Puligoru Subbarama Reddi (dead) and Another vs Palamkota Krishniah Chetti and Another

Venkataramana Rao, J.—This second appeal arises out of a suit to erfforce a mortgage dated 10th January, 1924, executed by one Ganji

Guruva Reddi in favour of one Dhupam Gangakka. The said mortgage has now become vested in the plaintiff by two successive transfers. The

interest of the mortgagor is vested in defendants 1 and 2 by purchase. The main question for decision in this appeal is whether the first defendant is

entitled to have priority over the mortgage sued on in respect of two prior mortgage debts discharged by him, namely, one in favour of Kathi

Chandra Reddi and another in favour of Dhupam Narayana Reddi. The learned District Munsif decided the question in favour of the first

defendant, but the learned Subordinate Judge reversed his decision. It is against this decision that the first defendant has preferred this appeal.

The relevant facts are not in dispute. The owner of the suit property which formed the subject-matter of the several mortgages in question was

one Ganji Guruva Reddi who effected the suit mortgage in favour of Dhupam Gangakka who transferred it in favour of her son Ramiah, who again

transferred it in favour of the plaintiff. On the 17th September, 1925, that is, subsequent to the date of the suit mortgage, the said Guruva Reddi

borrowed a sum of Rs. 1,200 from the first defendant partly by selling a portion of the mortgaged property and partly by mortgaging a portion of

the mortgaged property to him. The transactions are evidenced by two documents, Exs. E and F. Ex. E purports to be a deed of sale for Rs. 800

and the purpose of effecting the sale is, thus stated in the deed:

Kathi Chandra Reddi having died, his heir and brother Venkata Reddi, the said Chandra Reddi''s sons (1) minor Bhathi Reddi and (2) Yanadi

Reddi, being minors, by guardian and junior paternal uncle the said Venkata Reddi, obtained a decree against me in O.S. No. 173 of 1924 on the

file of the District Munsif''s Court, Tirupati and executed the decree in E.P No. 374 of 1925. For paying the said decree amount and costs, etc.,

and for paying the mortgage-debts of Dhupam Gangakka and others, I have received from you this day Rs. 800 excluding the amount received

under the hypothecation deed executed in your favour separately this day, and for this amount, I have this day sold to you the house and site, etc.

Ex. F purports to be a mortgage for Rs. 400 and the purpose for which the mortgage was executed is thus stated:

Kathi Chandra Reddi, having died, his heir and brother Venkata Reddi, and his minor sons, Bhathi Reddi and Yanadi Reddi, by guardian and

junior paternal uncle the said Venkata Reddi brought O.S. No 173 of 1924 on the file of the District Munsif''s Court, Tirupati, obtained a decree

and is executing the decree in E.P. No. 374 of 1925. For paying the said decree amount, etc., and for paying the mortgage amount of Dhupam

Gangakka and others, I have received this day in cash Rs. 400 excluding the amount received by my selling the house, etc., in your favour. I have

become indebted to that extent.

It will thus be seen from the recitals in these two deeds that the same purpose is stated in both. It has been concurrently found by both the

Courts that from and out of the sum of Rs. 1,200 advanced by the first defendant two mortgages were discharged, namely, (1) the mortgage in

favour of Kathi Chandra Reddi which resulted in O.S. No. 173 of 1924 on the file of the District Munsif''s Court, Tirupati and (2) the mortgage in

favour of Dhupam Narayana Reddi the discharge of which was one of the purposes for which the suit mortgage Ex. A was executed. The first

defendant''s plea is that the suit mortgage was a nominal transaction and the successive transfers including that in favour of the plaintiff were

fraudulent and collusive transactions and therefore not binding on him and that he having discharged admittedly the prior mortgages was entitled to

priority in respect thereof. The contention of the plaintiff is that the money advanced by the first defendant was for the purpose of discharging the

suit mortgage as well and he having failed to discharge it is precluded from setting up any claim to priority. It is conceded by Mr. Rajah Aiyar that

Section 92 of the Transfer of Property Act as amended by Act II of 1930 would not apply to the case in view of some recent decisions which will

be binding on me and that the law to be applied will be the law before the amendment. I therefore do not think it necessary to go into the

correctness of the interpretation of Section 92 of the Transfer of Property Act placed by my learned brother Varadachariar, J., and myself in the

Full Bench decision reported in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : ILR 29 Mad. 359 .

The mere fact of a charge having been paid off does not decide the question whether it is extinguished. If a person personally liable to pay pays

it, it must prima facie be deemed to be extinguished. This will be the obvious case of the mortgagor because the mortgagor cannot set up his own

encumbrance against any subsequent encumbrance which he himself has created. The principle underlying this is stated by Lord Justice Fletcher

Moulton in Manks v. Whiteley (1912) 1 Ch. 735

The two encumbrances were created by the mortgagor and embodied obligations on his part to discharge the two debts, and therefore he could

not be allowed to set up the fact that he had fulfilled the one obligation to-shield himself in any way from the performance of the other.

