Full Judgment Text
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PETITIONER:
K.J.NATHAN
Vs.
RESPONDENT:
S. V. MARUTY REDDY AND OTHERS
DATE OF JUDGMENT:
11/02/1964
BENCH:
SUBBARAO, K.
BENCH:
SUBBARAO, K.
MUDHOLKAR, J.R.
CITATION:
1965 AIR 430 1964 SCR (6) 727
ACT:
Mortgage-Mortgage by deposit of title deeds--No document
executed on the day of deposit-Can intention be inferred
from a deed subsequently executed and registered-Transfer of
Property Act (Act No. IV of 1882), s. 58(f).
HEADNOTE:
The plaintiff-appellant filed a suit to enforce a mortgage
by deposit of title deeds. The case of the plaintiff was
that on 10th May, 1947, the 1st defendant deposited with the
plaintiff at Madras other title deeds and papers relating to
his half share in items specified in Schedule ’B’ attached
to the plaint with intent to create a security over the same
in respect of advances made by the plaintiff. Before the
10th May, 1947, the 1st defendant borrowed from the
plaintiff from time to time Rs. 16,500/- on 7 promissory
notes. ’Me case of the plaintiff further was that the 1st
defendant executed a memorandum of agreement, dated 5th
July, 1947, in which the equitable mortgage thus created and
the amount borrowed by him till then were acknowledged and
he had undertaken to repay the said sum of Rs. 16,500/- with
interest. This memorandum of agreement had been duly
registered. This suit was for recovery of the principal
amount of Rs. 16,500/- and interest thereon. The 1st
defendant did not file any written statement denying the
said allegations. The 3rd defendant (a subsequent
mortgagee), the only contesting defendant, filed a written
statement wherein he put the plaintiff to strict proof of
the fact that the sums claimed in the plaint were due to him
from the 1st defendant and of the fact that the 1st
defendant effected a mortgage in his favour by deposit of
title deeds. The Trial Court held that the 1st defendant
had no intention to create a mortgage by deposit of title
deeds on May 10, 1947. On appeal the HIgh Court also
affirmed the finding of the trial Court. The question for
consideration was whether on 10th May, 1947, there was a
loan and whether the 1st defendant delivered to the
appellant the documents of title of B Schedule properties
with the intent to create a security thereon.
Held:(i) Under the Transfer of the Property Act, a
mortgage by deposit of title deeds is one of the forms of
mortgages whereunder there is a transfer of interest in
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specific immovable property for the purpose of securing
payment of money advanced or to be advanced by way of loan.
Therefore, such a mortgage of property takes effect against
a mortgage deed subsequently executed and registered in
respect of the same property under Section 58(f) of the
Transfer of Property Act. The three requisites of a
mortgage by deposit of title deeds are, (i) debt, (ii)
deposit of title deeds, and (iii) an intention than the
deeds shall be security for the debt. Whether there is an
intention that the deeds shall be security for the debt is a
question of fact in each case. The
728
said fact will have to be decided on the basis of the
evidence. There is no presumption of law that the mere
deposit of title deeds constitutes a mortgage, for no such
presumption has been laid down either in the Evidence Act or
in the Transfer of Property Act. But a court may presume
under section 114 of the Evidence Act that under certain
circumstances a loan and a deposit of title deeds constitute
a mortgage. But that is really an inference as to the
existence of one fact from the existence of some other fact
or facts. Nor the fact that at the time the title deeds
were deposited there was an intention to execute a mortgage
deed in itself negatives, or is inconsistent with, the
intention to create a mortgage by deposit of title deeds to
be in force till the mortgage deed was executed. On the
facts of this case the intention to create a mortgage by
deposit of title deeds can be inferred from the document
dated 5th July, 1947 which was subsequently registered and
in which the deposit of title deeds on May 10, 1947 was duly
acknowledged.
Norris v. Wilkinson, (1806) 33 ER. 73, Keys V. Williams,
(1838)51 Revised Reports, 339, Whitbread, Ex Parte, (1912)
34 E.R. 496, In re. Beetham, Ex Parte Broderick, (1886)
18 Q.B.D. 380, Dayal Jairaj v. Jivraj Ratansi, (1875)
I.L.R. 1 Bom. 237, Jaitha Bhima v. Haji Abdul Vyad Cosman,
(1886) I.L.R. 10 Bom. 634, Behram Bashid Irani v. Sorabji
Rustomji Elavia, (1914) I.L.R. 38 Bom. 372 and V.E.R.M.A.R.
Chettyar v. Ma Joo Teen, (1933) I.L.R. 11. Rang. 239,
discussed.
(ii)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 case whether in substance there is a delivery of the
title deeds by the debtor to the creditor. If the creditor
was already in possession of the title deeds, it would be
hypertechnical to insist upon the formality of the creditor
delivering the title deeds to the debtor, and the debtor re-
delivering them to the creditor. What would be necessary in
these 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. In
the present case the plaintiff-the mortgagee-had the
physical possession of the title deeds at Madras on May 10,
1947. On the facts of this case, though the form of
physical delivery of title-deeds had not been gone through,
on May 10, 1947, there was constructive delivery of the
title deeds coupled with the intention to create a mortgage
by deposit of title deeds. Such delivery satisfied the
condition laid down by s. 58(f) of the Transfer of Property
Act.
(Iii)There is nothing unusual in this conduct of the
parties either. If there was a mortgage by deposit of title
deeds at an earlier stage, even though there was at that
time an agreement to execute a formal document later on,
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there would be nothing out of the way in the parties, for
their own reasons, giving up the idea of executing a formal
document and being satisfied with the memorandum
acknowledging the earlier form of security.
729
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 407 of 1962.
Appeal from the judgment and decree dated January 31, 1957
of the Madras High Court in Appeal No. 969/1952.
