecan bring the property to sale, such sale would not affect the rightsof the prior mortgagee.
The principle of legal subrogation is recognized in most legalsystems. It was held in Bisseswar Prosad v. Lala Sarman Singh 1that “ when money due upon a mortgage is paid, it shall operate as adischarge of the mortgage or in the nature of an assignment of it, asmay best serve for the purposes of justice and the just intent of theparties.” It was held in Bhanaya Lai v. Chidda Singh2 that wherea prior mortgagee obtains a decree upon his prior mortgage, and inlieu of the amount of that decree he takes a subsequent mortgage ofthe same property from the mortgagor, the prior mortgage enuresto his benefit, and he can hold it up as a shield against a puisnemortgagee whose mortgage is of a date subsequent to the priormortgage.
H. Jayewardcne, for the plaintiff, respondent.—Both the reasonsgiven by the Commissioner are correct. According to Voet, wherea person who has no title mortgages property and subsequentlyacquires title, the mortgage becomes at once confirmed, and ispreferential to any mortgage created by the mortgagor subsequentto acquisition of title (20,4, 31). This principle has been recognizedand acted upon in Ceylon until quite recently, whether the mortgageis a special or general one. General mortgages having been abolishedin Ceylon, the usage referred to in Voet 20, 3, 6 does not apply.
On the second ground, too, it is submitted that the judgment isright. Whether there was a valid mortgage in favour of plaintiff ornot is immaterial, inasmuch as his Fiscal’s purchase was before themortgage to first defendant. Even assuming that the mortgage tofirst defendant was created in order to pay off a pre-existing mort-gage, that fact does not avail the first defendant at all. A personwho advances money to pay off an existing mortgage does notacquire the preferential rights of such mortgagee except by specialassignment. Here there was no such assignment ; and the firstdefendant’s mortgage must stand on its own merits.
St. V. Jayewardene9 in reply.
Cur. adv. vult.
January 6,1911. Hutchinson C.J.—^
His Lordship set out the facts* and continued :—
The learned Judge gave two reasons for his decision, either ofwhich would be sufficient but the appellants dispute both of them.His first reason is that, according to Roman-Dutch Law, the titlewhich the mortgagor acquired in December, 1903, accrued to thebenefit of the plaintiff under his mortgage, which was given whenthe mortgagor had no title. He says that this doctrine has long
1 Citator 2, 4,132 ; (1907) 6 Ca . L. J. 134.*(1910) Gitator 6, 5, 105.
Jan. 6, 1911
Goonatillekev. Jayasekera
( 68 )
Jan. G, mi
Hutchinson
C.J.
GoonatiUehe,v. Jfifjasekcra
been followed in Ceylon until some recent decisions in the SupremeCourt (1 Cur.L. R. 224 and 13 N. L. R. 112), and he thinks that theold equitable practice must be followed until we have a Full Courtdecision definitely deciding between conflicting decisions.
The appellants’ counsel contends that the Roman-Dutch Lawwas not as stated by the learned Judge, but that according to thatlaw, as stated in Voet 20, 3, 6 (Berwick 358), a mortgage by onewho had no title but afterwards acquired it was postponed to amortgage of the same land made by him after he had acquired title.No doubt such a mortgage would be binding on the mortgagorhimself when he afterwards acquired title, and that was the pointdecided in the case in 13 N. L. R. ; and the point decided in the caseof 1 Cur. L. R. was that a transfer by a man who has no title doesnot transfer title. I think, however, that the second reason givenby the Commissioner of Requests is a good one. This was thatthe plaintiff got-a valid mortgage decree and bought the land in-execution before the date of the first defendant’s mortgage. Theappellant’s objection to this is that although the first defendant'sown mortgage was later, .he is entitled to rely on the mortgage ofMarch 1, 1904, to Gunasekera. They contend that one who paysoff a mortgage and takes at the same time a fresh mortgage isentitled to the benefit of the mortgage so paid off, which he mustbe presumed to have intended to keep alive in order to protecthimself against any mortgage created between the date of the oneso paid off and his own mortgage. In the Fndian case of BhanayaLai v. Chidda Singh (1910), reported in The Citator 6, 5, 105, itwas held that where a prior -mortgagee obtains a decree on hismortgage, and in lieu of the amount of that decree takes a subse-quent mortgage of the same property from the mortgagor, the priormortgage enures to his benefit, and he can hold it up as a shieldagainst a puisne mortgagee whose mortgage is of a date subsequentto. the prior mortgage. That is not quite the present, case. Inanother Indian case, Bisseswar Prosad v. Lala Sarman Singh? itwas said that “ the true principle is that, when money due on amortgage is paid, it shall operate as a discharge of the mortgage,or in the nature of an assignment of it, as may best serve for thepurposes of justice and the just intent of the parties.” The Courtsaid that this doctrine of subrogation is founded on the circum-stances of each individual case and on the principles of naturaljustice, and would be applied whenever a denial of the right wouldbe contrary to equity and good conscience ; and in that particularcase they held that it did not apply because the persons whoclaimed the benefit of it must have known of the existence of themortgage over which they claimed priority. In the present casethere is no evidence or averment that the first defendant paid offGunasekera’s mortgage, or that he knew of it, and therefore it
1 Citator 2, •/. 132,
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may be said that he could not have had any intention to keep italive for his benefit. It is very probable that he did know of it,for it was registered and a decree had been obtained on it. But theplaintiff’s mortgage was also registered, and if we are to assume thatthe first defendant knew of Gunasekera’s mortgage, we should alsoassume that he knew of the plaintiff’s ; and if we are to be guidedby “ equity and good conscienceit is as much contrary to equityand good conscience that the plaintiff’s mortgage should be post-poned as that the first defendant’s should be postponed. And it isreasonable to suppose that if the first defendant knew of both theprior mortgages and had any suspicion that the plaintiff’s wasinvalid, he would have made sure of his position by taking anassignment of Gunasekera’s. In my opinion he is not entitled torely on Gunasekera’s mortgage, and the appeal should be dismissedwith costs.
