Sie sind auf Seite 1von 37

CHAPTER VI

MORTGAGES IN
GENERAL
CHAPTER VI

MORTGAGES IN GENERAL

Mortgage is a conditional conveyance of land designed as a security


for the payment of money, the fulfilment of some contract, or the
performance of some act, and to be void upon such payment, fulfilment or
performance1.

Mortgage is the translation of vadium mortuum - dead pledge, so


named because the land was turned over to the mortgagee or lender of the
money, who received the profits or revenues of it without applying them in
satisfaction of his debt, and the land thus became dead to the mortgagor or
borrower who derived no benefit from it. This was regarded as in the nature
of usury on the part of the lender and was looked upon with disfavour, in
modem phrase as contrary to public policy.

In the vadium mortuum, the pledge was dead to the borrower if he


failed to redeem. In attempting to avoid the difficulty, lenders devised the
plan of taking from the borrower a conveyance of the property to become
absolute upon the failure of the borrower to redeem. Later, the plan was
adopted of taking an absolute conveyance, with an agreement on the part
of the lender to reconvey on payment of the debt, the transaction being in
form an absolute sale of land with an option to buy it back by payment of
the loan at a fixed time. Another form was to convey the land to a trustee
who was to hold to the creditor’s use, and on default was to sell for the

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

modified or softened by the courts refusing to allow the forfeiture or to treat

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

redemption and being protected against the strict enforcement of his

contract.

It is everywhere recognised that the real owner of the land is the

mortgagor, and the mortgage is a mere security for the debt or obligation.

A mortgage is the creation of an interest in property, defeasible (i.e.


annullable) upon performing the condition of paying a given sum of money
with interest thereon, at a certain time. This conditional assurance is
resorted to when a debt has been incurred, or a loan of money or credit
effected, in order to secure either the repayment of the one or the
liquidation of the other. The debtor, or borrower, is then the mortgagor, who
has charged or transferred his property in favour of or to the creditor or
lender, who thus becomes the mortgagee. If the mortgagor pays the debt or
loan and interest within the time mentioned in a clause technically called
the proviso for redemption, he will be entitled to have his property again
free from the mortgagee’s claim; but if he did not comply with such proviso,
at common law he lost the property to the mortgagee. In equity, however,
until the mortgage has been foreclosed, or unless the property has been sold
under powers to satisfy the debt, it has always been redeemable upon
payment of the debt or loan, with interest and expenses, at any period
within twelve years after the last recognition of the mortgage security by
the mortgagee; and this because equity deems the non - compliance with the
proviso for redemption a penalty, against which it always relieves when practicable.
191

Seeing that in by far the greater number of loan translations the


mortgagor never performs the condition in the proviso for redemption, they
have been denominated mortgages, as the pledge is then dead or lost
(mortuum vadium) to the mortgagor at law2.

A mortgage is a disposition of property as security for a debt, the


security being redeemable on repayment or discharge of the debt or other
obligation. Generally, whenever a disposition of an estate or interest is
originally intended as security for money, whether this intention appears
from the deed itself or from any other instrument or from parol evidence,
it is considered as a mortgage and redeemable. Every mortgage implies a
debt and a personal obligation by the mortgagor to pay it3.

Mortgage is, in English Law, a disposition of property to another in


security of a debt, in supplement of a personal contract for payment of the
debt. Mortgage (Mortuum Vadium, dead pledge) is so - called because, in
many cases, the mortgagor does not perform the condition in the provision
for redemption and the pledge is forfeited4.

Mortgages in English Law

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

4 David M.Walker, Oxford Companion to Law, 1980, p.856


192

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.

The classic description of a mortgage is given by Lindley, M.R. in


Santley v Wilde5. "A mortgage is a conveyance of land or an assignment
of chattels as a security for the payment of a debt or the discharge of some

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 :

i) the object of the transaction is to provide security for the


performance of an obligation

ii) this object is attained by transferring to the obligee rights of


property.

The words of Lindley, M.R., also serve as a reminder that mortgage


transactions are not confined to loans of money, but may extend to securing
to any kind of obligation. Mortgages to secure a money debt are so much the
commonest form of mortgage that it is easy to forget that mortgages may
be used for other purposes. The case of Santley v Wilde (supra) itself is a
warning that such forgetfulness may occasionally lead to confusion of
thought. It will, however, be convenient in this thesis constantly to use
language appropriate to a money loan.

