Topic: Define mortgage and explain different kind of mortgages.

Introduction

Section 58 of the transfer of property act, 1882 deals with “mortgage”,

and 6 kinds of mortgage.

Section 58 (a) of transfer of property act define mortgage & section 58

(b) to (g) deals with kinds of mortgage.

Under transfer of property act 6 types of mortgage are described. They

are simple mortgage, usufractuary mortgage, mortgage by conditional
sale, English mortgage, mortgage by deposits of title – deeds &
Anomalous mortgage.

In a simple mortgage: - what is transferred is power to sale, which is

one of the components that make up the aggregate of ownership.
In a usufractuary mortgage:- What is transferred is a right of
possession & enjoyment of the usufruct.
In a conditional mortgage & in a English mortgage :- The right
transferred is, in form, a transfer of a right of ownership subject to a
condition.

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 What is mortgage?
Section 58 (a) of transfer of property act defines mortgage. It states that
“A mortgage is the transfer of an interest in specific immovable property
for the purpose/ sake of:

 Securing payment of money advanced or to be advanced by

way of loan
 Satisfaction of an existing debt or future debt.
 Performance of any engagement which may give rise to a
pecuniary liability

Money advanced to be advanced means:- A mortgage may be

executed for a sum kind of money advanced or to be advanced on a
future date. Where the mortgagor has already given some money, the
mortgagor may execute deed of mortgage as security for its payment.
This is a mortgage for the money advanced.

The mortgage may also execute the deed of mortgage before he gets full
amount from the mortgagee.

In the case State of Kerala Vs. Cochin chemical Refineries(1968),

The supreme court held that ; the transaction of mortgage does not
become ineffective merely because the mortgage could not advanced the
money on the debt of execution of the deed.

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In the case Raghunath Vs. Amir baksh (1922) Pat
It was held by the Patna high court that the mortgage was effective from
the date of its execution which was 3rd may i.e. before the sale, therefore
“c” was bound by the mortgage.

An Existing or future debt :- ‘Existing debt’ means a debt the claim of

which exists at present.

Example:- A debt that is not barred by limitation. Such debt may

secured by way of mortgage. The mortgage may be affected to secure
also a ‘future debt’
‘future debt’ is a sum of money that the mortgagee is entitled to get from
mortgagor on a future date.

The performance of any engagement which may give rise any

pecuniary liability:-

Consideration in the mortgage may also be an ‘engagement ‘which give

rise to a peculiar liability against the mortgagor. The word
“engagement” as used in the section means a contract within the
meaning of section 2 of Indian Contract Act 1872.

Just as a breach of contract result into pecuniary liability the engagement

contemplates here should also arise into a pecuniary liability. Pecuniary
liability means liability to pay a sum of money.

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Mortgagor :- Mortgagor is the person who transfers the interest in the
mortgage property.

Mortgagee:- Mortgagee is the person whom such interest is transferred

in a mortgaged property.

Mortgage money:- It is money or interest of which payment is secured.

Mortgage deed: - It is the instrument or deed of such transfer.

A mortgage is a transfer of an interest in specific immovable property as

security for repayment of debt or mortgage money.

Essential Elements of Mortgage

1) Transfer of an interest: -

The transfer must be to a living person or person by a living perso ie,

inter vivos (section 5) “Transfer of an interest” these words stands in
contrast with the word transfer of ownership.

According to definition of “sale” in section 54

In sale,
All the rights of ownership which the transferor has pass to the
transferee.
But, In a mortgage
Some rights are transferred to the mortgagee and some remain vested in
the mortgagor.

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Eg:- Transfer of the right to receive rents & profit from tenants for a
term of the year is a transfer of an interest in land & may constitute a
mortgage.
The word “transfer of an interest” also distinguish a mortgage from
an agreement to mortgage & from a charge.

In an agreement to mortgage no right in rem is transferred but only a

personal obligation is created.
Similarly in a charge, no right in rem is created, but the right is
something more than a personal obligation; for it is a jus ad rem. Ie, a
right to payment out of the property specified.

In a mortgage, there is transfer of only ownership. The ‘interest’ is

transferred in favour of the mortgagee who advanced the money as
a loan. It is the transfer of property which gives him(mortgagee) the
right to recover his money from mortgage’s property.

In the case Ali Hussain Versus Nila kandon (1864)

Court held that “mortgage is not transfer of all the interst in favour
mortgagee, there still remains vested remainder with the
mortgagor”.

