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(a) General
(b) Without delivering possession of mortgaged property
(i) General
(ii) Cases where possession held not given
(iii) Cases where possession held given
(iv) In a simple mortgage possession is not given
(v) If in a simple mortgage possession is given, it becomes an anomalous mortgage
(c) The mortgagor binds himself personally to pay the mortgagemoney
(i) General
(ii) Personal liability is a question of fact to be determined on a construction of the
mortgage-deed
(iii) Whether a transaction is one of simple mortgage is also a matter of construction
(iv) The criterion of a simple mortgage
(v) The test of personal remedy
(d) The mortgagee shall have a right to cause the mortgaged property to be sold
SIMPLE MORTGAGE
Section 58(a) of Transfer of Property Act, 1882 talks about
The elements of a simple mortgage
(1) Possession of the mortgaged property is not delivered to the mortgagee; it remains
with mortgagor;
(2) The mortgagor binds himself personally to pay the mortgage-money; in other words,
he undertakes either expressly or impliedly, a personal obligation to pay the mortgagemoney;
(3) The mortgagor agrees, expressly or impliedly, that in the event of his failing to pay
according to his contract, the mortgagee shall have a right to cause the mortgaged
property to be sold1 and the proceeds of the sale to be applied, so far as may be necessary,
in payment of the mortgage-money; or, in other words, the mortgagor transfers a right to
the mortgagee to cause the property to be sold in the event of the mortgagors failing to
pay according to his contract.
So where, under a deed of mortgage, the debt is to be paid in certain instalments and in
case of failure to pay, the mortgagee is to recover the same by means of the mortgaged
property and from the mortgagor personally, though it is not expressed that the
mortgagees remedy is to be by sale under decree, the mortgage falls within the class of
simple mortgages. In such mortgages there is no transfer of ownership, and the
mortgagee must enforce his charge by judicial sale.2
1 Board of Revenue v. Electronic Industries, AIR 1980 All 1 (5) (Special Bench).
2 Papamma Rao v. Vira Pratapa, 23 IA 32 : ILR 19 Mad 249.
3 Dev Raj Dongra v. Gyan Chand Jain, AIR 1981 SC 981 : 1981 UJ (SC) 641. : (1981) 2 SCC 675.
4 AIR 1927 PC 32 : 54 IA 68 : ILR 50 Mad 180 : 100 IC 86; Puttananjamma v. Channabasavanna, AIR
1967 Mys 41 : (1966) 5 Law Rep 486 : (1965) 2 Mys LJ 72.
get interest on the amounts advanced by him at the stipulated rate in the shape of rent,
so long as the lease continued, the transaction is one of a simple mortgage.7
(iii) CASES WHERE POSSESSION HELD GIVEN.
But if the intention is that the mortgagee should have possession, the mortgage is a
usufructuary one. In Lal Behari v. Controller of Houses,8 the deed of mortgage recited
that the executant had mortgaged with possession certain property for a term of two years
to the mortgagee and put him in possession, and that the entire expenses in respect of the
mortgaged property shall be borne by the executant. It was held, that the document, read
and construed as a whole, was a mortgage with possession. It was pointed out that
though, during the continuance of the mortgage, when the mortgagee takes possession, he
must pay all charges of a public nature in respect of the mortgaged property under
Section 76, Clause (c) of the Transfer of Property Act, yet that is so, in the absence of a
contract to the contrary, and it is open to the parties to contract out of the provisions of
that clause. It was concluded that the mere fact that the mortgagor undertook to pay
certain charges and expenses did not make the transaction one of a simple mortgage.
No doubt it is permissible, as a matter of construction, to look behind the form, in which
the parties have couched their transaction, to ascertain its substance and give effect to it
according to the intention of parties, but it is not permissible to ignore altogether the form
in which the parties have deliberately cast their bargain when such form is clearly
intended to govern their mutual rights and obligations. The parties to a transaction have
an undoubted right to decide what shall be the nature of the contract between them and
what shall be its terms; and so long as there is nothing illegal or against public policy in
it, it is not open to a Court of law to ignore it and make a new contract for the parties. The
intention of the parties has, ordinarily, to be gathered from what they have expressed it to
be in the documents executed by them. Courts must not approach the matter with a
preconceived legal theory and try to put upon the expressed terms of the contract a
strained and artificial construction so as to make them accord with that legal theory.
Where the mortgage and the lease back form parts of one and the same transaction, effect
7 Baijnath Prasad v. Jang Bahadur Singh, AIR 1955 Pat 357 : 3 BLJ 55.
8 AIR 1957 Pat 717 (719).
must be given to each according to its provisions and Courts must not, by reading the two
together, spell out a transaction totally different in character and incidents. In Jagat v.
