Report No. 70
Contracts by the Mortgagor
64.1. Section 65.-
The implied covenants of a mortgagor are dealt with in section 65. The section enumerates five such covenants. At first sight, they may appear to be heretogeneous and having no connections with each other, but a close analysis would reveal that there is a common thread binding them. A mortgage is essentially a security and the object of the implied convenants is to strengthen the security and to read into the transactions, such conditions as may enable the mortgagee to avail himself of it without substantial impairment. In this sense, they are not extraneous to the mortgage, but are integrally connected with the security.
This is how section 65 reads-
"65. In the absence of a contract to the contrary, the mortgagor shall be deemed to contract with the mortgagee-
(a) that the interest which the mortgagor professes to transfer to the mortgagee subsists, and that the mortgagor has power to transfer the same;
(b) that the mortgagor will defend, or, if the mortgagee be in possession of the mortgaged property, enable him to defend the mortgagor's title thereto;
(c) that the mortgagor will, so long as the mortgagee is not in possession of the mortgaged property, pay all public charges accruing due in respect of the property;
(d) and, where the mortgaged property is a lease, that the rent payable under the lease, the conditions contained therein, and the contracts binding on the lessee have been paid, performed and observed down to the commencement of the mortgage; and that the mortgagor will, so long as the security exists and the mortgagee is not in possession of the mortgaged property, pay the rent reserved by the lease, or, if the lease be renewed, the renewed lease, perform the condition contained therein and observe the contracts binding on the lessee, and indemnify the mortgagee against all claims sustained by reason of the non-payment of the said rent or the non-performance or non-observance of the said conditions and contracts;
(e) and, where the mortgage is a second or subsequent incumbrance on the property, that the mortgagor will pay the interest from time to time accruing due on each prior incumbrance as and when it becomes due, and will at the proper time discharge the principal money due on such prior incumbrance.
The benefit of the contracts mentioned in this section shall be annexed to and shall go with the interest of the mortgagee as such, and may be enforced by every person in whom that interest is for the whole or any part thereof from time to time vested".
In respect of every one of the contracts referred to in the various clauses of the section, the mortgagee has, of course, the general remedy, by way of damages under section 73 of the Indian Contract Act, 1872. This right to claim damages is not in any way taken away by section 68 of the Transfer of Property Act. The mortgagee has also other remedies open to him which1 may, however, vary according to the particular clause of the section under which the implied contract falls.
1. See para. 64.3.
Most of the covenants enumerated in section 65 have for them appropriate sanctions in other sections of the Act. Thus, section 65(a) is the covenant for title and its breach represents a "wrongful act or default" of the mortgagor in terms of section 68(1)(c), so that the mortgagee is deprived of a part of his security and has a right to sue for the mortgage money under section 68.
Section 65(b) imposes an obligation on the mortgagor to defend his title. Corresponding to this is the provision in section 72(c), enabling the mortgagee to spend such money as is necessary for supporting the mortgagor's title to the property.
Section 65(c) imposes on the mortgagor the duty to pay all public charges accruing in respect of the property so long as the mortgagee is not in possession. Corresponding to this is the power of the mortgagee under section 72(b) to spend such money as is necessary for the preservation of the mortgaged property from destruction forfeiture or sale, after giving the notice required by section 72, first paragraph, proviso. On a similar principle is based section 69 of the Indian Contract Act, providing for reimbursement where a person interested in property spends money which another is bound to pay. The text of section 69 is as follows:-
"A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays for it, is entitled to be re-imbursed by the other."
Under section 65(d), certain covenants are imposed in case of lease. Where the mortgaged property is a lease, the mortgagor undertakes two principal obligations, namely, that in the past the terms of the lease as to rents and conditions have been complied with down to the commencement of the mortgage, and secondly, as to the future, that they will be complied with so long as the security exists and the mortgagee is not in possession. Corresponding to this is section 72(b), under which the mortgagee may spend such money as is necessary for the preservation of the mortgaged property from destruction, forfeiture or sale.1
Lastly, under section 65(e), where the mortgage is a second or subsequent encumbrance, the mortgagor covenants that he will pay the interest from time to time accruing due on each prior encumbrance and will at an appropriate time discharge the principal money due on such prior encumbrance. For a breach of this covenant the remedies are provided in-
(i) section 68(c), which relates to the case where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor; and
(ii) section 72(b), under which the mortgagee may spend such money as is necessary for preservation of the mortgaged property from destruction, forfeiture or sale; and
(iii) section 69 of the Indian Contract Act, 1872.