R.Mamamurthi Aiyar, T. S. Rangaraian and R. Gopala-
krishnan, for the appellant.
V.S. Venkataraman, M. R. Krishna Pillai and M. S. K.
lyengar, for the respondent No. 3.
February 11, 1964. The Judgment of the Court was delivered
by
SUBBA RAO, J.-This appeal on a certificate issued by the
High Court of Judicature at Madras is preferred against the
judgment and decree of the said High Court modifying those
of the Subordinate Judge, Tanjore, in a suit filed by the
appellant to enforce a mortgage by deposit of title deeds.
The facts are as follows. The first defendant borrowed from
the plaintiff from time to time on seven promissory notes.
The plaintiff, alleging that the first defendant had created
a mortgage by deposit of title deeds in his favour in
respect of his half share in the properties specified in B-
Schedule, instituted O.S. No. 45 of 1951 in the Court of the
Subordinate Judge, Tanjore, for enforcing the said mortgage
against the said properties. The suit was for recovery of a
sum of Rs. 20,435-15-0, made up of principal amount of Rs.
16,500/- and interest thereon. To that suit six persons
were made defendants: defendant I was the mortgagor;
defendant 2 was the subsequent purchaser of several of the
items of the suit properties subject to plaintiff’s
mortgage; defendant 3 was the subsequent morgagee; defendant
4 was the subsequent purchaser of one of the plaint-schedule
properties; and defendant 5 and 6 were sister and brother of
the 1st defendant. The plaintiff also alleged that in a
partition ,effected between the 1st defendant and his
brother properties described in the C Schedule annexed to
the plaint were ,allotted to the 1st defendant. He,
therefore, asked in the alternative that the C Schedule
properties should be sold for the realization of the amount
due to him from the 1st defendant.
730
As the only contesting party before us is the 3rd defendant
(3rd respondent herein), it is not necessary to notice the
defences raised by defendants other than the 3rd defendant.
The 3rd defendant alleged that the 1st defendant had
executed a security bond in his favour for a sum of Rs.
15,0001- on October 10, 1947 and that, being a bona fide
purchaser for value, he had priority over the plaintiff’s
security, even if it were true. He put the plaintiff to
strict proof of the fact that the sum claimed in the plaint
under several promissory notes was owing to him and also of
the fact that the 1st defendant effected a mortgage of the
suit properties by deposit of title deeds in favour of the
plaintiff.
The learned Subordinate Judge held that the suit loans were
true, that the mortgage by deposit of title deeds was also
true, but the plaintiff had a valid mortgage only of items 1
and 4 of the C Schedule in respect of a sum of Rs. 9,157-5-0
with interest at 6 per cent. per annum thereon. On that
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finding, he gave a decree in favour of the plaintiff against
defendants 1 to 3 for the said amount with a charge over
items 1 and 4 of the C Schedule properties, and he also gave
a decree in favour of the plaintiff for a sum of Rs.
7,565-2-0 with further interest at 6 per cent. per annum
from July 5, 1947, against the 1st defendant personally.
The plaintiff preferred an appeal against the decree of the
Subordinate Judge, insofar as it went against him, and the
3rd defendant filed cross-objection in respect of that part
of the decree which went against him. A Division Bench of
the Madras High Court, which heard the appeal and the cross-
objections, held that the 1st defendant did not effect a
mortgage by deposit of title deeds on May 10, 1947, in
favour of the plaintiff for the entire suit claim, but that
he effected such a mortgage in favour of the plaintiff on
January 25, 1947, for a sum of Rs. 3,000 / in respect of
two of the plaint-schedule items described in Ex. A-8. On
that finding, the High Court modified the judgment and
decree of the Subordinate Judge by restricting the mortgage
decree given to the plaintiff to the amounts covered by the
first three promissory notes and interest thereon and to one
half of the properties described in Ex. A-8 and by giving a
money decree against the 1st defendant for the entire
balance of the
731
decree amount. The plaintiff has preferred the present
appeal against the decree of the High Court.
Learned counsel for the appellant contends, (1) that the
finding of both the lower courts that no mortgage by deposit
of title deeds was effected for the entire plaint claim was
vitiated by the fact that they had ignored Ex. A-19, a
registered agreement entered into between the plaintiff and
the 1st defendant on July 5, 1947, wherein the said fact was
clearly and unambiguously recorded; and (2) that, even if
such a mortgage was not effected on May 10, 1947, Ex. A-19
proprio vigore effected such a mortgage to come into effect
at any rate from the date of the execution of the agreement.
Learned counsel for the contesting 3rd respondent argues
that the definite case of the plaintiff was that such a
mortgage was effected only on May 10, 1947, and that both
the Courts below on a consideration of the oral and documen-
tary evidence concurrently found that no such transaction
was effected on that date and that, therefore, this Court
should not interfere with such a finding of fact. He
further contends that in Ex. A-19 the parties only recorded
that a mortgage by deposit of title deeds was effected on
May 10, 1947 and that, if that fact was not true, Ex. A-19
could not be of any help to the plaintiff. If there was no
mortgage on May 10, 1947, the argument proceeds, Ex. A-19
by its own force could not create a mortgage by deposit of
title deeds on July 5, 1947, as in terms it only referred to
a mortgage alleged to have been effected on May 10, 1947.
That apart, it is argued that as a mortgage by deposit of
title deeds could only be effected at Madras and that, as
one of the important ingredients of such a mortgage is that
the delivery of the said title deeds to the creditor should
have been given at Madras, no such mortgage could have been
effected in law in the present case, as the delivery of the
title deeds was given by the bank to the representative of
the plaintiff at Kumbakonam.
