Hajmohamed v Yahooda (Civil Appeal No. 49 of 1950) [1951] EACA 113 (1 January 1951)

## COURT OF APPEAL FOR EASTERN AFRICA

Before Sir NEWNHAM WORLEY, Acting President, LOCKHART-SMITH, Acting Vice-President, and SINCLAIR, Ag. C. J. (Tanganyika)

## ABDUL WAHED HAJMOHAMED, Appellant (Original Defendant)

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## JUDAH MENAHEM YAHOODA, Respondent (Original Plaintiff) Civil Appeal No. 49 of 1950

(Appeal from decision of H. M. Supreme Court of Aden—Rudd, J.)

Aden Supreme Court Rules of Court—Rule 299—Necessity to fix reserve—Where mortgagee granted leave to bid.

The mortgagee of two houses sued the mortgagor for principal debt and interest—he obtained judgment by consent—and applied for sale in execution of his decree, to which the mortgagor consented. In the mortgagee's application for sale under rule 293 of the Rules of Court the particulars of sale stated the value of the houses to be Rs. 20,000 and Rs. 15,000 respectively.

The mortgagee applied for leave to purchase the mortgaged property and the mortgagor consenting thereto leave was granted.

The two houses were sold as separate lots. One was purchased by the mortgagee for Rs. 19,000 or Rs. 1,000 less than the agreed value and the other fetched Rs. 17,600 or Rs. 2,600 more than agreed value. Rule 299 of the Rules of Court provides for a reserve price to be fixed as regards a mortgagee given leave to bid: such reserve price to be not less than the amount of principal interest and costs (unless the Court shall otherwise think fit).

No reserve price was mentioned in the order granting leave to bid to the mortgagee.

The mortgagor applied to set aside the sale and on the Supreme Court confirming the sale, appealed.

The appellant's affidavit in support of his Memorandum of Appeal contained scandalous allegations.

Held (30-10-51).—(i) Rule 299 of the Rules of Aden Supreme Court was aimed to prevent mortgagees taking undue advantage of mortgagors.

(ii) The wording of the rule "a reserve price as regards him shall be fixed" are mandatory and are not qualified by the words "(unless the Court shall otherwise think fit)"<br>these latter words relate to the amount of the reserve which must be fixed and give the Court a discretion in that respect only.

(iii) Owing to the scandalous allegations in the affidavit in support of the Memorandum of Appeal the appellant will be deprived of any part of costs of appeal against respondent.

Appeal allowed in so far as the property purchased by the mortgagee.

Ghulamali with Ali, for appellant.

Respondent absent, unrepresented.

**JUDGMENT.**—This is an appeal from an order of the Supreme Court of Aden confirming the sale by order of the Court of certain immovable property belonging to the appellant (the original defendant) in execution of a decree against him obtained by the respondent (the original plaintiff) for the payment of a mortgage: debt, arrears of interest and costs.

By a mortgage dated the 5th February, 1946, the appellant mortgaged two of his houses to the respondent to secure the loan to the appellant by the respondent of the sum of Rs. 30,000 with interest at the rate of annas ten per cent per month. The houses were comprised in Grants numbers 1335 and 1150 respectively.

On the 22nd January, 1949, the respondent filed a plaint against the appellant in the Supreme Court of Aden claiming inter alia, payment by the appellant of the sum of Rs. 33,422, being balance of principal and arrears of interest then due to the respondent, and in default sale of the mortgaged property.

The suit came on for hearing on the 11th March, 1949, when by consent, judgment was given for the respondent for the sum claimed on terms that the appellant would pay the said sum with interest by agreed monthly instalments, and providing that if any two of such instalments were not duly paid the respondent should be entitled to apply immediately for the sale of the mortgaged property to realize the balance of the amount due with costs. A preliminary Decree was drawn up accordingly.

The appellant having made default in carrying out these terms, the respondent, on the 31st August, 1949, made an application to the Court for the sale of the mortgaged property in execution of his decree. On the 28th October, 1949, the Court approved the withdrawal of the application on terms.

On the 31st January, 1950, the appellant having again defaulted, the respondent again applied for the sale of the mortgaged property in execution of his decree. Notice of the hearing of the application was given to the appellant, and, on the 14th February, 1950, his pleader, Mr. Handa, appeared on his behalf and consented to an order for the sale of the property, which was made accordingly.

On the 28th March, 1950, the respondent filed what was described as an "application" under rule 293 of the Rules of Court made by the Supreme Court of Aden, giving the particulars of the property to be sold which that rule requires to be made in a statement to accompany the application for an order for sale. The particulars stated the value of the house comprised in Grant No. 1335 to be Rs. 20,000, and that of the house comprised in Grant No. 1150 to be Rs. 15,000.

