Report No. 70
54.82. Territorial aspect.-
Next is the territorial aspect. For the validity of an equitable mortgage, it is enough if the parties reside in a place where section 58(f) applies. This proposition has two aspects-
(a) The property need not be situated in the territories to which the Act extends.
(b) The property need not be situated in the places to which the clause applies.
We have already discussed the first aspect.1 As to the second aspect, it is now well-settled that the property need not be situated in the places where the clause applies. Whether or not the place where the property is a place mentioned in or notified under the clause, it is enough if the transaction is entered into at a place so specified or notified.
1. See discussion as to section 58(a), supra.
54.83. Place of deposit material.-
It is necessary that the deposit must be in the towns mentioned in the section, no matter where the properties are situated.1 Hence, even if the property is situated in non-notified towns, mortgage by deposit of title-deeds by delivery in a notified town is valid.2
1. ILR 38 Born 372; AIR 1930 Lah 920; AIR 1937 Born 39.
2. 1960 Ker 14 388: 1960 Ker LT 442.
54.84. Situation of property not material.-
Conversely, deposit of title deeds in a town not mentioned in the section gives no right to the mortgagee. It does not even operate as further security.1
A promissory note and a memorandum of deposit of title deeds were handed over outside the limits of the presidency town, to the agent of a solicitor who was acting both for the debtor and the creditor, with instructions to the solicitor to deliver the title deeds to the creditor. No such delivery was, however, proved.
It was held that the requirements of a valid equitable mortgage were not satisfied, as the delivery took place outside the presidency town and further delivery to the common solicitor was not sufficient, as delivery was not made to him as agent of the creditor.2
1. AIR 1927 Pat 41; AIR 1932 All 451.
2. 36 CWN 1028: AIR 1932 Cal 823.
54.85. Scope of security.-
The scope of security is the scope of title deeds, unless the contrary is proved.1
Where title-deeds are handed over with nothing said except that they are to be security, the law supposes that the scope of the security is the scope of the title. Where, however, the title deeds are handed over, accompanied by a bargain, then that bargain must rule, and when the bargain is a written bargain, it, and it alone, must determine what is the scope and extent of security.2
1. AIR 1916 PC 315; AIR 1925 Rang 250.
2. AIR 1961 Pat 158.
54.86. Written memorandum.-
For the validity of a mortgage by deposit of title deeds under section 58(f), it is not necessary that there should be a writing.
The essentials of a mortgage by deposit of title deeds under the section are:
(1) There must be a delivery of documents of title of immovable property;
(2) Such delivery must be made to a creditor or his agent;
(3) Such delivery must be made with intent to create a security thereon.
However, in practice, the parties often write out a "memorandum" giving the details-all or some-of the transaction. This is done presumably with the object of avoiding controversy as to the transaction or its details. But sometimes this object is not achieved, and in fact, the consequence that ensues is one which was not anticipated by the parties-a controversy as to whether the memorandum ought to have been registered. Since this controversy affects the very validity of the transaction, it deserves to be considered at some length.
The principle is not complex. A mortgage by deposit of title deeds is not compulsorily registerable.1 A memorandum which records the transaction, but does not itself purport to create it, does not require registration. The answer therefore depends on the distinction between a document which purports to create a right-vestitive fact-and a document which constitutes a mere record-an evidentiary fact. It Is not always an easy one to apply.
1. AIR 1970 SC 659.
54.88. Contents of the memorandum.-
If there is a written memorandum along with the deposit, the terms of the memorandum are conclusive evidence of the terms of the mortgage.1 Such memorandum must indicate whether an equitable mortgage was intended by such deposit, and the extent of the security. The memorandum creating it must be registered in order to be admissible in evidence.2
When the deposit of the title deeds is independent of the memorandum, the deposit creates the mortgage, and the memorandum need not be registered,3 because the parties did not intend thereby to create the charge4.
This principle is true whether the creation of the mortgage and the preparation of the memorandum reciting the factum of the completed equitable mortgage with the list of the properties mortgaged are or are not simultaneous.5
Where the deposit of title deeds with the Bank was to create an equitable mortgage for the loan applied for by the appellant, and the oral and documentary evidence unmistakably prove that the title deeds are security for the loan obtained by the appellant, and could be treated as the contract for the mortgage, it is inadmissible in evidence.6
1. AIR 1916 PC 116: 31 MI.J 155 (PC).
2. AIR 1932 Born 401.
3. AIR 1923 Mad 262.
4. AIR 1950 SC 272: 1950 SCR 548; AIR 1958 Punj 218; AIR 1961 Punj 81; AIR 1925 Cal 972.
5. AIR 1961 Punj 81.
6. AIR 1971 SC 1613.
54.89. Case law.-
Transactions of this type were common in areas now outside India, and some of the judicial decisions arising in those areas also are instructive. In a Sind case1, a memorandum executed by a debtor to a Bank stated: "We confirm having already deposited with you the title deeds of our following property in Karachi as per particulars given hereunder as security by way of mortgage for Rs. advanced to us by way of overdraft and for which we have already handed you a demand promissory note and all interest thereon, and all costs and charges and sums that may be incurred or spent by you.
We undertake to keep the mortgaged property insured." It was held that the document did not contain the bargain between the parties, but merely evidenced it, and therefore, did not require registration under section 17(1)(b) of the Registration Act or under the Transfer of Property Act.
1. AIR 1943 Sind 36.
54.90. Position in England.-
In England, a memorandum usually accompanies the deposit of title deeds by way of security, and the mortgagee will ordinarily be entitled to claim to have such a memorandum executed. Under section 58, however, no memorandum need accompany a deposit in order to create a mortgage, though such a memorandum is not prohibited. The reason is that the mortgage is created not by the writing, but by the deposit. When the debtor deposits with the creditor title deeds of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage.
If the question arises whether, if such a memorandum is executed, it should be registered in order to create a valid mortgage, the answer depends upon the question: Did the document constitute the bargain between the parties, or was it merely the record of an already completed transaction? In the former case, the mernOrandum itself constitutes the mortgage and must be registered.
In the latter case, it need not be registered. For the purpose of considering the question whether the memorandum is to be taken as embodying the bargain between the mortgagor and the mortgagee, or as evidencing a transaction which had already been completed before the memorandum was executed or delivered, not only the terms of the document, but also the surrounding circumstances, must be looked into.