Grenier J.—
The facts are fully stated in the judgment of my Lord, which Ihave had the advantage of reading. As regards the question,whether under the Roman-Dutch Law a person can mortgageproperty of which he is not the owner, the authorities which I shallpresently cite are clear that he can do so. The further question,whether such a mortgage is postponed in favour of one which iseffected after the mortgagor has acquired ownership of the property,requires close examination, as we have not been referred to any localdecisions directly bearing on the point.
In the first place, I must say that in Roman Law and the Roman-Dutch Law the word pignus is a generic term, including hypothecsand is used as applicable to both movable and immovable property.The term “mortgage,” as a generic term, comprehends both pignus
and hypothecaand, as pointed out by Mr. Berwick in a note
on page 451 of his translation, the term pignus is indiscriminatelyand conveniently rendered by some text writers in many places bythe barbarous word “ mortgage,” as meaning the pledge right orsecurity constituted with or without delivery of possession. Asis well known, the term pignus is technically applied to cases wherethe property, which is the subject of the vinculum pignoris, isdelivered to the pledgee, and the term hypotheca to cases when theproperty bound remains with the owner. If we keep the meaningand relation of these terms in mind, it is easy, upon a considerationof some passages in Voet, in which he makes constant referencesto the Digest and other sources of original legal information, to seethat in the Roman-Dutch system of jurisprudence a person waspermitted to pledge or mortgage property of which he was. not theowner at the time. I am referring particularly, to – Voet, lib. AX,tit. IV.y s* 31. The translation by Mr. Berwick is as follows :“ Thus far we have stated who are preferential when the same
Jan. 6, 1911
Hutchinson
C.J.
Goon/ttilfakc-w. Jayaxckeru
Jan. 6, 1011
Greniek J.
Ooonalillckev. Jayunckera
( 70 )
thing has been hypothecated by the owner of it to several persons.But if a pignus has been first bound to one person by one who wasnot the owner, and then again to another person by the samemortgagor, but subsequently to his having become owner, the firstmortgagee is still preferential, because the right of pledge wasconfirmed from the moment of the mortgagor's acquisition of theownership. Dig. h. t.fr. 3, section I ; Arg. Dig.. 21. 3 fr. 2 dc, exceptrei vend. et trad. Plainly, if the debtor was owner at neither time,neither when he constituted the pledge right to the first nor to thesecond creditor, but subsequently acquired the ownership, it has tobe considered whether the mortgagor had the right of possession,and a right of the Actio Publiciana in rem, or whether he had obtainedit without Justus titulus and bona fides, and without the faculty ofusucaption and 'right to the Actio PublicianaMuch follows afterthe passage I have quoted, which makes il clear that the termpignus is not restricted to movable property, but embraces immov-able property also. Indeed, throughout the whole of the sectionswhich deal with the subject of pignus, there is no distinction madebetween movable and immovable property. I have therefore,
I think, established my first proposition, that under the Roman-Dutch Law a person may mortgage property of which he is not theowner at the date of the mortgage, whether that property consistsof movables or immovables.
