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1923 Supreme(SC) 38
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT FINLAY, LORD DUNEDIN, LORD ATKINSON, SIR JOHN EDGE, AND MR. AMEER ALI.
IMPERIAL BANK OF INDIA - Appellant
Versus
U RAI GYAW THU AND COMPANY LIMITED - Respondents
On Appeal from the Chief Court of Lower Burma.
Decided On : July 10. 1923
Solicitors for appellants:Waterhouse & Co. Solicitors for first respondents: Bramall & White.
A mortgagee by deposit of title deeds cannot claim priority for advances made after an intermediate registered mortgage unless the original mortgage expressly stated a maximum sum to be secured, as mandated by Sections 79 and 80 of the Transfer of Property Act, 1882.
Headnote:(A) Transfer of Property Act, 1882 - Sections 48, 59, 78, 79 and 80 - Mortgage by deposit of title deeds - Priority of advances - Where a mortgage is created by deposit of title deeds to secure future advances but does not express a maximum sum to be secured, any subsequent advances made after the creation of an intermediate registered mortgage do not acquire priority over such intermediate mortgage. (Para 99)
(B) Section 80 - Interpretation - The provision that no mortgagee making a subsequent advance shall acquire priority except in the case provided for by Section 79 means that a maximum sum must be expressly stated in the prior mortgage to maintain priority for further advances. The term "subsequent advance" refers to an advance made after an intermediate mortgage has been granted. (Paras 98-99)
(C) Section 78 - Gross Neglect - Postponement of a prior mortgagee under Section 78 requires that the subsequent mortgagee was "induced" to advance money due to the fraud, misrepresentation, or gross neglect of the prior mortgagee. In the absence of such inducement, the prior mortgagee is not postponed. (Para 101)
Facts of the case:
A bank held title deeds of immovable property as collateral for advances. No maximum limit for the advances was specified in the agreement. After the initial deposit, the borrower executed and registered mortgages in favor of third parties. The bank continued to make further advances to the borrower after the registration of these intermediate mortgages. The bank claimed priority over the registered mortgages for all advances made, arguing that the initial deposit of title deeds gave it prior right.
Findings of Court:
The bank is not entitled to priority for advances made after the execution of the registered intermediate mortgages because the initial mortgage by deposit did not specify a maximum amount as required by Section 79 of the Transfer of Property Act, 1882.
Issues: Whether a mortgagee by deposit of title deeds, without having expressed a maximum sum to be secured, is entitled to priority over a subsequent registered mortgage in respect of further advances made after the registration of the intermediate mortgage.
Ratio Decidendi: Under Section 80 of the Transfer of Property Act, 1882, a mortgagee making a subsequent advance does not acquire priority over an intermediate mortgage unless the prior mortgage falls under the exception of Section 79, which requires the expression of a maximum sum to be secured. Without such a maximum, the subsequent advances are subject to the intermediate mortgage regardless of notice. Furthermore, the lack of a maximum sum means the bank took the risk of intermediate mortgages, and such a situation does not constitute "inducement" via gross neglect under Section 78.
Result: Appeals fail.
Legal Category Hierarchy
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property law
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mortgages
- priority of mortgages
- mortgage by deposit of title deeds
- future advances
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mortgages
Judgement
Consolidated Appeals (Nos. 148 and 149 of 1920) from seven judgments and decrees of the Chief Court of Lower Burma (May 6, 1918), modifying, as to No. 148, and affirming, as to No. 149, decrees of the District Judge of Akyab.
Law Rep. 50 Ind. App. 283 ( 1922- 1923) Imperial Bank of India V. U Rai Gyaw Thu and Company Limited 94
The main question arising in the appeals was whether in respect of certain advances made by the Bank of Bengal (now represented by the appellant bank) at Akyab on the security of a previous deposit by the borrowers of the documents of title of immovable property the bank was entitled to priority over registered mortgages executed in favour of the respective respondents before the advances in question were made but after the deposit with the bank.
The material facts appear from the judgment of the Judicial Committee.
The deposit in appeal No. 148 was of the documents of title of parcels of land in Pauktaw township being in all of about 304 acres. The borrower signed a letter, in the terms set out in the judgment, making the documents collateral security for advances made or to be made to him; the letter was not registered. In appeal No. 149 the deposit was of the documents of title of lands at Myohaung, where the borrower resided, which was stated to be five or six hours by river launch distant from Akyab ; the borrower signed no document upon depositing the documents with the bank. In both appeals the mortgages executed in favour of the respective respondents were duly registered.
In the suits to which appeal No. 148 related the District Judge held that registration of the respondent companys mortgage of June 1, 1914, was not notice to the bank. He made, as prayed by the plaintiff bank, mortgage decrees in respect of advances made by it in 1916, declaring that the mortgage to the bank was entitled to priority over the mortgage to the respondent company. On appeal to the Chief Court the decrees were modified by declaring that the bank was entitled to priority over the respondent companys mortgage only to the extent of Rs. 16,000, being the minimum amount due to the bank after June 1, 1914, and interest thereon, with consequent directions as to marshalling.
In the suits to which appeal No. 149 related the District Judge by his decrees gave the respondents priority in respect of their registered mortgage of May 1, 1914, over advances made by the bank after that date. On appeal the decrees were affirmed.
1923. March 5, 6, 8, 12, 13, 15. Micklem K.C., De Gruyther K.C., and Draper for the appellants. The mortgages by deposit with the bank were prior in date to the mortgages to the respondents ; the bank was therefore entitled prima facie to priority in respect of the advances by s. 48 of the Transfer of Property Act, 1882. Under that Act there is no distinction between a mortgage by deposit of documents of title made in one of the towns mentioned in s. 59. as amended by Act VI. of 1904 to include Akyab, and a mortgage by a written instrument. The place where a contract of mortgage by deposit is made, not the situation of the land, is the test of validity under s. 59 Srinath Roy
v. Godadhur Das. (( 1897) I. L. R. 24 C. 348.) It was not suggested below that the letter accompanying the deposit in appeal No. 148 required registration; the respondents cannot now raise that contention or rely upon the subsequent decision of the Board in Subramonian v. Lutchman . (( 1922) L. R. 50 I. A. 77.) Sect. 79 of the Transfer of Property Act, 1882, recognizes the validity in India of a mortgage covering future advances, and, with regard to cases in which a maximum sum is expressed, overrides the law in England as laid down in Hopkinson v. Rolt . (( 1861) 9 H. L. C. 514.) The section however is not exhaustive. The appellants priority under s. 48 is not excluded by s. 80. The words in that section "except in the case provided for by s. 79 "mean" except in the case of a subsequent advance under a prior mortgage"; the e
