Karachiwalla v Nanji and Others (Civil Appeal No. 6 of 1955) [1950] EACA 112 (1 January 1950)

## H. M. COURT OF APPEAL FOR EASTERN AFRICA

Before Sir Newnham Worley (President), Briggs and Bacon, Justices of Appeal

## MOHAMEDALI JAFFER KARACHIWALLA, Appellant (Original Defendant No. 1)

## (1) NOORALLY RATTANSHI RAJAN NANJI, Respondent No. 1 (Original Plaintiff), (2) ISMAILIA CORPORATION LIMITED, Respondent No. 2 (Original Defendant No. 2), KARMALI KHIMJI PRADHAN, Respondent No. 3 (Original Defendant No. 3)

## Civil Appeal No. 6 of 1955

(Appeal from the decision of H. M. Supreme Court of Kenya, Mayers, J.)

Mortgagee-When power of sale arises-Whether suit compromised-Indian Transfer of Property Act, 1882, section 67.

The appellant had mortgaged certain land in favour of the second respondent and had created a second mortgage in favour of the assignor of the third respondent and a third mortgage in favour of the first respondent (plaintiff in the Supreme Court). The mortgagor defaulted in payment of the principal sums and interest due on the first and second mortgages and had failed to pay the ground rent and municipal rates in respect of the mortgaged property and had also failed to pay the requisite insurance premium and the instalments and interest due under the third mortgage. The first respondent sent the mortgagor a notice requiring him to rectify these defaults within five weeks failing which proceedings would be instituted. These proceedings were instituted, claiming the principal sum and interest due and an order for sale of the mortgaged property. The first and second mortgagees were joined as second and third defendants and the Supreme Court passed a preliminary decree for sale of the property failing payment of the amounts found to be due to all the mortgagees. Two points of substance were argued on appeal. First, that no right to sell had arisen by reason of the mortgagors' default, but only a right to a personal judgment against the mortgagor, and secondly that the suit had been compromised after its institution in the Supreme Court and before judgment. A document headed "Terms of Settlement" had been drawn up and intialled by the appellant and the first respondent, but the Supreme Court had found that it was not intended to be a concluded agreement.

Held (27-3-56).—(1) The mortgage money had become payable and, in accordance within the provisions of section 67 of the Indian Transfer of Property Act, 1882, as applied to the Colony and Protectorate of Kenya, the mortgagee accordingly had a right to obtain from

the Court an order that the property be sold.

(2) The settlement of the suit was dependent on the parties executing a fourth mortgage, referred to in the "Terms of Settlement", but this had never been done.

Appeal dismissed.

Cases referred to: Williams v. Morgan, (1906) L. R. 1 Ch. 804; Edwards v. Martin, (1856) 25 L. J. Eq. 283; Kidderminster Mutual, etc. v. Haddock, (1936) W. N. 158; Bolton<br>v. Buckenham; (1891) L. R. 1 Q. B. 278; Forbes v. Git, (1922) L. R. 1 A. C. 256 (P. C.);<br>Yoe Htean Sew v. Abu Zaffer Koreeshee, (1900) 27 I.

D. N. Khanna and D. D. Doshi for appellant.

Cleasby for respondent No. 1.

M. C. Satchu for respondents 2 and 3.

JUDGMENT (prepared by Worley, President).—The appellant herein is the lessee of three parcels of land situate on Mombasa Island. By an indenture dated 29th October, 1951, he mortgaged these three parcels in favour of the second respondent to secure repayment of the sum of Sh. 84,000 together with interest thereon; by a second indenture of the same date he mortgaged the same three parcels, subject to the first mortgage, in favour of the assignor of the third respondent to secure repayment of a sum of Sh. 21.623 together with interest thereon. By a third indenture of the same date he mortgaged the same three parcels in favour of the first respondent (plaintiff in the Supreme Court), subject to the first and second mortgages, to secure repayment of the sum of Sh. 150,000 together with interest thereon at the rate of 4 per cent on the first Sh. 100,000. 9 per cent on the second Sh. 25,000 and 12 per cent on the third Sh. 25,000.

It will be convenient at this stage to set out the covenants of this third mortgage which are relevant to the matters argued on this appeal: Firstly, after recitals, the mortgagor covenanted to pay to the mortgagee the sum of Sh. 150,000 on 30th June, 1968, together with interest computed as therein provided and he covenanted to pay such interest at the end of every month as it accrued due and payable. Then follows an assignment by the mortgager to the mortgagee of the three parcels of land for the balance of their respective terms of years together with buildings situate and to be erected thereon. The mortgagor further covenanted as follows: -