The first essential condition of mortgage is that there must be a

transfer of some interest in the property of the mortgagor. Therefore
mortgage is a transfer of property within the meaning of section 5 of this

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act. Thus all the essential conditions for a valid transferred must be
fulfilled also in mortgage.

2. Specific Immovable Property

In order to create a mortgage it is necessary to specify the immovable

property. The description must at least be sufficient to identify the
property according to the requirement of section 21 & 22 of the
registration act, 1908.

The description must follow section 29 & 92 of the Indian contract act
1872 and the Indian evidence act respectively.

There should be consensus ad idem between the mortgagor and

mortgagee for which immovable property is to be transferred.

The word specific show that the description should not be free from
ambiguity & uncertainty but also that it is should be specific, as
distinguished from the general.

The immovable property also includes things attached to hat is

embedded to the earth. For instance, machinery attached permanently in
a house for beneficial enjoyment of that house (say, water, pump) is also
an immovable property.

Therefore mortgage of the house shall includes also the mortgage of that
machinery which is part of that immovable property. But if the
machinery or the other fixed is not attached for permanent beneficial
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enjoyment, it shall not form part of security if the house is
mortgaged.”:- Narayana Vs. Bologuruswami(1924)

Purpose of Mortgage

The purpose or object of mortgage is to secure a debt. A transfer made

for the purpose of discharging a debt, not a mortgage. Thus if “A” land
to “B” for a term of the year in satisfaction of the debt, this is not
mortgage, but a grant of land for a term free from rent.

The mortgage is transfer of property supported with some consideration;

the consideration of mortgage is to a secure a debt.

Mortgagor transfers the interest in his property to mortgage in

consideration of security for a payment of some kind of loan taken by
him.

Loan may be in the form of

 Money advanced or to be advanced

 An existing or future debt
 The performance of an engagement which may give rise to any
pecuniary liability

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 Classification of Mortgage

Section 58(b) to (g) to transfer of property act, 1872 deals with the
classification of the mortgage.

The classification of mortgage has been made on the basis of the nature
of the interest which is transferred for securing the loan.

Section 58 (b):- Simple mortgage

Simple mortgage is where the mortgagor promise to pay the mortgage
money without delivery of the possession of the mortgaged property &
agrees expressly or impliedly that in case of non - payment of loan the
mortgage shall have the right to cause the mortgaged property to be sold,
the mortgage is a simple mortgage.,
A simple mortgage consists of:-

 A personal obligation, express or implied to pay the loan  

 The transfer of a right to cause the property to be sold

The right transferred to the mortgagee is not ownership

 The possession of the mortgaged property is not given to the
mortgagee.

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 Essential Features of Simple Mortgage

1. Mortgage Personal Obligation To Pay

The first essential feature of a simple mortgage is that mortgagor binds
himself personally for the repayment of loan. Such personal liability
may either be express or implied.
It is express if the mortgagor, in clear words, takes personal
undertaking that he shall repay the money to the mortgagee.
It is implied where such undertaking by the mortgagor is inferred from
the terms of the contract.

It is to be noted that for a simple mortgage, the existence of personal

liability of the debtor is necessary whether it is express or implied. In the
absence of a personal covenant for repayment of the loan, the transaction
is not a mortgage.

2. No delivery of possession

Another essential element of a simple mortgage is that possession of the
mortgaged - property is not given to the mortgagee. If possession is
given to the mortgagee, the transaction would become a ' simple
mortgage, usufructuary '  & would come under the category of
anomalous mortgage under section 58(g) of this act.

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Simple mortgage is distinguished from usufructuary mortgage 
because in usufructuary mortgage the possession of the mortgaged
property is given to the mortgagee has right for the enjoyment of that
property, but in simple mortgage, no such possession is given & the
mortgagee is not entitled to get possession of the property.

3. Right To Cause The Property To Be Sold  

In a simple mortgage, it is necessary that mortgagee is given the right to
cause the sale of the mortgaged property in default of payment.
If the mortgagor fails to return back the loan, the mortgagor must be
entitled to recover his money by causing the sale of the property.
Mortgagee himself has no power to sale the property: he has to get a
degree from a court for the sale. 

‘The right to cause mortgage property to be sold' is an essential element

of a simple mortgage & this right must be given to mortgagee expressly
or impliedly. Where the document does not give this right to the
creditor, the transaction is not a simple mortgage. 

In a simple mortgage, the interest transferred in favor of mortgage

is his right to cause the mortgaged property sold in default of non -
payment of the loan.