Notice was given to the appellant to appear and settle the conditions of sale, and on the 12th April, 1950, he appeared by his pleader, Mr. Handa, and agreed that the particulars given (which included the respective values of the houses) were in order, subject to the "measurements" of the houses being given. These were duly given by the respondent. The Court ordered the sale to be held on the 25th May, 1950.

A Proclamation of Sale was issued on the 13th April, 1950, giving notice of the sale for the 25th May, 1950, in satisfaction of the respondent's claim amounting with interest and costs to the sum of Rs. 37,074/4, and stating the respective values of the houses to be Rs. 20,000 and Rs. 15,000 as in the agreed particulars. A copy of the proclamation was served on the appellant on the 14th April, 1950. Also on the 13th April, 1950, the respondent as decree holder made an application for leave to purchase the mortgaged property. (Rule 298 (1) of the Aden Rules of Court prohibits a holder of a decree in execution of which property is sold from bidding for or purchasing the property without the express permission of the Court.)

Notice of the hearing of this application was given to the appellant. It was heard on the 1st May, 1950, when his pleader, Mr. Handa, appearing on his behalf, again raised no objection to the values respectively stated in respect of the houses in the Proclamation, but submitted that an upset price should be fixed. (An "upset" price is a synonym for "reserved price"-see Stroud's Judicial Dictionary, 2nd edition).

Rule 299 of the Rules of Court reads as follows: —

"If leave to bid is granted to the mortgagee of immovable property, a. reserve price as regards him shall be fixed (unless the Court shall otherwise think fit) at a sum not less than the amount then due for principal, interest and costs in case the property is sold in one lot, and not less in respect of each lot (in case the property is sold in lots) than such figures as shall appear to be properly attributable to it in relation to the amount aforesaid."

The learned Judge recorded the following note:—

"Order by consent; leave to bid."

The two houses were put up for sale as separate lots on the 25th May, 1950. The house comprised in Grant No. 1335 was knocked down to the respondent at Rs. 19,000 or Rs. 1,000 less than its agreed value, and the house comprised in Grant No. 1150 was knocked down to one A. H. H. Abadi, at Rs. 17,600 or Rs. 2,600 more than its agreed value. In his report of the sale to the Court, made on the same day, the auctioneer made no mention of any reserve price, as one might have expected him to do, in the circumstances, had he in fact been instructed that the sale was to be subject to reserves. In our view when a reserve is fixed by the Court under rule 299, it should as a matter of principle be notified to the auctioneer in writing and a copy of such notice should be included in the record of the suit.

The confirmation of the sale was listed for the 26th June, 1950, and on the 26th May, 1950, the appellant filed an application to have the sale set aside on the ground that the prices fetched were greatly below the true value of the premises.

The appellant was given notice of the confirmation proceedings, and his application to have the sale set aside was heard at the same time. He appeared in person, contended that the premises had been sold much below their true value, and stated that, if given six months, he could pay the amount due to the respondent. He was unable to produce a purchaser who was prepared to pay better prices than had been realized at the sale. The learned Judge dismissed the appellant's application, and made an order confirming the sale.

Certificates of Sale in respect of the two properties were applied for by the respondent and A. H. H. Abadi respectively and were issued respectively on the 22nd and 12th July, 1950.

In his Memorandum of Appeal the appellant has again urged that the sale ought not to have been confirmed because the prices realized were too low, and maintains that he ought to have been allowed six months' time in which to pay the respondent's claim. He attributes the low prices realized for the premises to the failure to state the true values of the premises in the Proclamation of Sale.

The respondent filed a written declaration under rule 13 (3) of the Eastern African Court of Appeal Rules, 1925, that he did not wish to attend in person or by pleader at the hearing, and filed written arguments as permitted by the rule.

This appeal first came on for hearing in Nairobi on the 12th February, 1951, when Mr. Chanan Singh, of the Kenya Bar, appeared for the appellant and informed the Court that he had received last-minute instructions, and had not yet obtained a copy of the respondent's written arguments. The hearing was therefore adjourned sine die.

At the adjourned hearing before us at Dar es Salaam on the 18th September. 1951, the appellant was represented by Mr. Ghulamali and Mr. Ali of the Tanganvika Bar. The respondents were absent and unrepresented.

The relief prayed in the Memorandum of Appeal is that the Order of the Supreme Court of Aden confirming the sale should be set aside, and that the Supreme Court should be directed to make proper estimates of the values of the appellant's properties in a fresh Proclamation of Sale, so that better prices for the properties may be obtained.

