009-NLR-NLR-V-25-KRISTNAPPA-CHETTY-et-al-v.-HORATALA.pdf
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Present: Ennis A.C.J. and Jayewardene A.J.KRISTNAPPA CHETTY el al. v. HORATALA.
181—D, C. Kurunegala, 8,353.
Mortgage in favour of two persons—Address not registered■—Action bysecondary mortgagee first—Sale in execut ion—Subsequent action byprimary mortgagee—Sale in execution—Rights of purchasers underthe mortgage decrees—Claim to compensation by purchaser atJtcond sale—Civil Procedure Code, ss. 643 and 644.
P mortgaged the land in question to F in 1912 and to A in 1914.A put his bond in suit first, and on a- sale in execution purchasedthe land in November, 1917, and transferred it to plaintiff in,November, 1918. F instituted an action on his bond in October,1917, and in execution of the mortgage decree the property waspurchased by. defendant by deed dated September, 1919.Neitherparty complied with the requirements of sections 843 and 644 ofthe Civil Procedure Code, and neither mortgage decree wasregistered. In an action for declaration of title :
Held, “ As plaintiff’s title is based on a sale .which was prior indate to the sale in favour of the defendant, the plaintiff’s prede-cessor acquired the title of the mortgagor before the purchaserunder the prior mortgage, and he must be declared entitled to the
land and to be placed in possession thereof. He is, however,bound to, redeem the first mortgage. If he is not prepared to doso, the defendant is entitled to redeem him and obtain possessionof the land. For this purpose, both mortgages are in law taken tohave revived. But the plaintiff is not entitled to immediatepossession as defendant claims to have improved the land and toretain possession till he is compensated. If the improvements had.,been effected before the purchase under the second mortgage, noquestion of compensation would arise, as the improvements mustbe taken to have been effected by a transferee from the mortgagor,and they would accede to and form part of the land mortgaged,A question might also arise as to whether the amount to be paidin redeeming is,the price paid.by the purchaser or the amount dueunder the mortgage. Ordinarily it would be the latter. But inthis case the defendant’s right is to claim satisfaction in respect ofthis purchase under the mortgage of earlier date."
'THE‘facts are set out in the following judgment of the DistrictJudge (A. Beven, Esq.):—
The land in question was mortgaged by Patumma and Ismail, amongstseveral other lands, to. Arunachalam Chetty by bond No. 414 of July 10.1914 (P 4), the bond was put in suit in D. C. 6,246, and, after decree,writ'issued, and the property was purchased by Arunachalam Chettyon November 26, 1917, and he obtained final transfer 8,381 of August22, 1918 (P 6), and was placed in possession on October 12, 1918 (P 7>.He sold to plaintiff by deed 23,726 of November 14, 1918 (not produced).It appears that Patumma and Ismail had executed an earlier bond,31,881 of November 18, 1912 (P 1) in favour of Agida and Daniel Fer-nando. Daniel died, and his widow, Agida, discharged the bond P 1and got a bond in her own favour for Rs. 1,000 by 15,875 of October 20,1913 (P 2). This was assigned by 16,272 of February 12, 1914 (P 3;to Juanis Appu. Plaintiff states that that all previous writs weredischarged on the execution of P 4, but I do not see that P 3 wasdischarged in the Encumbrance Sheet P £ Rapiel, as administrator ofthe. estate of Don Daniel, sued Patumma and Ismail on the bond P 1,and got judgment in D. C. 6,690 (vide D 3), which was affirmed inappeal. It was in execution of that decree that defendant purchasedthe land on September 16, 1919, by D 2. The competition is, there-fore, between plaintiff’s purchase on P 6 under the secondary mortgagein D. C. 6,246 and defendant’s purchase on D 2 under the primarymortgage in D. C. 6,690. It is admitted that neither of the mortgageesregistered an address under the provisions of chapter XLVI. of theCivil Procedure Code. It was' submitted by defendant’s proAor thatas the sale to Arunachalam Chetty took place on November 26, 1917,and the summons in D. C. 6,690. was served on the mortgagors onNovember 13, 1917, the doctrine of lie pendens would apply, and-thesale would be a nullity.
The question arises whether an execution purchaser, who is also abona fide purchaser, is affected by lis pendens. This point has beenfully discussed in pages 171 and 172 of Jayewardeme on Registration,and it is now settled law that the rule of lis pendens is applicable toCourt sales. But to be effectual the lis pendens should have beenregistered, and this could not possibly* have been done in view of thecircumstances above mentioned. I hold, therefore, that the doctrineof lis pendens does not apply to plaintiff’s purchase.
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I was also referred to the decision on page 176 of 23 N. L. R. 1923.
where it was held that a purchaser under a primary mortgage decree
had a title free from all encumbrances in a case where neither the Kriatnappaprimary nor secondary mortgagees had registered their addresses. Chttty v.But in that case a secondary mortgagee sued the mortgagor and the Horatalapurchaser under the first mortgage decree, and it was held the secondarymortgagee was entitled to have his claims satisfied from the proceedsbf the sale of the mortgaged property after the primary mortgagee waspaid, but was not entitled to be made a party to an action for therealization upon the primary mortgage. In this case the point atissue is whether the purchaser under the secondary mortgage has abetter title than the purchaser under the primary mortgage, when bothmortgagees have faded to register their addresses.