Before we advert to the arguments advanced in the case it
would be convenient at this stage to notice the relevant
aspects of the law pertaining to mortgage by deposit of
title deeds.
732
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Section 58(f) of the Transfer of Property Act defines a
mortgage by deposit of title deeds thus:
"Where a person in any of the following towns,
namely, the towns of Calcutta, Madras and
Bombay.............. delivers to a creditor or
his agent documents of title to immovable
property, with intent to create a security
thereon, the transaction is called a mortgage
by deposit of title deeds."
Under this definition the essential requisites of a mortgage
by deposit of title deeds are, (i) debt, (ii) deposit of
title deeds, and (iii) an intention that the deeds shall be
security for the debt. Though such a mortgage is often
described as an equitable mortgage, there is an essential
distinction between an equitable mortgage as understood in
English law and the mortgage by deposit of title deeds
recognised under the Transfer of Property Act in India. In
En-land an equitable mortgage can be created either, (1) by
actual deposit of title-deeds, in which case parole evidence
is admissible to show the meaning of the deposit and the
extent of the security created, or (2) if there be no
deposit of title-deeds, then by a memorandum in writing,
purporting, to create a security for money advanced: see
White and Tudor’s Leading Cases in Equity, 9th edition, Vol.
2, at p. 77. In either case it does not operate as an
actual conveyance though it is enforceable in equity;
whereas under the Transfer of Property Act a mortgage by
deposit of title deeds is one of the modes of creating a
legal mortgage whereunder there will be transfer of interest
in the property mortgaged to the mortgagee. This
distinction will have to be borne in mind in appreciating
the scope of the English decisions cited at the Bar. This
distinction is also the basis for the view that for the
purpose of priority it stood on the same footing as a
mortgage by deed. Indeed a proviso has been added to s. 48
of the Registration Act by Amending Act 21 of 1929. It
says:
"Provided that a mortgage by deposit of title
deeds as defined in section 58 of the Transfer
of Property Act, 1882, shall take effect
against any mortgage-deed subsequently
executed and registered which relates to the
same property."
733
Therefore, under the law of India a mortgage by deposit of
title-deeds, though it is limited to specific cities, is on
a par with any other legal mortgage. The text-books and the
cases cited at the Bar give some valuable guides for
ascertaining the intention of parties and also the nature of
delivery of the documents of title requisite for
constituting such a mortgage Fisher in his book on The Law
of Mortgage., 2nd edition, p. 32, suggests how the intention
to create such a security could be established. He says:
"The intent to create such a security may be
established by written documents, alone or
coupled with parol evidence; by parol evidence
only that the deposit was made by way of
security; or by the mere inference of an
agreement drawn from t he very fact of the
deposit."
In Norris v. Wilkinson(1) the Master of the Rolls in the
context of that case where documents ’were delivered to the
Attorney of the creditor for the purpose of enabling the
attorney to draw a mortgage which it was alleged that the
debtor had agreed to give, made the following observations:
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"It is clear, that these deeds, if voluntarily
delivered at all, were not delivered by way of
deposit, in the sense in which that word has
been used in the cases : i.e., as a present
and immediate security; but were delivered
only for the purpose of enabling the attorney
to draw the mortgage, which it is alleged,
Wilkinson the father had agreed to give."
The learned Master of the Rolls distinguished
the cases cited before him thus:
"Now in all the cases, that have been referred
to. the deeds were delivered by way of
deposit. Such deposit was indeed held to
imply an obligation to execute a legal
conveyance, whenever it should be required.
But the primary intention was to execute an
immediate pledge; with an implied engagement
to do all, that might be necessary to render
the pledge effectual for its purpose."---
(1) (1806) 33 E.R. 73, 76.
734
These passages indicate that an intention to create a
mortgage deed in the future is not inconsistent with the
intention to create in presenting a mortgage by deposit of
title-deeds. Both may co-exist. In Keys v. Williams(1) it
was held that an agreement to grant a mortgage for money
already advanced and a deposit of deeds for the purpose of
preparing a mortgage, was, in itself, an equitable mortgage
by deposit. Though the facts of the case do not appear in
the report, this decision indicates that the fact that
deposit of title-deeds was given for the purpose of
preparing a mortgage does not in itself without more,
exclude the inference to create an equitable mortgage if
the. requisite conditions for creating thereof are
satisfied. The decision in Whitbread, Ex Parte(2) throws
some light on the legal requirements of delivery of title-
deeds. There, the petitioner claimed a lien, as an
equitable mortgagee, by deposit in 1808 of the lease of a
public-house as a collateral security for pound 1,000, lent
to the lessee on his promissory note, and a subsequent
advance of pound 100 made in January 1810. One of the
points mooted was whether the subsequent advance of pound
100 was also charged on the property covered by the
document. The learned Chancellor in that context made the
following observations :
"If the original bargain did not look to
future advances, no subsequent advance can be
a charge, unless the subsequent transaction is
equivalent to the original transaction. If it
is equivalent to a re-delivery of the deed,
receiving it back as a security for both sums,
that will do; as it cannot depend upon that
mere form : but I shall require them to swear
expressly, that when the sum of pound 100 was
advanced, it was upon the security of the
deposit."
The said observations emphasize the substance of the trans-
action rather than the form. It implies that a debtor, who
has already affected a mortgage by deposit of title-deeds in
respect of an earlier advance, need not go through the
forma-
(1) (1838) 51 Revised Reports, 339.
(2) (1812) 34 E.R. 496.