Hari Chand,9 the mortgage-deed expressly recited that the mortgagee was to have
possession of the mortgaged property, that actual possession had been handed over to
him, that the mortgagee was entitled to live in the house himself or to lease it out to
somebody else, and that the rent so collected was to be considered equal to the interest on
the mortgage-money. On the day the mortgage was registered, the mortgagee granted a
lease back to the mortgagor by a separate deed reserving a monthly rent and providing
that in default of payment of rent by the mortgagor he would become liable to be evicted.
In a suit by mortgagee for eviction the mortgagor contended that the mortgage and the
lease-back created a simple mortgage under which the mortgagee had no right to
possession of the mortgaged property. It was held, that the transaction was a usufructuary
mortgage and that the relationship between the parties was that of lessor and lessee and
the mortgagee was, therefore entitled to evict the mortgagor.
mortgage. In Yeshwant v. Vithal,11 the mortgage was a simple mortgage. The deed
contained a provision that, if default was made in payment of interest, the mortgagee
should take possession. It evidenced, in fact, an anomalous mortgage, though called a
simple mortgage in the judgment.
be, whether there was any personal liability on the part of the mortgagor for payment of
that portion of the loan and interest which remained unsatisfied out of the proceeds of the
sale of the mortgaged property. In considering this question, it must be remembered that:
(1) A loan prima facie involves such a personal liability;
(2) Such a liability is not displaced by the mere fact that security is given for the
repayment of the loan with interest; but
(3) The nature and terms of such security may negative any personal liability on the part
of the borrower.12
Two matters must be noted, that
(1) The mortgagor, even though he is, in the first instance, under no personal liability, yet
such liability may arise under Section 68(b) or (c) of the Act; and
(2) The mortgagor may expressly covenant that he would be under no personal liability in
any event whatsoever.
Case (1) does not fall within Clause (b) of this section and does not help to bring a case
within the definition of a simple mortgage. In Case (2) the transaction is not one of
simple mortgage, as defined in this section but the case will fall within Clause (g) of the
section and the mortgage will be an anomalous mortgage.
(ii) PERSONAL LIABILITY IS A QUESTION OF FACT TO BE DETERMINED
ON A CONSTRUCTION OF THE MORTGAGE-DEED.
Personal liability is a question of fact. A claim for personal decree against the mortgagor
can, ordinarily, been forced only, if there is a covenant to that effect in the mortgage deed.
A mortgage does not necessarily import a personal obligation to repay, though prima
facie every simple mortgage and every English mortgage involves a personal obligation
to pay, in the same sense, as prima facie, there is no personal obligation to pay in any
usufructuary mortgage or a mortgage by conditional sale. Thus, a personal liability to pay
the mortgage amount is, in each case, a question of construction of the mortgage
instrument.13
12 Ram Narain Singh v. Adhindra Nath, AIR 1916 PC 119, 120.
13 Gauri Kumari v. Krishna Prasad, AIR 1957 Pat 575, 578 : ILR 36 Pat 328 : 1957 BLJR 201; see also
Markandeya v. Subhanadharacharyulu, AIR 1918 Mad 530 : 46 IC 529; Askaran v. Gobardhan, AIR 1922
14 Ghulam Muhammad v. Muhammad Hussain, AIR 1929 Lah 289 (290) : 116 IC 214.
15 Paras Ram v. Brijmohan Lal, AIR 1932 Lah 164 (166), Col. 2 : ILR 13 Lah 259 : 135
IC 33.
16 Sampuran Singh v. Ahmad Din, AIR 1941 Lah 274 (276), Col. 1 : 198 IC 100 : 43 PLR 277.
17 Kuraishi Begam v. Mumtaz Mirza, 3 IC 871 : 12 OC 275; Nazim Hussain v. Mahabir Prasad, AIR 1915
Oudh 147 : 30 IC 224.
The question of the personal liability depends upon the construction of the instrument in
each case. So, where the deed evidences a mortgage by conditional sale, a sentence in the
deed in which the mortgagor promised to pay the mortgage-money and to redeem after a
certain period, that does not, of itself, amount to a personal covenant to pay, for some
such provision can be found in almost every form of mortgage. The determining factor is
the remedy provided in the deed for satisfaction of the mortgage-debt.18
A personal liability may be negatived
(a) Where there is an express promise to pay in a particular manner;19
(b) where there is no personal contract to pay out of the personal estate, but it is a mere
contract to Pay out of the hypothecated estate;20
(c) Where there is a stipulation to redeem in any month after some years;21
(d) Where the only remedy mentioned in the mortgage-deed is foreclosure; in such a case,
the mere fact that the mortgagor undertakes to pay by a fixed date does not amount to a
stipulation to repay personally.22
There may be a personal covenant, if the deed provides that
(a) If the mortgage-amount is not repaid, the mortgagor will repay it by selling the
mortgaged property, or otherwise;
(b) If there is a clause relating to payment by instalments.23
18 Bhikham Lal v. Janak Dulari, AIR 1937 Oudh 517 (519), Col. I : 171 IC 296.
19 Kalka Singh v. Parasram, 22 IA 68 (75) : ILR 22 Cal 434, Their Lordships observed although an
unqualified admission of a debt implies a promise to pay it, that is not necessarily so : it must depend on the
construction of the instrument in each case. See also Om Prakash v. Mukhtar Ahmad, AIR 1940 Lah 486 :
ILR 1941 Lah 601 : 193 IC 789.
