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Judgment
The facts which give rise to this appeal are somewhat complicated and consist in a series of mortgages created in succession over the same
property. The mortgages with which we are concerned are four in number. The first dated the 17th June, 1905 is a mortgage for Rs. 1,000 in
favour of one Balasubramania Nadar and another, the second dated the 4th June, 1908 is a mortgage for Rs. 500 in favour of the plaintiff''s
predecessors-in-title and it is this mortgage that they seek to enforce in this suit. The third was a mortgage dated 8th June, 1908 in favour of the
Madura Nidhi Company for Rs. 1,000 and by that mortgage the mortgagees were directed to discharge the debt under the first mortgage to
Balasubramania Nadar. The last mortgage dated 1st July, 1908 was for Rs. 400 in favour of the 6th defendant. That mortgage directed payment
by the 6th defendant of Rs. 250 to Balasubramania Nadar the first mortgagee, the third mortgagee, the Nidhi Company, having already discharged
his debt to the extent of Rs. 1,000 the total due under his mortgage on the date of payment being Rs. 1,250 with accumulation of interest. The 6th
defendant paid off the third mortgage in favour of the Nidhi Company and he now claims by virtue of these facts that he is entitled to stand in the
shoes of the first mortgagee and claim priority in right of that mortgage to the present plaintiffs the second mortgagee.
The question is one that has been much discussed and it would be idle to say that they are all consistant and easily reconcilable. The first case of
importance is the decision of the Privy Council in Mohesh Lal v. Mohant Bawan Das I.L.R.(1883) Cal. 961. Their Lordships there applied the rule
laid down by Jessel, M.R. in Adams v. Angell L.R. 6 Ch. D. 634 and that the question whether a person who provides money to pay off a former
charge as consideration for a second charge to himself keeps alive that former charge for his own benefit, or extinguishes it, is a question of
intention. To a large extent it may be said that that is a question of fact and there may be express declarations of intention which conclude the
matter. But usually there is no such expression of intention and certain presumptions have to be made with regard to what the intention of the
parties is likely to have been.
The argument for the appellant, is that where the consideration for a second charge :akes the form of payment of a first mortgage by a second
mortgagee the payment is made by him merely as an agent of the owner of the equity of redemption and the payment as his payment. It is common
ground that the rule to be followed is that laid down by the Privy Council in Gokal Das v. Puranmal Premsukhdas ILR (1889) Cal. 1035 and that
is, that a man having a right to act in either of the two ways, i.e., either to extinguish or keep alive a charge, shall be assumed to have acted
according to his interest. In that case their Lordships treated the payment by the subsequent mortgagee to be his own payment so that his interest
was what was to be looked at and there can be no doubt that the interest of a subsequent encumbrancer must always be to keep alive a prior
charge which he has paid off for his own benefit. The trouble has arisen from this that their Lordships in Mohesh Lal v. Mohant Bawan Das ILR
(1883) Cal. 961 appear to have treated it as a general rule that when a mortgagee is directed to apply the loan in discharge of a prior mortgage the
presumption is that the payment is to be regarded as primarily the payment of the mortgagor and that his interest can only be to extinguish the first
charge. On a careful consideration of that case we have come to the conclusion that it lays down no such general rule but merely decided on the
facts of that case, one of which was that there was a running account between the mortgagor and the second mortgagee who acted as his banker,
that it was proved that the intention was to extinguish the prior charge and not to keep it alive. There was no doubt in that case about the fact that
the banker took over possession of the mortgage when he paid it off but their Lordships held that he took possession of it merely as a receipt, for it
was endorsed with the recital of his discharge and that it was merely the case of an agent taking a receipt on behalf of his principal when he made a
payment for him, which of course it would be his duty to do. They declined to take the view in that case that the taking possession of the prior
charge was any evidence of an intention to keep it alive for the benefit of the subsequent encumbrancer. We think that this was no more than a
finding of fact upon the peculiar circumstances of that case. We venture to think that it is an error to treat as laying down a hard and fast
presumption that directly the mortgagor pays off a prior encumbrancer the payment must be treated as made solely as the agent of the mortgagor
and that the intention accordingly must be presumed to be to extinguish the prior security. That, in our view, would be in conflict with the decision
of the Privy Council in Gokal Das v. Putan Mal ILR (1884) Cal. 1035 and with a long series of cases in this and the other Courts of India of which
we may take as an example the latest decision of this Court (Seshagiri Aiyar and Moore, JJ.) in Avathoraman Kuiti v. Ittikaparambil Uthan (1920)
M.W.N. 143. We think that the observations of Srinivasa Ayyangar, J. in Muthammal v. Raju Pillai ILR (1917) Mad. 513 are obiter, and with
respect to that learned Judge we think they are coloured by a view of the effect of the decision in Mohesh Lal v. Mohant Bavan Das ILR (1883)
Cal. 961 which we regard as erroneous.
In the present case the subsequent mortgage contained not merely a direction that the latter encumbrancer should discharge the earlier mortgage
but should take it back with the endorsement of payment thereon. Were it necessary so to decide we are prepared to hold that such a direction
points to an intention of keeping the charge alive. For there is no hint that the instrument is to be received by the mortgagee merely as the agent of
the mortgagor as a receipt, and handed back to him. But apart from that, we think that a dong series of decisions in the Indian Courts which we
believe to be in entire conformity with the decision of the Privy Council in Gokal Das v. Puranmal ILR 10 Cal. 1035 have established the rule that
in the absence of special circumstances to show the contrary, such as we believe existed in Mohesh Lal v. Mohant Bawan Das ILR 9 Cal. 981 the
presumption is when a subsequent encumbrancer pays off a prior encumbrance, with the consideration money of his own encumbrance he does so
with the intention of keeping the prior encumbrance alive. It is obvious that in the vast majority of cases such an arrangement would be made for
the protection of the subsequent mortgagee. The mortgagor probably wants the money for himself, rather than to discharge his existing debts and
the origin of such a stipulation is most likely to be a distrust felt by the subsequent mortgagee as to the use to which the money would be put if he
handed them direct to the mortgagor, who, instead of discharging the prior encumbrance, might squander the money for his own purposes. We
think that a mortgagee who inserts in the mortgage bond the stipulation that he and not the mortgagor shall pay off the prior encumbrance can in the
absence of any indication to the contrary be rightly presumed to have wished to make that payment by his own hand with a view to keep the prior
encumbrance alive for his own benefit.
We are therefore of opinion that the Lower Courts were right and that the appeal must be dismissed with costs.