T. Natesa Mudaliar vs Munuswamy Naidu

Natesan, J.—The Plaintiff in a suit on a mortgage by deposit of title deeds is the Appellant in Second Appeal No. 1803 of 1961. The

Defendant had executed on 31st December 1942 a usufructuary mortgage of the suit properties in favour of one Yasodabai Ammal, P.W. 1 in the

case, for a sum of Rs. 450. The title deeds relating to the suit properties had been handed over to her at the time of the execution of the said

mortgage. Later, on 19th August 1946, the debtor, the Defendant, incurred a further liability for a sum of Rs. 2,550 by borrowing from the said

Yasodabai Ammal. It is the case of the said Yasodabai Ammal and the Plaintiff that this debt of Rs. 2,550 due under exhibit A-1 was secured by

deposit of title deeds relating to the suit properties. There is no memorandum evidencing the said deposit. Yasodabai Ammal on 17th June 1958

by a registered document transferred her rights as mortgagee by deposit of title deeds in favour of the Plaintiff and the Plaintiff instituted the suit out

of which this Second Appeal arises on the said mortgage within 12 years from the date of the mortgage.

In defence the plea was that the usufructuary mortgage exhibit B-1 had not been discharged and was subsisting, that the debt under the

promissory note, exhibit A-1, was not true and there was no liability under the said promissory note and that there was no deposit of title deeds.

The contention is that the title deeds had been with Yasodabai Ammal in her right as mortgagee under the usufructuary mortgage and that taking

advantage of such possession the Plaintiff and Yasodabai Ammal were putting forward a claim by way of a mortgage of deposit of title deeds. The

learned District Munsif over-ruled the Defendants denial of the execution of the promissory note exhibit A-1. He found that exhibit A-1 was a true

and genuine document and was supported by consideration. As regards the question of mortgage by deposit of title deeds, the learned District

Munsif found that the prior usufructuary mortgage was subsisting and that it followed therefrom that exhibits A-2 to A-5 were not returned to the

Defendant and that consequently the Defendant could not have deposited them again with P.W. 1 when he executed exhibit A-1. Yasodabai

Ammal (P.W. 1) maintained that the usufructuary mortgage had been discharged and nothing was due thereon. On the finding that there could be

no deposit of title deeds to create security, the trial Court held that the suit as on a promissory note was barred by limitation. The suit was,

therefore, dismissed.

In appeal the learned District Judge had not given any specific finding that exhibit B-1 had been discharged. He confirmed the finding of the trial

Court that the promissory note exhibit A-1 was duly executed by the Defendant and was supported by consideration. He extracted a passage

from the judgment of the learned District Munsif the relevant portion of which is this:

...it follows that exhibits A-2 to A-5 were not returned to the Defendant. Consequently the Defendant could not have deposited them again with

P.W. 1, when he executed exhibit A-1.

Then as regards the question whether exhibit B-1 was discharged, the only relevant observations are:

From the evidence of P.W. 1 and on the admission of D.W. 1, it would follow that the documents of title under exhibits A-2 to A-5 related only to

exhibit B-1, which the Plaintiff alleges as discharged, whereas the Defendant contends that it is still subsisting. In view of the said contentions and

on the admitted fact that the Defendant accepts his liability for Rs. 450 to P.W. 1 (Yasodabai Animal) who has assigned her rights in favour of the

Plaintiff under exhibit A-6, it would follow that to the extent of admission by the Defendant, the Plaintiff will be entitled to a money decree for Rs.

450.

From a reading of the above extract which is the relevant portion in the judgment of the learned District Judge, it will be apparent that there is no

finding that exhibit B-1 had not been discharged. He had only referred to the relevant contentions of the parties. The learned District Judge has also

failed to appreciate that the Plaintiff does not claim to be an assignee of the usufructuary mortgage. Yasodabai Ammal herself states that the

usufructuary mortgage has been discharged. A decree can follow on admission only on a claim. There is no claim by the Plaintiff for the amount in

question for the Court to decree it, on the admission of the Defendant. As regards the question whether there was a deposit of title deeds or not, it

appears that the Courts below have been under the impression that for a valid deposit of title deeds the documents of title must be actually and

physically delivered by the mortgagor to the intended mortgagee. The learned District Judge has accepted the view of the learned District Munsif

that as exhibits A-2 to A-5 were not returned to the Defendant, the Defendant could not have deposited them again with P.W. 1.