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

A legal mortgage in England is a conveyance or assignment of the


whole or part of the estate or interest of the debtor in real or personal
property of which he is the legal owner or of some legal estate or interest
which he has the power to transfer. In other words, legal mortgage is the
conveyance of a legal estate in real or personal property as security for a
debt or for discharge of an obligation. A legal mortgage of a freehold land
is accomplished by a charge by deed expressed to be by way of legal
mortgage, or by the demise of a term of years absolute. After 1925, a legal
mortgage cannot be created by a conveyance with a proviso for
reconveyance. The legislation introduced the "charge by deed expressed to
be by way of legal mortgage" more usually referred to as the "legal charge".
A legal mortgage of a freehold can now only be created by demise or by a
legal charge7. An attempt to create a mortgage by conveyance results in the
mortgagee taking a term of three thousand years8. Similarly, a legal
mortgage of a leasehold is only capable of being effected either by a sub­
demise or a legal charge9. The legislation tidied up the former disadvantage
of mortgage by demise by making it clear that the mortgagee had the right
to the title deeds10 and could dispose of the reversionary interest if he ever
came to enforce his security.

7 Law of Property Act, Section 85 (1)

8 LPA, Section 85 (2)

9 LPA, Section 86 (1)

10 LPA, Sections 85 (1), 86 (1)


195

The essence of legal mortgage of land is the vesting of a legal estate


in the mortgagee. On payment of the debt at the time fixed, the mortgagor
is entitled to a reconveyance.

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.

In the case of legal mortgage the proper form of conveyance is a lease


of land to the mortgagee for a term of years absolute, usually, of course, for
a long term subject to a proviso that the term shall cease on redemption12.
Any attempted conveyance of an estate in fee simple by way of mortgage
will, under 85 (2) of the LPA operate in the case of a legal mortgagee as a
lease to the mortgagee for a term of 3000 years subject to a proviso for
cesser on redemption.

Remedies of Legal Mortgagee

Action on the covenant to pay is the simplest remedy which lies in a


suit on the covenant in exactly the same way as it would sue to recover any
other debt. In case of sale of the mortgaged property not realising enough

11 Grand Junction Co. Ltd v Bates [19541 2 QB 160


12 LPA section 85 (1)
196

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.

The power of foreclosure enables the mortgagee to take the


mortgaged property and treat it as his own, free from any right for the
mortgagor to redeem the mortgage. The right to sue the mortgagor on the
covenant to pay continues, notwithstanding the foreclosure, as long as the
mortgagee retains the property15. If the mortgagee has sold he cannot
reopen the foreclosure and thus cannot sue on the covenant16.

Equitable Mortgage

Where a borrower gives to a lender, as security, the title deeds of his


property, without any document of charge, or the deeds with a
memorandum of deposit, or even a memorandum of charge without the
deeds, it is an equitable mortgage in England. An equitable mortgage does

13 Rudge v Richens (1873) LR 8 CP 358

14 Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957] 2 All ER 35

15 Kinnaird v Trollope (1888) 39 Ch D 636


16
Lloyds and Scottish Trust Ltd v Britten [1982] 44 P & CR 249
197

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.

An equitable mortgage is a contract which operates as a security and


is enforceable under the equitable jurisdiction of the court. It may be
created by general words and even with regard to future acquired property.
Under section 101 of the Law of Property Act, 1925 (England), it is essential
that an equitable mortgage be by deed if the mortgagee is to have the power
of sale and other powers conferred on a mortgagee by statute.

Equitable security is frequently regarded as simpler to create than


legal security and is deemed more appropriate as a short term measure.

An agreement to create a legal mortgage will be enough to


constitute an equitable mortgage as long as the agreement is itself
enforceable. To be enforceable it is necessary to have a note or
memorandum in writing evidencing the agreement. The depositing of deeds
by the borrower with the lender will be sufficient act of part performance
but the purpose of making the deposit must be clear. There is no need for
a document under seal or otherwise.
198

In practice the bank would require a written agreement with its


customer so that there is no doubt about why the bank holds the deeds or
about exactly what is secured. This agreement will usually include an
undertaking on the part of the customer to execute a legal charge if called
upon to do so.