- "(b) During the term of this mortgage and so long as any moneys remain due and owing under these presents the mortgagor will pay all the amounts whether for principal interest or otherwise due or to fall due under the first and second mortgages hereinafter referred to and will observe and carry out all the terms and conditions contained in the respective indentures of leases and on the part of the mortgagor as lessee to be observed, performed and carried out and also pay the ground rent and all municipal rates and taxes and all outgoings in respect thereof regularly. - (d) To insure and keep insured all buildings situate and to be erected on the land; and should he fail to do so liberty was reserved to the mortgagee to pay the necessary premium or premia and to debit the mortgagor with all moneys so paid which were to be repayable by the mortgagee on demand, and any such payments were to be a charge upon the land. - (e) Should the mortgagor make any default in payment of the ground rents, municipal rates and taxes insurance and payments of premium or premia in respect thereof or should he fail to pay interest regularly and punctually to the mortgagee under the first and second mortgages or should he fail to pay the interest due on the principal sum or sums advanced regularly as hereinbefore provided or should he fail to carry out any of the covenants and conditions and agreements herein contained then in any one of such cases the mortgagee shall be at liberty to demand the repayment of the principal sum together with all interest due thereon notwithstanding the time for repayment thereof hereinbefore provided and shall be entitled to recover the same through a Court of law: Provided always that the mortgagee shall not enforce his right to claim and recover the whole principal sum in event of any of the above defaults until after 1st January, 1952, and even after the said date until after a five-week previous written notice is first given by the mortgagee to the mortgagor demanding the compliance of any default or breach as aforesaid... - (f) He the mortgagor agrees that he will repay the sum of Sh. $150,000$ (shillings one hundred and fifty thousand) to be advanced hereunder

by twenty-five half-yearly instalments of Sh. 5,000 (shillings five thousand) the first of such half-yearly instalments to be paid on the 30th day of June, one thousand nine hundred and fifty-two, and the remaining twenty-four at the end of every six months and thereafter the balance by eight half-yearly instalments the first seven instalments of Sh. 3,000 (shillings three thousand) each and the eighth instalment of Sh. 4,000 (shillings four thousand) thus paying off the whole amount by the 30th day of June, one thousand nine hundred and sixty-eight, as hereinbefore provided....

(h) The mortgagee hereby covenants with the mortgagor that if the mortgagor shall repay the total principal sum advanced under these presents together with interest thereon due as hereinbefore provided by the 30th day of June, one thousand nine hundred and sixty-eight, the mortgagee will at any time thereafter after the expiry of the stipulated date at the request and cost of the mortgagor reassign and surrender the lands and all buildings to the mortgagor as he the mortgagor may direct."

The mortgagor having made default in payment of the principal sums and interest due under the first and second mortgages and having failed to pay the ground rent and municipal rates in respect of the mortgage property and also having failed to pay the requisite insurance premium and the instalments and interest payable under clause $(f)$ of the third mortgage, the first respondent on the 2nd July, 1953, sent him the prescribed notice (exhibit 8) requiring him to rectify these defaults within five weeks, failing which the mortgagee would take action to recover the principal sum and interest due under the third mortgage. The appellant having failed to comply with the notice, first respondent filed his plaint on 8th August, 1953, claiming Sh. 163,784, being his principal sum and interest up to 31st July, 1953, further interest thereon as claimed and an order for the sale of the mortgage property. The first and second mortgagees were joined as second and third defendants. In a reserved judgment Mayers, J., found for the plaintiff and passed a preliminary decree for sale, date 21st January, 1955, in which the amounts due to the plaintiff and the second and third defendants were certified and it was ordered that the mortgagor should pay into court these amounts on or before 15th March, 1955, failing which the mortgage properties or sufficient part thereof were to be sold and the proceeds applied to the discharge of the mortgages in order of priority. Further, it was ordered that in the event of the net proceeds of the sale being insufficient to pay these amounts and costs in full a personal decree should issue against the mortgagor for the amount of the balance.

From that decree the mortgagor has appealed to this Court and the only two matters raised by the appellant which I propose to consider in this judgment $are: -$

- (a) that no right to sell had arisen by reason of the mortgagor's defaults, and - (b) that the suit had been compromised after its institution in the Supreme Court and before judgment.

Any consideration of the former point must start from the basis of section 67 of the Indian Transfer of Property Act, 1882, as applied to the Colony and Protectorate of Kenya. That section, so far as relevant, reads:-

"In the absence of a contract to the contrary, the mortgagee has at any time after the mortgage money has become payable to him and before a decree has been made for the redemption of the mortgaged property, or the mortgage money has been paid or deposited as hereinafter provided, a right to obtain from the Court an order that the mortgagor shall be absolutely debarred of his right to redeem the property, or an order that the property be so sold."

