Kavanoor Velayuda Reddi and Others vs Reddyvari Narasimha Reddy and Others

Srinivasa Aiyangar, J.—This is an appeal by defendants 23 to 31 and the question for decision is whether their mortgage lien has priority

over that of the plaintiff.

On the 8th July 1882 the then Rajah of Karvetnagar and his son Rajah Bomma Raja Bahadur mortgaged to one Subbamma four villages

belonging to them to secure the repayment of Rs. 25,000 borrowed by them from her, and interest thereon at 9 per cent per annum. They agreed

to pay interest every year and interest on overdue interest at the same rate and to pay the principal on demand.

On the 15th December 1888 Rajah Bomma Raja Bahadur who had become the Rajah on his fathers''s death mortgaged to Subbamma the

same four villages and two others in addition, to secure the sum of Rs. 37,791 then due on the previous mortgage and agreed to pay interest at the

reduced rate of 6 per cent per annum for the future and to pay the principal on the 30th December 1893. The plaintiff is the assignee of the

mortgage.

In the meantime on the 24th September 1887, the same mortgagor had mortgaged three of the four villages comprised in the first mortgage to

the ancestor of defendants 23 to 31 to secure a sum of Rs. 18,336-6-6 and interest thereon at 6 per cent per annum. The mortgage money not

having been paid on the due date the mortgagee sued the mortgagor, obtained a decree and purchased the villages in court-sale. To these

proceedings Subbamma was not a party.

When the mortgage of 1888 was executed, an endorsement was made on the first mortgage instrument to the effect that as a separate deed was

executed for the principal and interest due on that instrument it was cancelled and returned. This is signed by the treasurer of the mortgagor. The

mortgage document was however retained by the mortgagee and was produced by the plaintiff along with his plaint.

In these circumstances two points were raised on behalf of defendants Nos. 23 to 31. First of all it was said that the mortgage of December

1888 extinguished the previous mortgage and that therefore their mortgage of 1887 which was prior in date had priority. The decision of this Court

in Mahalakshmi v. Sriman Madhava Siddanta ILR (1911) M. 642 and that of the Judicial Committee in Mahomed Ibrahim Hussain Khan v.

Ambica Prasad Singh ILR (1912) C. 527 on which the appellants relied for another purpose are against this contention. It is now well settled that

a mere change in the form of indebtedness, in the mode or time for payment, a variation of the rate of interest, or the giving of additional security is

not enough to rebut the presumed intention to retain the mortgage security when it is to the interest of the person who is entitled either to extinguish

the security or keep it alive, so to keep it alive. See Jones on Mortgages, Section 294. A considerable number of instances illustrating the principle

is found in a note to a case, Dumell and Wife v. Terstegge 85 Ame. Dec. 466. Unless the debt was actually paid or the security expressly released

the mortgage is not extinguished. The endorsement on the first mortgage instrument on which stress was laid does not operate as a release of the

security and there was no payment of the debt.

The effect then of the 2nd bond was merely to substitute a covenant to pay the mortgage-money on the 30th December 1893, for the covenant

to pay on demand and to lower the rate of interest payable thereafter, without in any way affecting the security for the payment of the mortgage

money. An agreement between the mortgagor and the first mortgagee extending the time for payment of the mortgage amount in no way impairs

the security even as against the subsequent incumbrancers for the junior encumbrancer is not surety for the mortgagor. It certainly does not as

against the mortgagor. Jones on Mortgages Section 942; Bank of Utica v. Finch 49 Amer. Dec. 175. Black''s Article on Mortgages in the

American Cyclopaedia page 1414; Ghose on Mortgages, page 466. Of course no agreement between the mortgagor and the first mortgagee can

prejudicially affect the rights already acquired by the junior encumbrancer under his mortgage unless he was a party to the agreement or unless his

mortgage itself contains a power to the mortgagor to enter into such an agreement: for example no agreement after a second mortgage between the

mortgagor and the first mortgagee, for an addition to the mortgage amount payable under the first mortgage by increasing the rate of interest or by

adding interest to the principal when there is no provision for compound interest under the original terms, will affect the subsequent mortgagee. In

this case it is not suggested that the agreement contained in the mortgage deed of 1888 in any way imposed a larger burden or an additional liability

on the properties mortgaged to the second mortgagee. There is therefore no substance in this contention.

