Mortgage

58. “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgage-deed” defined.—

A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the
payment of money advanced or to be advanced by way of loan, 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 arc called the mortgage-money, and the instrument (if any) by which
the transfer is effected is called a mortgage-deed.

 Mortgagor: competent to contract and capable to transfer the property……a guardian of a minor can
affect a valid mortgage with the sanction of the court…(without sanction of the court-voidable)-

 Mortgagee: any person who is competent to hold property, irrespective of his competency to
contract…

 Transfer of an interest in specific immoveable property : for a specific purpose. A borrows 10 Lakhs
from B and executed a document whereby he undertakes to repay it within a period of one year. A
also agrees that if he is not able to repay the money, he would do any of the following acts for
repayment of loan.

i. sell one of his properties/ any of his properties/ all of his properties….
ii. That he will not any property until loan is repaid….
iii. that he will borrow withdraw the money from the fixed deposit
iv. he would sell his car/ movable properties that belong to him

Question 1: Is the document a mortgage deed?

Question 2: Is there a transfer of interest/legal right in A’s property to B?

 Transfer of a specific right in a specific immovable property is the fundamental requirement in a

mortgage……property should be sufficiently identified…(property should be described….not “can
sell any property” or “my house and landed property” “the whole of my property”……. on failure of
repayment of loan-though apparent its seems that the mortgagee has more security for payment of
money than mentioning one specific property)

 Transfer of an interest as distinguished from personal liability creates a relationship of the

transferee with the property. Therefore even is the property changes hands, i.e the ownership
changes, the relationship of the transferee with the property continues. After effecting a mortgage by
transferring an interest in the property, if the mortgagor sells the property to a 3rd party, the
mortgage would continue to be effective and valid. Rather, the third party takes the property subject
to mortgage.

 Pecuniary Liability: A borrows 100 tree saplings from B, and mortgages his field to secure its
return…this undertaking to repay or return the saplings is an engagement giving rise to a pecuniary
liability….(improvements made by tenant over the property under tenancy….)

 Whether a transaction amounts to a mortgage or not would depend upon the substance of the
document….the substance is to be preferred to the form (simply because the document is described
 as sale/lease will not make the transaction described therein as such…) and the determining
criterion is not merely the name by which the deed is called…..Title of the deed may be material
where the deed itself is ambiguous, but it is not the conclusive test…

 Money advanced or to be advanced: the date of execution of the mortgage is effective even if the
mortgage money is undertaken to be advance in future. (the promise to pay in future is the
consideration) But is there is no consideration, the mortgage is void. If money is not paid within
stipulated date, the mortgage does not become void but the mortgagor has the right to rescind the
contract.

 “engagement” : refers to contract- there is a possibility that the mortgagor may incur financial
liability out of this contract.

Mortgage vs Charge

 Mortgage V Charge- In a Charge no transfer of an interest in the property; a charge is a little more
than a personal obligation without a right in rem. [rights residing in persons and availing against
other persons generally] It gives a right of payment out of a specific fund or property without its
transfer.

 A mortgage is a transfer of an interest in definite immovable property but a charge is not. In a

charge no right in rem is created, but the right is rather more than a personal obligation, for it is a
just ad rem, that is right of payment out of property specified, while a mortgage is a right in rem.

 A charge can be created by act of parties or by operation of law ; but a mortgage can be created
merely by act of parties.

 The formation of a charge does not necessarily imply the existence of a debt while it is always so in
case of a mortgage.

 A mortgage is superior against subsequent transferees and may be enforced against a bona fide
purchaser for value with or without notice, while a charge is good only against subsequent transferee
with notice.

 An agreement which gives immovable property as security for the satisfaction of a debt, or for the
payment of a maintenance allowance in perpetuity, without transferring any interest in the property
or an agreement by which an owner of a share in a village receives in lieu of his share a lump sum
out of the revenue, constitutes a charge on the property and is not a mortgage.

Pledge, Hypothecation and Mortgage ( Rajesh Goyal)

 Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods ).
Such securities or goods are movable securities. In this case the pledgee retains the possession of
the goods until the pledgor (i.e. borrower) repays the entire debt amount. In case there is default
by the borrower, the pledgee has a right to sell the goods in his possession and adjust its proceeds
towards the amount due (i.e. principal and interest amount). Some examples of pledge are Gold
/Jewellery Loans, Advance against goods,/stock, Advances against National Saving Certificates etc.

 Hypothecation is used for creating charge against the security of movable assets, but here the
possession of the security remains with the borrower itself. Thus, in case of default by the
borrower, the lender (i.e. to whom the goods / security has been hypothecated) will have to first
take possession of the security and then sell the same. The best example of this type of
 arrangement are Car Loans. In this case Car / Vehicle remains with the borrower but the same is
hypothecated to the bank / financer. In case the borrower, defaults, banks take possession of the
vehicle after giving notice and then sell the same and credit the proceeds to the loan account.
Other examples of these hypothecation are loans against stock and debtors. [Sometimes,
borrowers cheat the banker by partly selling goods hypothecated to bank and not keeping the
desired amount of stock of goods. In such cases, if bank feels that borrower is trying to cheat, then
it can convert hypothecation to pledge i.e. it takes over possession of the goods and keeps the same
under lock and key of the bank].