The question then becomes simply this: had the mortgage money become payable at the date of institution of the suit and, if so, is there anything "to the contrary" in the contract which disentitled the first respondent from obtaining the order for sale? I think it is quite impossible in view of clause $(e)$ of the mortgage deed, to contend that the principal sum and interest did not become due and payable by reason of the appellant's default, although the period for repayment had not elapsed. I did not understand Mr. Khanna to dispute this, but he contended that the clause (e) merely gave the mortgagee liberty to sue for a personal judgment against the mortgagor for the amount owing, without the right to exercise any power of sale. He supported this argument by citing a number of English cases: Williams v. Morgan, (1906) L. R. 1 Ch. 804; Edwards v. Martin, (1856) 25 L. J. Eq. 283; Kidderminster Mutual, etc. v. Haddock, (1936) W. N. 158, and *Bolton v. Buckenham*, (1891) L. R. 1 Q. B. 278. I have considered all these cases, but do not propose to review them in this judgment because each depends upon the construction of a particular instrument and upon English equitable principles. In the instant case our duty is to apply the statute, which clearly gives the mortgagee the right to an order for sale once it is shown that the mortgage money has become payable.

But Mr. Khanna would, I think, reply that there is in the contract provision to the contrary. He has laid great stress upon the mortgagor's covenant to repay the principal sum and interest "on 30th June, 1968" and on the mortgagee's covenant to reconvey if the principal sum and interest be paid "by 30th June, 1968". He has argued that the conditions contained in clauses (e) and (f) are entirely inconsistent with the former of these two covenants and must be ignored and that, since the latter covenant to reconvey is not made subject to the performance on the part of the mortgagor of these conditions, the obligation to reconvey on the due date is absolute. I am unable to accept this view. It is clear that the deed is not so skilfully drawn as it might have been, but I find no difficulty in reading together the first covenant to repay with clauses (e), (f) and $(h)$ so as to give effect to the intention disclosed by the deed as a whole. This is not a case where clauses in a deed are mutually irreconcilable; the later clauses $(e)$ and $(f)$ do not destroy but only qualify the covenant to repay-as is shown by the use in the covenant to reconvey of the expression "repay... as hereinbefore provided by 30th June, 1968"—and, therefore, the two<br>are to be read together: Forbes v. Git, (1922) L. R. 1 A. C. 256, P. C. This view is, in my opinion, also consistent with the decision of the Judicial Committee in the case relied on by Mr. Cleasby, Yoe Htean Sew v. Abu Zaffer Koreeshee, (1900) 27 I. A. 98.

The second point argued on the appeal was whether there was a concluded compromise of the suit. For this, Mr. Khanna relied mainly on a document (exhibit E) headed "Terms of Settlement" and initialled by the appellant and the first respondent. The document is undated but it is common ground that it was drawn up about 9th September, 1953, after the parties had consulted Mr. C. A. Patel, an advocate, with a view to settling their differences. The learned trial Judge rightly held that the onus of establishing this defence was upon the defendant-appellant and, after reviewing the conflicting evidence as to what was and was not agreed to, he accepted the version of the first respondent and of his witness Mr. C. A. Patel and concluded that exhibit E was not intended by either party to be a concluded settlement of the action. In so far as that conclusion was based on the learned Judge's estimate of the credibility of the witnesses, we should be slow to interefere with it and, indeed, nothing has been said in this appeal which would warrant such interference. But I also agree with the learned Judge that examination of the document exhibit E shows that it was not intended to be a concluded agreement. Clause 7 of exhibit E reads: "Letters to be addressed to all tenants if rent not paid within a certain time, terms to be agreed as to what will happen in default". It is clear from the evidence that this clause was not drafted in this form because the parties wished merely to relegate to the future the settlement of an unimportant detail, but that the question left unsettled was the real rock on which the negotiations foundered.

Further, clause (5) reads: "Fourth mortgage Sh. 50,000, 12 per cent interest to be paid every month, interest on interest if in arrears". A draft of a fourth mortgage deed (exhibit 10) was drawn up which bears the appellant's signature and one other which is illegible; but it has not been sealed or witnessed, and the original, which we have seen, is interlined with numerous additions and alterations which are not initialed. Moreover, the amount to be advanced has been increased to Sh. 56,000 and the amount covenanted to be repaid to Sh. 68.000: other new terms are included in a Schedule. It cannot, therefore, be said that this document merely carries out the heads of agreement contained in exhibit E. The true position is, in my opinion, disclosed in the recitals of this document where it is stated: "And whereas the mortgagor being desirous of adjusting and settling all litigation with the said Noorally Rattanshi Rajan Nanji and paying all sums due under the previous mortgages, etc". In other words, the settlement of the suit was dependent upon the parties executing this fourth mortgage, which was never done because, as the learned Judge found, the first respondent grew tired of the appellant's repeated efforts to increase the amount to be secured by this mortgage.

For these reasons I am of opinion that this appeal fails on all points and should be dismissed with costs.

BRIGGS, $J. A.-I$ agree.

$BACON$ , J. A.—I also agree.