Remedies of Equitable Mortgagee

The remedies available to an equitable mortgagee are less extensive


than those available to a legal mortgagee. Equitable mortgagee does not
have a legal estate in the property. What the equitable mortgagee does have
is the benefit of an agreement on the part of the mortgagor to create a legal
mortgage and one of the remedies he has available is to obtain an order
from the court perfecting this agreement by vesting in the mortgagee a legal
term of years so that he is in the same position as a legal mortgagee17.

When the deposit of title deeds is accompanied by a memorandum


under seal and an irrevocable power of attorney the equitable mortgagee is
vested with the statutory power of sale. On enforcing the security the
equitable mortgagee sells the legal estate and conveys it by using the power
of attorney18.

A power of attorney is an instrument empowering a specified person


(called the donee or agent) to act for, and in the name of, the person (called
donor or principal) executing it. In the case of equitable mortgage, the

17 LPA, Section 90 (1)

18 In Re White Rose Cottage [1965] Ch 940


199

mortgagor gives the power of attorney to the mortgagee empowering him to


sell the property, thereby conferring power of sale on the mortgagee. Since
this power of attorney is coupled with interest (i.e. debt received by the
mortgagor) it is irrevocable.

Where the mortgage is not made by deed and is not accompanied by


power of attorney the mortgagee will need an order from the court directing
a sale19.

An equitable mortgagee has always had a right to apply to the court


for appointment of a receiver.

The court has power to order foreclosure of an equitable mortgage or


to order a sale in lieu.

The statutory power of sale is not available to an equitable mortgagee


without deed, whereas a legal mortgagee can exercise the statutory power
of sale under section 101 (1) of the Law of Property Act 1925.

It is submitted that the legal position in English Law is very clear-


that an equitable mortgage is inferior to a legal mortgage.

The memorandum evidencing deposit of deeds (equitable mortgage)


with the bank as security will usually include an undertaking by the
mortgagor to execute a legal mortgage when called upon to do so. If the
borrower readily implements this undertaking upon request, all is well and
the bank quickly obtains the rights of a legal mortgagee, but so many

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.

It is, therefore, submitted that in the normal course the prudent


banker in English Law always obtains a legal mortgage rather than an
equitable mortgage.

Mortgages in Indian Law

The position that prevailed in India prior to the enactment of the


Transfer of Property Act, 1882 as regards mortgages may be stated as
reported in the proceedings of the Council of the Governor General of India:

"Mortgages were legislated for in Bengal as early as 1798, but, as the


old Regulations gave a somewhat cumbrous and unsatisfactory procedure,
and did not cover every class of mortgage, money - lenders had resorted to
a simple mortgage - bond, consisting of a covenant to pay and a pledge of
the property. This form of mortgage never having been legislated for, there
was no protection to the debtor. The practice was for the creditor to get a
money - decree, and sell up the mortgaged property without allowing any
time for redemption. The sale being an ordinary execution - sale of the
right, title and interest to the debtor, whatever it might be, it was usual,
when the same property was pledged to different creditors in different
mortgage - bonds, for each creditor to hold a separate sale and leave the
purchasers to fight out in court the question of what they had bought under
their respective sales. There being no machinery for bringing together into
201

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.

In the above state of affairs, the framers of legislation put their


hands together to codify the law of mortgages into the Transfer of Property
Act, 1882.

The entire law relating to mortgage of immovable property is


contained in the Transfer of Property Act, 1882 (Sections 58 to 98).

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

20 Abstract from the proceedings of the Council of the Governor - General of


India, assembled for the purpose of making laws and regulations, 1882 Vol.
XXI, p.76
21
ILR (1883) 5 All 121 (137) (FB)
202

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.

Section 58 (a) of the Transfer of Property Act,1882 defines mortgage


as the transfer of an interest in specific immovable property for the purpose
of securing the payment of money advanced or to be advanced by way of
loan, an existing or future debt, or the performance of an engagement which
may give rise to a pecuniary liability.

No particular form of words is necessary for the creation of a


mortgage. It is sufficient that the transfer should be originally intended to
secure the debt. The intention of the parties will be ascertained by looking
at the substance and essence of the transaction and not mere the form of
words. Even if the deed calls itself a mortgage, its nature will be
determined not by the name the parties give it, but by the jural relationship
constituted by it.

