AI Structured Summary
Not yet generated for this judgment
Judgment
Napier, J.—This is an appeal from a judgment of the District Judge of Malabar in which he has allowed a decree-debt against an assignor to
be set off against the claim by an assignee of the mortgage in a mortgage suit. It is admitted that the set-off is not one that is covered by Order
VIII, Rule 6 of the Code of Civil Procedure. But it is argued that it is a set-off of an equitable nature and that the CPC not being exhaustive as to
rights of set-off, it is permissible. There is authority for that proposition in Subramanian Chettiar v. Muthuswami Aiyangar (1907) 17 M.L.J. 481.
With the greatest deference to the learned Judges, I doubt whether it is advisable to introduce under the name of equity cases which appear to be
rather one of hardship on the facts. The doctrine that there is a right of equitable set-off is well founded, but has always been confined to
unascertained sums arising out of the same transaction. To give the words, ""equitable set-off"" a wider meaning than this, appears to me to be very
dangerous. But assuming that there could be a set-off of this nature, we have to consider whether there is any doctrine under which this equitable
set-off can be pleaded as an equity attaching to the rights of the assignee. What seems to be conclusive against this argument is that under the
express words of the Transfer of Property Act, an assignment of this nature is not an actionable claim within the meaning of Section 132. The
principle that transferees of an actionable claim shall take it subject to all the liabilities and equities to which the transferor was subject in respect
thereof at the date of the transfer is of course well founded on the original nature of the assignment of a chose-in-action under English Law, the
principle being that a person cannot ignore his liability on a debt to another person and bring a suit to recover that person''s debt to him simply by
assigning that debt. Prior to the Judicature Act, such a suit could only be brought in the name of the original creditor and the debt due to the
defendant in the suit could of course be set off. But Section 3 of the Transfer of Property Act contains this definition:
Actionable claim means a claim to any debt, other than a debt secured by mortgage of Immovable property or by hypothecation or pledge of
moveable property.
It is argued before us that although under the strict words of the Act, this equitable right of set-off could not be pleaded against an assignee of
the mortgage, still, there remains available to the defendant a common law doctrine that it can be so set off, and that this doctrine even goes
beyond the language of Section 132 and makes the assignee liable not only to the equities at the date of the transfer but any debts due from the
assignor to the mortgagor prior to notice having been given of this assignment by the assignee to the mortgagor. The authority relied on, in support
of that proposition was Norrish v. Marshall (1821) 5 Maddox 475; s.c. 56 E.R. 977. Whatever that case decides, however, the true doctrine is to
be found in the language used by the Court of Appeal in Turner v. Smith (1821) 5 Maddox, 475; s.c. 56 E.R. 977, where it is said by Mr. Justice
BYRNE;
The effect in law of taking a transfer of a mortgage without the privity of the mortgagor, haw been so recently summed up by Cozens Hardy, J., in
Dixon v. Winch (1901) 1 Ch. 213 that I cannot do better than adopt his words which are to be found at page 742 of the report: ''It is well settled
that where a mortgage is transferred without the privity of the mortgagor, the transferee takes subject to the state of account between the
mortgagor and mortgagee at the date of the transfer.
This doctrine has been accepted by this Court in Chinnayya Rawutan v. Chidambaram Chetti ILR (1880) Mad. 212. The language is, of
course, very general, but I am unable to accept it as laying down that not only the state of account between the mortgagor and the mortgagee with
reference to the mortgage is to be taken as against the assignee, but also any independent debt in no way connected with the mortgage, which has
not been paid but is due from the mortgagor to the debtor. I know of no authority and the learned vakil has not been able to show any authority for
this proposition. The theory that an assignee of a mortgage stood in English law in no better position than the assignee of an ordinary chose-in-
action is opposed to the doctrine laid down by the Court of Appeal in Taylor v. The London and County Bank Company (1901) 2 Ch. 231 :
Although a mortgage debt is a chose-in-action, yet, where the subject of the security is land, the mortgagee is treated as having an interest in land.
and priorities are governed by the rules applicable to interests in land, and not by the rules which apply to interests in personality. The reason is
thus stated by Sir William Grant in Jones v. Gibbc (1804) 9 Ves J. 407
A mortgage consists partly of the estate in the land, partly of the debt. So far as it conveys the estate, the assignment""--that is, of the mortgage--""is
absolute and complete, the moment it is made according to the forms of law. Undoubtedly it is not necessary to give notice to the mortgagor, that
the mortgage has been assigned, in order to make it valid and effectual. The estate being absolute at law, the debtor has no means of redeeming it
but by paying the money. Therefore he, who has the estate, has in effect the debt; as the estate can never be taken from him except by payment of
the debt.
I have heard nothing in the case quoted to us which is at variance with this doctrine which is laid down by the Court of Appeal. It therefore
follows that in England, it has never been an accepted doctrine that an assignment of a mortgage is covered by the same rules that govern
assignments of other choses-in-action. We have been pressed with the decision of the learned Chief Justice in Dwark Doss Govardana Doss v.
Danakoti Ammal (1914) 15 M.L.T. 198 and it is suggested that the reasons given for that decision narrow the rights of an assignee of a mortgage
to the rights of an assignee of an ordinary chose-in-action. I do not think that the learned Judge''s reasons bear that interpretation, but if they do, I
should have to express my dissent from them in view of the broad language which I have quoted from the decisions of the Court of Appeal. It
follows therefore that there is no doctrine under the common law of England which will support the case for the respondent outside the Transfer of
Property Act. It is suggested that this set-off can be pleaded as a debt which was in existence at the time of the assignment. This is not the ratio
decidendi of the Lower Court and, in my opinion, it is not open to the respondent to argue it here. The judgment-debt which he seeks to set off, is
undoubtedly one of a later date than the assignment. The original cause of action may have been prior to the assignment, bat as that original cause
of action has merged in the debt, I am clear that he cannot fall back on it and ignore the judgment-debt at the same time as he seeks to use the
actual debt itself as the basis of the set-off. If he was able to ignore the judgment-debt, he would have to prove the original liability on which it is
based, and that of course he has neither attempted to do nor could do with suit. It follows therefore that even giving the broadest construction to
the language of the decisions in Turner v. Smith (1901) 1 Ch. 742 he cannot set up this debt as coming within the phrase ""state of account in
existence at the date of the assignment.
Another objection was taken in the Lower Court to the maintainability of the set-off, namely one of jurisdiction. But we do not think it necessary
for decide that point, as we are satisfied that there is no equitable right of set-off known to law which is a defence to this mortgage suit.
The appeal must therefore be allowed with costs.
Ayling, J.
I agree.