735
lity of receiving back the said documents from the creditor
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and formally re-delivering them to the creditor as security
for further advances taken by him. It would comply with the
requirements of law if there was clear evidence that the
documents already deposited with the creditor would also be
charged by way of deposit of title-deeds in respect of the
further advances. The doctrine accepted by this decision
may, for convenience of reference, be described as the
doctrine of constructive delivery. Learned counsel for the
respondent attempted to confine the scope of this decision
to a case of further advances on the basis of documents
already deposited with the creditor in respect of earlier
advances. It is true that the principle was enunciated in
the context of the said facts, but it is of wider
application. In our view, the same principle will have to
be invoked wherever documents of title have already been in
the possession of creditor at the time when the debtor seeks
to create a mortgage by deposit of title-deeds. In re
Beetham, Ex Parte Broderick(1) the facts were-A, being
indebted to a banking company in respect of an overdrawn
account, wrote to the directors promising to give them, when
required, security over his reversionary interest in one-
fifth share of a farm, to come into possession on the death
of the life tenant; but no formal security was ever executed
in accordance with this promise. After the death of the
life tenant the deeds of the farm came into the possession
of A’s brother, the manager of the bank-, for the purpose of
paying the succession duty. As regards A’s share therein
the brother claimed to hold them for the banking company
with the consent of A as security for the overdrawn account.
There was no memorandum of the deposit in the bank books,
nor was the usual printed form of deposit of title-deeds by
way of security made use of with reference to the
transaction. A subsequently became bankrupt. The Queen’s
Bench held that the banking company had no valid equitable
mortgage on the bankrupt’s share in the farm and that it
could not hold the rents as against his trustee in bank-
ruptcy. On appeal the Court of Appeal confirmed the said
decision of the Queen’s Bench. It is contended that this
decision negatives the doctrine of constructive deposit. for
(1) (1886) 18 Q.B.D. 380.
736
it is said that though the manager of the bank with the con-
sent of A, held the title-deeds as security for the bank,
the Court did not accept that fact for holding there was an
equitable mortgage. In our view, this decision does not lay
down any such proposition. The main reason for the
aforesaid conclusion of the Court of Appeal is found in the
judgment of Lord Esher, M. R. at pp. 768-769 of ’,he said
Report. After considering the facts of the case, the Master
of the Rolls proceeded to state:
"If this be so, there was nothing but the oral
promise of the bankrupt to give the bank
security, and that is not enough to satisfy
the Statute of Frauds. In order to take the
case out of the statute it must be shown that
there has been performance or part performance
of the rat promise...........
But nothing more was done with the deeds; they
were left in precisely the same position.
Nothing was done, except that the one brother
said something, and the other said something
in reply. Was this such a part performance of
the original oral promise as will take the
case out of the statute?"
His Lordship concluded:
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"I take that proposition to amount to this
that where there is a mere oral promise to do
something, and nothing takes place afterwards
but the speaking of more words by the parties-
when nothing more is done in fact-there is no
part performance which can exclude the
application of the Statute of Frauds. "
The entire judgment was based upon the doctrine of part
performance and the Court of Appeal held that the facts
established did not constitute part performance of the oral
agreement. The doctrine of constructive deposit was neither
raised nor touched upon in that case.
Now let us consider some of the Indian decisions cited at
the Bar. In Dayal Jairaj v. Jivraj Ratansi(1), the
plaintiff
(1) (1857) I.L.R. 1 Bom. 237.
737
had advanced to the 1st defendant Rs. 38,000/-, and had
agreed to advance Rs. 27,000/- more, the whole of Rs.
65,000/- to be secured by a mortgage of the 1st defendant’s
immovable property. The 1st defendant had deposited with
the plaintiff the title-deeds of his immovable property, for
the purpose of enabling him to get a mortgage deed prepared,
and had agreed to execute such mortgage deed on payment to
him by the plaintiff the balance of the amount of Rs.
65,000/-. The title--deeds were afterwards returned by the
plaintiff to the 1st defendant for the purpose of enenabling
him to clear up certain doubts as to his title to some of
the premises comprised in the deeds, but the said deeds were
neither subsequently returned by the 1st defendant, nor were
others deposited in lieu thereof. The balance of the Rs.
65.000/- was not paid by the plaintiff to the 1st defedant
The Court held that there was an equitable mortagag of the
said property to secure the sum of Rs. 38,000,/- The fact
that the title-deeds were deposited for the purpose of
executing a mortgage deed, which did not fructify. did not
in any way preclude the Court from holding on the facts of
the case that a mortgage by deposit of title-deeds was
created in respect of the amount that had already been paid
to the debtor. The court relied upon the principle
enunciated by earlier English decisions based upon the fact
wither amounts were lent before or after the deposit of In
Jaitha Bhima v. Haji Abdul Vyad Cosman(1) the facts were
these: The plaintiff consented to lend Rs. 10,000/- to the
defendant. The latter deposited with him on April 2, 1883,
the title-deeds of a certain property. On receiving them
the plaintiff told the defendant that he would take them to
his attorney, have a deed drawn and then advance the money.
The defendant applied to the plaintiff for the money before
the deed was prepared, but the plaintiff refused, saying, he
would not advance the money until he was satisfied by his
attorney, and the deed had been prepared. At the time the
deeds were handed over to the plaintiff, there was no
existing debt date by the defendant to the plaintiff. On
April 6, 1885, the mortgage-deed was executed, and on the
same day the money was advanced by the plaintiff to the
defendant. The mortgage-deed was not registered. The
plaintiff filed a suit for a declaration
(1) (1886) I.L.R. 10 Bom. 634.
134-469 B.C.-47.
738
that he was entitled to an equitable mortgage upon the said
property and for the sale thereof. The court held that on
the facts no equitable mortgage was created. From the
aforesaid narration of facts it would be obvious that the
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plaintiff lent the money immediately before the execution of
the document indicating thereby that it was paid under that
document. Farran, J., who delivered the judgment, relied
upon the following passage from Seton on Decrees, p. 1131:
"If deeds be delivered to enable a legal
mortgage for securing an existing debt to be
prepared, there is an equitable mortgage until
the legal mortgage is completed; secus is to
secure a fresh loan yet to be made."