It was held by the Supreme Court in several cases (16 N. L. R. 210and 20 N. L, R. 170) that if a primary mortgagee has not registeredhis address, nor joined the puisne encumbrancers to a mortgage action,the decree will not bind the puisne encumbrancers, irrespective ofwhether the puisne encumbrancers have complied with the require-ments of sections 643 and 644' or not.
There is no evidence as to whether plaintiff’s vendor or his agentwas present at the sale at which defendant bought, so the question of *estoppel does not arise.
I hold that the purchaser under mortgage decree D. C. 6,246 hasacquired a superior title to the defendant purchaser in D. C. 6,690.
Enter judgment for plaintiff with costs. The question of improve-ments said to have been effected by defendant may be referred toarbitration.
Hayley (with him Garvin), for defendant, appellant.
Satotarawickreme (with him Ameresekere), for plaintiff, respondent.
October 24, 1923. Ennis A.C.J.—
This was an action for a declaration bf title. The land in disputewas at one time owned by Pathumma and Ismail Lebbe.
By the deed P 4 No. 414 of July 14,1914, Pathumma and Ismailmortgaged the land to Arunasalem and Maiappa Chetty who putthe bond in suit in D. C. Kurunegala, No. 6,246. On a sale inexecution on November 26, 1917, Arunasalem Chetty became thepurchaser and obtained a Fiscal’s transfer, P 6 on August 22, 1918.Arunasalem conveyed the property to the plaintiffs on November 14,1-918.
The defendant’s title is that by the deed P 1 No. 31,881 ofNovember 18, 1912, the land was mortgaged by Pathumma andIsmail to Don Daniel Appuhamy and' his wife Agida Fernando.Don Daniel Fernando died, and his administrator put the bond insuit in the action No. 6,690 instituted on October 8, 1917. OnJune 30, 1919, the land was sold under the decree in that case tothe defendant Horatala who obtained a transfer D 2 on September16, 1919. The learned Judge found in favour of the plaintiffs, andthe defendant appeals.
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1923.
Knots
A.C.J.
KriatnappaGhetty v.Horatala
Both mortgage bonds were duly registered, but the mortgageesdid not register addresses under sections 643 and 644 of the Codeof Civil Procedure; and in the action on the bond which wasearlier in date, viz., No. 31,881, the mortgagees under the bondwhich was of subsequent date, viz., No. 414, were not given noticeof the action.
In the case of, Supramaniam Ghetty v. Weerasekera,* which wasa Full Court decision, it was definitely held that—
41 the aotion under chapter XLYI. (Civil Procedure Code) ….is the only action now available to a mortgagee ; ”
and that
“ if a mortgagee or his representative has been sued, and a
decree obtained against him in the first action
he cannot again be sued in a subsequent action in respectof the same matter.”
A few days before the judgment under appeal was delivered, aFull Bench of the Supreme Court delivered a judgment in the caseof Moraes v. Nallan Ghetty2 holding that the purchaser at a sale inexecution under a decree obtained by a second mortgagee took the ‘property subject to the first mortgage.
The question before us is whether the two cases can be reconciled.
It would seem that the decision in Moraes v. NaUan Chetty (supra) was -induced by equitable principles, for it is suggested by Bertram C. J..who gave the principal judgment, that the effect of the earlierdecision was not just, apparently on the argument that sections643 and 644 of the Civil Procedure Code were intended to confercertain advantages upon a mortgagee who availed himself of theprescribed procedure ; that if he does not comply with the, specialprocedure, all that happens is that he loses these advantages andnothing more ; and that there is nothing in the sections to put himin a worse position. The argument overlooks the fact that, thesesections also seem to be intended to confer advantages on a subse-quent grantee, mortgagee, lessee, or other encumbrancer who hascomplied with the sections, for it provides that the primary mort-gagee shall issue notice to such encumbrancer. The procedure isimperative, and the advantages to the subsequent encumbrancersmay be many ; for instance, it would give a subsequent mortgagee,an opportunity of paying off the primary mortgage ; or, of biddingat the sale either to enhance the price or to buy the propertyhimself ; or, of applying to be joined in the action as a defendant,so that payment of any surplus after the sale may be made to himrather than to the mortgagor ; or, so that he may protect hisinterests by showing in the mortgage action that the primarymortgage has been discharged. The procedure in the sectionsenables a subsequent encumbrancer to look after his interest in the
1 (1923) 24 N. L. R. 291.
* (1918) 20 N. L. R. 110.
1928.
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land and to prevent a sale by collusion between the mortgagor anda primary mortgagee. Is a primary mortgagee at liberty todeprive with impunity a puisne encumbrancer of these advantages ?I can see no more hardship in the incidence of a penalty for non-compliance with the obligation to register an address and give theprescribed notices, than in the case of other formalities where landis concerned, viz., the formality of a writing, of notarial execution,and of registration. The provisions of sections 643 and 644 seem tome to be admirably adapted to enable a mortgagee to lift in oneaction all the shackles that bind the land and so enable a purchaserto obtain a good title, and, incidentally, secure to the mortgagor orsubsequent mortgagees a better sale.
There is no doubt that equity will grant relief against the imposi-tion of a penalty where there is no express provision of law imposingtfce formality which entails the penalty. The necessity of issuingnotices to subsequent encumbrancers lies in the imperative termsof section 643, and the necessity of the formality of registering anaddress is an inference from the proviso that a mortgagee cannotsecure the advantages of the section unless he registers an address,considered with the provisions of section 207 relating to res judicataas they bear on section 640.