This principle is also extended to the case of a person ''who has assumed the duty of paying the debt either by a contract with the mortgagor or

with those who have succeeded to his rights''. There may be an express covenant to pay the later mortgage also against which the prior mortgage is

sought to be set up or it may be the case of the money being left in the hands of a purchaser or a mortgagee with directions to pay. In those cases

the prior mortgage is deemed to be extinguished. Brown v. Stead (1832) 5 Sim. 535 : 35 R.R. 186 : 58 E.R. 439 and Govindasawmi Thevan Vs.

T.M. Doraisawmi Pillai and Others, are cases where a purchaser or mortgagee covenanted to pay the debts. Narayanasami Naidu v. Narayana

Rao (1893) 4 M.L.J. 17 : ILR 17 Mad. 62 and Chidambara Nadan late a Minor but now declared a Major and Another Vs. Musuvati Muni

Nagendrayyan and Others, are cases where the money had been left with a purchaser or mortgagee. It may be that in the case of such a purchaser

or mortgagee the mortgages he discharged will be kept alive against an unknown encumbrance or a known encumbrance which he has not

undertaken or was not directed to discharge. It is well settled that if the owner of an estate pays off a charge on the estate which he is not

personally liable or under no obligation to pay, it is always open to him to extinguish it or to keep it alive and if no intention is expressed one way or

the other, it is presumed that he intended to keep the charge alive. The intention to the contrary can be inferred from the terms of the purchase or

mortgage-deed in cases where the purchaser or the mortgagee advances money for the purpose'' of discharge or from legitimate evidence. Tested

in the light of these principles, the question in this case is whether the contention of the first defendant is sustainable. There can be no doubt that

though a sum of Rs. 1,200 was advanced under two separate documents they formed part of one transaction. They were both executed on the

same date for one and the same object, namely, for the discharge of mortgages existing on the property. In fact the recitals in the document clearly

show that one document refers to the other. The two documents may therefore be treated as one deed. The substance of the transaction is that a

sum of Rs. 1,200 was intended to be advanced by the first defendant and received by Guruva Reddi for the purpose of discharging specific

mortgages including the mortgage sued on. It was intended that the first defendant should get in the one case property free from encumbrances and

in another a first mortgage on the property for the amount advanced. Therefore the intention as appearing from the terms of the document is clearly

to extinguish all the mortgages including the mortgage sued on. There is no distinction made between one mortgage and another. If at all an

intention should be presumed in favour of the first defendant, it must be to the effect that all the mortgages must be deemed to be kept alive against

any unknown encumbrance and not that one mortgage should be kept alive against the other mortgage. The case really in my opinion is governed

by the principle enunciated by me in my judgment in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : ILR 59 Mad. 359

Therefore, if as in this case, a person advances money or covenants to discharge three encumbrances, payment of two prior encumbrances cannot

be availed of by him as a shield against the third.

The decision of the division bench of the Calcutta High Court reported in Surjiram Marwari v. Barhamdeo Persad (1905) 2 C.L.J. 288 is also

in point. In that case a conveyance was executed for the purpose of discharging a mortgage in favour of one Narku Singh and also a mortgage in

favour of the appellants therein. The evidence was that the mortgage in favour of Narku Singh was discharged but not the mortgage in favour of the

said appellants. The question that arose was whether the vendees could claim priority in respect of the prior mortgages of Narku Singh. It was held

that they could not. Mookerjee, J., after dealing with the case-law on the subject, proceeded to deal with the matter thus:

The deed recites that the property was conveyed free of the encumbrances in favour of the appellants and Narku Singh and that the vendors had

received in full the consideration and by payment to the encumbrancers would get the property released from the mortgages. There was no reason

for keeping alive either of these charges, as there was no other incumbrance intermediate in date between them and the conveyance. The intention,

on the other hand, of the purchasers was to acquire the property free from these charges, the existence of which had been ascertained, and the

amount due upon each had been carefully specified.... Along with this circum stance, we must take the recital that the creditors were, under the

terms of the conveyance, to be paid by the vendors and not by the purchasers.... Under these circumstances, I find it impossible to hold that there

was any intention on the part of the purchasers to keep alive the security in favour of Narku to be used a9 a shield against the security of the

appellants, should any occasion arise.

Mr. Somayya attacks the correctness of this decision and also my observations in Lakshmi Amma v. Sankara Narayana Menon (1935) 70

M.L.J. 1 : ILR 59 Mad. 359 , on the ground that it is only in cases where a person advancing money covenants to pay the debt, he will be

deprived of the benefit resulting from the payment of an earlier charge and not in any other case. He strongly relied upon the observations in

Govindasawmi Thevan Vs. T.M. Doraisawmi Pillai and Others, , namely:

The rule as to subrogation only applies when the purchaser has not covenanted to discharge the previous encumbrance.