Mr. Ghulamali, in supporting the grounds of appeal stated in the appellant's memorandum, pointed out that, as regards the value of the premises, the respondent himself had, on the 11th October, 1949, placed the value of each property at Rs. 20,000, whereas in the Proclamation of Sale the two properties were stated to be of the value of Rs. 20,000 and Rs. 15,000 respectively. The respondent's valuation of the premises, on the 11th October, 1949, was, however, made in the course of execution proceedings which were withdrawn on terms. In the course of the execution proceedings which have led to this appeal, the respondent placed the respective values of the properties at the same figures as were respectively stated in the Proclamation of Sale—namely, Rs. 20,000 and Rs. 15,000. These values were agreed to by the appellant's pleader at the time when the conditions of sale were settled, and were not challenged by him at the hearing of the respondent's application for leave to purchase the properties. We do not think that it is now open to the appellant to challenge these values.

As regards the appellant's contention that the learned Judge of the Supreme Court ought to have allowed the appellant six months' time in which to meet the respondent's claim, Mr. Ghulamali submits that the appellant could have found a purchaser who would have paid a price sufficient to meet the respondent's claim if he (the appellant) had been granted the extension asked for. He has referred us to rule 310 of the Aden Rules of Court, paragraph (1) of which reads as follows: —

"(1) Where an order for the sale of immovable property has been made, if the judgment-debtor can satisfy the Court that there is reason to believe that the amount of the decree may be raised by the mortgage or lease or private sale of such property, or some part thereof, or of any other immovable property of the judgment-debtor, the Court may, on his application, postpone the sale of the property comprised in the order for sale on such terms and for such period as it thinks proper, to enable him to raise the amount."

In the present case, however, the appellant's pleader, Mr. Handa, agreed to the Order for Sale being made. There was no question of the postponement of the sale. It is true that after the Order for Sale had been made, and after the particulars and conditions of sale had been settled with the concurrence of his pleader, the appellant, on the 23rd May, 1950, personally filed an application for time to pay. The learned Judge, however, rightly in our opinion, regarded this application as too late, and declined to postpone the sale. When the appellant's application to have the sale set aside was heard, the appellant was unable to produce a purchaser who would pay better prices than those which had been realized at the sale. We are of the opinion that this ground of appeal must fail.

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Mr. Ghulamali has, however, raised the further point that the sale was irregular because the learned Judge, when the respondent applied for leave to purchase the mortgaged properties, and in granting him leave to bid, failed to fix a reserve price as regards him as required by rule 299 supra.

On the hearing of the respondent's application for leave to purchase, Mr. Handa, for the appellant, submitted that an "upset" (i.e. "reserve") price should be fixed. The learned Judge, however, in his order, made no mention of an upset or reserved price. He merely noted "Order by consent; leave to bid". It seems strange that Mr. Handa, who had made the point that an upset price should be fixed, should have consented to an order which did not fix any reserve, if such was

the meaning of the learned Judge's note. On the other hand, the learned Judge does not appear to have given any consideration to the question as to whether the two properties should be sold as one lot or, as in fact they were, as two. The auctioneer appears to have received no instructions as to reserve prices, and the total of the prices realized for the two properties (Rs. 36,000) was "less than the amount then due for principal, interest and costs", which amount was stated in the Proclamation of Sale to be Rs. 37,074/4.

It may be that the learned Judge construed rule 299 to mean that he had a discretion to follow either one of two courses-

(a) to fix a reserve price at a sum not less than the amount then due for principal, interest and costs in case the property was sold in one lot, and not less in respect of each lot (in case the property was sold in lots) than such figure as should appear to be properly attributable to it in relation to the amount aforesaid; or

(b) not to fix a reserve price at all. $(b)$

If this was the construction placed upon the rule by the learned Judge, then, with respect, we think he was mistaken. We were informed by Mr. Ghulamali that this rule, which is not to be found among the rules in the First Schedule to the Indian Code of Civil Procedure, 1908, on which the Aden Rules are modelled, was introduced in Aden "to save the local population from ruin".

It is not uncommon in Colonial dependencies to find an astute and probably alien merchant class which tends to take advantage of the simplicity of the local community in the matter of loans on mortgages of immovable property. Loans are often made which are out of proportion to the true market value of the security offered, and often at a high rate of interest. On the mortgagor's making default, the mortgagee then, in the absence of some such rule as rule 299, is frequently able to buy in the mortgaged property cheaply at a forced sale, and, in addition, to saddle the mortgagor with a personal decree for the balance of the decretal amount.

