1947 (3) TMI 30 - HC - Indian Laws

Summary

Issues Involved:
1. Enforceability of two mortgage deeds.
2. Extent of liability under the first bond.
3. Validity of the second bond's consideration.
4. Applicability of interest rates.
5. Limitation period for recovery.
6. Mutuality of the account.
7. Application of the rule in Clayton's Case.
8. Right to charge interest on unsecured amounts.

Detailed Analysis:

1. Enforceability of Two Mortgage Deeds:
The respondent bank sought to enforce two mortgage deeds executed by the appellant. The first deed, dated 5-11-1928, secured Rs. 15,000 and hypothecated a two-storied building and three bighas of land. The second deed, dated 28-4-1933, secured Rs. 20,000 and included additional land. The bank claimed Rs. 33,485-13-1 under the first bond and Rs. 20,600-14-2 under the second, seeking a preliminary mortgage decree with liberty to apply for a personal decree if dues were not realized.

2. Extent of Liability Under the First Bond:
The appellant argued that the first bond was only to secure an existing liability of Rs. 15,000 and was satisfied by payments made up to 21-8-1931. The court held that the bond was intended to secure a floating balance of account, not just the initial Rs. 15,000. The bond's terms allowed for future loans up to Rs. 15,000, inclusive of interest. The court found that the bond remained effective security for Rs. 15,000 even after partial repayments.

3. Validity of the Second Bond's Consideration:
The appellant denied the passing of consideration for the second bond. The court found that the consideration passed by way of a book transaction, reducing the outstanding overdraft by Rs. 20,000. The second bond was not merely to cover the amount due under the first bond but was an independent transaction.

4. Applicability of Interest Rates:
The court noted that the first bond allowed interest to be compounded yearly, not monthly. For the unsecured amount, the bank charged interest at twelve annas per hundred rupees per month, compounded monthly. The court found this rate acceptable as the defendant had not objected, implying agreement.

5. Limitation Period for Recovery:
The court held that the limitation for the secured debt under the first bond began on 1-1-1932, making the suit filed on 2-1-1941 within time. However, for the unsecured portion, limitation was not saved by any payments made by the defendant, as each overdraft was an independent loan governed by Article 57 of the Limitation Act.

6. Mutuality of the Account:
The court found that the account was not mutual. Although there were credit balances in favor of the defendant between 1922 and 1927, the account was overdrawn continuously from July 1927 onwards, except for a brief period in 1931. The court concluded that the account did not involve mutual dealings but was a debtor-creditor relationship.

7. Application of the Rule in Clayton's Case:
The court held that the rule in Clayton's Case, which presumes that payments are applied to the earliest items on the debit side, did not apply rigidly. The conduct of the parties indicated that the first bond remained effective security for Rs. 15,000. The court found no evidence that the bank intended to apply payments to the satisfaction of the secured debt first.

8. Right to Charge Interest on Unsecured Amounts:
The court found that the bank was entitled to charge interest on the unsecured amounts as shown in the passbook, except for the mistake of compounding interest monthly instead of yearly on the secured amount.

Conclusion:
The court upheld the decree of the Subordinate Judge regarding the bond of 1933. It modified the decree related to the bond of 1928 by allowing interest at the bond rate from 1-1-1932 to the date of the suit and at six percent simple interest per annum pendente lite. The appeal was dismissed with costs, and the cross-objection was allowed in part with proportionate costs.