Once A Mortgage Is Always A Mortgage And

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CHANAKYA NATIONAL LAW UNIVERSITY

PATNA

SUBJECT: PROPERTY LAW

PROJECT ON ONCE A MORTGAGE IS ALWAYS A MORTGAGE AND NOTHING MORE SUBMITTED TO:-

SUBMITTED BY:-

Dr. SITA RAMA RAO

ANURADHA

FACULTY OF

ROLL NO- 1516

PROPERTY LAW

B.A.LLB (Hons) 3rd SEMESTER

TABLE OF CONTENTS

ACKNOWLEDGEMENT……………………………………3 RESEARCH METHODOLOGY………………………………..4 1. INTRODUCTION………………………………………………..5 2. RIGHT OF REDEMPTION…………………………………..9 3. ONCE A MORTGAGE ALWAYS A MORTGAGE. ………………13 4. CONCLUSION…………………………………………………..16 BIBLIOGRAPHY……………………………………………………17

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ACKNOWLEDGEMENT

Writing a project is one of the most significant academic challenges, I have ever faced. Though this project has been presented by me but there are many people who remained in veil, who gave their all support and helped me to complete this project. First of all I am very grateful to my subject teacher Dr. SITA RAMA RAO without his kind support and help the completion of the project was a herculean task for me. He donated his valuable time from his busy schedule to help me to complete this project and suggested me from where and how to collect data. I am very thankful to the librarian who provided me several books on this topic which proved beneficial in completing this project. I acknowledge my friends who gave their valuable and meticulous advice which was very useful and could not be ignored in writing the project. Lastly I am very much thankful to my parents and family, who always stand aside me and helped me a lot in accessing all sorts of resources. I thank all of them !

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AIMS & OBJECTIVES:By doing this project , the aim of the researcher is to study the concept of mortgage , right of redemption and finds the defects of the regulating act.

RESEARCH METHODOLOGY:For the completion of this project Doctrinal method has been used. The research is based on comprehensive study of various books, journals, judgements and articles available and also on web resource.

Method of Writing: The method of writing followed in the course of this research paper is primarily analytical.

Mode of Citation The researcher has followed a uniform mode of citation.

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INTRODUCTION Mortgage is the one kind of transfer and it is the one kind of title transfer of specific immovable property. Section 5 of the Transfer of Property Act, 18821 defines “transfer of property”. Transfer of property means an act by which a living person conveys property to one or more other living persons. Property means: (1) the thing itself, or (2) some or all the rights in a things. The provision of Section 3 of the Transfer of Property Act, 1882 does not provide for a comprehensive definition of ‘immovable Property’, however, it only mentions that ‘immovable property’ does not include standing timber, growing crops, or grass. According to Sec.3 (26) of the General Clauses Act, 1897 the “Immovable property shall include land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth”. “Attached to the earth” means Rooted in the earth(like tree and shrubs) , Imbedded in the earth(like walls etc) ,Attached in such a way which gives permanent beneficial enjoyment. So, Immovable Property It includes land, benefits to arise out of land, and things attached to the earth. If the thing is fixed to the land even slightly or it is caused to go deeper in the earth by external agency, then it is deemed to be immovable property. If the purpose of annexation of a thing is to confer a permanent benefit to the land to which it is attached, then it is immovable property. So, as against sale or gift, the mortgage is simply the transfer of an interest in the property mortgaged. The purpose of it to lend money and it may be immediately or later on. Mortgage creates pecuniary liability. Mortgage is a conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms 2. According to section 58(a) of the Transfer of Property Act 1882, “A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability”. The transferor is called a mortgagor, the transferee a mortgagee, the principal money and interest of which payment is secured for the 1 2