In Kottayya v Annapumamma,22 a debtor who was not able to


repay the amount of the debt granted to the creditor a right to occupy and
enjoy certain land for a period of 20 years. It was held that the transaction
was not a mortgage but a lease.

A sale with a condition of retransfer is not mortgage, for the


relationship of debtor and creditor does not subsist and there is no debt for
which the transfer is a security.

22 AIR 1945 Madras 189


203

In Natesa Pathar v Pakkirisamy Pathar23 before the Madras

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.

An agreement to mortgage may, in English law, amount to an


equitable mortgage, which can be enforced according to its terms, but no
such mortgage is recognised in Indian Law24. An agreement to mortgage
gives rise only to a personal obligation, which does not constitute either a
mortgage or a charge. An agreement to mortgage is not capable of specific
performance, for the court will not enforce an agreement to make a loan of
money, whether on security or not. In South African Territories Ltd v
Wallington25, Lord Macnaghten said, "That specific performance of a
contract to lend money cannot be enforced is so well established and
obviously so wholesome a rule, that it would be idle to say a word about it".
The remedy for breach of an agreement is damages. The measure of
damages is the interest for the time the money is likely to lie idle, plus
actual expenses incurred26.

23 AIR 1997 Madras 105


24 Menaklal v Saraspur Manufacturing Co AIR 1927 Bombay 167

25 [1898] AC 309, 318 (PC)

26 Datubai v Abubaker (1888) 12 Bombay 242


204

The words "transfer of an interest" in section 58 (a) indicate that all


rights of ownership which the transferor has do not pass to the transferee.
Some rights are transferred to the mortgagee and some remain vested in
the mortgagor.

The words "specific immovable property" make it necessary to specify


the immovable property in order to create a mortgage. The description must
at least be sufficient to identify the property. It has been held in Indian
Insurance & Banking Corpn v Paramasiva Mudaliar27 that
machinery in a mortgaged building does not form part of the security,
unless it is attached to the building for the permanent beneficial enjoyment
thereof.

The purpose or object of a mortgage is to secure a debt. A transfer


made for the purpose of discharging a debt is not a mortgage. Thus if A
transfers land to B for a term of years in satisfaction of the debt, this is not
a mortgage, but a grant of land for a term free from rent28.

Section 58 of the Transfer of Property Act, 1882 enumerates six


classes of mortgage:

1. Simple mortgage
2. Mortgage by conditional sale
3. Usufructuary mortgage
4. English mortgage
5. Mortgage by deposit of title - deeds
6. Anomalous mortgage.

27 AIR 1957 Madras 610


28
Kotayya v Annapurnamma AIR 1945 Madras 189
205

Simple Mortgage (Sec 58 (b))

Where, without delivering possession of the mortgaged property, the


mortgagor binds himself personally to pay the mortgage money, and agrees
expressly or impliedly, that, in the event of failing to pay according to his
contract, the mortgagee shall have a right to cause the mortgaged property
to be sold and the proceeds of the sale to be applied, so far as may be
necessary, in payment of the mortgage - money, the transaction is called a
simple mortgage and the mortgagee a simple mortgagee.

A simple mortgage consists of:

1. a personal obligation, express or implied to pay; and

2. the transfer of a right to cause the property to be sold.

The right transferred to the mortgagee is not ownership29.

For a simple mortgage, there must be a personal covenant either


express or implied; and in the absence of such a covenant, the security is
generally but not necessarily a charge.

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

a charge on the property if the transaction does not amount to a mortgage.


If, therefore, the payment of money is secured on land, but no interest in
specific immovable property is actually transferred, the transaction will
amount to a mere charge.

Distinction between mortgage and charge.

Mortgage Charge

1. Transfer of interest in specific No interest is transferred


immovable property

2. Existence of Debt is present Existence of Debt is absent

3. By agreement only By act of parties or by operation of


law

4. Specific Property is mortgaged Charge may be upon a person’s


property and wealth

5. Plea of purchase for value is of Plea of purchase for value is a good


no avail defence.

A charge is wider than a mortgage and as such a mortgage is


included in it also. Hence, every mortgage is a charge, but every charge is
not a mortgage30.

The characteristic of a simple mortgage is that possession is not

given.

30Dattatreya Shanker Mote v Anand Chintaman Datar (1974) 2 SCC 799


207

The very words "right to cause the property to be sold" in section 58


(b) of the Transfer of Property Act, 1882 indicate that the power of sale is
not to be exercised by the mortgagee without the intervention of the

court31.