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Remedies Available to Mortgagee
 If the mortgagor fails to repay the loan within the stipulated period, the
mortgagee has 2 remedies available

 As the mortgagor takes personal obligation to repay the loan,

the mortgagee may sue the mortgagor for the recovery of the
money.
 Mortgagee may also move to the court for the sale of mortgage
property so that his money can be recovered. Proceeds of the
sale are applied for payment of debt with interest & the
remaining part of it is returned to the mortgagor.

A simple mortgage can be only through a registered instrument. Even if

the sum of money secured is less than Rs. 100, a simple mortgage must
be effected by registered instrument:- S.59

A mortgage in favor of minor is void ab initio by virtue of section 11

of the Indian Contract Act, 1872.

Section 58(c): Mortgage by conditional sale

Mortgage by conditional sale is an apparent sale with a condition that

upon repayment of consideration amount, the purchaser  shall re-transfer
the property to the seller

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Essential Element:

1. There is an ostensible sale of an immovable property

2. The sale is subject to any of the following condition

 On non - payment of mortgage- money (price) shall would become

absolute.
 On payment of mortgage - money, the sale shall become void or
the buyer shall re-transfer the said property to the seller.

3. The condition must be embodied in the same document.

Ostensible sale:-
An ostensible sale means a sale which apparently looks like a sale but in
reality, there is no sale.
In this mortgage apparently, there is a sale of immovable property but in
reality it is intended to secure a debt. The whole transaction is given the
appearance of a sale.
The seller would sell his property on a certain of money but the seller
and buyer both know & intend that seller is taking a loan from the buyer.

Conditions

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The characteristics feature of this form of mortgage is that it is a sale but
becomes a mortgage because of any particular condition attached to it.
' Existing of debt' makes a sale as a mortgage. Although in appearance
the transaction maybe like a sale since the intention of the parties ism to
treat it as security for a debt, therefore there must exist a relationship of
debtor and creditor between seller and buyer. The existing debt is
necessary. Where no debt exist between seller and buyer, the sale is no
mortgage

Thus whether an ostensible sale becomes a sale in the real sense & 
property goes to the buyer absolutely on the sale but does not take place
& the property continues to belongs to the seller depends on fulfillment
or non - fulfillment of a condition.
Where a mortgage under a conditional sale transferred the property to
another person, it was held that the mortgagee in question had no right to
make any such transfer. He had obtained the property as security after
advancing a sum of money as a loan and after repayment of the loan, he
has to re-transfer it.

Condition In The Same Document

It is necessary that any of the conditions mentioned in section 58(c) must
be incorporated in the same document which has been executed as a sale
deed. This provision was added by the proviso to Section 58 (c) by the
amending act of 1929.
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    In the case Pandit Chunchun Jha Vs. Sheikh Ibadat Ali(1954) SC
S.C. held that proviso to section 58(c) makes it clear that if the
condition for repurchase is not embodied in the document which effects
or purports to effect the sale, the transaction cannot be regarded as
mortgage.

In the case Raj Kishor Vs. Prem Singh 2011 SC 

Supreme Court held that “ an ostensible sale with any of the
conditioned mentioned in section 58 (c) cannot be regarded as a
mortgage unless the condition is laid down in the same documents.”

The Apex Court has laid down the following distinguishing features
between the mortgage sale & sale with an option of repurchase
 In a mortgage with condition sale, the relation of a debtor &
creditor subsist while in a sale with an option of re - purchase,
there is no such relationship & the parties stand on an equal
footing.
 A mortgage by conditional sale is effected by a single document
while a sale is generally effected with the help of two independent
documents.

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  In a mortgage with condition sale, the debt subsist as it is a
borrowing arrangement while in a sale with an option of
repurchase, there is no debt but consideration for sale.

 In a mortgage with the conditional sale, since this is a mortgage

transaction, the right of redemption subsists in favor of the
mortgagor despite the expiry of the time stipulated in the contract
for its payment. The mortgagor has the option to redeem the
mortgage & take back the property on the payment of the mortgage
money but a sale, a sale within the option of re- purchase the
original seller must repurchase the property within the stipulated
time - period. If he commits a default the option of re - purchase is
lost.

In so far as the legal nature of these 2 transactions is concerned, the

distinction is clear.

Mortgage by conditional sale involves existing of debt whereas there is

no debt in a sale with a condition of repurchase But sometimes it is
difficult to decide whether the transaction is mortgage or sale with the
condition of re purchase. This is so because in effect both the transaction
provide for re transfer of property by the buyer to seller. 

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However, existence or non - existence of any debt between seller and
buyer makes a fundamental difference between the two. 

The existence of such debt is a matter of intention of the parties which

may be known on the basis of fact & circumstance of each case.