ACT NO. IV OF 1882 Black’s Law dictionary, 9th edition, page no. 1101

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time being are called the mortgage money and the instrument (if any) by which the transfer is effected is called a mortgage-deed. Elements of Mortgage There must be a transfer of an interest- There must be specific immovable property intended to be mortgaged. The transfer must be made to secure the payment of a loan or to secure the performance of a contract. 1) Transfer of interest- a transaction of mortgage involves the transfer of an interest from the mortgagor to the mortgagee. On this point this differs from sale because in sale, on the contrary, there is complete transfer of all the interests in the property. The mortgage is transfer of interest less than ownership. 2) Specific immovable property- the interest transferred is that of a specific immovable property. The property, which has to be mortgaged, must be defined specifically and not in general terms. The property must also be immovable property . The property must be specifically mentioned in the mortgage deed. Where, for instance, the mortgagor stated “all of my property” in the mortgage deed, it was held by the Court that this was not a mortgage. The reason why the immovable property must be distinctly and specifically mentioned in the mortgage deed is that, in case the mortgagor fails to repay the loan the Court is in a position to grant a decree for the sale of any particular property on a suit by the mortgagee. It was accordingly held that no valid mortgage was created when the property mortgage was described as “ the whole of my property”,3 or as “our house or landed property.”4 3) Securing the payment of debt- the transaction involves the transfer of an interest for the purpose of securing the payment of a debt, which is in the nature of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The debt in lieu of the mortgaged property constitutes the consideration of the mortgage. The mortgagor may also execute the mortgage deed before he gets the full amount from the mortgagor. Mere ground that the mortgagee did not advance the money on the date of execution of the deed does not render the transaction of mortgage

3 4

Bheri Dorayya v. Moddipatu Ramayya, 3 Mad. 35 Darsona singh v. Honwanta, 1 All. 274

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ineffective5 . There is thus a debt and the relationship between the mortgagor and the mortgagee is that of debtor and creditor. When A borrows 100 bags of paddy from B on a mortgage and agrees to return an equal quantity of paddy and a further quantity by way of interest, it is a mortgage transaction for the performance of an obligation. Where, however, a person borrows money and agrees with the creditor that till the debt is repaid he will not alienate his property, the transaction does not amount to a mortgage. Here the person merely says that he will not transfer his property till he has repaid the debt; he does not transfer any interest in the property to the creditor. In a sale, as distinguished from a mortgage, all the interests or rights or ownership are transferred to the purchaser. In a mortgage, as stated earlier, only part of the interest is transferred to the mortgagee, some of them remains vested in the mortgagor. In the case of Ragunath V. Amir Baks (1922), it was held that in mortgage where deed is registered, property vested but consideration is not given; mortgage may not fail. To sum up, it may be stated that there are three outstanding characteristics of a mortgage: i. The mortgagee’s interest in the property mortgaged terminates upon the performance of the obligation secured by the mortgage. ii. The mortgagee has a right of foreclosure upon the mortgagor’s failure to perform. iii. The mortgagor has a right to redeem or regain the property on repayment of the debt or performance of the obligation. According to Section 58 of Transfer Of Property Act, 1882, the are different types of mortgage like Simple mortgage , Mortgage by conditional sale , Usufructuary mortgage , English mortgage , Mortgage by deposit of title-deeds , Anomalous mortgage. Modes of Transfer in a mortgage , there are three ways in which property may be transferred by way of mortgage, (1) Registered instrument. (2) Delivery of Possession. (3) Deposit of titledeeds. As, section 59 0f the Transfer of Property Act, 1882 states that- “ Where the principal money secured is one hundred taka or upwards, a mortgage other than a mortgage by deposit of titledeeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. Provided that a mortgage by deposit of title-deeds, where the mortgagee is the Government or a Scheduled Bank as defined in the Bangladesh Bank Order, 5

State of Kerala v. Cochin Chemical Refineries, AIR 1968 SC 67.

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1972 or a financial institution as defined in the Financial Institutions Act, 1993, shall also be effected only by a registered instrument in the aforesaid manner. Provided further that where in pursuance of a tripartite agreement between a buyer, a seller and a Scheduled Bank or financial institution, the buyer undertakes to buy a flat or floor space to be constructed or a plot of land to be developed by the seller (a real estate owner, firm or company), and the seller undertakes to transfer the flat or floor space or a plot of land, as the case may be, to the buyer by registered instrument upon construction or development, as the case may be, and the Scheduled Bank or financial institution undertakes to pay the price, or part of the price, of the flat or floor space or plot of land to the seller on behalf of the buyer, on condition, among others, that the flat or floor space to be constructed or the plot of land to be developed, and transferred to the buyer, shall be mortgaged to the Scheduled Bank or financial institution by deposit of title-deed as security against the money paid or to be paid to the seller on behalf of the buyer as loan, such mortgage by deposit of title-deed shall not be required to be effected by a registered instrument as aforesaid. Where the principal money secured is less than one hundred taka, a mortgage may be effected either by a registered instrument signed and attested as aforesaid, or (except in the case of a simple mortgage) by delivery of the property’.