It is apparent from a perusal of the judgments of the Courts below that they failed to appreciate the elements required for making valid mortgage

by deposit of title deeds. The three essential elements to make a valid mortgage by deposit of title deeds are (i) a debt, (ii) a deposit of title deeds

and (iii) an intention to give security of the property covered by the title deeds. In this case, there is a concurrent finding of both the Courts that

there is a debt. The Plaintiff is a lawful assignee of the debt as a mortgage debt from Yasodabai Ammal and the question is whether the promissory

note debt in the hands of Yasodabai was secured. The Courts below have failed to appreciate that if the documents of title were already with the

creditor, it would be an idle formality for the documents to be taken back by the debtor and returned as a deposit of title deeds. Here assuming

that exhibit B-1 was not discharged and the documents of title were with the creditor, it would be for the Court to find out whether there was an

intention on the part of the debtor that the title deeds should be security for the further advance of Rs. 2,550 also. They can be made such security

by an oral agreement. In Girendro Coomar Dutt v. Kumud Kumari Dasi ILR (1898) Cal. 611 quoting from Russel v. Russel 1. White and Tuders

L.C.(Seventh Edition) observations to the effect that an anterior ''deposit will cover future advances, if such was the agreement, when the first

advance made, or if it can be proved that a subsequent advance was made on an agreement, expressed or implied that the deeds were to be or to

remain a security for it as well'', it was held that title deeds already deposited as security for a previous loan were not required to be redelivered or

redeposited to secure a subsequent advance when the parties by a subsequent arrangement intended that they should be kept as security for a

subsequent advance. To the same effect is the decision in V.M.R.V. Chettyar Firm v. Asha Bibi AIR 1929 Rang. 107 where at page 108 it is

observed:

In such cases it may be assumed that the parties agreed to treat the title-deed as having been handed back to the mortgagor and rehanded to the

mortgagee.

It will be idle to go through purely a form when the agreement itself is quite clear. I see no objection therefore to treat such an agreement as

constructive delivery of the title deeds to the creditor.

In a recent case, K.J. Nathan Vs. S.V. Maruty Reddy and Others, the Supreme Court has observed as follows:

Physical delivery of documents by the debtor to the creditor, is not the only mode of deposit. There may be a constructive deposit. A Court will

have to ascertain in each ease whether in substance there is a delivery of title deeds by the debtor to the creditor. If the creditor was already in

possession of the title deeds, it would hyper-technical to insist upon the formality of the creditor delivering the title-deeds to the debtor and the

debtor redelivering them to the creditor. What would be necessary in those circumstances is whether the parties agreed to treat the documents in

the possession of the creditor or his agent as delivery to him for the purpose of the transaction.

There has been no examination by the Court below of the case in the light of the above principles. The Court may in certain circumstances from

the existence of a debt and the probabilities without evidence of an express agreement imply the existence of an agreement to make the title deeds

security for the loans. But it has also been held that the mere fact of the existence of a loan and the possession of the title deeds by the creditor will

not raise a presumption that there is a deposit of title deeds. The question will have to be considered in the light of the surrounding circumstances

and the probabilities in the absence of evidence an unequivocal deposit of title deeds as security. As there has been a wholly erroneous approach

in this case, the proper thing to do is to set aside the decree of the Court below and remand the case for fresh disposal by the appellate Court in

the light of the observations above made.

It is needless to say that the decree passed in favour of the Plaintiff cannot stand. The learned Counsel for the Plaintiff does not seek to support

the decree in his favour. Both the second appeals are therefore allowed. The decree of the lower appellate Court is set aside and the matter

remanded to the lower appellate Court for fresh consideration on the merits. As regards the existence of the debt evidenced by exhibit A-1 the

finding in that regard is one of fact not open to challenge in second appeal and will stand. It may also be pointed out that there is no specific finding

of the lower appellate Court that exhibit B-1 remained undischarged. This also is a question which will have to be considered by the lower

appellate Court. The Court-fee paid on the memorandum of appeal in both the cases will be refunded. The parties will bear their own costs in

Second Appeal No. 597 of 1962. The costs of the parties in Second Appeal No. 1803 of 1961 will abide the result of the appeal in the lower

appellate Court.