Report No. 70
57.11. Subsequent agreements.-
Since the right of redemption is inviolable, any provision which directly or indirectly prevents the recovery by the mortgagor of his property upon performance of the obligation for which the security was created, is repugnant to the very nature of the transaction and, therefore, void. However, this rule is not applied with the same severity when one comes to covenants which are entered into, subsequent to the mortgage.
The broad principle on which a distinction is made by law between a covenant accompanying the mortgage and a covenant subsequent thereto, seems to that the subsequently created conditions do not partake of the oppression or exploitation which might have been operative at the time of the loan. Ghose1 states the principle that though a mortgage cannot stipulate an advance or a collateral advance, there is nothing to prevent the parties from dealing with the equity of redemption after the making of the mortgage-except in the case of fraud. Although the problem does not appear to recur in this form now in England, the position may not be substantially different in that country.
1. Ghose Law of Mortgage in India, (1902), p. 284.
57.12. Collateral advantage.-
The insertion of stipulations conferring on the mortgagee collateral advantages raises numerous problems. By collateral advantage is meant here a stipulation made by the mortgagor to do something in addition to repaying the loan with interest. Until redemption, of course, such a stipulation may be valid, if it is otherwise valid under the general law. But the question often arises whether it could survive redemption. If the stipulation can be construed as a term of the mortgage, the rule is that such a stipulation will not be enforceable if it is-
(1) unfair and unconscionable, or
(2) in the nature of penalty clogging the equity of redemption, or
(3) is inconsistent with or repugnant to the contractual and equitable right to redeem.1
A rough and ready test summing up all these three criteria would be the test of reasonableness.2
1. Kreglinger v. Patagonia Meat & Cold Storage Co. Ltd., 1914 AC 25 (61) (per Lord Parker).
2. (1967) 2 All ER 659.
Although these tests-whether expressed elaborately or summarised pithily-might appear to be simple, but their practical application is not easy. The matter cannot be approached in a purely legalistic manner a certain amount of discretion is implicit. The bargaining the hall-mark of all equitable jurisdiction of the court which constitutes is implicit. The bargaining power and character of the parties, the circumstances of the loan, the nature of the security, the nature and duration of the restriction on the mortgagor's freedom to deal with the property and the precise terms of the collateral advantage, are all material.1
Of course, collateral advantage is not confined to a condition which does not affect the property. It may affect the mortgaged property, or it may be personal to the mortgagor. In either case, if it is a stipulation in addition to repayment of the loan proper with interest, it is to be regarded as collateral. Every stipulation which is collateral is not necessarily void, and it is not void even if it must necessarily travel beyond the time of the mortgage.
1. Fisher and Lightwood Law of Mortgage, (1969), p. 461.
57.14. Payment to one of the co-mortgagees.-
This brings us to certain points of detail concerning payment. There is some obscurity on the question whether a payment to one of several co-creditors is a good discharge of the entire debt. In a discussion of this question, it must be noted that the principle applicable is the same whether the debt is a personal debt or is a secured debt.1
In Barber Maran v. Ramana Goundan, 1897 ILR 20 Mad 461 (463) (DB), it was held by the High Court of Madras that such a payment to one-co-mortgagee was a good discharge. It followed the English decision in Wallace v. Kelsall, (1840) 56 RR 707, and relied on section 38 of the Indian Contract Act, 1872 which provides that a refusal of a valid 'tender' by a promisor under a contract will discharge him from liability for the non-performance of the contract and that a tender to one of several 'joint' promisees has the same effect as one made to all the joint promisees.
The correctness of the Madras decision in Barber Maran's case2 was doubted in some later decisions of that High Court,3 but was approved in 19094 and also by a Full Bench in Annapurnamma v. Akkayya, 1913 ILR 36 Mad 544 (551) (FB), in 1913.
The Madras view does not, with respect, appear to be correct. The question does not seem to be capable of determination merely on the interpretation of section 38 and 45 of the Contract Act. The question must be decided by reference to general principles of law. Now, it is well settled that the co-creditors of a debt (secured or unsecured) should be presumed to be in the position of tenants-in-common and not joint-tenants.
In the case of co-mortgagees, the above view would seem to be supported by the provisions of section 45 of the Transfer of Property Act, which provides that transferees under a joint transfer for consideration are entitled to distinct interests in the subject-matter of transfer. Co-mortgagees would, therefore, be entitled to distinct interests in the mortgage, or, in other words, they may be in the position of tenants-in-common with regard to the debt and the security.
57.16. Case law.-
It would be tedious to discuss at this place the gist of all the judicial decisions that have been given on the subject. Broadly speaking, the Madras High Court, except for a temporary fluctuation of view seems to have taken the stand that one co-mortgagee can give a discharge for the entire mortgage debt. In other words, where there are several mortgagees, according to the Madras High Court, payment to one is valid.