Then the learned Judge cited the following
passage from the judgment in Keys v.
Williams(1):
"Certainly, if, before the money was advanced,
the deeds had been deposited with a view to
prepare a future mortgage, such a transaction
could not be considered as an equitable
mortgage by deposit; but it is otherwise where
there is a present advance, and the deeds are
deposited under a promise to forbear suing,
although they may be deposited only for the
purpose of preparing a mortgage deed. In such
case the deeds are given in as part of the
security, and become pledged from the very
nature of the transaction."
These two passages also indicate that the fact that title-
deeds were deposited for the purpose of preparing a future
mortgage is in itself not decisive of the question whether
such a mortgage was effected or not. A Division Bench of
The Bombay High Court in Behram Bashid Irani v. Sorabji
Rusfomji Elavia(2) held that in that case there was no
evidence, whatever of intention to connect the deposit of
title-deeds with the debt. The plaintiff therein deposited
with the defendant in Bombay title-deeds of his property
situate at Nasik and borrowed a sum from the defendant. He
also executed a document but that was held to be
inadmissible for want of registration. There was no other
(1) (1838) 51 R.V. Rep. 339.
(2) (1914) I.L.R. 38 Bom. 372, 374.
739
evidence to show under what circumstances the documents were
deposited. Beaman, J., made the following observations:
"The doctrine thus created, amounted at that
time to very much what the law now is, as I
have just expressed it, although the learned
Chancellor, I think, lent strongly to the
supposed legal presumption arising from the
fact of indebtedness and the contemporaneous
or subsequent deposit of title-deeds. Then
for the better part of a century, the Courts
in England virtually adopted this presumption
as a presumption of law and the need of
proving intention almost disappeared.
Latterly, however, the legal doctrine in
England veered in the opposite direction and
the Courts began to insist more and more
strongly upon the proof of intention as a
question of fact, and that has been embodied
in our own statute law and that is the law we
have to administer."
This decision only negatives the presumption of law, but
does not exclude the presumption of fact of a mortgage
arising under certain circumstances from the very deposit of
titledeeds. An elaborate discussion of the subject is found
in V.E.R.M.A.R. Chettyar Firm v. Ma Joo Teen(1). The main
question decided in that case was, what did the terms
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"documents of title" and "title-deeds" denote? The Court
held that they denoted such a document or documents as show
a prima facie or apparent title in the depositor to the
property or to some interest therein. But what is relevant
for the present purpose is that the learned Chief Justice,
who spoke for the Court, after considering the leading
judgments on the subject, observed:
"If the form of the documents of title that
have been delivered to the creditor is such
that from the deposit of such documents alone
the Court would be entitled to conclude that
the documents were deposited with the
intention of creating a security for the
repayment of the debt, prima
(1) (1933) I.L.R. 11 Rang. 239, 253.
740
facie a mortgage by deposit of title-deeds
would be proved; although, of course, such an
inference would not be irrebuttable, and would
not be drawn if the weight of the evidence as
a whole told against it."
The learned Chief Justice accepted the principle that if
title-deeds, as defined by him, were deposited and the money
was lent, prima facie an inference of a mortgage could be
drawn, though such an inference could be displaced by other
evidence. It is not necessary to pursue the matter further.
The foregoing discussion may be summarized thus: tinder the
Transfer of Property Act a mortagage by deposit of title-
deeds is one of the forms of mortgages whereunder there is a
transfer of interest in specific immovable property for the
purpose of securing payment of money advanced or to be
advanced by way of loan. Therefore, such a mortgaae of
property takes effect against a mortgage deed subsequently
executed and registered in respect of the same property.
The three requisites for such a mortality are, (1) debt,
(ii) deposit of title-deeds; and (iii) an intention that the
deeds shall be security for the debt. Whether there is an
intention that the deeds shall be security for the debt is a
question of fact in each case. The said fact will have to
be decided just like any other fact on presumptions and on
oral, documentary or circumstantial evidence. There is no
presumption of law that the mere deposit of title-deeds
constitutes a mortgage, for no such presumption has been
laid down either in the Evidence Act or in the Transfer of
property Act. But a court may presume under s. 114 of the
Evidence Act that under certain circumstances a loan and a
deposit of titledeeds constitute a mortgage. But that is
really an inference as to the existence of one fact from the
existence of some other fact or facts. Nor the fact that at
the time the titledeeds were deposited there was, an
intention to execute a mortgage deed in itself negatives, or
is inconsistent with. the intention to create a mortgage by
deposit of title-deeds to be in force till the mortgage deed
was executed. The decision of English courts making a
distinction between the debt preceding the deposit and that
following it can at best to only a guide; but the said
distinction itself cannot be con-
741
sidered to be a rule of law for application under all
circumstances. 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 case 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
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be hypertension to insist upon the formality ofthe
creditor delivering the title-deeds to the debtor and thedebtor
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.
With this background we shall now proceed to consider the
questions that arise for consideration on the facts of the
present case.
The first question is whether there was a mortgage by
deposit of title-deeds of the B-Schedule properties on May
10, 1947. To put it in other words, whether on that date
there was a loan and whether the first defendant delivered
to the appellant the documents of title of B-Schedule
properties with the intent to create a security thereon.
Learned Subordinate Judge and, on appeal, the High Court.
held on the evidence that there was no such deposit of
title-deeds with the requisite intention on May 10, 1947.
Learned counsel for the respondent pressed on us to follow
the usual practice of this Court of not interfering with
concurrent findings of fact. But the question whether on
facts found a transaction is a mortgage by deposit of title-
deeds is a mixed question of fact and law. That apart, both
the courts in coming to the conclusion which they did missed
the importance of the impact of the terms of Ex. A-19 on
the question raised. We, therefore, propose to consider the
evidence on the said question afresh, along with Ex. A-19.