When a mortgage deed gives a mortgagor the option of repaying the


loan by selling the mortgaged property, that does not exclude the personal
covenant. The existence of personal liability is the very essence of a simple
mortgage.

A simple mortgagee is entitled to a decree for sale as a matter of


course. He cannot acquire the absolute ownership by foreclosure.

In a simple mortgage, the security for the debt is two - fold :

1. The personal obligation; and


2. The property.

Mortgage by Conditional Sale (Sec 58 (c))

Where the mortgagor ostensibly sells the mortgaged property _

On a condition that on default of payment of the mortgage money on


a certain date the sale shall become absolute, or

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

On condition that on such payment being made the buyer shall


transfer the property to the seller,

the transaction is called mortgage by conditional sale and the mortgagee,


a mortgagee by conditional sale :

Provided that no such transaction shall be deemed to be a mortgage,


unless the condition is embodied in the document which effects or purports
to effect the sale.

This is a mortgage in which the ostensible sale is conditional and


intended as security for the debt. In case of payment at the time fixed, the
condition is that the sale becomes void or that the mortgagee executes a
reconveyance. The essential of this form of mortgage is that with the default
of payment the transaction is closed and the mortgage security becomes the
absolute property of the mortgagee. There is no personal liability on the
part of the mortgagor to repay the debt32. The mortgagor’s right of
redemption will be lost only by a decree for foreclosure.

In Natesa Pathar v Pakkirisamy Pathar33, the condition of sale


and resale was engrafted in the same document. The purchaser was
specifically prohibited from encumbering the property within the period of
five years stipulated for repurchase. There was a substantial difference
between the actual value of the property and consideration as stipulated in
the deed. The transaction was held to be a mortgage by conditional sale.

32 Rama v Samiyappa ILR (1881) 4 Madras 179, 183 - 4.

33 AIR 1997 Madras 105


209

The Supreme Court in Chunchun Jha v Ibadat Ali3i held that if

the sale and repurchase is embodied in separate documents then the


transaction cannot be a mortgage whether the documents are
contemporaneously executed or not.

Usufructuary Mortgage (Sec 58 (d»

Where the mortgagor delivers possession or expressly or by


implication binds himself to deliver possession of the mortgaged property
to the mortgagee, and authorises him to retain such possession until
payment of the mortgage money, and to receive the rents and profits
accruing from the property or any part of such rents and profits and to
appropriate the same in lieu of interest, or in payment of the mortgage -
money, or partly in lieu of interest or partly in payment of the mortgage -
money, the transaction is called a usufructuary mortgage and the
mortgagee a usufructuary mortgagee.

In a usufructuary mortgage, the mortgagee is placed in possession


and has a right to enjoy the rents and profits until the debt is repaid. It is
not necessary that the mortgagee should take physical possession, for the
mortgagor may continue in possession as lessee of the mortgagee35; but
unless there is a clause providing for the mortgagee going in possession,
there cannot, of course, be a usufructuary mortgage.

34 AIR 1954 SC 345


35
Ferozshah v Sobhat Khan AIR 1933 PC 178
210

There is a transfer to the mortgagee of one of the incidents of


ownership, namely, the right of possession and enjoyment of the usufruct.
The right to retain possession until the debt is paid is of the essence of a
usufruetuaiy mortgage as defined in the Act.

The incidents of usufructuary mortgage are

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.

Since there is no personal liability on the part of the mortgagor to


repay the mortgage - money the mortgagor cannot be sued personally for
the debt36.

English Mortgage (Sec 58 (e))

Where the mortgagor binds himself to repay the mortgage - money


on a certain date, and transfers the mortgaged property absolutely to the
mortgagee, but subject to a proviso that he will retransfer it to the
mortgagor upon payment of the mortgage - money as agreed, the
transaction is called an English mortgage.

36
Chathu v Kunjan (1889) 12 Madras 109
211

An English mortgage has three essentials as stated in Narayana v

Venkataramana37. First, the mortgagor has to bind himself to repay the

mortgage money on a certain day. Secondly, the property mortgaged is


transferred "absolutely" to the mortgagee. Thirdly, this transfer is subject
to a proviso that the mortgagee will reconvey the property to the mortgagor
upon payment of the mortgage - money on the date fixed for repayment.