On equitable principles a mortgagee under a second mortgage.cannot claim the advantages of the sections unless he himself hascomplied with the provisions of the sections. This principle is, insubstance, that laid down by the Privy Council in the Indian case *of Mukhanlal v. Sri Krishna Singh ;x that a man cannot bothaffirm and disaffirm the same action, a maxim which “ is foundednot so much on any positive law, as on the broad and universallyapplicable principles of justice.”
It is possible to accept the conclusion in Moraes v. Nallan Cheity(supra) without doing violence to the principles laid down in Suppra-maniam Cheity v. Weerasekera (supra).
In the case of Perera v. Kapuruhamy2 no one of the mortgageeshad registered an address under the provisions of chapter XLVI. ofthe Civil Procedure Code, and an innocent third party had becomethe purchaser and obtained- possession of the land on the sale inexecution of the decree on the primary mortgage before the second-ary mortgagee instituted his action. It was equitable, therefore,that his claim should be upheld.
In the case now under appeal the plaintiffs claim through secondmortgagees who had not complied with the provisions of sections643 and 644 by registering an address, but they said that on Novem-ber 13, 1916, a discharge of the mortgage bond No. 31,881 wasregistered as shown by the extract on encumbrances P 5, and theyclaim that the mortgage No. 414 then became the primary mortgage.It appears that the mortgagors settled the debt with Agida
2 (1921) 23 N. L. i?. 176.
Knots
A.C.J.
KristnappaChetty v.Horatcrla
**11869) 12 Moore 1. A. 157.
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Fernando after the death of her husband Daniel Appuhainy, butit was held in the action No. 6,690 to which the mortgagees underthe mortgage No. 414 were not parties that the private settlementof the debt with the widow was invalid as against the administratorof Daniel Appuhamy’s estate. The defendant who was thepurchaser in execution in that suit effected certain improvementson the land for which he claimed compensation. Applying-theprinciple that the Court can grant equitable relief against theforfeiture of the rights of either mortgagee where both have failedto register an address, it would seem that the first person to securethe right, title, and interest of the mortgagor in the land steps intohis shoes. The mortgagor had a right to redeem a mortgage, andthe obligation to pay it off attached to the land to the extent of itssale value. As soon as the mortgagor is divested of his legal title,to the land, sections. 640, 643, and 644 of the Civil Procedure Codeoperate to release the land from the shackles which bind it, evenwhen addresses for service have not been registered. This is theeffect of Suppramaniam Chetty v. Weerasekera (supra). Butequitable considerations may intervene in such a case, and theperson who has obtained the legal title without the protection ^afforded by compliance with the sections may have to give com-pensation in respect of another mortgage ; or, at his option, surrender.the land.
As' the plaintiffs were the first to secure the legal title of themortgagor, they are entitled to the declaration they claim against•the defendant, but as the defendant is in possession and claimscompensation for improvements, the case must go back for asettlement of that question, and he would not be liable to be-ejected until such compensation, if any, is paid.
I would reserve to the defendant the right to claim satisfactionjn respect of his purchase under the mortgage of earlier date, whenthe plaintiffs will have an opportunity of establishing their conten-tion ^that the earlier mortgage was discharged by the mortgagor.
The respondents are entitled to the costs of this appeal.
1928.
Ennis
A.C.J.
KristnappaChetty v,Horatala
JayewabdENE A.J.—
This is an appeal by the defendant in an action for declaration oftitle and recovery of possession on the basis of a purchase at a sale inexecution of a decree on a mortgage bond. It is common groundthat two persons, named Pathumma.and Segu Ismail, were theoriginal owners of the land described in the plaint, and the series oftransactions by which the contesting claimants acquired title to itare not in dispute. On November 18, 1912, the owners executedmortgage bond No. 31,881 in favour of Mirissage Agida Fernandoand Don Daniel Appuhamy. On July 10, 1914, the ownersexecuted a second mortgage in favour of two Chetties—Arunasalamand Maiappa. Both bonds were duly registered. The second
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.bond was put in suit in case No. 6,246, D. C. Kurunegala, and theproperty mortgaged was purchased by K. M. M. ArunasalamChetty at a sale held under the mortgage decree on November 20,
and he obtained a Fiscal’s transfer No. 8,381 dated January 30,
Plaintiff claims on a purchase from Arunasalam on deedNo. 23,726 of November 14, 1918. The primary mortgagee suedon his bond in case No. 6,690, instituted on October 9,1917, and inexecution of the mortgage decree entered in the case, the propertywas purchased by the defendant on deed No. 22,392 datedSeptember 16,1919. Neither party had complied with the require-ments of sections643and 644 of the Civil Procedure Code, and neithermortgage decree has been registered. The plaintiff bases his titleon the prior execution sale against the mortgagors, and contendsthat as the primary mortgagee had not registered his address, themortgage decree obtained by him does not bind the plaintiff. Heis, therefore, he says, .entitled to the property as against theptffchaser under, the primary mortgage. He also alleges that theprimary mortgage had been paid off and cancelled at the date of theinstitution of the action on it. He relies on Suppramaniam Chetty v.Weerasekera (supra) a Full Bench decision of this Court. The defend-ant contends that the primary mortgagee’s failure to register hisaddress cannot confer greater rights on the second mortgagee thanhe has under the common law, and that sections 643 and 644 haveno application to a second mortgagee. He relies on Moraes v.NaUan Chetty (supra), also a Full Bench decision of this Court.