Mr. Somayya therefore argued that as the first defendant in this case has not covenanted to discharge any of the encumbrances and the

obligation was undertaker by the vendors, it must be presumed that his client intended to keep alive the mortgages in favour of Chandra Reddi and

Dhupam Narayana Reddi. Mr. Somayya relied also upon a number of other cases in support of his contention some of which I shall deal in the

course of the judgment. In Govindasawmi Thevan Vs. T.M. Doraisawmi Pillai and Others, , the learned judges were dealing with a case where a

person has covenanted to pay two mortgages but had only discharged one and in such a case they inferred that the intention could not have been

to keep alive the first mortgage, the object being to discharge both. Any observations made by them must be, understood with reference to the

facts they were dealing with. In fact they approved the decision in Surjiram Marwari v. Barhamdeo Persad (1905) 5 C.L.J. 288. The distinction

contended for by Mr. Somayya has really no substance because the question in each case is what was the intention of the parties. In this case

either the money with which Chandra Reddi and Narayana Reddi were paid may be taken to be the money of Guruva Reddi or the money of the

first defendant. The decision in (1883) L.R. 10 I.A. 62 (Privy Council) will be an authority for the position that it will be Guruva Reddi''s money

and a payment by Guruva Reddi will be a discharge by the mortgagor and therefore it will not be open to him to say that he kept those mortgages

alive. If it be viewed as the money of the first defendant paid through Guruva Reddi who may be treated as his agent for the said purpose, certainly

when the first defendant paid Rs. 1,200 into the hands of Guruva Reddi, it was with the object of discharging both the mortgages. That the agent

committed fraud upon him will not displace the intention of the first defendant in discharging the mortgages. Therefore if the facts do warrant an

inference of an intention not to keep the charge alive, the charge cannot be treated as subsisting because as the events turned out, it would have

been better to have kept it alive. Mr. Somayya strongly relied upon the decision in (1884) L.R. 11 I.A. 126 (Privy Council) to show that Toulmin

v. Steere (1817) 3 Mer. 210 : 36 E.R. 81 was considered to be wrong both in England and in India and therefore the legitimate inference is that if

from the consideration money for a sale of property it was intended to discharge certain encumbrances and an earlier encumbrance was discharged

but not a later one, the presumption must be that the earlier encumbrance should be deemed to have been kept alive as it would obviously be for

the benefit of the purchaser. It seems to me that neither of the cases suggests this inference; on the other hand, the observations of Lord Herschell

go strongly against the contention of Mr. Somayya. In Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, it was decided that a purchaser who

took a conveyance purporting to be free from encumbrances could not set up a mortgage which had been paid off out of the purchase money

against an encumbrance subsequent in date of which he had constructive notice. It will be seen from the terms of the transaction in that case that

the parties intended to discharge two mortgages in favour of Welby and the annuity which was subsisting on the property was never intended to be

discharged. The purchaser had neither covenanted to pay the annuity sued on nor was it intended that it should be discharged out of the purchase

money. The Court could well have presumed an intention in favour of the purchaser to keep the discharged mortgages in force. But Toulmin v.

Steere (1817) 3 Mer. 210 : 36 E.R. 81 decided otherwise. Lord Herschell in explaining Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81,

indicated that that case may be justified on a certain view of facts; that is, that the purchaser intended to discharge all the encumbrances including

the annuity and if so, the discharge of an earlier incumbrance would not entitle a purchaser to keep it as a shield against a later encumbrance. Lord

Herschell remarks thus:

In Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, the owner of the equity of redemption had purchased the property with the intention of

paying off all the mortgages upon it and thought all the mortgages had been paid off out of the purchase-money. One mortgage had been omitted;

but so far from the intention there being to keep any of the mortgages alive, the intention was to extinguish all the mortgages and it was believed

that such intention had been successfully accomplished. Thome v. Canon (1895) A.C. 11 .

Though in fact the annuity was not intended to be discharged Lord Herschell assumes that it must have been and on that view the decision may

possibly be correct. If the above observations of Lord Herschell are applied to this case, it is clear that the first defendant had purchased the

property and advanced money upon the mortgage with the intention of paying all the mortgages on it and thought that all the mortgages were paid

off or would be paid off out of the purchase money, but the mortgage sued on had been omitted. Nevertheless as the intention was not to keep any

of the mortgages alive, it would not be open now to the first defendant to set up the mortgages that had actually been discharged as shield against

the plaintiff''s mortgage. The case in Dinabandhu Shaw Chowdhry v. Jogmaya Dasi (1901) 12 M.L.J. 73 : L.R. 29 IndAp 9 ILR 29 Cal. 154 was

relied on. It will be seen from that case that the amount was advanced to discharge both mortgages and both the mortgages were discharged but

still both of them were kept alive as against an unknown encumbrance, an attachment which was subsisting in that case. That decision is no

authority for a case where one of the mortgages which was intended to be discharged had not been discharged and the vendors had spent away

the money intended for it.

The conclusion of the learned Subordinate Judge is right whatever may be the reasoning on which it is based. I therefore dismiss the second

appeal with costs.

Leave refused.