We, Indians start to hear about mortgages from childhood. Even if we don’t listen about it in our home or by our elders, we read it in books when we read tales of tyranny by the zamindars (landowners) on poor farmers in British-ruled India. The Great Hindi writer Premchand depicted the condition of farmers and oppression of landlords very accurately and in childhood, it gave us the thoughts that mortgage (girvi rakhna) on excessive interest is a very bad tradition.
But cruelty on farmers by landlords was not only due to the tradition of mortgage but this landholding system was itself wrong and that’s why it was abolished subsequently.
But mortgage system was regulated by Transfer of property Act, 1882 and after independence, it continued and still is in force in India. And to understand the current provisions of TPA 1882, it is important to read the history of mortgage and the reasons due to which current provisions were enacted, because as we know, the sources of the law are the customs, usage and situations prevalent at that time.
WHAT IS MORTGAGE?
In a mortgage, a person (mortgagor) transfer the interest of his property or property or title deed of his property to another person (mortgagee) to take the loan from him. This transfer of interest of property or property or title deeds is considered as a security to secure the mortgage.
If mortgagor pay the loan to the mortgagee at the settled time, mortgagor can take back his property. But if mortgagor fails in paying the loan at settled time, in such case, mortgagee has a right to hold the property as it belongs to him.
IN INDIA, WHICH STATUTE REGULATE THE MORTGAGES?
Transfer of Property act, 1882- Prominently, transfer of property act, 1882 regulate the mortgages in India. It defined the meaning of mortgage, mortgagee, mortgagor and explains the types of mortgages, right and liabilities of mortgager and mortgagee, and other rules of mortgages.
Civil Procedure Code 1908-Order XXXIV of civil procedure code, provide the procedure for the suits relating to mortgages.
Limitations act, 1963- Article 61, 62, 63 of limitation act, 1963 provide the time limits for the institution of suits relating to mortgages.
WHAT IS THE MEANING OF MORTGAGE WORD?
The word mortgage is derived from a Law French[1] term used in Britain in the Middle Ages meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure.
What is death pledge?
Death pledge is the literal meaning of mortgage. It has the origin from Old French (1390). In literal meaning, mort means “dead” and gage “pledge”, therefor it means death pledge. It is so called because the deal dies either when the debt is paid or when payment fails.
In Lord Coke’s Commentaries on the laws of England, it is explained as,
“if a feoffment be made upon such condition, that if the feoffor pay to the feoffee at a certain day, that then the feoffer may re-enter. In this case the feoffee is called the tenant in mortgage, which is as much as to say in French, come mortgage, and in latin, mortuum radium. And it seemeth that the cause why it is called mortgage is, for that it is doubtful whether feoffer will pay, at the day limited, such sum or not; and if he doth not pay, then the Land which is put in pledge upon condition for the payment of the money, is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the Tenant.”
HISTORY OF MORTGAGE
In ancient systems of law, a mortgage was really a pledge-the property being a gage which was forfeited on default of payment. The transaction was effected either by delivery of possession, or by conditional conveyance.[2]
IN ROMAN LAW
- Feducia- In Roman law, the earliest type of security was the fiducia, a conditional conveyance under which the property whatever its value, was forfeited in case of non-payment.
- Pignus- This was followed by the pignus which was a transfer not of ownership, but of possession without liability to forfeiture.