A covenant to pay is an essential ingredient of an English mortgage.


The debtor remains personally liable to pay the debt. And the personal
covenant must be to repay the money on a certain date. The idea is that it
must be known with certainty when the mortgagor is to redeem or the
mortgagee to proceed to foreclose or sell.

In Ramkinkar v Satya Charan38, the Privy Council held that Sec


58 (e) cannot be construed as declaring an English mortgage to be an
absolute transfer of the property, but as merely declaring that such a
mortgage would be absolute, were it for the proviso for retransfer.

In an English Mortgage, the ownership of the property is transferred


with a promise to repay the debt on a certain date. And the mortgagee is
entitled to the possession of the property and to the enjoyment of the profits
arising therefrom.

37 ILR (1902) 25 Madras 220 (235) (FB)


38
AIR 1939 PC 14 (19)
212

In certain cases,39 an English mortgagee has the power of private


sale in respect of the property

The statutory power of sale by an English mortgagee arises when the


mortgagor and the mortgagee are not Hindus, Muhammadans or Buddhists
or members of any other race, sect, tribe or class from time to time specified
in this behalf by the State Government in the Official Gazette. This means
that majority of people in India, though entitled to go in for English
mortgage, cannot have the statutoiy power of sale due to confinement of
this power only to certain communities such as Christians, people of
English origin.

Mortgage by Deposit of Title deeds (See 58 (f)>

Where a person in any of the following towns, namely, the towns of


Calcutta, Madras and Bombay, *** and in any other town which the State
Government concerned may, by notification in the Official Gazette, specify
in this behalf, delivers to a creditor or his agent documents of title to
immovable property, with intent to create a security thereon, the
transaction is called a mortgage by deposit of title - deeds.

This is called in English law an equitable mortgage. It is the well


established rule of equity that mere deposit of documents of title without
writing or without word of mouth, will create in equity a charge upon the

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.

A delivery of documents of title alone is sufficient to create a


mortgage under the Section 58 (e). There is no necessity to execute any
documents.

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.

What constitutes the transaction is delivery with the intention of


creating a security. Hence in a case where physical delivery takes place
outside the notified town, but the intention to create a mortgage is formed
after the deeds are in one of the notified towns, the Supreme Court applied
the section41.

The requisites of a mortgage by deposit of title deeds are :

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.

40 Webb v Macpherson (1904) 31 Cal 57; 30 IA 238, 245


41
K.J. Nathan v S.V.Maruthi Rao AIR 1965 SC 430
214

The debt may be an existing or a future debt. It is sufficient if the


deeds deposited bona fide relate to the property or are material evidence of
title and are shown to have been deposited with the intention of creating a
security thereon. A mortgage by deposit of title deeds does not require any
writing.

In accordance with the provisions of Section 96 of the Transfer of


Property Act, 1882, mortgage by deposit of title deeds, though without
writing or by any deed, is equivalent to a simple mortgage.

Bankers, in most of the cases, adopt the mortgage by deposit of title


deeds since it is simple, inexpensive and non - time - consuming.

The remedy of this mortgagee lies in filing a suit for sale of the
mortgaged property.

Anomalous Mortgage (Sec 58 (g»

A mortgage which is not a simple mortgage, a mortgage by


conditional sale, a usufructuary mortgage, an English mortgage or a
mortgage by deposit of title - deeds within the meaning of this section is
called an anomalous mortgage.

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

Some of the forms of anomalous mortgages are given below :

a) A mortgage with possession containing a covenant to pay the


principal and interest43.

b) A mortgage with possession having a stipulation that the


transferee should appropriate the rents and profits for a
specified term of years and then give back the land44.

c) A mortgage with the mortgagee to remain in possession and


the mortgagor to repay in instalments with interest or to
redeem at any time.

d) A mortgage without possession with the mortgagor not to


redeem before five years and the mortgagee given a right of
foreclosure45.

e) A mortgage having a covenant to pay interest, but without any


covenant to repay the principal and the mortgagor
subsequently depositing certain title - deeds not mentioned in
the mortgage as additional security.