It is then argued that, assuming that the mortgage of 1882 was in full force when the 3rd mortgage of 1888 was executed, any right to enforce

that mortgage at the time when this action was brought was barred by the law of limitation and the mortgagee has therefore lost his priority against

the appellants; for this contention they rely on the authority of Muhammad Ibrahim Hussain Khan v. Ambica Prasad Singh ILR (1912) C. 527,

already referred to. The article of limitation applicable to the suit is Article 132. The suit was instituted on the 2nd October 1913. The mortgage

money on the terms of the first bond was payable on demand, and we assume that the money was payable on the date of the bond that is, the 8th

of July 1882, though that is by no means clear. See Perumal Ayyen v. Alagirisami Bhagavathar ILR (1896) M. 245, Nittukaruppa Goundan Vs.

Kumarasami Goundan and Others, , Vythialinga Nadan v. Narayanaswami (1897) 16 M.L.J. 364 and Periyanna Goundan v. Muthuveera

Goundan ILR (1897) M. 139. Of Narana v. Ammani Amma ILR 39 M. 981 : 31 M.L.J. 865 Ed. On the 15th December 1900, that is, within 12

years from the date of the 3rd mortgage, a sum of Rs. 5 was paid towards the principal and interest due on the mortgage by the manager of the

mortgagors and a similar sum was paid on the 9th December 1903. The fact of the payment appears in the handwriting of the person making it and

there is no question that the manager had authority to make these payments, It is not disputed that by these two payments the action is u/s 20 of the

Indian Limitation Act set free generally and not merely against the mortgagor, nor is it contended that these payments were not payments towards

the debt secured by the 1st instrument of mortgage, for as we have already held there is only one debt which is secured by both the mortgages.

The contention is that the mortgage of 1888 though it may amount to an acknowledgment of liability by the mortgagor and thereby save the

limitation against him u/s 19 of the Act, has no such effect against the mortgagee; because an acknowledgment u/s 19 it is said, unlike a payment

u/s 20 is good only against the person acknowledging and those who derive their title under him, which, it is said, means a person who derives the

title subsequent to and subject to that acknowledgment. For the last position the observations of Mookerjee J. in Surjiram Marwari v. Braham

Deo Prasad (1905) 2 C.L.J. 337 etseq are strongly relied on.

The obvious answer to this contention is that the mortgage money did not become due till the 30th December 1893 or at the earliest till the

covenant for the payment of interest in the third mortgage was broken, for until then the mortgagee had no right to demand or to sue for the

mortgage money. This is not a case where there are two covenants to secure the payment of a debt one under the mortgage of 1882 and another

under the mortgage of 1888 but only one viz., that under the later document which superseded the former; and so long as the latter covenant

remained unbroken the mortgagee cannot demand or recover the mortgage money, Bolton v. Buckenham (1891) L.R. 1 Q.B. 278. The

mortgagee is not suing on the mortgage of 1882 as it stood when it was executed, as is assumed in the argument but on that mortgage as varied by

the subsequent agreement which agreement I have already held in no way impaired the security, as against the second mortgagee. The case in the

Privy Council was different in its facts and the principle of law acted upon in that case is in no way inconsistent with my conclusion. In that case the

facts were these : First, there was a mortgage in favour of A. in 1874 which in the events that happened became repayable in 1887. In February

1888 the mortgagor''s representative borrowed from X the sum necessary to discharge A''s debt and executed a mortgage of the sane properties

to X. A''s debt was paid out of the sum so borrowed. In the meantime several encumbrances had been created by the mortgagor or his

representative on the whole or portions of the properties mortgaged to A and X. X assigned his mortgage to the plaintiffs who sued to recover the

money due to him by enforcing the charge on the 22nd September 1900, which was within 12 years from the due date under the bond to X, and

claimed oriority over the mesne encumbrances. Their Lordships held (a) that he was entitled to priority as he was subrogated to the rights of the

first mortgagee (b) that by that subrogation he had the same rights as an assignee of the 1st mortgage and was entitled to enforce that mortgage

according to its terms (c) that as an action to enforce that mortgage had became barred - they do not say the action is barred against the mesne

mortgagees and not against the mortgagor - the rights under that mortgage could not be enforced (d) that that did not prevent the mortgagee from

enforcing his own mortgage and recovering his mortgage money, but that gave him no priority. It will be seen at once that there was no alteration,

or substitution of the covenant in the 1st mortgage by a later covenant as there was in this case, though an attempt appears to have been made to

argue that there was, which on the facts of that case could not be made out. See Muhammad Ibrahim v. Ambica Prasad (1912) 15 C.L.J. 414.