- Hypothca- Then the last stage was the hypotheca, a form of pledge without delivery of possession under which the creditor acquired a power of sale.[3]
Sir H.S. Gour refers to this history in his law of transfer in British India, Vol. II. page 911 in the following terms: —
“The earliest form of the Roman security, called fiducia, may be regarded as the prototype of the English mortgage to be presently discussed. In this security an actual conveyance was executed by the debter to the creditor on condition (contractus fiduciae) that if the purchase-money were repaid by a day named, the creditor would reconvey the property to the debtor. In this security the debtor naturally ran a great risk, for, having parted with his ownership, he had only a personal action against the creditor. The intervention of the proctor was only a matter of time. The law was next modified by an edict declaring that while the creditor retained possession of the property, its ownership remained with the debtor. This is pignus end marked the second stage in the history of civil mortgages. But the creditor did not always care to take possession of the thing pledged, nor did the debtor always wish to part with the possession. And so Servius dispensed with the transfer of possession and thus arose the hypotheca or pledge of a thing by mere agreement, without any formality, and without the delivery of possession. Servius gave the creditor remedy not only against the debtor, but against all other persons and was established a true right in rem”.[4]
IN HINDU LAW
A mortgage by conditional sale was a very early form of mortgage among Hindus. The usufructuary mortgage with neither power of sale, nor of foreclosure corresponded to the Roman pignus, and the simple mortgage was a later development corresponding to the Roman hypotheca.[5]
IN MUHAMMADAN LAW
Among Muhammadans, the mortgage by conditional sale was a device to evade the Islamic prohibition of interest. This was the bye-bil-wafa, literally a sale with a promise, so that the mortgagee enjoyed the rents and profits in lieu of interest and became absolute owner of the property if the debt was not paid. However, the earliest form of Muhammadan security was the rahn or pledge with possession corresponding to the Roman pignus. This developed by slow degrees into the recognition of a pledge without possession with a power of sale.[6]
IN COMMON LAW
In England it seems certain that the original mortgage at common law was rather a pledge than a mortgage. The transfer was not of title, but of possession.
- Vivum Vadium- When the creditor took the profits in discharge of both principal and interest, the transaction was said to be a vivum vadium or living pledge since it worked out its own redemption.
- Mortuum vadiumor- When the creditor took the profits merely in satisfaction of interest, it was called a mortuum vadiumor a dead pledge. This form of mortgage was similar to the usufructuary mortgage of TP Act.
At a later time, which cannot be exactly ascertained, the English mortgage took the modern form of a conditional conveyance. The condition was originally one of defeasance, that on repayment, the grant determined and the land reverted to the mortgagor who was entitled to re-enter. Subsequently, the condition became one of reconveyance on repayment as defined in cl (e) of this section. After the common law, mortgage became a mortgage by conditional conveyance, and was modified by three principles of equity.[7]
These are-
- that equity looks to the essence of the transaction, and that a mortgage is in essence a borrowing transaction;
- that the borrower is in need of protection, and that a condition that penalizes him is void;
- that a condition of forfeiture in default of payment on the due date is a penalty.
These same equitable principles have been applied to the law of mortgages in India.[8]
IN BRITISH INDIA
The Indian law as the Britishers found it when they came to this country and before they reformed it by regulations was different from the English law in two respects:
- A transaction of conditional sale, was treated as a mortgage and
- time was considered to be of the essence of the contract even in a mortgage, with the result that after the expiry of the time fixed under the contract, property could not be redeemed by the mortgagor or the ostensible seller.
No question of discovering the intention of the parties, therefore, arose under the Indian law. Once the sale was a conditional sale, whether it was a mortgage or a sale, it made no difference as to the right of redemption.
The reason why the Indian Law considered a transaction of a conditional sale to be a mortgage was that in this country mortgages used to be taken both amongst the Hindus and Mohammadans in the form of a conditional sale known under the names of ‘Katka-bala’, ‘Muddatakriyam’ or ‘Gahan Lahan’ or bye-ul-wafa’ or ‘bye-bil-wafa’. The Mohammadans introduced this form of mortgage in order to defeat the precept of Mohammadan Law prohibiting usury. The lender, by stipulating for the usufruct or for the payment of a price of the re-sale higher than he paid, secured the same advantage as would have accrued to him from placing his money at interest, while the transaction in form did not violate the law. [9]
DIFFERENT FORMS OF MORTGAGE BY COSNDITIONAL SALE IN BRITISH INDIA
The different forms of mortgages by conditional sale prevalent in India were described by Chief Justice Sir Charles A. Turner in Ramasami Sastrigal v. Samiyappa- Nayakan, 4 Mad 179 at p. 183‘ as follows:
“This form of Hindu mortgage under the names of ‘Katkabala’, ‘Muddatakriyam’ and ‘Gahan Lahan’ obtains commonly throughout British India, though its incidents may vary. It is generally, though not universally, accompanied by the delivery of possession to the mortgagee with permission to enjoy the usufruct either in lieu of, or in part payment of, the interest, and, while ordinarily it involves no personal obligation on the part of the mortgagor for repayment of the debt (Macpherson on Mortgages II), it may, by special agreement or local custom, confer on the mortgagee the option of recovering the money from the mortgagor personally or of availing himself of the sale. Although there is no precise form of words necessary to constitute such a mortgage, it ordinarily differs from the ‘bye-ul-wafa’ or ‘Bye-bil-wafa’ of the Muhammadans in this, that, in the Hindu form, there is a preliminary mortgage with a condition for future sale, while in the Muhammadan form there is at once an absolute sale with a counter-agreement for re-sale which may be contained in the original sale-deed or in a separate contemporaneous instrument.
