( 378 ).
Present: Lyall Grant J. and Maartensz A.J.
WALPOLA v. COOKE.
38—D, C. (Inty.) Colombo, 25,455,
Mortgage Decree^Assignment by tray of mortgage—Subsequent seizure tVexecution—Realizationof security bydecree-holder—Rights of
mortgagee—Civil Procedure Code, s. 339.
A obtained judgment against X on a mortgage bond, andmortgaged the decree with B. Subsequently C, in execution ofa decree against A, seized the mortgage decree, got himselfsubstituted as plaintiff in the action and had the security realized.
Held, that C had a preferent right to the proceeds of sale.
HIS was a mortgage action in which the plaintiff, A obtainedjudgment against X for a sum of Rs. 8,480 and interest.
Decree was entered on November 25, 1927.- Plaintiff assignedthe decree by way of mortgage to intervenient appellant B by deedNo. 115 of January 21, 1928, which was registered in the registerdealing with immovable property. The substituted plain tiff -respondent C, who was judgment-creditor in D. C., Colombo,No. 29,229, obtained decree in that case on August 23, 1928, andseized the decree in this case on August 30, 1928, under section 234of the Civil Procedure Code, had himself substituted plaintiff onSeptember 17; . 1928, and proceeded to execute the decree by sale ofthe mortgage property. Proceeds amounting to about Rs. 4.000were brought into Court on November 2. 1928, by the auctioneer.B intervened on November 12, and moved that no sum of money bepaid out without notice to him. On C moving to, draw a sum ofRs. 2,577.25, that is, the amount of bis. decree in D. C., Colombo,No. 29,229, P claimed a preferent right. The learned DistrictJudge held that B had no such right. B appealed.
Keuneman (with Ferdinands), for intervenient appellant.—Thelearned District Judge was wrong in upholding the contentionthat deed No. 115 should have been registered in the Register ofMovables. A decree is a chose in action, not a chose in possession.Chose in action is omitted from Ordinances No. 8 of 1871 and No. 23of 1927, section 17 (2). The Supreme Court has held that mortgagesof choses in action do not come within the old Ordinance and soneed not be registered (Dawson v. T7a» Geyzel1), This ruling willapply to the present Ordinance.
' The beamed District Judge seems to think that when C seized, this decree under section 234 he was really an assignee of the decreeand, as such, got himself substituted under section 239. He iswrong: He fails to distinguish between choses in action and chosesin possession.
The position of a person who seizes a decree is not the same asa person to whom it is assigned for valuable consideration. A
1 (J593) 3 C, L- R, 35,
( 379 •)
person who Seizes under section 234 is, by section 254, deemed to *989be an assignee merely for the purpose of giving him the power to Walpola *.•execute the judgment and to pay himself out of the proceeds— Cookenot an assignee for all purposes whatsoever. This interpretationhas been adopted by Your Lordship's Court in Coder v. Saibu.1
We must not be penalized for not taking into possession a thingwhich we cannot take into possession.
The substituted plaintiff C can execute his decree subject to themortgage. He ought not to be in a better position than the originalmortgagor. If deed No. 115 is construed as an assignment ourposition is stronger. We could take up the position that it isreally a transfer subject to the equity of redemption.
[Maaetknsz A. J.—Have you got a precedent for a mortgageof a debt or decree?]
Debts could be mortgaged (Burge III., p. 544). What is mort-gaged is the right embodied in the decree, that is, the moneydue on the decree. (Sonde’s Cession of Action (Ander's), p. 77; VoetXVIII. 4, 9 and 17; Jayasinghe’s Notary's Manual 239; Encyclopaediaof Forms and Precedents, vol. VIII., p. 704).
Our right against the mortgage property is gone but we canassert our right against the proceeds of the decree. A mort-gagee of movables has a preference to the proceeds (AdicappaChetty v. Perera 2). He has preference even over costs of seizingcreditor (Marikar v. Marikar 3).
If we regard deed No. 315 as a pure mortgage and not as anassignment our right is to ask that the money be retained pendingan action. In an assignment we can claim the money. In thiscase it makes no difference which it is, as the money is in Court.