In Suppramaniam Chetty v. Weerasekera (supra) the Full Courtconsidered the construction of sections 640, 643,- and 644, andalthough the contest there was between a purchaser under amortgage where the mortgagee had not registered his address anda transferee for value from the mortgagor, who had not beenimpleaded in the mortgage action, it laid down a general rule thatchapter. XLVI. of the Civil Procedure Code which contains sections640, 643, and 644 superseded the common law remedies, and that—
“ A mortgagee who has failed to register his.address under section644 of the Civil Procedure" Code, and who has sued hismortgagor and obtained a decree against him, cannotafterwards bring another action against a puisne encum-brancer or grantee claiming a declaration that the propertyin his possession is bound and executable for the mortgagedebt.”
The ratio decidendi of this case must necessarily apply to a secondmortgagee, for the sections'refer to “ all grantees, mortgagees,lessees, and other encumbrancers,” and on no principle of con-struction, that I know of, can the words of these sections be soconstrued as to make them applicable to grantees, lessees, andother encumbrancers only, and to exclude “ mortgagees ” from
1923.
Javbwaa-DENE A.J.
KristnappaChetty v.Horatala
1023.
Jaykwab-DENE A.iT.
KHstnappaChetty v.Horatala
( 46 ).
their operation- Under these sections the term puisne encum-brancer must necessarily include a second mortgagee. But, inMoraes v.Nallan Chetty (supra), it was held that these sections,although they expressly referred to subsequent mortgagees, did notapply to such mortgagees, and Suppramaiviam Chetty v. Weerasekera.
(supra) was distinguished on the ground that the contestant therewas not a subsequent mortgagee, but a subsequent grantee. .1 amnot sure that such a distinction can be made, but it has been made,and if the two decisions cannot be reconciled, it is the duty of thisCourt/confronted as it would be with two conflicting Full Courtrulings, to decide which of these two it will follow: jPerera v.Perera1 and Perera v. Amarasuriya.2
This Court has been always impressed with the unfortunate positionof a purchaser under a primary mortgage decree, when the mortgageehas failed to comply with the requirements of sections 643 and 644,owing to the drastic consequences which are supposed to followfrom such failure. But our sympathy for such a purchaser shouldnot lead us to ignore the rights of .the second mortgagee which aresubstantial, and a way ought to be found by which justice may bedone to both. What are the rights of a second mortgagee underour law ? Under the Roman law the second mortgagee had noindependent right to sell the mortgaged property; his only rightwas to redeem the first mortgagee. But, when he had redeemedthe first mortgagee and put himself in the place of the first mort-gagee, he could exercise the right of sale. This was altered in theRoman-Butch law and a second mortgagee was given the right tobring the property to sale (Voet 20, 4, 35). But on such a sale thepurchaser became entitled to the property free of all mortgagesand other encumbrances, prior or subsequent, and the primarymortgagee and other mortgagees had to divide the proceeds of saleaccording to their rights of preference. As Be Sampayo J. observedin Moraes v. Nallan Chetty (supra) at page 305, under the Roman-Butch law “ when a debtor’s property was brought under thehammer, there was, so to say, an informal insolvency of the debtor,and the creditors of all sorts could only claim proceeds, in preferenceor in concurrence, as. the case might be.” This was done in a suit,called the suit for preference and concurrence (Voet 20, 4,10). Sothat under the Roman-Butch law the rights of the primary andsubsequent mortgagees were amply protected. This procedure, if itwas ever introduced into Ceylon, soon ceased to be in operation,and the rule which obtained was that a sale of mortgaged propertyunder a mortgage decree did not wipe off prior mortgages, and theprimary mortgagee was not allowed to claim the proceeds of ssile,and a purchaser at such a sale bought the property encumbered withall existing mortgages to which it was subject (see Jayewardene*on‘" The Law of Mortgage,” pp. 44-49). Such a sale, therefore, while1 {1903) 7 N. L; R. 473.8 (1909) 12 N. L. R. 87.
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left intact mortgages prior in date to the mortgage under which theproperty was sold, extinguished all mortgages of a subsequentdate. According to this rule there was no hardship to the priormortgagees, but subsequent mortgagees were adversely affected.The primary mortgagee might institute an action on his bondwithout notice to the subsequent mortgagees, and have theproperty sold free of the subsequent mortgages. If a balance ofthe proceeds of sale remained after the satisfaction of the primarymortgage, the mortgagor might appropriate it, or it may be paidout to his unsecured creditors. The subsequent mortgagees wouldalso be prevented from bidding at the sale and securing a fair pricefor their security. The position of subsequent mortgagees underthis system became very precarious, and their securities were liableto be extinguished behind their back. This position of subsequentmortgagees attracted the attention of the Courts in many cases, andthey attempted to grant them relief. For instance, in The OrientalBank Corporation v. Bcmstead,1 where subsequent mortgageesattempted to intervene in an action to contest the accounts betweenthe prior mortgagee and the mortgagor, and to call on the priormortgagee to marshall his securities in his favour, and the District.Judge allowed them to come in for the limited purpose of rankingas puisne claimants to the proceeds of the prior mortgagee’sexecution- Burnside C.J. and Clarence J. said :—
1923.
