M.P. Venkatachari vs Karruppan Chetty and Others

Sundaram Chetty, J.—Defendant 5 is the appellant. His mortgage is evidenced by Ex. 1 which was executed in the year 1923. In that

mortgage deed, there is an undertaking for the discharge of a still prior mortgage (Ex. B) for Rs. 500 held by one Murugesa Mudaliar. Defendant 5

made default in the discharge of that mortgage debt and thereupon the mortgagors executed another mortgage in favour of one Alagiriswami

Chetty for Rs. 700 in 1924 which is evidenced by Ex. A. A portion of the consideration for this mortgage, viz., a sum of Rs. 560 was paid by

Alagiriswami in discharge of the mortgage debt due under Ex. B. Subsequently in 1927 the same property was mortgaged to the plaintiff for rupees

1,000 under Ex. C. A sum of Rs. 700 out of this consideration was paid in discharge of the mortgage debt due under Ex. A. In the present suit

brought by the plaintiff for the recovery of the amount due to him under Ex. C, defendant claims priority. To his claim the plaintiff sets up a counter

by reason of his having discharged Alagiriswami''s mortgage under Ex. A. He wants to be subrogated to the rights of Murugesa under the earliest

mortgage deed Ex B. There is no doubt that if the plaintiff could be subrogated to the rights of Alagiriswami, he could equally be subrogated to the

rights of Murugesa, but the dispute is as regards the right of subrogation claimed by the plaintiff in respect of Alagiriswami''s mortgage.

Under the old Transfer of Property Act, the plaintiff could not claim a statutory right of subrogation, for the simple reason that when he made the

payment on 6th September 1927, he had not obtained a registered mortgage deed in his favour. Strictly speaking, he was not a puisne

encumbrancer when he made the payment on that date towards the mortgage deed Ex. B, but the question which remains for consideration is

whether the equitable doctrine of subrogation as recognized by judicial decisions cannot be invoked for the aid of the plaintiff in this case. We find

from Ex. C that the plaintiff paid the sum of Rs. 700 towards Alagiriswami''s mortgage debt as requested by the mortgagors and in pursuance of

the agreement for the mortgage entered into between him and the debtors. There is no difficulty in holding that the plaintiff made this payment in

order to discharge the previous mortgage debt of Alagiriswami and to protect his own interest which would accrue to him on the execution of the

mortgage deed in pursuance of the agreement. He is not therefore a mere volunteer who intermeddles with the estate of another and in whose

favour no equitable considerations arise. The equitable principle has been well stated in Jones on Mortgages, which is extracted in the decision in

Narayanakutti Gounden v. Techiammal (1913) 36 Mad. 426 :

Under the equitable principle of subrogation, one who pays a mortgage debt under an agreement for an assignment or for a new mortgage, lot his

own protection or for the benefit of another, acquires a right to the security held by the other.

The same rule has been stated in an American case quoted on the same page from which this principle is clear, viz.,

Where one advances money under an agreement, express or implied, made either with the debtor or creditor, that he would be subrogated to the

rights and remedies of the creditor,

that equitable right can be enforced by such a person when a necessity arises later on. In the present case, can we imply such an agreement from

the circumstances disclosed in the evidence? The very recitals in the mortgage deed (Ex. C) clearly show that there must have been an agreement

between the plaintiff and the mortgagors for the payment of a portion of the consideration in discharge of the earlier mortgage debet of

Alagiriawami. In pursuance of that agreement, the payment was made on 6th September 1927, and the mortgage bond itself was got back with the

endorsement of discharge. On the very next day, the mortgage deed itself was executed in plaintiff''s favour, and he retained the discharged bond in

token of the rights secured to him by such payment. It is scarcely necessary to say, that but for this implied agreement that he should be subrogated

to the rights of Alagiriswami if a necessity should arise, this precaution would not have been resorted to. The plaintiff would not have ventured to

advance Rs. 1,000 on this property without clearing off the encumbrance in favour of Alagiriswami. A perusal of the mortgage deed in favour of

Alagiriswami discloses the existence of the mortgage of 1917 which was discharged out of the consideration paid by Alagiriswami. The argument

strenuously advanced by the appellant is that on the date of the payment of Rs. 700 by the plaintiff, he had no legal interest in the property; but that

is not the only condition which would entitle him to the rights of subrogation. We have already stated that he is not a mere volunteer and it is

enough if he had a really bona fide concern in the transaction, as was held in a recent decision of this High Court in (Kattukkavil Kizhukkepai)

Nangunni Kovillamma and Others Vs. (Keli) Nedungadi, . It cannot be denied that the plaintiff had a real bona fide concern in this matter, so as to

oblige him to enter into an agreement with the mortgagor for rights of subrogation. Such an agreement is not express in this case, but there are

sufficient grounds to imply the existence of such an agreement.

Some stress was laid on a clause in Ex. C which is something like a guarantee clause:

If any encumbrance not disclosed to the plaintiff should be found to exist, the mortgagors make themselves liable for all the losses arising therefrom.

This clause does not in our opinion negative the existence of an implied agreement, whereby the plaintiff would be entitled to claim rights of

subrogation. On the other hand, if there was any contrary intention of surrendering the rights of subrogation, we should expect a definite clause to

that effect. We therefore agree with the lower Court that the plaintiff has a preferential claim for the amount paid by him which went towards the

discharge of Murugesa''s mortgage.

A sum of Rs. 500 was paid by Alagiriswami for the principal and Rs. 60 for interest in discharge of Ex. B. On the date of the plaintiff''s

mortgage, viz., 7th September 1927, nothing was due for interest under Ex. A. A sum of Rs. 560 out of the amount of Rs. 700 paid by the plaintiff

represents the amount that went in satisfaction of Murugesa''s mortgage debt. Interest on Rs. 500 at the rate specified in Ex. B should be

calculated and allowed from 7th September 1927. Out of the amount so calculated a sum of Rs. 67-8-0 should be deducted, as it should be

deemed to have been paid towards interest subsequent to the date of the plaintiff''s mortgage. This is clear from an admission in the plaint itself

about the receipt of Rs. 135 for interest. The preferential claim of the plaintiff should consist of Rs. 560 and interest on Rs. 500 at the rate above

mentioned from the date of the plaintiff''s mortgage, deed up to the date of plaint minus a sum of Rs 67-8.0. With this modification, the decree of

the lower Court is confirmed and this appeal is dismissed with costs of plaintiff (respondent 1).