This view was never followed in Bombay and Calcutta or in Allahabad, but has been adhered to in Madras as recently as 19575. As to the other High Courts, it is sufficient to refer to the Bombay case of Sitaram v. Sridhar, 1903 ILR 27 Bom 292 (294), the Calcutta case of Jagat Tarini v. Naba Gopal, 1907 ILR 34 Cal 305 (351), and the Allahabad case of Jathan Singh.6
1. 1902 ILR 25 All 155 (157, 158).
2. Barber Maran v. Ramana Goundan, 1897 ILR 20 Mad 461 (463) (DB).
3. 1902 ILR 25 Mad 26 (38, 39) (DB); 1912 ILR 35 Mad 685 (687) (DB).
4. (1909) 1 Ind Cas 210 (DB) (Mad).
5. Sakkarmdeo v. Nagaswamirao, AIR 1957 Mad 191.
6. Jalhari Singh v. Conga, 1919 ILR 41 All 631.
57.17. The Madras view originated first in a case reported in 1897.1 The judgment is, in part, based on an English case2 whose authority, as has been pointed out by Mulla,3 has been shaken by a later decision.4
The analogy of the Indian Contract Act may not be applicable, but, in any case, it is worth while pointing out that under that Act,5 when a promise is made to more than one persons jointly, the right to claim performance rests with all of them jointly.
1. Barber v. Ramanna, 1897 ILR 41 All 631
2. Wallace v. Kelsall, (1840) 7 M&W 264.
3. Mulla, (1973), p. 425.
4. Powell v. Broadhurst, (1901) 2 Chancery 160.
5. Section 45, Indian Contract Act, 1872.
57.18. Recommendation to amend section 60 in regard to situation of several mortgages.-
In this position, the question for consideration is whether the law should be clarified and, if so, in what direction. On principle, it does not, with due respect to the Madras High Court, appear to be proper that one co-mortgagee may be able to realise the security. Their interests, whether they are joint or several in the language of the common law as between themselves, are to be regarded, so far as the mortgagor is concerned as entire and not as divisible.
If the contract was made with them together, it follows that the discharge of the contract also must be a transaction to which all of them are parties. The case may be different where the mortgage expressly states that the money is advanced, or belongs to the mortgages, in stated sums or shares. But in the absence of such an express statement, the payment to one mortgagee cannot have effect on the interests of other co-mortgagees. We, therefore, recommend that this position should be suitably incorporated in section 60 by an amendment.
We recommend that an Explanation should be inserted as follows below section 60:-
"Explanation-In the absence of an express agreement, payment to one mortgagee shall not affect the interests of other co-mortgagees."
57.19. Persons who can redeem.-
As to the persons entitled to redeem, section 60 does not make any elaborate provisions, leaving the matter to be spelt out from an interpretation of the word "mortgagor". Of course, so far as subsequent transferees of the mortgagor's interests are concerned, section 59A settles the position; and the expression "mortgagor" in section 60 would be so construed as to allow redemption by a person who has purchased the equity of redemption.
As regards other persons who would acquire an interest in the mortgaged property or have already such an interest otherwise than by derivative title, section 60 itself is non-committal. Some indication, however, is given by section 91, which expressly provides that besides the mortgagor, any of the specified persons may redeem or institute a suit for the redemption of the mortgaged property.
The persons specified in section 91-to give its gist very briefly-include any person who has any interest in or charge upon the mortgaged property or in or upon the right to redeem the same, any surety for the payment of the mortgage debt or any part thereof or any creditor of the mortgagor who has, in a suit for the administration of his estate, obtained a decree for sale of the mortgaged property. Broadly speaking, section 91 follows the English law, namely, that not only the mortgagor but also all persons having any interest in the property subject to the mortgage are entitled to reedeem.1
1. Mulla, (1973), p. 576. Commentary on section 91, clause (a).
57.20. Co-mortgagor and assignees.-
It follows, therefore, that a co-mortgagor can redeem, as also an assignee of the equity of redemption, which, in this context, would include a subsequent mortgagee who desires to redeem a particular mortgage. Since section 91 makes elaborate provisions in this regard, it would be a reasonable view to take that the expression "mortgagor" in section 60, first paragraph, would, wherever necessary, be construed so as to include the persons entitled to redeem under section 91. It is enough to mention that in England a person who has, by adverse possession, acquired the title of the mortgagor is regarded as competent to redeem.1
1. Fletcher v. Bird, (1896) (Hawkins, J.) (unreported, cited by Fisher & Lightwood Law of Mortgage, (1969), p. 468.