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RIGHT OF REDEMPTION Right of mortgagor to redeem , at any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee, to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished ,acknowledgement that right has been extinguished, extinguishment of right by (1) the act of the parties, or (2) the decree of the court. 6It is the most important right of the mortgagor, through which, the mortgagor after paying-off the money becomes entitle to get back the property. At any time after the mortgage money has become due, the mortgagor has a right on the payment of the mortgagemoney to require the mortgagee to reconvey the mortgaged property to him. This right of the mortgagor, through which he is entitled to get the property returned to him, contemporaneously with the discharge of his obligation, is called the right of redemption. Position in the transfer of property act, unlike England, the Act does not distinguish between the right to redeem and equity of redemption. In England, this right was evolved by the Chancery Courts and was known as equity of redemption. On the following counts, the mortgagor’s right to redeem can be justified, 1. Transfer of an interest. In a mortgage, the mortgagor transfers one of all his interests in the immovable property. The mortgagor transfers only an interest in favour of mortgagee and not the whole interest in the property. 2. Residuary ownership. After creating an interest in favour of mortgagee, the mortgagor still has the remaining interest. The remaining interest is called the residuary ownership of the mortgagor in the mortgage-property. It is the residuary ownership, by virtue of which, the mortgagor has the right to redemption vested in him. 3. Purpose is only securing the payment of debt. As per the provisions of the Transfer of Property Act, in the transaction of mortgage, since there is a transfer of an interest of the immovable property by the mortgagor for securing the loan, he is entitled to get back that interest 6

Section 60 of transfer of property act 1882

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on the repayment of the loan. By making the payment of the loan with its interest, the mortgagor becomes entitled to redeem, that is call back the ‘interest’ given to the mortgagee as security for repayment. 4. Principles of equity, justice and good conscience. Mortgagor neither intends nor desires that the property should go absolutely to mortgagee. Therefore if the mortgagee is unable to repay the debt on a fixed date and there is some delay, the law must extend his right to redemption upto a reasonable time. Principles of equity, justice and good conscience do not allow that a transaction which is of borrowing nature should become an absolute conveyance, only on the ground that the debt was not paid on the fixed date. It is therefore, an inherent right of every mortgagor, laid down in sec. 60, irrespective of the kind of mortgage. EQUITY OF REDEMPTION. The right of redemption of the mortgagor under sec. 60 of the Transfer of Property Act is based on the equity of redemption under English law. In England, the mortgagor’s right of redemption was introduced by the Chancery Courts, also known as the Courts of Equity. The mortgagor’s right to redeem the mortgage by making payment, even after the due date is known as equity of redemption.7 The Chancery Court introduced this right in order to do justice with cases on mortgage decided under the common law. Prior position at Common Law. At common law, the mortgage was the transfer of legal estate (absolute interest), subject to a condition. The condition was ‘nonpayment of loan upto fixed date’, which if fulfilled, the mortgaged property belonged absolutely to the mortgagee. Common law treated the non-payment of debt upto a specified period as penalty for the mortgagor. The common law gave no relief to the mortgagor, who failed to repay the debt upto the specified period, even though he was ready to repay within few days after the specified period. Thus, in default of the repayment the mortgagor lost all his rights in his immovable property. This situation was exploited by the money-lenders, by not accepting the money on the due date. They knew that if somehow the loan with interest remained unpaid upto the fixed date, they will become owner of the property in lieu of the small sum of money, which the debtor took in his urgent need. Role of Chancery Courts. Soon the Chancery Courts realized that the main purpose of the mortgage is to keep the property as a security to the moneylender for the repayment of

7

Dr. R.K. Sinha, The Transfer of Property Act (18th ed., central law agency)

