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1916 Supreme(SC) 78
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD BUCKMASTER L.C., LORD ATKINSON, LORD WRENBURY, AND MR. AMEER ALI
MAUNG SHWE GOH - Appellant
Versus
MAUNG INN - Respondents
On Appeal From The Chief Court of Lower Burma.
Decided On : November 23, 1916.
Solicitors for appellant:Arnould & Son. Solicitors for respondents: Stoneham & Sons.
Under the Transfer of Property Act, a contract for sale does not create an equitable interest in land. Where such a contract allows for the deduction of mortgage interest from the purchase price, that interest runs until completion or the date the purchaser takes possession.
Headnote:(A) Transfer of Property Act, 1882 - Section 54 - Contract for sale of land - Interest on mortgage - Calculation of purchase price - Where a contract for the sale of land is made contingent upon the failure to pay a mortgage debt, and the contract provides for the deduction of the principal and "all interest due thereon" from the purchase price, such interest continues to run until the completion of the contract or the date the purchaser takes possession.
(B) English rule of equity - Purchaser as owner in equity - Inapplicability of the English rule that a purchaser becomes the owner in equity from the date fixed for completion where the local law expressly provides that a contract for sale does not of itself create any interest in or charge upon the land.
(C) Possession and Interest - A purchaser cannot simultaneously retain the rents and profits of the property and receive interest on the purchase money; therefore, interest ceases to run from the date of taking possession.
Facts of the case:
A mortgagee entered into an agreement with a mortgagor stating that if the mortgage debt and interest were not paid by a certain date, the property would be sold to the mortgagee for a fixed sum, after deducting the principal and all interest due. The mortgagor failed to pay, and the mortgagee eventually obtained specific performance and entered into possession of the property. A dispute arose as to whether the interest on the mortgage debt should be calculated only up to the date the sale agreement became operative or until the date the mortgagee took possession.
Findings of Court:
The court found that the phrase "all interest due thereon" in the agreement meant that interest continued to run until the balance of the purchase price was struck and paid. The English equity principle regarding the purchaser's interest from the completion date was inapplicable due to the statutory provisions of the Transfer of Property Act.
Issues: Whether the interest on the mortgage debt continued to run until the date of possession or ceased on the date the contract for sale became operative.
Ratio Decidendi: The court held that the construction of the contract indicated that interest was to run until the completion of the sale. Since the local statute provides that a contract for sale does not create any interest in the land, the English rule of equity does not apply. However, as the purchaser had entered into possession, he was entitled to interest only up to the date of possession, as he could not claim both the rents and the interest.
Result: Appeal allowed.
Legal Category Hierarchy
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property law
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mortgages
- equity of redemption
- interest on mortgage
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sale of immovable property
- contracts for sale
- specific performance
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mortgages
Judgement
Appeal from a judgment and decree of the Chief Court (December 14, 1914) reversing the judgment and decree of Ormond J.
The facts are stated fully in the judgment of their Lordships.
Ormond J. affirmed an order of the Registrar allowing the appellant (the mortgagee) interest under the mortgage until the date when he obtained possession. Upon appeal Sir Charles Fox C. J. and Parlett J. reversed that decision, holding that the appellant was only entitled to bring into account the principal and interest to July 6, 1906.
1916. Oct. 30, 31. Sir Erle Richards, K.C., and F. J. Coltman, for the appellant. Upon the true construction of the agreement interest ran till possession was obtained. The words "all interest due thereon" in the last sentence of the agreement indicate that interest was to run until completion of the sale. Until that took place there was nothing to affect the covenant to pay the interest. The Chief Court upon the appeal erred in applying the English doctrine that the property vested in equity in the purchaser from the date fixed for completion. That rule cannot be applied here, since the purchaser was kept out of possession by the vendor. Further, the Transfer of Property Act, which applies to Lower Burma, provides by s. 54 that a contract for the sale of land does not of itself create any interest therein. This excludes the application of the English rule of equity. [Reference was made to Darts Vendors and Purchasers, 7th ed., vol. 1, pp. 652, 653; Stokes Anglo-Indian Codes, vol. 1, p. 730; Burma Gazette, 1904, Pt. I., p. 684.]
Cunliffe, K.C., and D. Cotes Preedy (for Kenelm Preedy, serving with His Majestys Forces), for the second and third respondents. No interest is payable upon the mortgage after July 6, 1906. On that date the mortgage became merged in the contract of purchase, and, as held by the Board in the suit for specific performance, the right to redeem then ceased. After July 6, 1906, the relations were those of vendor and purchaser, and were inconsistent with the existence of a mortgage Noakes & Co. v. Rice. ([ 1902] A. C. 24, 30.) The appellant was entitled only to the amount of the rents and profits from July 6, 1906, after setting off interest upon the unpaid balance of the purchase price. [ Birch v. Joy (( 1852) 3 H. L. C. 565, 591.) was also referred to.]
Sir Erle Richards, K.C., replied.
Nov. 23. The judgment of their Lordships was delivered by
LORD BUCKMASTER, L.C. This appeal is a step, and their Lordships hope the last step, in litigation which was commenced on August 17, 1906, by the present appellant, who claimed against one G. W. Davis specific performance of a contract dated April 4, 1906, for the sale of some 19,318 acres of land situate in the Pegu district, Lower Burma. The question raised depends on the true construction of this contract, but in order to understand its meaning it is necessary to consider some antecedent facts.
On September 30, 1905, a formal mortgage of the property, which subsequently became the subject of the contract, was executed by the defendant Davis in favour of the appellant to secure the repayment of Rs.50,000 on December 30, 1905, together with interest at the rate of 8 annas per cent, per month, and also interest thereafter at the current bank rate of interest in Rangoon. It appears from the mortgage that it was really given as security for the payment of Rs.50,000, the amount of 5 hundis which had been drawn by the mortgagor upon the mortgagee and negotiated by the mortgagor with the Bank of Bengal. The mortgage contained a formal conveyance of real property and a covenant the effect of which has already been mentioned. It also contained a further and independent covenant that if the sum of Rs.50,000 should not be paid when it was due the mortgagor would pay interest thereon at 8 annas per cent, per month, and also interest on the Rs.50,000 at the current bank rate until the principal should be duly paid. The hundis were not met by the mortgago