H. V. Perera (with Navaratnani), for substituted plaintiff,respondent.—The correct position is that the deed is an instrumentof mortgage. The instrument is not an assignment; it is simplya mortgage of a judgment debt. In Roman-Dutch law where thereis no delivery of movable property the hypothecation attaches onlyso long as the property remains in the possession of the mortgagor.
The right of. hypothec is lost as soon as the mortgagor losespossession (2 N. L. B. 94; Voet XX. 1, 12).
' Seizure of a decree is equivalent to an assignment of that decree—section 254 of the Civil Procedure Code. Such assignment has thesame effect as an assignment by a writing. A judgment debtbeing, movable property is capable of possession.. The person inpossession in this case was the original plaintiff, being the decreeholder; when the seizing creditor was substituted plaintiff hegot possession; that act destroyed the hypothec.
When seizure of movables takes place under section 227 of theCode possession does, not change and therefore right of hypothec
1 (1923) 25 N. L. R 36.*30 X. L. R. 27 (28)3 (1900) 1 C. L. R 1
( 380 )
‘ 1929 is not lost. When the fiscal sells the property the Roman-Dutch.
WcUpola v. doctrine of the price taking the place of the goods takes effectCooke (Marikar v. Marikar l).
This is so only if the hypothec attached to the goods at the momentof the sale (Jayawardene on Mortgages, p. 37). In South Africa. the attachment gives rise to a judicial pledge with delivery, that is,the Fiscal holds for the creditor. Mortgages of land are movableproperty (Silva v. Mudalikamy 2).
With regard to the argument that the document is an assign-ment of the decree, we must look at the whole document. Nowhere-is it said that it is-an assignment with a right of redemption. Itis a simple mortgage. If it was an assignment the intervenientwould have got himself substituted.
[Maartensz A. J.—If we assume that it is assignment, what is*your position?]
That brings us to a very difficult question of Roman-Dutchlaw.
[M’aartensz A. J.—Can there be a cession of a debt without deliveiyof a debt?]
There must be a placing of the assignee in control of thedebt (Sonde’s Cession of Action 227). Roman-Dutch law juristsbeing in conflict, we ought to follow English law and require notice.Notice in this case could have been given by the intervenientgetting himself substituted. An assignment of a judgment debtis not complete till the assignee gets into a position* to enforce it.Lastly the possibility of fraud ought to be considered.
Keuneman, in reply.—Question of fraud need not be consideredin this case as there is a notarial deed. Section 339 insists uponan assignment in writing.
' The Court will not give to' the statutory provisions of section 254any extended meaning. Voet, in the passages cited by the otherside, seems to deal with voluntary alienations and not to alierm-.tions by operation of law. Our real defence is that this is anassignment. It is a clear assignment.
November 26, 1929. Lyall Grant J.—
The question raised by this appeal is whether the appellant or therespondent is entitled to certain proceeds of a Fiscal’s execution ona decree.
The facts may be briefly and formally set out as follows: OnNovember 25, 1927, A obtained judgment against X for a sumof Rs. 8,480 and interest, the amount due on.a mortgage bond.On January 21, 1928, he mortgaged the decree to B (the appellantsin connection with a loan for Rs. 7,000.
B registered the mortgage in the register of immovable property.
No steps were taken to execute the decree, and on August 23, 1928.C (the respondent) obtained a decree against A for Rs. 2,577.25.
% 1C. L. It. 117 C. L. R. 328
( 881 )
including costs in another case. On August 30, 1928, he seizedthe decree in the case of A and X. On September 17, 1928, hegot himself substituted as plaintiff in that case, executed the decree,and brought the proceeds of sale, amounting to Bs. 4,000, intoCourt on November 2. 1928.
On November 12, 1028, B intervened and claimed the whole ofthis sum under his mortgage.
The learned District Judge has held that C is entitled to prevailagainst B on the grounds that—
the mortgage was movable property and should have been
registered in the Begister for movables and for want ofregistration it is void.
when he became substituted plaintiff the movable property
(i.e., the decree) passed into his hands and a mortgageeof movables could not follow it there.