Section 58 (d): Usufructuary Mortgage

Mortgage is usufructuary where the mortgagor gives possession of the
property to the mortgagee. Since possession is with mortgagee, he gets
the usufruct. ie; produce benefits, rents, or profit of the mortgaged
property.

In a usufructuary mortgage, the mortgagee is entitled to enjoy the benefit

of mortgaged property in lieu of interest on the principle money (debt)
advanced by him.

Essential Element of usufructuary mortgage

1.   Delivery of possession of the mortgaged property or on express or

implied undertaking by mortgagor to deliver such possession.

2. Enjoyment or use of the property by mortgagor until his dues are paid
off

3. No personal liability of the mortgagor

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4. Mortgagee cannot foreclose or sue for the sale of mortgage property

5. Registration is must

 #1) Delivery of possession

the characteristic feature of usufructuary mortgage is the transfer of

possession of mortgage property to the mortgagee.
The right of the mortgagee to restrain possession of the property is
' security' for payment of his money.

Where the mortgagee is entitled under the mortgage deed to

continue possession of the property until payment of mortgage -
money, the transaction is a usufructuary mortgage.

It is not necessary that the delivery of possession is made at the time of

execution of the deed. The mortgagor may take an undertaking that he
would deliver the possession on a future date. Such an undertaking or
promise may either be express or implied.

#2)  Enjoyment of rents or profit

In a  usufructuary  mortgage, the mortgagor has the right to  'use'  the
property until the debt is fully paid

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The rents and profit or part of the rents and profits may be appropriated.

 In lieu of interest
 In lieu of principle  
 In lieu of principle & interest

#3) NO personal liability

In a usufructuary mortgage, there is no personal liability of the

mortgagor. The mortgagee cannot sure the mortgagor personally for
payment of his debt. He is entitled only to restrain the possession of
mortgaged property till his debt is fully paid.
Where in a usufructuary mortgage there is a covenant that mortgagee
may sue the mortgagor personally for recovery of his debt, the mortgage
does not remain a usufructuary mortgage.

#4) No Foreclosure or sale 

The mortgagor is entitled to continue in possession and enjoy the

usufruct until the debt is fully paid off. He can neither sue the mortgagor
personally nor can exercise his right of forecloser under 67 of this act. It
is significant to note that in this form of mortgage no time limit is fixed

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for payment mortgagee is entitled to retain the possession until the
money due is paid. 

In a usufructuary mortgage, the time up to which money may be

paid by the mortgagor is uncertain. If any time is fixed the mortgage
would not be a usufructuary mortgage.

#5) Registration

Registration is necessary when the money is taken under a usufructuary

mortgage is rupees 100 or more. Where the mortgage money is less than
Rs. 100 registration is not necessary; delivery of possession is sufficient.

What is Zuripeshgi Lease

Where the right of enjoyment of immovable property is transferred for a
fixed period of time & the rent is paid in a lump sum in advance, the
transaction is zuripeshgi lease. 

The lease gets right to enjoy the use and appropriate the usufruct of
property. There is therefore similarity between a zuripeshgi lease. the
lessee gets the right to enjoy, use & appropriate the usufruct of
property.

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 There is therefore similarity between a zuripeshgi lease &
usufructuary mortgage. 

But, however, there is a  difference between 2 transactions:-

1. In zuripeshgi lease, there is no existence of any debt between lessor

and lessee. 
Whereas, In a usufructuary mortgage, there must exist debt & relation
of debtor & creditor between mortgagor and mortgagee.

2. Zuripeshgi lease is for a specific or fixed term. ie; specific time limit
is provided up to which the possession is given to the lessee. In a
usufructuary mortgage, there is no time limit up to which mortgagee
may retain possession. He continues possession & enjoyment of
property until all his dues are paid off.

                        Section 58 (e) : English Mortgage 

In this form of mortgage there is a transfer of ownership (absolute
transfer) to the mortgagee with a covenant to repay the debt on a certain
date, & a proviso that on this condition being performed the mortgagee
will re-transfer the property to the mortgagor.
In  Narayan Vs. Venkataramana  (1902)   

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The Madras High court said the three-element of English mortgage
are:-

1. That the mortgagor bind himself to repay the mortgage money on a

certain date 

2. That the property mortgaged should be transferred absolutely to the

mortgagee.

3.  That such absolute transfer should be made subject to a proviso that
the mortgage will re convey the property to the mortgagor, upon
payment by him of the mortgage - money, on the date on which the
mortgagor bound himself to repay the same.