43 Ramanarayanimgar v Maharaja of Venkatagiri AIR 1927 PC 32 (36)

44 Tukaram v Ramchand ILR (1902) 26 Bom 252 (258)


45
Ujagar Lai v Lokendra Singh AIR 1941 Allahabad 169 (171)
216

Anomalous mortgages assume many forms moulded by custom or the


caprice of the creditor. Generally, they may be classified as follows :

a) Combinatory, i.e. a combination of two or more of the other


five types, e.g. simple mortgage usufructuary is a combination
of a simple mortgage and a usufructuary mortgage. There is
a personal covenant to pay with an express or implied right of
sale though the mortgagee is put in possession so as to pay
himself the debt out of the rents and profits. Personal liability
is coupled with the property collaterally pledged46.

Mortgage usufructuary by conditional sale is a composite mortgage


which combines the features of a usufructuary mortgage and a mortgage by
conditional sale. The mortgagee has a right to possession and also is
entitled to foreclose in case of default.

b) Customary i.e. local mortgages. Customary mortgages are


anomalous mortgages in which incidents are to some extent
governed by custom.

Kanam Mortgages of Malabar

A kanam partakes of the nature of a usufructuary mortgage and a


lease and is an anomalous mortgage with certain well - defined incidents
attached to it by the customary law of Malabar47. The lessor is the

46 Abohala Sastriar v Kalimuthu AIR 1962 Madras 308


47
Kanna Kurup v Sankara Varma AIR 1921 Madras 243
217

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.

Otti Mortgages of Malabar

Otti is a customary form of mortgage which gives the mortgagee


possession and the entire produce of the land, the landlord retaining merely
the proprietary title and the right to redeem.

The othidar (mortgagee) has a right of pre - emption. An otti may be


redeemed after the expiry of 12 years49. In this it resembles a kanom.

Peruarthuam Mortgages of Malabar

A peculiarity of this mortgage is that in redeeming the mortgage, the


market value of the land at the time of redemption, and not the amount for
which it was mortgaged, is payable before the restoration of the mortgaged
land50.

48 Kalu Nedumgadi v Krishna Nair ILR (1903) 26 Madras 727 (FB)


49 Keshava v Keshava ILR (1878) 2 Madras 45
50 Shakai Varma v Mangalam ILR (1876) 1 Madras 57
218

Of the six kinds of mortgages, three forms, namely, simple mortgage,


mortgage by conditional sale and usufructuary mortgage were known in
Hindu and Mahomedan laws. In Madras, i) simple mortgage was called
adaimana pattram or panayam, ii) mortgage by conditional sale was called
muddatakriyam or peruarthuam and iii) usufructuary mortgage was called
duggubhogyam, swadhin adamanam, kanom or otti.

Sale and Foreclosure

As the mortgagor has the right to redeem, a corresponding right is


given to the mortgagee to foreclose. It means that on the failure of the
mortgagor to redeem, the mortgagee has the right to apply to the court for
a decree absolutely debarring the mortgagor of his right to redeem the
mortgaged property. Besides, the mortgagee may also apply to the court for
the sale of the mortgaged property in satisfaction of his debt. In a
foreclosure action, the property is transferred to the mortgagee on non -
payment of the debt. In a suit for sale, the proceeds are applied in payment
of the mortgage - debt.

Under Section 67 of the Transfer of Property Amending Act, 1929,


the remedy by way of foreclosure is allowed only in the case of 1) a
mortgage by conditional sale, and 2) an anomalous mortgage where there
is an express stipulation in that behalf. A suit for sale can only be brought
in the case of an English mortgage or a simple mortgage. And a
usufructuary mortgagee cannot institute a suit either for foreclosure or for
sale.
219

Under section 96 of the Transfer of Property Amending Act, 1929, a


mortgage by deposit of title - deeds stands on the same footing as a simple
mortgage. Hence the only remedy open to such a mortgagee is by way of
sale.

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

Mortgage How Effected

Section 59 of the Transfer of Property Act, 1882 provides as follows:

Where the principal money secured is one hundred rupees or


upwards, a mortgage other than a mortgage by deposit of title deeds can be
effected only by a registered instrument signed by the mortgagor and
attested by at least two witnesses.

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".