1. Section 72(b).
6.4. English law.-
The provisions in clauses (a) and (d) of section 65 correspond to the provisions of section 7 of the Conveyancing and Law of Property Act, 1881 (44 & 45 Vict., C. 41), now reproduced in section 76, subsection (1), clauses (c) and (d) respectively of the Law of Property Act, 1925 (15 Vict. V, Ch. 20).
The last clause of section 65 corresponds to section 76(6) of the Law of Property Act, 1925 which runs as follows:-
"The benefit of a covenant implied as aforesaid shall be annexed and incident to, and shall go with, the estate or interest of the implied covenants, and shall be capable of being enforced by every person in whom that estate or interests is, for the whole or any part thereof, from time to time vested."
64.5. Clause (a).-
Clause (a) of section 64 provides for a statutory covenant for title, similar to the one contained in section 55, sub-section (2), with respect to sales. A breach of the covenant will occur where the mortgagor's title or his power to transfer the interest is found to be defective. The consequence of such a breach is not to render the mortgage itself void, but merely to give rise to a right in the mortgages to claim certain reliefs.
The right of the mortgagee on the implied contract under clause (a) must be distinguished from the doctrine of estoppel that may be applicable between the mortgagor and mortgagee. As a general rule, the mortgagor cannot derogate from his own grant and he and his representatives will not be allowed to deny his title as against the mortgagee except where the mortgage is forbidden by law, in which case there can be no estopped against statute, and except where the truth is known to the mortgagee, in which case also there is no estoppel.
But independent of any question of estoppel, if, as a matter of fact, that title of the mortgagor is found to be defective the mortgagee will, by virtue of this clause, be entitled to claim compensation for breach of the implied contract.
The failure to disclose at the time of the mortgage the existence of a prior incumbrance is, according to the High Court of Calcutta,1 a breach of an obligation imposed by clause (a). A contrary view, namely, that the mortgagor is not bound to disclose any prior incumbrances on the property has been expressed by the Judicial Commissioner's Court of Nagpur.2 The former view appears to be correct.
1. (1910) 7 Ind Cas 251 (252) (DB).
2. Ramakrishna Nandram v. Ganesh Narayan, AIR 1934 Nag 149 (151).
64.6. Clause (b).-
Clause (b) of section 64 is only a legislative recognition of the principle that had been recognised even before the passing of this Act, namely, that a mortgagor was bound under the ordinary law of mortgage to indemnify the estate against expenses incurred in protecting the title. A breach of the implied contract under this clause occurs when the mortgagor, being in possession does not defend his title, or when the mortgagee is in possession and the mortgagor fails to assist him in defending the title.
64.7. Clause (c).-
The implied contract under clause (c) of section 64 is that the mortgagor will, so long as the mortgagee is not in possession of the mortgaged property, pay all public charges accruing due in respect of the property. The clause does not apply where the mortgagee is in possession of the mortgaged property. Under section 76, clause (c), it is the duty of the mortgagee himself in such a case to pay such charges from out of the income of the property.
64.8. Last paragraph.-
There is a provision in the last paragraph of section 65, under which the benefit of the covenants mentioned in the main section can be claimed by a transferee from the mortgagee of the property. This provision is silent about the burden. It would appear that the burden of the covenants covered in section 65 cannot be enforced against a purchaser of the equity of redemption.1 In England also, the covenant will not affect in assignee from the covenantor unless he is a party to the contract.2
Whether section 59A, inserted in 1929, makes any difference in this position is not very clear. As regards the duty to pay the taxes, it may perhaps be properly regarded as covenant which does not attach or concerns the property.3 While a statutory provision imposing a liability on a person binds his legal representatives and assignees4 the covenant for title is not enforceable against the subsequent assignee of the equity of redemption, since the person liable is the individual who gives the covenant and the obligation is a purely personal one, which does not run with the land.5
1. Srinivasa Chari v. Gnanaprakash, 1907 ILR 30 Mad 67 (71).
2. English cases are reviewed in Subbiah v. Rami Reddy, AIR 1917 Mad 228 (232).
3. Subbiah v. Rami Reddy, AIR 1917 Mad 228 (231).
4. Ramakrishnama Chetty v. Vuvvati Chenga Aiyar, (1916) 33 IC 321 (Mad), referred to in Subbiah v. Rami Reddy, AIR 1917 Mad 228 (230).
5. Section 40.
64.9. No change.- The above discussion discloses no need to amend section 65.