Jayewar-
DEKE
KristnappaOhetty v.HorcUala
“ It has been urged by respondents, the plaintiffs, that it has notbeen the practice in Ceylon for a first encumbrancer, whensuing to realize his mortgage, to make puisne encumbrancersparties. Whatever may have been the law or procedureof the United Provinces as to the realization of mortgages,it has been so trenched upon during the ninety yearswhich have elapsed since Dutch rule ceased in Ceylon,that we can hardly seek guidance on such a matterfrom Roman-Dutch jurists. Considering the effect nowattached to mortgage encumbrances, it seems clear that afirst mortgagee who has notice of puisne encumbrancesought to make such puisne encumbrancers parties to hissuit to realize his mortgage. So far as this matter isconcerned, very much the same considerations seem toapply here as in England; and in England it is wellsettled that the puisne encumbrancers should be parties :Adame v. Paynter,2 Tylee v. Webb,3 Burgess v. Sturges.4
“ If, as respondents urge, it is not usual for first mortgagees suingin our Courts to make the puisne mortgagees parties, thepractice is, in my opinion, a vicious one, which oughtnot to be upheld. The puisne encumbrancer is vitally
1 (1S84) 6 s. a C. 1,* (1844) 1 Coll 530.
(1843) 6 Beav. 552.
(i$52) 14 Beav. 440.
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1928.
Jayewab-DKNE A.J.
KriatnappaChetty v.Horctiala
interested in the reckoning between the eigne encumbrancerand the mortgagor, and in the eigne encumbrancer’s actionagainst the land ….
“ If appellants are puisne encumbrancers to whom money is stilldue and if they are still entitled to their security theyhave a direct interest in the result of the accountingbetween the mortgagor and the plaintiffs, and mayperhaps be entitled to have plaintiffs’ securities mar-shalled.”
And the Court was prepared to allow tms to be done on the inter-venients giving security. See also The Oriental Bank Corporation v.Roseiter.1 The law was .in this state when a Commission wasappointed in the year 1884 to inquire into the law of mortgage inCeylon* and report what steps should be taken to place the law on asatisfactory footing. The Commissioners reported that “ what wasneeded was not so much an alteration of the existing substantivelaw of mortgage as the creation of a satisfactory system of procedurewhich will facilitate the realization of mortgaged properties withoutprejudice to the mortgagor or his creditors and procure for themon realization something like a fair market value ” and proposed“ for the mutual convenience of mortgagors and mortgagees in anyproceedings relating to mortgaged property :—
30. That every mortgagor and mortgagee shall, at the time ofthe mortgage contract being registered, register at theRegistrar’s Office, in a book to be kept for that purpose,an address in Ceylon for receiving legal notices andprocesses relating to the. mortgaged premises, and, indefault of this being done by either mortgagor or mort-gagee, such notice or.process when affixed on the mortgagedpremises shall be deemed to be equivalent to personalservice.
31. That notice of an intended hypothecary action by a mort-gagee be given to such puisne mortgagees, if any, as havenotified their encumbrances to him and registered inmanner above provided for an address in Ceylon forservice of such notice ” (see Jayewardene on u The Law ofMortgage,” Appendix A).
When the Code of Civil Procedure was introduced in the year 1889,these proposals, with certain modifications and amendments, wereincluded in.sections 643 and 644. These sections were intended togive to subsequent mortgagees and other puisne encumbrancers an •opportunity of appearing in mortgage actions to protect theirrights: They have been very inartistically drafted, and it took
1 (2885) 7 S. (7. C. 233.
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many years before their effect, and that of section 640 was fullygrasped and a satisfactory construction placed on them. It hasnow been authoritatively decided that the procedure obtaining inCeylon, before the Code, has been repealed by it, and that onlyone action is available to a mortgagee under the Code, that theprimary mortgagee must register his address in the first instance,and that puisne encumbrancers must register their addresses andnotify such addresses in writing to the primary mortgagee. If theprimary mortgagee registers his address and issues notice of theinstitution of the action with a copy of the summons to all puisneencumbrancers, who have notified their addresses to him, thelatter may apply to be joined as defendants in the action. Everypuisne encumbrancer so noticed not applying to be added as adefendant is bound by the judgment in the action as if he had beenmade a party thereto. If the primary mortgagee fails to registerhis address, or fails to give notice of his action to puisne encum-brancers who have'notified him of their encumbrances and theiraddresses, or fails to make such encumbrancers parties to theaction, they would consequently be not bound by the judgment inhis action. If a primary mortgagee comply with the requirementsof. the section, he would be fully protected, and if the subsequentmortgagees have also complied with what they are required to do,they would be afforded an opportunity of protecting their interestsin the security. But what would be the result when the primarymortgagee has failed to comply with the requirements of the lawand has obtained a judgment which binds only the mortgagor andnot the puisne encumbrancers ? As regards a puisne encumbrancerwho is a grantee, he loses his rights altogether, and as regards alessee, his rights become subject to the lease and the questionremains, what are his rights as against a subsequent mortgagee or apurchaser under a decree obtained in such a mortgagee’s action ?