In the petition of appeal it was pleaded that—
no registration is required of a chose in action, which is
specially exempted in section 17 (2) of the Begistration ofDeeds Ordinance, No. 23 of 1927,
if A had realized the decree B would have been entitled
to the proceeds of sale by virtue of his mortgage, andC being an assignee by operation of law cannot be in abetter position than his assignor,
(a variation of 2) C as assignee became the holder of the
decree subject to all legal rights appertaining to it,
when the decree was realized in execution the appellant's
mortgage immediately attached to the fruits of thedecree, and B was entitled to the moneys in Court.
In this Court the principal arguments of the appellant were—
B’s document is an assignment,
it required no registration,
C was in the position of a purchaser or voluntary assignee of
Under section 254 he acquired only limited rights against- Avand there was nothing in that section by which alone rights areconferred on him, to entitle him to defeat the previously acquiredrights of a third party.
For the respondent. it was argued—
that the mortgage was not an assignment but only »
that when a mortgagor gives possession to a third party
of hypothecation movables of which he has been left inpossession, the mortgagee by operation of law loses hisright of hypothec, i.e., that it is not available againsta third party,
( 382 )
that the only person in possession oi a decree is the plaintiffon the record and that transfer of possession is effectedby the substitution of another plaintiff on the record.
In reply it was urged that, assuming the document to be merelyhypothec, C acquired only limited rights under section 254 “ sofar as that person’s interest extends ” and not all the rights of noordinary assignee. He could only take the reversionary interestin the mortgage which was nil that remained in the mortgagor,“ the person ” referred to in the section.
The principles of English law relating to judgment debts and otherchoses in action are set out in Halebury's Latvs of England, underthe title of choses in action.
It appears that while no registration or notice is essential to thevalidity of such an assignment, the assignment is postponed to asubsequent assignment of which prior notice has been given providedthat the subsequent assignee does not know of the first assignmentat the time when he takes his security.
By the Judicature Act of 1878 certain conditions are required tovest in au assignee legal rights to a chose in action (which includesa judgment debt).
These are (1) the assignment must be in writing, (2) it must beabsolute and not by way of charge only, and (3) express notice inwriting must be given to the debtor.
A conditional assignment, e.g., one expressed to be till moneyadvanced is repaid is not within the statute and to determine whetheran assignment purports to be by way of charge the whole effectof the document must be looked, at.
There can I think be no doubt ,that if the principles of Englishlaw were to be applied C’s execution would defeat B’s priormortgage of which he had no notice.
The question is to some extent dealt with in the Ceylon CivilProcedure Code.
Section 889 of the Code deals with assignment of a decree “ when.made in writing," and it has been held that such assignments arevoid unless they are in writing. The section provides that thetransferee may apply for execution of the decree by petition tothe Court which passed it and shall make all parties to the actionrespondents, and if the Court thinks fit it may substitute thetransferee’s name for that of the transferor in the record of thedecree, and thereupon the decree may be executed, Ac.
It seems to me that the effect of this section is that the transfer<of a decree is not complete until the Court after consideration hassanction it. Possession of the decree does not pass by theassignment in writing or before the decision of the Court. The•decree of the Court substituting the assignee’s name in the decreeis equivalent to transfer of possession.
( 383 )
A point to be noted is that all the parties to the action must be
noticed and given an opportunity to state objections before anyright in rem is acquired by the assignee.
Section 339 provides that where a decree of Court is seized inexecution of another decree, the judgment-creditor of the seconddecree is in the situation of an assignee of the judgment-creditorof the decree which is seized.
In such a case there is a transfer by operation of law and thecreditor can apply to have his name substituted as plaintiff.
I can find no reference in the Code to the mortgage of a decreenor has any case been cited to us which deals with such a transaction.We have however been referred to an English form which providesfor the assignment of a decree by way of mortgage.