In para 5 of the plaint, after giving the particulars of the
promissory notes executed by the first defendant in favour
of the plaintiff, it is stated:
"On 10th May 1947, the first defendant
deposited with the plaintiff at Madras other
title deeds and
742
papers relating to his half-share in items
specified in ’B’ schedule hereunder with
intent to create a security over the same in
respect of advances made and to be made by the
plaintiff. The first defendant has further
executed a memorandum of agreement, dated 5th
July 1947, in which the equitable martgage
thus created and the amount borrowed by him
till then were acknowledged and he has
undertaken to repay the said sum of Rs. 16,500
with interest at 6 per cent. per annum and to
obtain a return of the title deeds
and documents deposited by him with the
plaintiff. This memorandum of agreement has
been duly registered and the same is herewith
produced. The plaintiff prays that its
contents may be read as part and parcel of
this plaint."
There is, therefore, a clear averment in the plaint that an
equitable mortgage was created on May 10, 1947, and that was
acknowledged by the agreement dated July 5, 1947. The 1st
defendant did not file any written-statement denying the
said allegations. The 3rd defendant, the only contesting
defendant, filed a written-statement wherein he put the
plaintiff to strict proof of the fact that the sums claimed
in the plaint were due to him from the 1st defendant and of
the fact that the first defendant effected a mortgage in his
favour by deposit of title-deeds. Before we consider the
oral evidence, we shall briefly notice the documentary
evidence in the case.
Exhibit A-1 dated January 25, 1947, Ex. A-9 dated February
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13, 1947, Ex. A-12 dated March 2, 1947, Ex. A-14 dated
April 7, 1947, Ex. A-15 dated April 13, 1947, Ex. A17
dated May 10, 1947, and Ex. A- 1 8 dated July 4, 1947 are
the promissory notes executed by the 1st defendant in favour
of the plaintiff. The total of the amounts covered by the
said promissory notes is Rs. 16,500/-. It is not disputed
that the promissory notes were genuine and that the said
amounts were lent by the plaintiff to the 1st defendant on
the dates the promissory notes bear. On January 26, 1947,
i.e., a day after the first promissory note was executed, a
list of tittle-deeds of the properties belonging to the 1st
defendant in
743
Tanjore was given to the plaintiff as collateral security
and by way of equitable mortgage for the loan of Rs. 1,500
borrowed under Ex. A-1. On April 7, 1947, the 1st defen-
dant executed an unregistered agreement in favour of the
plaintiff whereunder, as the plaintiff agreed to lend to the
1st defendant a sum of Rs. 15,000/- to discharge his earlier
indebtedness and also his indebtedness to the Kumbakonam
Bank and to enable him to do business, the 1st defendant
agreed to execute a first mortgage of the Tanjore properties
as well as of the properties mortgaged to ’the Kumbakonam
Bank. He also undertook to bring all the title-deeds from
the Kumbakonam Bank and hand them over to the plaintiff for
preparing the mortgage deed. This agreement shows that the
1st defendant was willing to execute a mortgage deed of his
properties to the plaintiff and with that object undertook
to bring the title-deeds and hand them over to the plaintiff
for preparing the mortgage deed. Pursuant to this
agreement, the plaintiff on the same day advanced to the 1st
defendant a sum of Rs. 3,000/- under a promissory note of
the same date. On April 13, 1947, the plaintiff lent an-
other sum of Rs. 3,000/- under a promissory note to the 1st
defendant. The 1st defendant did not bring the title-deeds,
but by a letter dated April 27, 1947, (Ex. B-2), he
authorised the Managing Director of the Kumbakonam Bank to
hand over the title-deeds and the mortgage deed duly
discharged to the plaintiff or his representative on his
paying the amount due by him to the Bank. On May 5, 1947,
the plaintiff wrote a letter, Ex. B-1, to the Kumbakonam
Bank informing it that one S. Narayana Ayyar of Madras would
discharge the mortgage amount due to the Bank from the 1st
defendant and authorizing the Bank to deliver to the said
Narayana Ayyar the cancelled mortgage deed and the relative
title-deeds. The said Narayana Ayyar took the letter. Ex.
B-1, to the Bank, paid the amount due to it from the 1st
defendant and took the title-deeds on behalf of the 1st
defendant and sent them on to the plaintiff at Madras by
registered post. On May 10, 1947, the 1st defendant
executed another promissory note, Ex. A-17, for a sum of
Rs. 7,100/- in favour of the plaintiff in regard to the
amount paid by Narayana Ayyar to the Bank. On July 4, 1947,
the 1st defendant executed another promissory note, Ex. A-
18, in favour of the plaintiff for a sum of Rs. 400. The
total
744
of the amounts advanced up to that date by the plaintiff to
the 1st defendant was Rs. 16,500/-. Ex. A-19 dated July 5,
1947, is a registered memorandum of agreement executed
between the plaintiff and the 1st defendant. Though it was
executed on July 5, 1947, it was presented for registration
on October 31, 1947 and was eventually registered on June
22, 1948. It is not disputed that the said agreement was
executed on July 5, 1947. Under s. 47 of the Registration
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Act the said document would have legal effect from date of
execution i.e., July 5, 1947. Under that document the 1st
defendant, after acknowledging that between January 25,
1947, and July 4, 1947, he had received from the plaintiff a
sum of Rs. 16,500/- under various promissory notes executed
in favour of the plaintiff, proceeded to state:
"The borrower hereby acknowledges having
deposited with the lender at Madras on 25th
January 1947 the title deeds relating to the
borrower’s undivided half share in items 17 to
2C mentioned in the B schedule hereunder and
also having deposited with the lender on 10th
May 1947 the title-deeds and other papers
relating to the borrower’s undivided half
share in items 1 to 16 mentioned in B schedule
hereunder with interest to create a security
over the deposit of title deeds."