ORIGIN AND NATURE OF MORTGAGE AMONG MUHAMMADANS
The origin and nature of this form of mortgage among the Muhammadans is explained in Baillie’s Muhammadan Law of Sale, page 301. It was introduced or adopted in order to defeat the precept of Muhammadan Law prohibiting usury. The lender by stipulating for the usufruct or for the payment of a price on the re-sale higher than he paid, secured the same advantage as would have accrued to him from placing his money at interest, while the transaction in form did not violate the law.”
Baillie thus describes the Mohammadan form:
“The sale which is in use among men in our times as a contrivance for ‘reba’ and to which they have given the name of ‘Bye-ul-wafa’, is in fact a pledge, and the thing sold is in the hands of the purchaser as a pledge in the hands of the pawnee; he is not its proprietor nor is he free to make use of it without the permission of its owner; he is responsible if he eat or destroy the fruit of a tree so sold to him, and his debt when the ‘wafa’ is for a debt, is extinguished if the thing should perish in his hands; but he is not responsible for the loss or an increase if it should perish without his act; and the seller may reclaim the thing when he pays his debt.”[10]
“RAHN” IN MUHAMMADAN
The word “rahn” is a generic word indicating all that is included in the English word “mortgage,”. The word is certainly not limited to usufructuary mortgages, but includes simple mortgages also–the former being in Hindustani “rahn bii kabza,” and the latter “rahn bila kabza” in other words, if the nature of the mortgage has to be specified, the expression “with possession” or “without possession” has to be employed to qualify the general expression “rahn” or mortgage.[11]
ONCE A MORTGAGE ALWAYS A MORTGAGE
In mortgage also, there is famous wording of privy council that “once a mortgage, always a mortgage” because mortgage could never be irreducible.
The principle that once a mortgage is always a mortgage means that once a transaction is in the form of mortgage, it cannot be converted into any other transaction even of by the acts of the parties and that dehors the provisions of the statute and principles of law, the nature of the transaction as a mortgage would remain intact till the period of limitation alone.
The authoritative work of Dr. Rashbehary Ghose’s “Law of Mortgage”, which has received the approval of the Full Bench of Lahore High Court in Lachhman Singh v. Natha Singh through Harnam Singh and Ors. A.I.R. 1940 Lahore 401 and recently in Achaldas Durgajit Oswal (Dead) through LRs. v. Ramvilas Gangabisan Heda (dead) through LRs. and Ors. , the maxim ‘once mortgage, always a mortgage has been explained as under (Eighth Edition – Page Nos. 280-281) under the heading “Once a Mortgage, always a mortgage”:
In 1681 Lord Nottingham in the leading case of Harris v. Harris (1681) 1 Vern 33 firmly Laid down the principle: ‘Once a mortgage,’ always a mortgage.’ This is a doctrine to protect the mortgagor’s right of redemption:
It renders all agreements in a mortgage for forfeiture of the right to redeem and also encumbrances of or dealings with the property by the mortgagee as against a mortgagor coming to redeem. In 1902 the well-known maxim, ‘once a mortgage, always a mortgage’ was supplemented by the words and nothing but a mortgage’ added by Lord Davey in the leading case of Noakes v. Rice 1902 A.C. 24 (H.L.) : (1900-3) A11. E.R Rep 34, in which the maxim was explained to mean ‘that a mortgage cannot be made irredeemable and a provision to that effect is void’. The maxim has been supplemented in the Indian context by the words ‘and therefore always redeemable’, added by Justice Sarkar of the Supreme Court in the case of Seth Ganga Dhar v. Shankarlal .
