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MORTGAGES IN
GENERAL
CHAPTER VI
MORTGAGES IN GENERAL
1
Bouvier’s Law Dictionary, 8th Edn, 1914, Vol 2, p.2249
190
payment of the debt. All these devices were intended to protect the lender
by enabling him to secure the land on his debtor’s default. All of them were
the transaction as other than a method of pledging the land as security for
the debt, the debtor retaining what came to be known as the equity of
contract.
mortgagor, and the mortgage is a mere security for the debt or obligation.
Before the Law of Property Act 1925, there were two principal ways
to create a legal mortgage of land. The first involved the borrower
transferring the property to the lender and the lender covenanting to
2 Jowitt’s Dictionary of English Law, 2nd Edn, 1977 Vol 2, p.1202 - 1203
3 Words and Phrases Legally Defined, 2nd Edn, 1969, Vol 3, p.295 - 296
transfer it back again when the debt was paid. Prior to repayment the
lender had the legal estate, so he had all he needed to sell the property free
from the borrower’s interest.
The mortgage would state a date on or before which the borrower was
to repay the loan if he wanted to recover the property. This was known as
the legal date of redemption of the loan and was usually six months after
the date of the mortgage. The parties never really intended that the loan
was going to be repaid then but it was a convenient (if highly artificial) way
of ensuring that if the lender ever needed to exercise his enforcement
powers he could show that there had been an event of default and that the
powers had arisen. Meanwhile the courts of equity would protect the
borrower’s position as against the lender so long as the borrower complied
with the real commercial agreement with the lender by making the
appropriate payments and complying with any other conditions that might
have been imposed. This right of the borrower to pay off the loan after the
legal date for redemption had passed was known as the equitable right to
redeem and the interest which this gave the borrower in the property was
the equity of redemption.
5
[1899]2 Ch. 474 (CA)
193
other obligation for which it is given". These words exactly express the
nature of a mortgage6. And it therefore follows that a mortgage presents
two essential features :
The following are the two kinds of mortgages in English Law after
the enactment of the Law of Property Act, 1925:
1. Legal mortgage
2. Equitable mortgage.
6
Provided that "Conveyance" include a conveyance in equity
194
Legal Mortgage
Since the Law of Property Act 1925, a legal mortgage may only be
created by either granting the mortgagee a lease in the legal estate (a
mortgage by demise) or conferring a charge by deed "expressed to be by way
of legal mortgage" over the legal estate (a mortgage by charge). Although
called ‘charge’, the lender is deemed to be in the same position as if he had
been granted a mortgage by demise11. In practice, creation of legal
mortgages by charge is by far the most common.
to discharge the debt, the right to sue for the shortfall survives the exercise
of the power of sale13.
The right to the mortgagee for possession arises "before the ink is
dry on the mortgage"14.
Sec 101 (1) of the LPA clothes the legal mortgagee by deed with
statutory power of sale. In addition to power of sale, the mortgagee is
entitled to appoint a receiver of the income of the mortgaged property.
Equitable Mortgage
not vest a legal estate in the lender, as does a legal mortgage, but in the
memorandum which usually accompanies the deposit of deeds, the
borrower, as a rule, promises to grant a legal mortgage when requested to
do so.
19
LPA, Section 91 (2)
200
borrowers are reluctant to carry out their covenants when the need arises.
If the borrower will not co - operate, the bank will have to incur the expense
and time of an approach to the court.
one suit the various incumbrancers on the property, endless confusion had
been the result, and the decisions of the courts upon the almost insoluble
problems arising from this state of things had been numerous and
contradictory. The result was that the mortgaged property could not fetch
anything like its value. The debtor was ruined, the honest and respectable
money - lender discouraged, and the vast amount of gambling and
speculative litigation fostered"20.
The Transfer of Property Act, 1882 was modelled on the English Law
of mortgage. The latter has been changed by the Law of Property Act, 1925.
As a result the mortgage in England has become a demise (lease) and the
condition one of defeasance : A cesser of the term comes in with the
discharge of the mortgage - money. It has been rightly observed in Gopal
v Parsotam21 that mortgage as understood in this country cannot be
defined better than by the definition adopted by the legislature in Section
58 of the Transfer of Property Act, 1882. That definition has not in any way
altered the law, but on the contrary, has only formulated in clear language
the notions of mortgage. Every word of the definition is borne out by the
decisions of the Indian Courts of Justice.