Registration
Where the principal money is rupees 100 or more the deed of English
mortgage must be registered but if the mortgage - money is less than
rupees 100 registration is optional

  Section 58(f):Mortgage by deposits of the title - deeds 

Mortgage by deposit of title deeds is a particular kind of mortgage. It is
peculiar in the sense that in this mortgage, execution of mortgage deed
by mortgagor is not necessary. 

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Mere deposits of the title deed of immovable property by mortgagor to
mortgagee is sufficient.

The title deed are those document which are legal proof that a
person owns a particular property.

For instance ; 
If A had purchased a house, the sale deed in his favor is the title deed
establishing ownership of A in that house. Now if "A" wants to take a
loan from "B".
 "A" may execute either a simple mortgage or usufructuary mortgage.
But in this kind of mortgage execution of mortgage deed & its
registration may take some time because of the legal formalities. So if
"A" is in urgent need of money, it may not be possible for him to get the
money immediately. 

Mortgage by deposit of title - deed does not require formalities of

execution or registration, etc. Therefore just by depositing the title -
deeds to "B", "A" may get the money immediately. 
Possession of title deeds by "B" is the security for the repayment of
the loan. 

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In this form, the mortgage is created by mere deposits of title deeds
with intent to create a security thereon without any legal formality.

Essential element of mortgage by deposit of title- deed

According to section 59 (f),  where a person in an of the specified towns,
delivers to a creditor or his agent documents of title to immovable
property, with the intention to create a security thereon, the transaction is
called a mortgage by deposits of the title - deeds.

Essential element:-

1) Existence  of debt
2) Deposits of the title  -deeds 
3) With the intention to create security
4) Territorial restriction

1. Existence of debt
Title deed must be delivered only for securing a debt. The existence of
debt is necessary debt may either be an existing debt or a future debt. In
this form of mortgage, title - deeds are deposited under an oral
agreement to secure present or future advanced.

2. Deposits of Title - deed

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The title-deed of an immovable property on which security is intended to
create must be deposited with the creditor or his agent. Possession of
title - deeds by the mortgagee or his agent is the only security for
repayment of money.
Delivery of possession of the title - deeds may either be actual or
constructive.

3. Intention to create security

Mere deposits of title deeds is not sufficient. The title - deeds must be
deposited by the debtor with the intention of creating security for a debt.
The only fact that there is some debt & that the title - deeds of debtor are
somehow found in possession of the creditor would not be sufficient to
create an mortgage by delivery of title - deed. There must be bona fide
intention that possession of title -deed with the creditor is by way of
security for the money advanced by him.

4. Territorial Restriction
Mortgage by deposits of the title - deeds is applicable only in
certain specified towns of this country. Like other kinds of mortgage, a
mortgage by deposit of title - deed is not applicable throughout the
country. 

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The mortgage by deposit of title - deed may be made only in
Culcutta, Bombay & madras & in such other town which the state
government may by notification specify in the official gazettes.
The restriction to the specified towns refers to the place where the title -
deeds are delivered & not to the place where the property is situated.

5. Registration
Registration is not necessary. Mortgage by deposits of title deeds may be
made without any writing or registration.
More delivery of document with an intention, to secure a debt is enough
for constituting a valid mortgage by delivery of title - deeds.

                Section 58 (G): Anomalous Mortgage

Section 58 has laid down several kinds of mortgage but the classification
of mortgage is given in this section is not exhaustive.
Besides there form of mortgage, there are other forms of mortgage
which are either customary or combination of two or more form of
mortgage & thereby causing anomaly, they are called anomalous
mortgages.

According to section 58(G) A mortgage is an anomalous mortgage if it

is not a simple mortgage, a mortgage by conditional sale, a usufructuary
mortgage, an English mortgage or a mortgage by deposit of title -deed.

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When a  transaction is a mortgage in all respect ie; there is existing of
debt & security of immovable property for repayment of that debt but
the arrangement between the debtor and creditor is of such nature
that it cannot be included in any specified category of mortgage, the
transaction is anomalous mortgage.

Attestation of anomalous mortgage

An anomalous mortgage is required to be in writing  & must also be
attested. 

Conclusion

Section 58 of transfer of property acts deals with mortgage and kinds of

mortgage. Mortgage is a legal agreement for securing a loan where a
person uses a immovable property as collateral for the loan. The
transferor is called a mortgagor and transferee is called a mortgagee.
There is not any absolute interest is transferred. There are specifically
immovable property intend to transfer. In a mortgage not ownership only
interest is transferred over the property for the purpose of securing loan.

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