There were in fact two covenants in favour of the plaintiff one under the original mortgage to A of which he became the equitable assignee by

subrogation on breach of which in 1887 he was at liberty to enforce the payment of the mortgage money within 12 years of that date as a first

charge and another covenant under the document of 1888 in favqur of X of which he became the assignee by actual transfer which he could have

enforced only on its breach. It is to be noted that their Lordships do not say that the action against the mortgagor was one to enforce the 1st

mortgage as modified by the subsequent deed as that would not be correct on the facts of that case. The present case is like that in Barnashi

Pershad Chowdhri v. Johori Lal (1904) 8 C.W.N. 385 which was referred to and distinguished by the High Court at Calcutta in the case in which

their judgment on this point of limitation was confirmed by the Privy Council. It is on this principle that Mookerjee, J. finally rested his judgment in

Sarji Ram v. Brahmadeo (1905) 2 C.L.J. 202 for he come to the conclusion 1;hat although a suit on the first mortgage if unaffected by any

agreement between the mortgagor and the first mortgagee would be barred, in asmuch as there was an agreement or arrangement between them

for the discharge of the debt so long a that arrangement lasted or the agreement remained unbroken, the first mortgagee could not su3 and there

was a suspension of remedy and the action was not barred. The actual decision in that case is against the appellants.

There are cases in which actions have been brought and decrees obtained on the first mortgage, and moneys raised on the mortgage of the

same properties to pay off the decree. In these cases it has been held that the mortgage executed to pay off a first mortgage decree Sad priority

over encumbrances created before its date and after the date of the 1st mortgage Perumal Chund v. Venkatasubbarayulu ILR (1897) M. 486 7

M.L.J. 198, Surjiram Marwari v. Brahmadeo Prasad (1905) 2 C.L.J. 202, Mahalakshmammal v. Sriman Madhva Siddhanta ILR (1911) M. 642.

In these cases under the processual law of India there is no means of enforcing the first mortgage by another suit, and in an action brought under

the later mortgage priority has been given over mesne encumbrances though as an equitable assignee of the rights of the 1st mortgagee, the later

mortgagee cannot bring an action on the 1st mortgage. In such cases it appears to be difficult to apply the principle of assignment so as to treat the

later mortgagee as assignee of the 1st mortgagee and view his action as one on the 1st mortgage add apply the law of limitation, It may be that in

those cases also as there is only one covenant to pay the mortgage money, that is, under the later mortgage, as the covenant under the previous

mortgage has merged in a judgment, the cause of action to recover the mortgage money will arise only on the date fixed for payment in the later

mortgage and so long as that action is not barred the priority is not affected. In Mahalakshmammal v. Sriman Madhva Siddantha ILR (1911) M.

642 the learned Chief Justice makes the significant observation; ""The plaintiff gave up his rights to sue on his mortgage of 1895 but he did not give

up his rights as a secured creditor which would of course include the right to set up his security as against the puisne encumbrances."" The suit was

on a mortgage of 1903 executed to the plaintiff in discharge of a judgment obtained by him on his mortgage of 1895. Any suit on the mortgage of

1895 if one such could be instituted would be barred on the date when the subsequent action was brought, but the priority was held not affected.

In this view it is unnecessary to consider the difficult question of the effect if any, of the acknowledgment of the mortgagor against the previous

junior encumbrancer. We may however point out that the other learned Judge who took part in the decision in Surji Ram Marwari v. Brahmadeo

Prasad (1905) 2 C.L.J. 337 did not agree with Mr. Justice Mookerjee on the point, that in Krishna Chandrasaha v. Bairab Chandra Saha ILR

(1905) C. 177, Maclean C. J. and Mitra, J. took a different view and the latter case was followed in this Court by Benson and Sundara Aiyar, JJ.

in Velayudam v. Vythialingm (1912) 24 M.L.J. 66. It is no doubt true that in the last case the difference between an acknowledgment and part-

payment was {not discussed though the language of Section 19 was adverted to. However as I have said before, it is unnecessary to express any

opinion on that question in this case.

In the result the appeal must be dismissed with costs.

The decree as it stands may be treated to be a personal decree against defendants. This is not right as a suit on the covenant is now barred

and, as against the mesne encumbrancers and subsequent purchasers, such a decree could not be passed. The decree will be modified

accordingly.

Time is extended to six months.

Ayling, J.

I agree.