One would have thought that in consequence of the interpretationplaced on sections 640, 643, and 644 by the Full Bench in Suppra-maniam Chetty v. Weerasekera (supra) that the subsequent mort-gagee would necessarily be in the same advantageous position as asubsequent grantee or lessee, but a contrary note was sounded inPer era v. Kapuruhamy,1 and adopted by the Full Bench in Moraesv. NaJlan Chetty (supra). In these cases it has been held that asecondary or subsequent mortgagee is not entitled to be made aparty to an action for the realization upon the primary mortgage,and that an action to which he is not a party binds him, so as togive the purchaser under the primary mortgage a title free of allpuisne encumbrances, that the rights of the parties must be decidedby a consideration of the rights of a secondary mortgagee underthe common law, and that the provisions of chapter XLVL. of theCivil Procedure Code have no application to such a case. Otherwise,1 (1921) 23 N. L. i?. 176.
1928.
Jayewa*-
dbneA.O.
KristnappaChetty vHoratala
8—xxv.
12(60)28
1023.
Jayewar-
t>ENB A.J.
KristnappaChetty v.Horatala
it is said, the primary mortgage would vanish for some mysteriousreason. Bertram C.J., in Moraes v. Nallan Cketty (supra), Baid :—
“ It may be accepted, until the law is amended, that it is theimplied intention of section 64# that a mortgagee shallnot afterwards assert against a puisne encumbrancer aclaim which he might have asserted in the original action.But surely this can only be the case with respect to aclaim which it was necessary for him to assert in order toestablish his rights. Was it then necessary for a mortgageeto assert any claim at all against a secondary mortgagee ?Was there anything which compelled him to make asecondary mortgagee a party to a mortgage action ? Itseems clear that there was not. Under the pure Roman-Dutch law, as expounded by Mr. Berwick, there wascertainly no such obligation on the primary mortgagee.”Then he referred to Oriental Bank v. Naganader1 -and MeyappaChetty v. Rawter2 and continued :—
“ In many cases it is certainly most reasonable and convenientthat a secondary mortgagee should be joined. Accountsmight be gone into for the purpose of settling the mortgagedebt in which he might be interested,.and he clearly wouldnot be bound by any settlement of accounts in an actionin which he was not a party. But if he is so joined, he isnot joined for the purpose of any order to be made againsthim. Apart from any such question of accounts, he isreally joined for his own information. But there is nodecision prior to the Code, and no enactment of the Codeitself which requires him to bejoined.” (The attentionof the Court had, evidently, not been drawn to the case ofOriental Bank Corporation v. Boustead (supra).)
The other members of the Court took similar views, and thoughtthat the primary mortgagee’s rights would be unimpaired by hisfailure to observe the requirements of sections 643 and 644, so far.as subsequent mortgagees were concerned. The result of thisdecision is to reduce the subsequent mortgagee to the hapless con-dition in which he was under the law of Ceylon before the passing ofthe Code. Under the Roman-Dutch law, it may not have beennecessary to make the puisne mortgagees parties to the primarymortgagee’s hypothecary action, nor was it necessary to make theprimary mortgagee a party to a subsequent mortgagee’s action,although it resulted in his being deprived of his security, but,before the proceeds realized by the sale were distributed, there wasa proceeding or suit for concurrence or preference to which all thecreditors of the mortgagor were summoned (Voet 20, 4,10), and thedistribution of the assets was carefully regulated, as appears fromwhat Voet lays down. This proceeding had disappeared under our1 (1879) 2 5. C. C: 146.4 ( 9^3) 6 N. L. R. 220.
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law and the mortgagor was entitled to be paid the balance remainingafter the satisfaction of the first mortgagee, unless subsequentmortgagees got information of the mortgage action and intervenedin time to protect their rights. I have already referred to thestrong remarks made by this Court in The Oriental Bank Corporationv. Boustead (supra), where the inadequacy of what was said to bethe existing practice, to safeguard the rights of puisne mortgageeswas pointed out, and the practice was condemned as “ vicious ” andas one that ought not to be upheld. This is the practice whichthis Court, if it follows Moraes v. NaUan Chetty (supra) would berestoring. The force of the observations of this Court in Boustead1sCase (supra) was appreciated, hence the appointment of the Com-mission in 1884, and the adoption of that part of its report whichdealt with this aspect of the law of mortgage and its embodimentin the Civil Procedure Code. The rights of a puisne mortgageehave been described by my Lord, the Acting Chief Justice,' in hisjudgment which I have had the advantage of reading, and I neednot state them again. The provisions of the Civil Procedure Codewere intended to give to puisne encumbrancers these rights whichhave been in abeyance for years, rights which I respectfully assert,they enjoyed under the Roman-Dutch law and which they enjoyunder most systems of law. I think it is the duty of this Court togive effect to the object which the Legislature had in view in enacting
sections 643 and 644 of the Civil Procedure Code. In my opinion,,not only does the law require it, but also justice demands that apuisne encumbrancer should be joined as parties to an action broughtby the primary mortgagee on his bond. * But it may also he necessaryto see that in attempting to do justice to puisne encumbrancerswe do not destroy the rights of the primary mortgagBe altogether.
As pointed out above a subsequent mortgagee has the right tosell the property mortgaged subject to the primary mortgage, andthe purchaser would acquire the interests or estate of the mortgagor,that is, the ownership of the land subject to the primary mortgage.He would be in the position of an assignee of the subsequentmortgage and of a purchaser of the mortgagor’s right which wasonly a right to redeem. The primary mortgagee also can bring theproperty to sale under his mortgage, and the purchaser wouldacquire the rights of the mortgagor, that is the ownership of theland free of all encumbrances,, but if he has not complied with therequirements of sections 643 and 644, or has not made the subsequentmortgagee a party to the action, the subsequent mortgagee wouldnot be bound by the decree he obtains on his mortgage. In such acase he would be in the position of an assignee of the first mortgageand of the interests of the mortgagor but the mortgagor’s interestwhich he acquires would be burdened with the second mortgage. Itis a. necessary implication from the words of section 644 that, if acertain procedure is followed, the subsequent mortgages would be
1923.