The words "other than a mortgage by deposit of title deeds" were


inserted by the Amending Act 20 of 1929. In either case, a simple mortgage
can only be effected by a registered instrument. Mortgage by deposit of title
deeds has been specifically excluded from the purview of this section and no
registered instrument is necessaiy to effect such a mortgage. The words
"principal money secured" in the section show that interest is not to be
taken into account in estimating the amount secured. A mortgage does not
become complete and enforceable until it is registered.
221

Future Advances

A mortgage to secure future advances is a very common form of


security and is generally created in favour of bankers to secure a current
account. In this kind of mortgage, the mortgagee may be under a covenant
to make advances to the mortgagor, though, in an ordinary commercial
mortgage such obligatoiy covenants are very rare. As a rule, a maximum
is expressed in the deed, but it is not necessary that any limit should be
placed on the amount of the intended advances. But if a mortgage is limited
either as to the amount secured by it, or the period within which the
advances are to be made, the limitation must be strictly observed. In a
mortgage made to secure future advances, it is not necessary that the deed
should show on its face that it is given to secure such advances; parol
evidence is admissible to show that the security includes past as well as
future advances52. So also a security purporting to be for a definite sum,
may be shown to have been given to meet the balance of a current account.
In such cases, the mortgage will be treated as a running security, so that,
when the advances, to the amount limited by the mortgage, are paid off,
either wholly or in part, it will continue as a security for fresh advances
within the limit named53.

Section 79 of the Transfer of Property Act, 1882 provides that if a


mortgage made to secure future advances expresses the maximum to be
secured thereby, a subsequent mortgage of the same property shall, if made

52 Hibernian Bank v Gilbert (1889) 23 LR Ir 321


53
Henniker v Wigg (1843) 4 QB 792. Harendra v Tarini ILR (1903) 31 Cal 807
222

with notice of the prior mortgage, be postponed to the prior mortgage in


respect of all advances or debits not exceeding the maximum, though made
or allowed with notice of subsequent mortgage.

In Imperial Bank of India v U Rai Gyaw5i, the bank was the


equitable mortgagee by deposit of title deeds for the present and future
advances. The mortgagor then granted a legal registered mortgage of some
of the property, and subsequently took a further advance from the bank.
The judicial committee held that the bank was not entitled to priority as to
such further advances, as the equitable mortgage did not express the
maximum to be advanced in future. The argument was pressed upon their
Lordships that equitable mortgages were granted to finance commercial
operations and that the exigencies of business required immediate
advances, and precluded the possibility of a search of the registers, but Lord
Dunedin pointed out the remedy was to fix the maximum in the first
mortgage so as to secure priority. It was contended that the subsequent
mortgagee must have notice of the prior mortgage which expresses the
maximum, but as to this it was said that if the subsequent mortgagee
advances money without asking for the title deeds such notice should be
imputed to him.

Priority of Government Debts

It seems a government debt in India is not entitled to precedence over


a prior secured debt55.

54 AIR 1923 PC 211


55
Ibrahim v Rangasami ILR (1905) 28 Madras 420
223

In the case of unsecured debts the government as a creditor takes


precedence over all the other creditors56. However, in respect of secured
debts, the government has no preference and takes subject to prior
incumbrances, except where otherwise provided by law57.

Where a mortgage is created in respect of any property, undoubtedly,


an interest in the property is carved out in favour of the mortgagee. The
mortgagor is entitled to redeem the property on payment of the mortgage
dues. This does not, however, mean that the property ceases to be the
property of the mortgagor. The title to the property remains with the
mortgagor. Therefore, a statutory first charge is created on the property of
the mortgagor; the property subjected to the first charge is the entire
property of the mortgagor. The interest of the mortgagee is not excluded
from the first charge. The first charge, therefore, created under Section 11
AAAA of the Rajasthan Sales Tax Act, 1954, on the property of a dealer, for
payment of sums due from the dealer under that Act will operate on that
property as a whole and not only on the equity of redemption.

A charge is wider than a mortgage; it would cover within its ambit


a mortgage also. Therefore, when a first charge is created by operation of
law over any property, that charge will have precedence over an existing
mortgage.

56 Dost Md. Khan v Maniram ILR (1907) 29 All 537 (542 - 3)


57
Ma Joo Tean v Collector of Rangoon AIR 1934 Rang 321 (323)
224

The Supreme Court in State Bank of Bikaner and Jaipur v


National Iron and Steel Rolling Corporation and others58, held

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.

58 (1995) 82 Comp. Cas. 551 (Supreme Court)


59
(1974) 2 SCC 799

Das könnte Ihnen auch gefallen