The security recited by the document is that for further securityand for a loan of Es. 7,000 the mortgagor assigns and sets'over (byway of mortgage) as- primary mortgage the sum of money due andowing to him in respect of the decree entered in his favour and allhis rights, &c.. in the judgment decree and with full power to recoverthe moneys payable and recoverable in respect of the judgment.
I think, especially in view of the last words quoted, that there is in-tended here something more than a mere hypothec. Power to recoverthe money is given, and it would appear to be intended to operateas a transfer by assignment which could be enforced under section 339.
The construction of the document was primarily a matter forthe District Court to decide if the matter had been brought beforeit under section 339. If that Court came to the conclusion that itwas not an assignment it would refuse to substitute the mortgageeas plaintiff and the mortgage would operate as a hypothecationwithout delivery of possession.
The only way so far as I can see in which the mortgagee can com-plete his security is by taking proceedings under section 339. Untilhe does so he is not secured. In other words, possession of the decreeremains in the mortgagor. Possession is transferred not by the.deed but by the Court and at the Court's descretioh. It is no doubttrue that the Eegistration Ordinance does not declare mortgages ofchoses in action void unless there is either delivery or registration,but it remains to be ascertained what security is created in such acase, and to ascertain this we are thrown back upon the Common law.
As indicated above, I do not think that any right in rem wasacquired by B. The document merely gave him an opportunityto acquire such a right by going to the Court and by being substitutedas plaintiff, but he did not avail himself of his right. The case isanalogous to a mortgage of movable property where there has beenno pledge of the goods and the mortgagee has neglected to register.
No doubt B has personal rights against A in the sense that if Ahad executed the judgment he would have had a claim to the funds,as against A, but this is not a security which under either English
( 384 )
of Roman-Dutch law would give him any rights against a sub-sequent assignee who obtained possession without notice.
It was further argued that even if this .were so as between competingvoluntary assignees, C obtained only the rights given him by section 254and that these rights are limited to the interests actually possessed byA at the time of his seizure. If A realized the decree the proceedswould clearly have been attachable under the mortgage and G canbe in no better position than the person to whom he is substituted.
This argument, if sound, would appear to have dangerous con-sequences. Any creditor seizing a judgment would be liable to bedefeated by some secret document dated anterior to the seizureand showing a mortgage or hypothec by the person whose judgmentis seized. The door would be opened wide to fraud and collusion.That seems to me contrary to the principles of both English andRoman-Dutch law. The only decision cited to us which has anybearing on the interpretation of these words “ so far as that person’sinterest extends ” is that of Schneider J. in Cader v. Caibo.1.
He says “ A judgment-creditor who seizes a decree in anotheraction is to be deemed an assignee of the latter decree only for thelimited purpose of execution of the decree seized for the satisfactionof the decree in his favour. He cannot be regarded as entitled toall the rights of an ordinary assignee. Any surplus after satisfactionof his claim will not belong to him, but to the actual decree holder.”
With this dictum, if I may say so, I agree, but it does not touchthe question now before us, which is, What were the interests of Aat the date of seizure by C ? To ascertain what .these interestswere we must look at the Common law.
The provisions of the Roman-Dutch law relating to assigneesof property burdened with an undisclosed hypothec will apply.The creditor's security depends on his possession or on notice.If a third party gets possession without notice he obtains preference.
Here a third party with no notice of the security has got possession,•and it seems to me to be in accordance with the provisions of theRoman-Dutch law (see Voct XXI, 12 and 13), which on this pointis in agreement with the English law, that he should prevail.Section 13 of Voet is very clear on this point.
To sum up. I think that A gave B an instrument- on whichperhaps possession of the property mortgaged might have beenobtained by process of Court, but possession was not so obtained.The instrument operates therefore as a mere hypothec or assignmentwithout transfer of possession and without notice and is liable to be.defeated by a subsequent assignment with transfer of possession.
A seizing creditor without notice of the mortgage is in the positionof a subsequent assignee and has preference.
The appeal is dismissed with costs.
Maartensz A.J.—I agree.Appeal dinmitsed.
1 2.5 N. L. B. SO
WALPOLA v. COOKE