Jayewab-DENG A.J.
KristnapfaCHe'ty v.
. Horatala
( 52 )
1928.
Jayhwah-DENE A*J.
KristnappaChetiyv.Hotatala
bound, that the subsequent mortgagee would not be bound if thatprocedure is not followed. Then if the subsequent mortgagee isnot bound by the primary mortgagee’s decree, what follows ? Therights pf the subsequent mortgagee must be considered as beingleft unimpaired, and his Tight to sue for sale of the property, thatis, the interests of the mortgagor which existed previous to theprimary mortgagee’s action must remain, and a purchaser underthe subsequent mortgagee’s decree would take the property subjectto the first mortgage. His rights cannot be restricted to a mereclaim to the balance (if any) of the sale proceeds after satisfyingthe debt due to the first mortgagee. . But it might be urged thatthe primary mortgage having been sued upon and the propertysold under it, there has been a merger and extinguishment of thedebt. If the subsequent mortgage is still outstanding, there can beho merger, for “ merger is-the destruction or * drowning * by opera*tion of law of the less in the greater of two estates coming togetherand vesting without any intervening estate in one and the sameperson in the same right.” Encyclopedia of the Laws of England,Vol. 9, p. 193. For, as was said by the Full Bench of the MadrasHigh Court in Mulla ■ Vitil Seetki Kutti v. Achuthan Nair,1 whendealing with a similar case :—
“ Merger, on principle, is impossible, for the case of the firstmortgagee acquiring the equity of redemption, when asecond mortgage is still outstanding, is not one of therights and correlative obligation coalescing in the sameperson (see Lindley's Jurisprudence, p. 75), or of a smallerinterest getting absorbed by a larger (see Lindhy,Appendix LVII.), or of two contiguous interests carvedout of property combining to form a larger whole.”
The debt due to the primary mortgagee need not be regarded asnecessarily extinguished. It may be regarded as revived for thepurpose of enabling* him or the purchaser Under his* decree topreserve his priority. A similar principle of revival has beenapplied in cases where, by virtue of section 238 of the CivilProcedure Code, a private alienation in discharge or cancellation ofa previous sale or mortgage becomes void, and the previous sale ormortgage has been held to revive (Silva v. Silva2). In so deciding,our Courts adopted the principle laid down in India in Gopal Sahee v.Gunge Pershad Sahee2
In my opinion, the failure of the puisne mortgagee to complywith the requirements of sections 643 and 644 cannot affect hisrights so far as mortgages prior to his are concerned. Where,therefore, there are two purchasers, one under the primarymortgage and the other under the subsequent mortgage, both wouldbe standing in the shoes of the mortgagor jrhose only right
1 (1911) 21 Mad. L. J. 213.3 (1899) 13 N. L. R. 33.
3 (1882) 8 Cal. 530.
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as against the mortgagees is the right of redemption. Neitherpurchaser is bound by the decree obtained by the other. In thesecircumstances, the person who first purchases the property againstthe mortgagor would be entitled to be declared the owner of theland and to possession. If the first purchaser is a purchaser underthe primary mortgage, he is liable to be called upon to redeem thesubsequent mortgage; but if the first purchaser is under thesubsequent mortgage, he can be called upon to redeem the primarymortgage. If the first purchaser, in either case, is not prepared toredeem the outstanding mortgage, then he must consent to beredeemed and surrender possession of the property. If thepurchaser under the first mortgage is given the -right to bring asecond action, which is denied to him under our law, the purchaserunder the second mortgage might refuse to redeem him, andoompel him to sue a second time on the bond. This is, in myopinion, the result of. the primary mortgagee’s failure to comply withthe requirements of sections 643 and 644, or to make the subsequentmortgagee a party to his action. Such a solution of the difficultiesdoes justice to both mortgagees, and the primary mortgagee’sfailure or omission would not subject him to the drastic con-sequences of losing all his rights. It would also enable the Court-togive effect to the provisions of sections 643 and 644, make Mordes v.NaUan Chetty (supra) not entirely inconsistent with SuppramaniatnChetty vt Weerasekera (supra), and penalize the primary mortgageefor his failure to observe the provisions of these sections withoutdestroying his rights in toto.
Difficulties arising from the competing claims of primary andpuisne mortgagees and purchasers under their mortgages, similaf tothose arising in Ceylon, have arisen in India, and they appear tohave been solved on the lines indicated above. It is not correct to.say, as is very often said, that the law of mortgage in India is basedon the English law, and is entirely different from the law of mortgageobtaining here. There is a form of mortgage in India called a“ simple mortgage,” which is identical with mortgages under theRoman-Dutch law. Section 58 of the “ Transfer of Property Act,1882,” defines the various kinds of mortgage known to the law ofIndia, one is known as “ the English mortgage ” and another a“ simple mortgage ” is thus defined :—
“ Where, without delivering possession of the mortgaged property,the mortgagor binds himself personally to pay the mortgagemoney and agrees expressly or impliedly, that, in theevent of his failing to pay according to his contract, themortgagee shall have the right to cause the mortgagedproperty to be sold, and the proceeds of sale to be appliedso far as may be necessary, in payment of the purchasemoney, the transaction is called a simple mortgage and themortgagee a simple mortgagee.”