This acknowledgment is couched in clear and unambiguous
terms. The 1st defendant acknowledges in express terms that
a mortgage by deposit of title-deeds was effected on May 10,
1947. If there was no oral evidence adduced in this the
said documentary evidence prima facie would establish that
the 1st defendant borrowed a sum of Rs. 16.500/- from time
to time from the plaintiff and effected a mortgage by
deposit of title-deeds on May 10, 1947, as security for the
repayment of the said amount. Exhibit A-19 contains a clear
admission by the 1st defendant that he effected a mortgage
by deposit of title-deeds in favour of the plaintiff. As
the mortgage deed in favour of the 3rd defendant was
executed subsequent to Ex. A-19, he is bound by that
-admission, unless there is sufficient evidence on the
record to explain away the said admission. The 1st
defendant. who could explain the circumstances under which
Ex. A-19 was executed was
745
not examined as a witness in this case. But it is said that
the evidence of P.Ws 1, 2 and 3 displaces the evidentiary
value of the recitals of the said document. P.W. 1 is the
plaintiff. He says in his examination-in-chief:
"On 10th May 1947 defendant I and Narayana
Ayyar met my lawyer at Madras and I was sent
for. Exhibit A-17 is the pro-note executed
for Rs. 7,100/- for the payment made to the
bank. Defendant I then personally handed over
the documents to me by way of deposit of
titledeeds as security for the advance made
and to be made. Defendant I did not execute
any mortgage. In July 1947, defendant I asked
for Rs. 400/- to buy stamps for the mortgage.
1 paid Rs. 400/- under Exhibit A-18. On 5th
July 1947 the memorandum, Exhibit A-19, was
executed in my lawyer’s house. My lawyer
attested the document as well as Narayana
Ayyar. They saw defendant I sign the docu-
ment."
If this evidence is accepted, the plaintiff’s
case will be established to the. hilt. But in
the cross-examination he deposed:
"On 5th July 1947, the agreement about
executing a simple mortgage was changed into
one of equitable mortgage. Defendant I
suggested it and I was advised to accept and I
accepted."
Reliance is placed upon this statement to show that the idea
of effecting an equitable mortgage dawned on the parties
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only on July 5, 1947, and. therefore. the case that sect a
mortgage was effected on May 10, 1947’, must be untrue. We
do not see any inconsistency between the statement made by
the plaintiff in the examination-in-chief and that made in
the cross-examination. What he stated in the cross-exami-
nation is that though it was agreed earlier that a formal
mortgage deed should be executed, on July 5, 1947, the
parties, for one reason or other. were content to have a
deed of equitable mortgage. It is too much to expect this
witness to bear in mind the subtle distinction between the
execution of an equitable mortgage on July 5. 1947, and the
acknowledgment of an emitable mortgage that had already been
effected. In this statement he emphasized more on the
746
document than on the contents of the document. So under-
stood, this evidence does not run counter to the express
recitals found in Ex. A-19. There is also nothing unusual
that on the advice of the advocate the formalities of actual
delivery were complied with in the presence of the advocate.
But one need not scrutinize the version of this witness
meticulously in that regard, if in law a constructive
delivery would be as good as a physical delivery. We,
therefore, do not see in the evidence of P.W. 1 anything to
discountenance the admission made by the 1st defendant in
Ex. A-19.
P.W. 2. the advocate, also says in his evidence that he gave
the title-deeds to the 1st defendant and asked him to hand
them over to P.W. 1 and to state that these and documents
already deposited would be security for the loans advanced
till that date. There would be nothing unequal if an
advocate, who knew the technicalities of a mortgage by de-
posit of title-deeds, advised his client to conform to the
formalities. Even if the parties accepted constructive
delivery, the evidence given by this witness is more an
embellishment than a conscious effort to depart from the
truth. As to what happened on July 4, 1947, this witness
says that on that date the 1st defendant and Narayana Ayyar
came to him and suggested that the memorandum may be
registered instead of executing a simple mortgage as that
would be cheaper. There is nothing usual in this conduct of
the parties either. If there was a mortgage by deposit of
title-deeds at an earlier stage, even though there was at
that time an agreement to execute a formal document later
on, there would be nothing out of the way in the parties for
their own reasons giving up the idea of executing a formal
document and being satisfied with a memorandum acknowledging
the earlier form of security. In the cross-examination this
witness stated that till July 4, 1947, the idea was only to
make a simple mortgage over the half-share covered by all
the title-deeds given to P.W. 1. This statement only means
that till that date the parties had no idea of executing a
document acknowledging the earlier mortgage by deposit of
title-deeds, for they wanted a formal document. This answer
is in no way inconsistent with the statement of the advocate
at the earlier stage that there was a mortgage by deposit of
title-deeds on May 10. 1947. So too, Narayana Ayyar. as
P.W. 3, supports the evi-
747
dence of P.Ws. 1 and 2. He too in his cross-examination says
that it was only on July 4, 1947, the idea of executing an
equitable mortgage was suggested by the 1st defendant and
that on May 10, 1947, he did not suggest to the 1st
defendant to execute any document. Here again, his
statement in the cross-examination would not be inconsistent
with that made by him in the examination-in-chief, if the
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former statement was understood to relate to Ex. A-19.