It seems to us that it is at some such mischief that rule 299 is aimed. In our opinion, the words "a reserved price as regards him shall be fixed" are mandatory, and are not qualified by the words "(unless the Court shall otherwise think fit)". These latter words relate to the amount of the reserve which must be fixed, and give the Court a discretion in that respect only. The reserve, or, in the case of two or more lots, reserves, must therefore either-

- (a) equal the amount due for principal, interest and costs, or in the case of two or more lots, add up to that amount; or - $(b)$ in the Court's discretion, be fixed at some lower figure.

In the normal course, therefore, if a mortgagee is given leave to purchase, it will be at a reserve price or prices which will equal, and therefore cancel, the amount due to him, and there will be no balance outstanding in respect of which a personal decree against the mortgagor could issue. There may be cases, however, as where owing to the failure of the mortgagor to pay interest, the amount due is greatly in excess of the true value of the property, or where such value has markedly depreciated since the date of the mortgage, when it would be inequitable to fix the reserve at the full amount due to the mortgagee, and in such cases the Court has a discretion to fix the reserve at a lower figure.

In the present case, it is not impossible that the learned Judge, in recording the consent order on the respondent's application for leave to purchase, may have intended that Mr. Handa's submission that an upset price should be fixed should be acceded to. He may not have intended that the properties should be sold in two lots, and may have meant that a reserve should be fixed at the total value of the two properties as settled for, and stated in, the Proclamation of Sale—i.e. Rs. 35,000, which was in fact exceeded at the sale, when the two lots respectively fetched Rs. 19,000 and Rs. 17,600 or Rs. 36,600 in all.

The appellant's prayer for relief in his Memorandum of Appeal appears to request us not only to set aside the order confirming the sale, but also to set aside the sale itself. This latter, in the circumstances, we are not prepared to do.

The property comprised in Grant No. 1150 was purchased for Rs. 17,600, or Rs. 2,600 in excess of its agreed value, by A. H. H. Abadi, who was not a party to the suit. There was no need, "as regards him", to fix a reserve price under rule 299. We think, therefore, that his title to this property cannot be disturbed.

As regards the property comprised in Grant No. 1335, which was purchased by the respondent, the position is different. It is not entirely clear whether the learned Judge intended to fix a reserve price "as regards him" (the respondent) or not, and, in our opinion, it is essential that the true position should be ascertained, as, in the case of the respondent, a reserve price was required by law, and the failure, if any, to fix a reserve price was a material irregularity.

We therefore allow the appeal to the extent of setting aside the Order of the Supreme Court of Aden confirming the sale in so far as it relates to the property comprised in Grant No. 1335 which was purchased by the respondent. If, in fact, no reserve price was fixed as regards the respondent in respect of the sale of this property, then the Supreme Court is directed to set aside the sale thereof, to fix a reserve price therefor in accordance with rule 299 as explained above, and to order a new sale. If, however, the intention of the Supreme Court was that the sale should be subject, as regards the respondent, to a reserve of Rs. 20,000 on this property and Rs. 15,000 on the other, then it is apparent that the reserve in respect of this property was not reached and we do not think that the respondent can make up this deficiency by crediting the excess over the reserve realized on the sale of the other property. Again, if this was really the position, the proper course would appear to be to set aside the sale. We have, however, hesitated to make such an order ourselves because, owing to the unsatisfactory state of the record supplied to us, we cannot exclude the possibility of the learned Judge having, in the exercise of his discretion, fixed a reserve lower than the agreed value of the property.

As regards the preparation of the record for this appeal, much of what we have said in our judgment in Civil Appeal No. 47 of 1950 as regards the preparation of the record for that appeal also applies in the present case, and should be carefully noted.

As regards costs, the appellant, who was also the appellant in Civil Appeal No. 47 of 1950, has again seen fit, as in that appeal, to make scurrilous and unjustifiable imputations against the Judge and pleaders of the Supreme Court of Aden in his affidavit in support of his Memorandum of Appeal.

As in Civil Appeal No. 47 of 1950, we are not prepared to allow such scandalous allegations to be made with impunity. The appellant, therefore, will not be awarded any part of his costs of this appeal against the respondent. Each party to this appeal will bear his own costs in respect of the property comprised in Grant No. 1335, as to which the appeal has been allowed, and the appellant must pay to the respondent the respondent's costs of the appeal in respect of the property comprised in Grant No. 1150, as to which the appeal has failed. We assess these costs at half the amount at which the Taxing Officer would in his discretion have taxed the respondent's bill of costs had the appeal wholly failed.