High Court, the condition of sale and resale was engrafted in the same
document, wherein the purchaser was specifically prohibited from
encumbering the property within a period of five years stipulated for
repurchase. There were also substantial differences between the actual
value of the property and consideration as stipulated in the deed. It was
held that it was a mortgage by conditional sale and not a sale with a
condition for re - transfer.
1. Simple mortgage
2. Mortgage by conditional sale
3. Usufructuary mortgage
4. English mortgage
5. Mortgage by deposit of title - deeds
6. Anomalous mortgage.
Section 100 of the Transfer of Property Act, 1882, says that when
immovable property of one person is, by act of parties or operation of law,
made security for payment of money to another, such person is said to have
29
Papamma Rao v Pratapa Korkonda (1896) 19 Madras 249, 252, 23 LA 32
206
Mortgage Charge
given.
court31.
On condition that on such payment being made the sale shall become
void, or
31
Kishan Lai v Ganga Ram (1891) 13 Allahabad 28
208
a) Delivery of possession
b) Appropriation of rents and profits in lieu of interest, or in lieu
of principal, or partly in lieu of interest and partly in lieu of
principal
c) Absence of personal liability
d) No time limit for redemption.
36
Chathu v Kunjan (1889) 12 Madras 109
211
39
Section 69 (1) (a), Transfer of Property Act, 1882
213
property. The term "equitable mortgage" is not appropriate in India, for the
law of India knows nothing of the distinction between legal and equitable
estates40.
The towns specified in the section are called notified towns. Many
other places have been notified by the State Governments for depositing
title - deeds for creation of mortgages. Territorial restriction referred to in
Sec 58 (f) has reference only to the delivery of the documents of title and
not to the situation of the property.
1. a debt;
2. a deposit of title - deeds in notified town; and
3. an intention that the deeds shall be security for the debt.
The remedy of this mortgagee lies in filing a suit for sale of the
mortgaged property.
An anomalous mortgage is,one which does not fall within any of the
other five classes enumerated. While considering an anomalous mortgage,
the intention of the parties must be gathered from the terms of the
instrument as controlled by the provisions of the Act42.
42
Madho Rao v Gulam Mohiuddin AIR 1919 PC 121
215
mortgagor, known as the Jenmi, and the lessee the mortgagee. The latter
can deduct the interest out of the rent payable by him. The amount paid to
the mortgagor is called Michavaram. In the absence of a contract to the
contrary, it is not redeemable before the expiry of 12 years48, After this
period is over the lease is renewed on payment of a renewal fee called
Avakasam.
Naming of Mortgages
As has been rightly said in the Bible : "A good name is better than
precious ointment"51. And this has happened with regard to naming of
some of the mortgages. Of the six, three may remain as they are, namely,
simple mortgage, usufructuary mortgage and English mortgage. But the
other three need renaming according to the theory of definition. Definition
involves two expressions - the expression to be defined and the defining
expression. The defining expression must contain more words than the
defined expression (which may be a single word). The terms simple
mortgage, usufructuary mortgage and English mortgage conform to the
theory of "definition", but three others do not. And this calls for coining new
terms for the expressions to be defined. To this end, mortgage by
conditional sale, mortgage by deposit of title - deeds and anomalous
mortgage should be replaced by "sale like mortgage, depository mortgage
and combinatory mortgage", respectively.
51
Ecclesiastes, 7 : 1
220
Where the principal money secured is less than one hundred rupees,
a mortgage may be effected either by a registered instrument signed and
attested as aforesaid or (except in the case of a simple mortgage) by delivery
of the property".
Future Advances
accordingly that the claim of the Sales Tax Department to be paid then-
dues from out of the proceeds of sale of the respondent’s property took
priority over the claim of the appellant bank as mortgagee of the property
in question.
The Supreme Court, while deciding this case, referred to the decision
in Dattatreya Shanker Mote v Anand Chintaman Datar59 where it
was held that a charge is a wider term than a mortgage. It would cover
within its ambit a mortgage also. Therefore, when a first charge was
created by operation of law over any property that charge will have
precedence over an existing mortgage.
The case of State Bank of Bikaner and Jaipur (supra) decided by the
Supreme Court puts the statutory charge of the Government in preference
to an existing mortgage.