In Santley v. Wilde 1895-89 All India England Reports 1338, a judgment of Court of appeal, it has been held as under:
The principle is this : a mortgage is a conveyance of land or an assignment of chattles as a security for the payment of debt or the discharge of some other obligation for which it is given. This is the idea of a mortgage and the security is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding. That, in my opinion, is the law. Any provision inserted to prevent redemption on payment or performance of the debt or obligation for which the security was given is what is meant by a clog or fetter on the equity of redemption and is therefore void. It follows from this, that “once a mortgage always a mortgage”. The courts of equity have fought for years to maintain the doctrine that a security is redeemable on the performance of the obligation for which it was given. If the obligation is the payment of debt, the security is redeemable on the payment of that debt. That in my opinion is the true principle applicable to the cases, and that is what is meant when it is said that there must not be any clog or fetter on the equity of redemption. [12]
It is thus evident that very conception of mortgage, involves three principles.
First, there is the maxim: ‘Once a mortgage, always a mortgage.’ that is to say, a mortgage is always redeemable and if a contrary provision is made, it is invalid. And this is an exception to the aphorism, modus et conventio vincunt legem (custom and agreement overrule law).
Secondly, the mortgagee cannot reserve to himself any collateral advantage outside the mortgage agreement.
Thirdly, as a corollary from the first another principle may be deduced, namely, ‘once a mortgage, always a mortgage, and nothing but a mortgage’. In other words, any stipulation which prevents a mortgagor from getting back the property mortgaged is void. That is, a mortgage is always redeemable.
Right to redeem is an incident of a subsisting mortgage and is inseparable from it so that the right is co-extensive with the mortgage itself. The right subsists until it is appropriately and effectively extinguished either by the acts of the parties concerned or by a proper decree of the competent court. [13]
CONCLUSION
As we saw, the mortgage system was prevalent in almost every civilized legal system from time Immemorial. Maybe, because, people found it an easy system to lend money and also to secure something in lieu of money. This was an important transaction in the legal system so courts and government came to regulate this system by giving precedent and enacting laws.
[1] Law French is an archaic language originally based on Old Norman and Anglo-Norman, but increasingly influenced by Parisian French and, later, English. It was used in the law courts of England, beginning with the Norman conquest of England in 1066. Its use continued for several centuries in the courts of England and Wales and Ireland. Although Law French as a narrative legal language is obsolete, many individual Law French terms continue to be used by lawyers and judges in common law jurisdictions.
[2] Mulla’s Transfer of property act at page 426
[3] Mulla’s Transfer of property act at page 426
[4] Md. Sultan And Ors. vs Firm Of Rampratap Kannyalal; AIR 1964 AP 201
[5] Sib Chunder Ghose v Russick Chunder (1842) Fult 36 quoted at p.426 in Mulla’s Transfer of property act at page 426
[6] Hamilton’s Hedaya, vol 4, p 203. Quoted by mulla in his “transfer of property act” 10th edition at p. 426
[7] Mulla’s transfer of property act, 10th edtion at p. 426
[8] Mulla’s transfer of property act, 10th edtion
[9] Debi Singh And Ors. vs Jagdish Saran Singh And Ors.; AIR 1952 All 716
[10] See also, Debi Singh And Ors. vs Jagdish Saran Singh And Ors.; AIR 1952 All 716
[11] Mahipal Kuar vs Sheoratan Kuar And Ors. Equivalent citations: (1885) ILR 7 All 258
[12] Ram Kishan And Ors. vs Sheo Ram And Ors. on 12 December, 2007: AIR 2008 P H 77, (2008) 149 PLR 1
[13] Ram kishan and ors. V. Sheo ram
This article is written by Advocate A.H. Gangohi.