1923.
Jayewar-
DENE A.J.
KristnappaChetty tHoratdla
1923.
Jaixwab-DENE A.J.
KristnappaChetty v.H or at a! a
( 54 )
This is a definition which exactly describes a mortgage under ourlaw. A simple mortgagee has no rightof foreclosure, but only a right ofsale (section 67). As under our law a second or subsequent mortgageehas the right to sue for the sale of the mortgaged property subject tothe prior mortgage : section 75 (0. 34, r. 1,) Indian Civil ProcedureCode, and uhder section 85, now repealed and re-enacted with slightalterations as 0. 34, r. 1, of the Indian.Civil Procedure Code''
‘ ‘ Subject to the provisions of this Code, all persons having an interesteither in the mortgage security or in the right of redemptionshall be joinedas parties to any suit relating to the mortgage.
“ Explanation.—A puisne mortgagee may sue for foreclosure orfor sale without making the prior mortgagee a party to thesuit; and a prior mortgagee need not be joined in a suit toredeem a subsequent mortgage.”
The law in India does not provide for the registration of addresses,but all personB having an interest in the mortgage security must bejoined as parties. A sale by a prior mortgagee in an action towhich subsequent mortgagees are not parties does not displacepuisne mortgagees, and leave them with nothing but a claim againstthe surplus proceeds, if any, as held by Lord Macnaghten in QobindLai Boy v. Ramjanam Misser.1 In such a case the puisne mort-gagee has the right to proceed against the land (ibid). The similaritybetween mortgages in India and here and between the rights ofprior and subsequent mortgagees makes it possible to apply underour law the principles which have been applied in India for thesolution of like difficulties. Thus it has been held in India in MuttaVitil Seethi Kutti v. Achuthan Nair (supra) that a first mortgageewho purchased the mortgaged property in execution of a decree onhis mortgage and sues for possession, or in the alternative for the' recovery of his money, is not entitled to a decree for possession asagainst a puisne mortgagee with possession (that is, where themortgage is usufructuary) who was not a party to the suit by thefirst mortgagee. The puisne mortgagee is entitled to redeem him.The puisne mortgagee’s position would be stronger if he had suedon his mortgage and purchased the property. In that case, after acareful review of the law on the subject, the following propositions(which I give in full, as they would be helpful) were formulated :—
“ A second mortgagee is entitled to the same rights as the
first mortgagee, with reference to his security, havingregard to the nature of his mortgage.
“ The purchaser of the equity of redemption (that is, of the
interests of the mortgagor) after the first mortgagee andthe second mortgagee both stand on the same footingwith reference to their respective rights against the firstmortgagee when they have not been impleaded in the suit .instituted by him on his mortgage.
* (1893) 21 Cal. 70.
1923.
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“ Those rights are unaffected by the suit of the first mortgagee
to which they are not made parties, and the deoree passedtherein and the sale made in pursuance thereof.
“ The purchaser in such a suit, whether it is a first mortgagee
or a stranger, does not acquire the rights of the mortgagoras at the date of the first mortgage, but only those thatsubsist in him at the date of the suit.”
This is a decision of the Full Bench of the Madras High Court, andcontains a learned and instructive discussion of the subject. Ithas been followed in a later case, GMnnu Pillai v. VenkatasamyOhettiar,x which also contains equally instructive judgments, andwhere it was held that “ where a prior mortgagee sped for a sale onhis mortgage without making a puisne mortgagee a party to hissuit and obtained a decree, and in execution of the decree theproperty was Bold and purchased by a third person, the puisnemortgagee is entitled to sue for sale on his mortgage, subject to theprior mortgage after making the purchaser a party to the suit.”
In my opinion, therefore, as the plaintiff’s title in the present caseis based on a sale which was prior in date to the Bale in favour ofthe defendant, the plaintiff’s predecessor acquired the title of themortgagor before the purchaser under the prior mortgage, and hemust be declared entitled to the land and to be placed in possessionthereof. He is, however, bound to redeem the first mortgage. Ifhe is not prepared to do so, the defendant is entitled to redeemhim and obtain possession of the land. For this purpose, Jtothmortgages aro in law taken to have revived. But the plaintiff isnot entitled to immediate possession as the defendant claims tohave improved the land and to retain possession till he is com-pensated. If the improvements had been effected before thepurchase under the second mortgage, no question of compensationwould arise, as the improvements must be taken to have been effectedby a transferee from the mortgagor, and they would accede to andform part of the land mortgaged. A question might also arise asto whether the amount to be paid in redeeming, is the price paid bythe purchaser or the amount due under the mortgage. Ordinarilyit would be the latter. But in this case, I agree with my Lord, theActing Chief Justice, that the defendant’s right is to claim satis-faction in respect of his purchase under the mortgage of earlier date.
The plaintiff also contends that the primary mortgage had beenpaid off and discharged. These questions cannot, in my opinion, besatisfactorily decided in this case. The plaintiff is entitled to beplaced in possession of the land on his paying to the defendant thecompensation, if any, that may be found due to him. I agree tothe order proposed by my Lord, the Acting Chief Justice. 1
Jayewar.
DENE A.J.
KristnappaCheUy v.Horatala
1(19U) 40 Mad. 77.
Varied.