K. Kandappa Chetti vs Lakshmammal and Others

Lakshmana Rao, J.—The plaintiff is the appellant and the suit is for recovery of the balance of principal and interest due under a mortgage

executed by the husband of defendant 1 in his favour, by sale of the plaint A and B schedule properties. The mortgage was of the plaint A, B and

C schedule properties and it is found by the Courts below that with the concurrence of the plaintiff, the mortgagor sold the C schedule properties

piecemeal, appropriated a portion of the proceeds himself, paid a portion to the plaintiff in full satisfaction of simple debts due to him and paid the

balance to the plaintiff towards the mortgage. Nothing will be due under the mortgage if, as held by the Courts below, the amounts paid towards

the simple debts have to be applied in reduction of the mortgage debt, and the sole question for determination in this second appeal is whether

those amounts have in law to be so applied. The law is that money received by a mortgagee by virtue of the mortgage or sale of security should be

applied in reduction of the mortgage debt, and the sale in this case was by the mortgagor. The price too was received by him and it was not

pleaded that the sale was on the terms of receiving the purchase money in part reduction of the mortgage debt. There is no evidence either to that

effect, and as pointed out in Ghose on Mortgages, p. 510, the rule that money received by the mortgagee from sales of the mortgaged property

must be applied in reduction of the amount secured by the mortgage, and cannot be appropriated towards amounts due on any other account, will

not apply where the mortgagee does not make his security directly available for the mortgage. Thus, says the learned author, if the mortgagee joins

in the conveyance to the purchaser merely for the purpose of assurance and is not unwilling that his security should be diminished and having

confidence in the mortgagor allows him to receive the money, then though it may be paid to him the next hour, such payment cannot be treated as

payment in reduction of the mortgage debt as the mortgagee would in that case receive the money, not by means of his security but by the

voluntary act of the mortgagor. The mortgagee is bound to apply the money in reduction of the mortgage debt only when he stands between the

mortgagor and purchaser and takes the money immediately out of the purchaser''s hands, which amounts to his saying, ""1 will not allow my security

to be reduced without a corrosponding payment"" or as expressed in Young v. English (1843) 7 B 10, the sale must be on the terms of receiving

the purchase money in reduction of the mortgage debt.

The decision in Lakshmanan Chatty v. Muthaya Chetty AIR 1920 Mad 1026 does not enunciate a different rule and as pointed out therein, it is

only money paid to the mortgagee for releasing the security that has to be applied towards the mortgage. The mortgagee is entitled to release any

portion of the security and enforce his entire claim against the other portion and as stated already it was not even alleged that there was any bargain

in this case that the purchase money or any portion thereof should be paid towards the mortgage debt. The mortgagee did not join the conveyance

though he agreed with the mortgagor not to proceed against the C schedule properties, and in the absence of any bargain regarding the purchase

money, he cannot be said to have received the amounts by virtue of the mortgage or security. The amounts paid by the mortgagor in satisfaction of

the simple debts need not therefore be applied in reduction of the mortgage debt and the view of the lower Courts is untenable. The amount

claimed in the plaint would in this view be due to the appellant and the dismissal of the suit on the ground that the mortgage has been discharged is

unsustainable. The second appeal is therefore allowed and the suit is remanded to the trial Court for passing the usual preliminary decree for sale

after considering issues 3, 4 and 6 which were reserved. Costs upto date will as usual be included in the preliminary decree. Leave is refused.