It seems equally certain that when such a mortgage is effected,the first mortgage is preferential to any subsequent mortgage afterthe mortgagor had acquired ownership. Voet's statement of theexact legal position is supported by certain passages from the Digestand seems to me faultless. He says the first mortgagee is stillpreferential, “ because the right of pledge was confirmed to the firstmortgagee from the moment of the mortgagor’s acquisition of theproperty.” He means that although the right of pledge sprang intoexistence contemporaneously with the execution of the mortgage,it had not all .the essential elements of a right which the lawwould then recognize and enforce, but that no sooner the mortgagoracquired ownership, the mortgagee, by operation of law becamevested with all the rights and preferences attaching to that charac-ter ; in other words, that at the very moment the mortgagor becameowner, the mortgage became a primary one, and no subsequentincumbrances could affect it in any way.
The law, as I have stated it above, was I conceive the law whichprevailed in Holland up to a certain period until certain usagesand customs became recognized, which largely modified it. Theseusages are referred to in Voet, lib. XX., tit. III., s. 6. That sectionis as follows *
u By our usages, however, what has been said as to the ‘ con-valescence ’ of the mortgage of another person’s property after theacquisition of its ownership by the debtor does not hold good
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universally, but only obtains with respect to movables. For if onehas solemnly and before the tribunal of the place specially mort-gaged another’s immovables as his own and afterwards acquirestheir ownership, although at the time of the mortgage they mayhave been due to him (as when they have been already sold to himbut not delivered), they are only bound to the creditor by the tieof mortgage so far as future properly has been also included in aclause of general hypothec, and thus begin to be bound generally(not specially) to the creditor. The consequence of which is that ifthe debtor after having acquired the ownership specially mortgagesthe same immovable thing to another before the local tribunal, thelatter creditor who has this special hypothec would be preferent inHolland and other places where an anterior general mortgage ispostponed to a posterior special one. ”
It will be seen from this passage that a person is at liberty tomortgage property which does not belong to him. The tie ofmortgage is created between the mortgagor and the mortgagee, butonly to the extent that the mortgage should not be considered aspecial mortgage but a general one. Now, general mortgages areno longer in force in Ceylon, and all our mortgages are special. Theconditions, therefore, contemplated in this section are no longerpresent in Ceylon, and it is difficult therefore to say that an anteriorgeneral mortgage should be postponed to a posterior special one.We have no usages and customs here corresponding to, or evenapproaching, those mentioned in section 6; and, so far as I am aware,a mortgage by a person of property of which he is not the owner atthe time has been regarded as a special mortgage—special in thesense that specific property has been bound and hypothecated bythe instrument of mortgage. In the present case what was mort-gaged was specific property, the ownership of which, although notin the mortgagor at the time, became subsequently vested in him.If the acquisition of the ownership, according to the strict letterof th.e Roman-Dutch Law, confirmed the right of pledge or mort-gage in the mortgagee as at the date of the mortgage, then I can seeno reason why the mortgage should not be considered a special one,and therefore not covered by the section I have referred to, if itapplies at all.
From a passage in Nathan (vol. 2, s. 1004) I find the law statedas follows : “ There is no doubt, however, that a thing or propertymay be validly hypothecated by one who is not the owner, if theowner consents or afterwards ratifies the hypothecation. Suchconsent may be tacit or may be implied from conduct. A thingbelonging to another may be hypothecated on condition that thehypothecation shall take effect when the thing becomes the propertyof the person making the hypothecation. A pledge of anotherperson’s property may be subsequently validated by the pledgerafterwards becoming owner of the property, it makes no difference
Jan. 6, 191i
Grenier J.
Ooonafillekev. Jayasckera
Jon. 6, 1911
Grenier J.
QoonalilUkev. Jayavckera
whether at the time of hypothecation the creditor knew or did not
know that the property belonged to another.: Voet points
out that some .Roman-Dutch authorities are of opinion (Dutch Con-sultations, part III., vol. /., p. 21, and Maynard v. Gilmer's Trustees,
3 M. 116) that the foregoing rules as to the validation of hypothe-cation of another’s property by subsequent acquisition of ownershiponly apply to movables. He appears to be of this opinion, too, forhe says that if a person has with due solemnities specially mortgagedimmovable property which belongs to another, even if it be due tohim (the mortgagor), for instance, if it has been sold but not yettransferred to him, such property will not be bound to the creditor(mortgagee), except if future property is included in the clause ofgeneral hypothecation (that is, the general clause), and the. propertyhas thus become generally bound to the creditor.” Unfortunatelywe have no statement from the learned author as to what the lawon the subject is at the present lime in South Africa, and whethergeneral mortgages, as opposed to special mortgages, are in existencethere. To sum up, therefore, this part of the case, it seems to methat the plaintiff’s mortgage has priority over the mortgage in favourof the first defendant.
On the other question a$ to whether in equity and good consciencethe* plaintiff or the defendant should succeed in this action, I havenothing to add to the observations of His Lordship the Chief Justice.I would dismiss the appeal with costs.
Appeal dismissed.