 Mortgage: is used for creating charge against immovable property which includes land, buildings or
anything that is attached to the earth or permanently fastened to anything attached to the earth
(However, it does not include growing crops or grass as they can be easily detached from the
earth). The best example when mortage is created is when someone takes a Housing Loan / Home
Loan. In this case house is mortgaged in favour of the bank / financer but remains in possession of
the borrower, which he uses for himself or even may give on rent.

Pledge Hypothecation Mortgage

Type of Security Movable Movable Immovable
Possession of the Remains with lender Usually Remains with
Remains with Borrower
security (pledgee) Borrower
Gold Loan, Advance
against NSCs [National Car / Vehilce Loans,
Examples of
Saving Certificate] Advance Advance against stock and Housing Loan
Loan where used
against goods (also given debtors
under hypothecation)

 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.

 In simple mortgage-the security for the dept is two fold-personal obligation and the property… thus
a mortgage can file a suit for recovery of money-or suit for forclosure and cause the property to be
sold….

 In simple mortgage: the mortgagor transfers a right to cause the property to be sold…. No delivery
of possession- a clause in simple mortgage entitling the mortgagee to take possession in the event of
default in payment will convert a simple mortgage into a mortgage with possession…..

 Usufructuary mortgage: Usufructuary mortgage.—Where the mortgagor delivers possession 2 [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 mortgage-money, and
to receive the rents and profits accruing from the property 3 [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 4 [or] partly in payment of the mortgage-money, the transaction is called an
usufructuary mortgage and the mortgagee an usufructuary mortgagee.

 Possessory mortgage, the right to enjoy the property is transferred…no personal liability to repay the
loan….mortgagee cannot sue the mortgagor personally for debt nor can he bring the property to
sale….he is entitle to retain possession of the property till the loan is repaid….delivery of possession
is mandatory and unless there is a clause in the deed providing for possession going to the
mortgagee there cannot be usufructuary mortgage…possession may be constructive-e.g tenant to pay
rent to the mortgagee.

Right/Equity of redemption

 Under Section 60 of that Act, at any time after the principal money has become due, the morgagor
has a right on payment or tender of the mortgage money to require the mortgagee to recovery the
mortgage property to him. The right conferred by this section has been called the right to redeem
and the appellant sought to enforce this right by his suit. Under this section, however, that right can
be exercised only after the mortgage money has become due.

 Section 60 of the Transfer of Property Act, 1882, conferred on the mortgagor the right of
redemption. This is a statutory right. The right of redemption is an incident of a subsisting
mortgage and it subsists so long as the mortgage subsists. It is a settled law in England and in India
that a mortgage cannot be made altogether irredeemable or redemption made illusory.

 In Bakhtawar Begum v. Husaini Khanam [AIR 1914 PC 36]: “Ordinarily, and in the absence of a
special condition entitling the mortgagor to redeem during the term for which the mortgage is
created, the right of redemption can only arise on the expiration of the specified period.”

Clog on Right of Redemption:

 Clog literally means to obstruct or to block, and a clog on the right of redemption of mortgagor
means an attempt of the mortgagee to obstruct this redemption. The mortgagee may put a
condition in the mortgage deed that may prevent the mortgagor from redeeming his property even
when he is prepared to repay the loan. This putting of condition that would prevent the mortgagor
to get back his property is called a clog on the right of redemption and would be void…

 Adversity of a person cannot and should not be exploited by the persons who advance loans….

 Once a mortgage is always a mortgage: mortgage is always redeemable. And a mortgagor’s right to
redeem shall neither be taken away nor be limited by any contract between the parties. A mortgage
cannot by the unilateral act of mortgagee be converted into a sale…

 The rule against clogs on the equity of redemption is that, a mortgage shall always be redeemable
and a mortgagor’s right to redeem shall neither be taken away nor be limited by any contract
between the parties.

 [Lindley, M.R. in Santley v. Wilde [(1899) 2 Ch 474]: 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’.”

 Whether a particular condition operates as a clog depends on facts and circumstances of the case-
 i. a condition in the agreement that in the event of default of payment the mortgage will
be an automatic sale, or

ii. a part of the mortgaged property cannot be redeemed at all, or

iii. restraining the mortgagor from alienating the mortgaged property;

iv. a stipulation of enhanced rate of interest in the event of default;

v. that mortgagor cannot redeem with borrowed money;

vi. a condition of pre-emption in favour of the mortgagee;

vii. that the mortgagor should sell the property in favour of mortgagee at the prices already
fixed; are clogs….

 Bakhtawar Begum v Husaini Khanam, AIR 1914 PC 36 : ordinarily and in absence of a special
condition entitling the mortgagor to redeem during the term for which the mortgage is created, the
right of redemption can only arise on the expiration of the specified period.

 Since the legislature has not specified any time for repayment of mortgage money the parties may
do so and the right will arise only after the expiration of that period. If there is no fixed time for
redemption it can be exercised at any time…

 If as an usufructuary mortgagee, he had inducted tenants in the property, such lease granted by the
mortgagee comes to an end when the land is redeemed.