This witness only meant to say that the idea of executing
Ex. A-19 dawned on the parties only on July 4, 1947. The
evidence of these three witnesses is consistent with the
admission made by the first defendant in Ex. A-19. The
evidentiary value of the recitals in Ex. A-19 is in no way
displaced by the evidence of the said witnesses: indeed, it
supports the recitals therein in toto. In the
circumstances, we hold that on May 10, 1947, the 1st
defendant deposited the title-deeds with the plaintiff
physically as security for the amounts advanced by the
plaintiff to the 1st defendant up to that date. Even if the
evidence of the witnesses as regards the handing over of the
documents physically by the 1st defendant to the plaintiff
was an embellishment of what took place on that date and
that there was only constructive delivery, we think that
such delivery satisfied the condition laid down by s. 58(f)
of the Transfer of Property Act.
Even so, it is contended by learned counsel for the res-
pondent that the delivery of the title-deeds was to the
appellant’s representative, Narayana Ayyar, at Kumbakonam
and, therefore, the mortgage by deposit of title-deeds, even
if true, must be deemed to have been effected at Kumbakonam
and that under the law such a mortgage could not be effected
at Kumbakonam as it was not one of the places mentioned in
s. 58(f) of the Transfer of Property Act. But Narayana
Ayyar, as P.W. 3, stated in his evidence that he had
authority to take the title-deeds on behalf of the 1st
defendant and that, after having taken delivery of them on
his behalf, he sent them to the plaintiff at Madras by
registered post. But whether Narayana Ayyar received the
title-deeds from the Bank as agent of the 1st defendant or
as that of the plaintiff. it would not affect the question
to be decided in the present case. We shall assume that
Narayana Ayyar was the agent of the plaintiff. But mere
delivery of title-deeds without the.
748
intention to create a mortgage by deposit of title-deeds
would not constitute such a mortgage. On May 5, 1947, when
the title-deeds were received by the plaintiff through his
agent, Narayana Ayyar, at Kumbakonam, they were received
only for the purpose of preparing the mortgage deed. The
plaintiff had the physical possession of the title-deeds at
Madras on May 10, 1947. On that date the possession of the
titledeeds by the plaintiff was as agent of the 1st
defendant. He was not holding the said documents in his own
right on the basis of his title or interest therein. The
agent’s possession was the possession of the 1st defendant,
the principal. On May 10, 1947, the creditor and the
debtor, i.e., the plaintiff and the 1st defendant, met in
the house of P.W. 2 and the 1st defendant agreed to deposit
the said title-deeds already in the physical possession of
the plaintiff as his agent in order to hold them thereafter
as security for the moneys advanced. From May 10, 1947, the
plaintiff ceased to hold the titledeeds as agent of the 1st
defendant but held them only as a mortgagee. If the
plaintiff physically handed over the title-deeds to the 1st
defendant and the 1st defendant immediately handed over the
same to the plaintiff with intention to mortgage them, it is
conceded that a valid mortgage was created. To insist upon
such a formality is to ignore the ,substance for the form.
When the principal tells the agent "from today you hold my
title-deeds as security", in substance there is a physical
delivery. For convenience of reference such a delivery can
be described as constructive delivery of title-deeds. The
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law recognizes such a constructive delivery. We, therefore,
hold that, even on the assumption that the form of physical.
delivery had not been gone through though we hold that it
was so effected on May 10, 1947there was constructive
delivery of the title-deeds coupled with the intention to
create a mortgage by deposit of titledeeds.
The last argument of learned counsel for the appellant is
that even if there was no mortgage by deposit of titledeeds
on May 10, 1947, under Ex. A-19 such a mortgage created at
any rate from July 5, 1947. It is true that ,he ,document
in express terms says that the documents of title were
deposited on May 10, 1947, with intention to create a
mortgage by deposit of title-deeds. Assuming it was not so
749
done on that date. can’ such an intention be inferred from
the document as on July 50 1947 ? Admittedly on July 5,
1947’. the title-deeds were in the possession of the
plaintiff. If on that date the 1st defendant had expressed
his intention ’that from that date he would consider the
title-deeds as security for the loans already advanced,, to
him,’all the necessary conditions of a mortgage by deposit
of title-deeds would be present, namely, (i) debt, (ii)
constructive delivery, and (iii)) intention. The fact that%
he had such an intention, from an. earlier date could not
make any difference’ in law, as the intention expressed was
a continuing one. On July 5, 1947, according to the 1st
defendant, the mortgage by deposit of’ title--deeds was in
existence and, therefore, on that date the, said three
necessary ingredients of a mortgage by deposit of title-
deeds were present. We, therefore, hold that even if there
was no mortgage by deposit of title-deeds on May 10, 1947,
it was effected on July 5, 1947.
If the mortgage by deposit of title-deeds-was effected on.
May 10, 1947, or on July 5, 1947, the legal position wouldbe
the same, as the mortgage deed in favour of the 3rd defen-
dant was executed only on October 10, 1947. Though Ex. A-
19 was registered on June 22, 1948, under s. 47 of the.-
Registration Act the agreement would take effect from July
5, 1947.
It is not disputed that in the partition that was effected’
between the 1st defendant and his brother the properties.
specified in ’C’ schedule were allotted to the share of the
1st defendant. If so, the plaintiff would be entitled to
have a mortgage decree in respect of the said properties.
In the-result there will be a preliminary decree in favour
of the plaintiff for the recovery of the sum of Rs. 20,434-
15-0, with interest at 6 per cent. per annum thereon till
the said amount is paid The period of redemption will be
three,, months from today and in default the ’C’ schedule
properties will be sold for the realization of the same.
Liberty isreserved to the plaintiff to apply for personal
decree against the 1st defendant in case there is any
deficiency after the. hypothetic has been sold. The decree
of the Subordinate Judge and of the High Court are set aside
and there will be. a decree in the said terms. The 1st and
3rd defendants will pay the costs of the plaintiff
throughout.
Appeal allowed,
750