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money. Therefore, the money-lender should not be given any legal right to hold on the property absolutely if the mortgagor was ready to repay the debt within reasonable time after the expiry of the due date. Thus, the right which was denied by the Common Law was given to the mortgagor by the Courts of Equity. This right of the mortgagor to redeem even if he was in default was known as equity of redemption. Thus, this very principle evolved by the Chancery Courts went against the common law. Equity started with the notion that stipulation as to time (fixed date for repayment) should not be treated as penalty. The Courts even held it to be the essential character of every mortgage. They provided further that it was an important right of the mortgagor and it could not be denied in any manner, not even express agreement of the parties themselves. Equity declared that ‘once a mortgage, always a mortgage’. Exercise of the right of redemption: The mortgagor’s right of redemption is exercised,- i. By paying or tendering mortgage-money to the mortgagee outside the court, i.e. privately; ii. By depositing the amount in the court; and iii. By a suit for redemption, payment or tender. Tender means an unconditional offer to pay the money under such circumstances that the mortgagee may receive the money there.8 Extinguishment of right of redemption:- The mortgagor’s right of redemption is extinguished: a) By foreclosure (section 67); b) When the mortgagee has exercised power of sale (section 68); c) When it becomes barred under the Limitation Act, 1908. “The right of mortgage-deed can come to an end only in manner known to law”.9 “Redemption of mortgaged property- period of limitation- where mortgagee had transferred mortgage right to new mortgagee before expiry of period of limitation, period of limitation would start from transfer of mortgage and not from original mortgage”.10 - So, the mortgagor’s right on redemption are,- 1. Delivery of the mortgage-deed and document of title relating to the mortgaged property, 2. Possession, and 3. Reconveyance or acknowledgement. CLOG ON REDEMPTION: The right of redemption continues although the mortgagor fails to pay the debt at the due date. Any provision inserted in the mortgage-deed which has the effect of preventing or impeding this right is void as a clog on redemption. This view was substantiated by 8

Section 38 of the Contract Act, 1872 Jaya Singh V. Krishna, AIR 1985 S.C. 1646 10 Faqir Gul V. Abdur Rahman, 1999 CLC 346 9

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LINDLEY M. R. in Stanley v. Wilde. The Supreme Court considered this rule in Murarilal v. Devkaran, where the clause incorporated in the mortgage deed provided that the amount due under the mortgage should be paid within 15 years whereupon the property would be redeemed. Further it provided that in case payment was not made within that period, mortgagee would become the owner of the property. The Supreme Court affirming the decision of the Rajasthan High Court, held that any stipulation contained in the mortgage deed, which unreasonably restrained the mortgagor’s equity of redemption can be ignored by the court subject to the general law of limitation prescribed in that behalf.

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ONCE A MORTGAGE ALWAYS A MORTGAGE. This maxim implies that the mortgagor’s right of redemption would not be defeated by any agreement to the contrary, even if the mortgagor himself has agreed to it. The maxim simply denied the validity of any stipulation in the mortgage deed, which defeats the mortgagor’s right of redemption. In other word, a transaction, which at one time is mortgage, could not cease to be so by having any stipulation in the mortgage deed intended to defeat the mortgagor’s right of redemption. The underlying principle of this maxim was stated by LORD HENLEY in following words: “This Court as a Conscience is very jealous of persons taking securities for a loan and converting such securities into purchases. And therefore I take it to be an established rule, that a mortgagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged and the conveyance made absolute. And there is great reason and justice in this rule for necessitous men are not, truly speaking, free men, but to answer present exigency, will submit to any terms that the crafty may impose upon them”. In the case of Nabin Chandra Moral V. Lalit Mohan Das Held: If the mortgage debt is paid, or a tender thereof is made, by any person interested in the equity of redemption, a mortgage suit can be instituted by any other person who has a right to equity of redemption. The right of redemption is the inalienable right of the mortgagor. Besides the mortgagor any of the following persons may also sue for redemption:- a) Any interested person in the mortgaged property, b) Any surety for the payment of the mortgaged debt; or c) Any creditor of the mortgagor who has obtained a decree for sale of the mortgaged property. - Section 91 of TP This maxim implies that the mortgagor’s right of redemption would not be defeated by any agreement to the contrary, even if the mortgagor himself agreed to it. The maxim simply denied the validity of any stipulation in the mortgage deed which defeats the mortgagor’s right of redemption. A maxim which stresses the principle that, in equity, a mortgage is intended solely as security for a loan and not as a means to secure a collateral advantage for the mortgagee. In other words, once the mortgagor has paid back his debt to the mortgagee, the purpose of the mortgage has come to an end and the property should be released unencumbered 11The principle is this – that a mortgage must not be converted into something else; and when once you have