Where in a mortgage, there are some provisions which indicate that it is a usufructuary
mortgage and some others which indicate that it is a simple mortgage, or where there is a
covenant to pay without any hypothecation, or there is merely a provision that on failure
to pay, the mortgaged property could be sold, the Court cannot hold that there is any right
of sale on the mere failure to pay the mortgage-money.29
It is necessary to distinguish between an implied agreement to sell and a mere tacit
acceptance of a contingent statutory liability to a sale of the security. The terms of the
agreement between the parties must contain words which point with certainty to the fact
that the parties had the sale of the security in default of payment of the debt present
before their minds, when making the contract, as a part and consequence thereof. The
mere knowledge by the one of his right and by the other of his obligation created by the
statute does not suffice. There must be agreement, even though such agreement may be
practicallysuperfluous.30 A statutory obligation to have a security sold in a certain
eventuality is not the same thing as a transfer of a right to sell that security. The form of
realising the debt from the security, namely, by sale thereof, is necessarily the sale, but
where there is no transfer by agreement of the right to sell, that right does not come into
existence at the time of the contract.218 Where the document embodies nothing but a
mere lien on the property though it contemplates the possibility of a failure to pay but
does not grant a power of sale, as where it says:
I mortgage my property and lay down that the same shall stand mortgaged so long as the
moneyis not paid off. If repayment is not made at the time stipulated the interest due shall
be added to the principal and it will pay compound interest year after year until
liquidation,
an agreement that the creditor may sell the property cannot be implied from such words
in the deed.31
29Kanhaiya Prasad v. Hamidan, AIR 1938 All 418 (421) : ILR 1938 All 714 : 176 IC 492.
30 Khemchand v. Malloo, AIR 1914 Nag 32 (35) : 26 IC 601.
31 Khemchand v. Malloo, AIR 1914 Nag 32 (35-36) : 26 IC 601.
It is different where the power of sale can be implied from the terms of the deed. In
Balasubramania Nadar v. Sivaguru Asari,32 the words :
In default I shall, on the security of the house-site belonging to me, pay and make good
the principal and interest
Were held to constitute a simple mortgage. And in Gokuldass v. Kirparam,33 the words:
If I fail to pay the money as stipulated, I and my heirs shall, without objection cause the
settlement of the said village to be made with you
were held sufficient to constitute a simple mortgage.
34 Kalika Prasad v. Jhenjho Kuer, AIR 1964 Pat 241 : 1963 BLJR 472.
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 time being are called
the mortgage-money, and the instrument (if any) by which the transfer is effected is
called a mortgage-deed.
(b) Simple mortgage.Where, without delivering possession of the mortgaged property,
the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly
or impliedly, that, in the event of his failing to pay according to his contract, the
mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds
of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the
transaction is called a simple mortgage and the mortgagee a simple mortgagee.
(c) Mortgage by conditional sale.Where, the mortgagor ostensibly sells the mortgaged
property on condition that on default of payment of the mortgage-money on a certain
date the sale shall become absolute, or on condition that on such payment being made the
sale shall become void, or on condition that on such payment being made the buyer shall
transfer the property to the seller, the transaction is called mortgage by conditional sale
and the mortgagee a mortgagee by conditional sale: 1[Provided that no such transaction
shall be deemed to be a mortgage, unless the condition is embodied in the document
which effects or purports to effect the sale.]
(d) Usufructuary mortgage.Where the mortgagor delivers possession 1[or expressly or
by implication binds himself to deliver possession] of the mortgaged property to the
mortgagee, and authorises him to retain such possession until payment of the mortgagemoney, and to receive the rents and profits accruing from the property 2[or any part of
such rents and profits and to appropriate the same] in lieu of interest, or in payment of the
mortgage-money, or partly in lieu of interest 3[or] partly in payment of the mortgagemoney, the transaction is called an usufructuary mortgage and the mortgagee an
usufructuary mortgagee.
(e) English mortgage.Where the mortgagor binds himself to repay the mortgage-money
on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but
subject to a proviso that he will re-transfer it to the mortgagor upon payment of the
mortgage-money as agreed, the transaction is called an English mortgage. 4[(f) Mortgage