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https://www.realestatedefined.com/html/terms_defined/once_a_mortgage.html visited at 7/10/17

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come to the conclusion that a stipulation for the benefit of the mortgagee is part of the mortgage transaction, it is but part of his security, and necessarily comes to an end on the payment off of the loan The underlying principle of this maxim was stated by Lord Henley in the case of (Vernon v. Bethel) that_ “This court as a conscience is very jealous of persons taking securities for a loan and converting such securities into purchases and therefore I take it to be an established rule, that a mortgagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged and the conveyance made absolute and there is great reason and justice in this rule for necessitous men or not will submit to any terms that the crafty may impose upon them.”

Vernon v Bethell (1762) is an English property law case, where it was affirmed that there could be no clog on the equity of redemption.12 Major James Vernon wished to pay off his debts to Mr Bethell’s estate and recover title of a sugar plantation in Antigua where he lived. Vernon had taken out a £278 mortgage on the land, and on 5 March 1729 he assigned the mortgage to Mr Bethell, to whom he sold sugar, and got from him further loans of £5000 to £6000. On 23 April 1738 Bethell requested repayment of sums owed, by then £9541 9s 1d, or the enforcement of the security by taking possession of the land, but still leave some for Major Vernon and his family13 On 25 August 1738 Vernon replied that he would convey possession of the land to Bethell for five guineas, and its profits, for release of the debt of £9976 1s 11d. Various other letters and statements by Bethell acknowledged that Vernon should be able to recover title if his debts were paid off. When Bethell died his will, from 19 March 1758 stated that if Vernon ceased with some ‘unjust pretences’ to defeat his title to the land and would accept £6000, then he should be given full title. The price of the land by then had risen significantly, and Vernon sought a declaration that he retained the equity of redemption, that he could get full title to his land back with debts repaid.Lord Henley LC held that there could be no clog on the equity of redemption, so that any 12

Vernon v Bethell (1762) 28 ER 838

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My account is swelled to so enormous an amount, that I must have possession of the Antigua estate, in order to save something for your family.

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restriction on the right to redeem one's property had the debt been discharged was ineffective. He held the exchange of letters between Mr Bethell and Major Vernon showed that only a security interest, and not an absolute conveyance was intended.

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CONCLUSION Mortgage is a transfer of an interest in specific immovable property as a security for the repayment of a monetary liability. This liability could be arising out of money already advanced or to be advanced; it could be future debt or it could be pecuniary liability arising out of the nonperformance of any engagement. A mortgage corresponds to the Hypotheca of Roman Law. The creditors, on the failure of the debtor to pay the debt, could being the debtor’s property to sale and recoup him. To conclude it can be said that the provisions of the Transfer of Property Act, 1882 relating to mortgage successfully met the expectation and demand of the mortgagor and mortgagee though it had many limitations. The equity of redemption has been well recognized in common law as well as in the Transfer of Property Act, 1882 which explicitly substantiate this principle. There may be various conditions whereby the stipulations in the mortgage-deed have turned to be the clog on the equity of redemption. The equity of redemption can be brought to an end either by the act of parties or by a decree of the court.

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BIBLIOGRAPHY BOOKS    

S.N. Shukla, The Transfer of Property Act 219 (23rd ed., 2001). Mulla, The Transfer of Property Act, 1882 656 (Solil Paul ed., 9th edition, 2000). Murarilal v. Dev Karan, AIR 1965 SC 225. Dr. R.K. Sinha, The Transfer of Property Act (18th ed., central law agency)

WEBSITES    

https://www.lawctopus.com/academike http://ishtionblogs.blogspot.in/2013/06/once-mortgage-always-mortgage.html https://moniruzzamanjuror.files.wordpress.com/2013/10/assinment-of-tp.pdf https://indiankanoon.org/search/?formInput=once%20mortgage%20always%20mortgage &pagenum=1

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