Mortgages: Definition & Kinds

This article is written by Dharshini P, an intern under Legal Vidhiya

ABSTRACT:

This Article deals with the definition of Mortgage and kinds of Mortgages under the Transfer of Property Act, 1882. Mortgage refers to the transfer of property to the lender who is empowered with a right to take away or sell the property, if the borrower of the loan amount fails to repay the money so loaned. Section 58 of the Transfer of Property Act, 1882 defines the term Mortgage and deals with kinds of Mortgages. There are 6 different kinds of Mortgage which are Simple Mortgage, Mortgage by conditional sale, Usufructuary Mortgage, English Mortgage, Mortgage by deposit of title deeds and Anomalous Mortgage. Each of these types of Mortgages vary from each other by different characteristics which are discussed below.

KEYWORDS:  Mortgage, Kinds of Mortgages, Transfer of Property, Immovable property, Security.

INTRODUCTION:

The Transfer of Property Act, 1882, came into force on 1^st July, 1882 which paved the way for rules relating to transfer of property from one person to another in India. Before the Transfer of Property Act, 1882 was enforced the rules related to transfer of property in India were guided by English laws. The Transfer of Property Act, 1882 provide provisions relating to the transfer of property between Living beings. The Transfer of Property Act, 1882 is considered as one of the oldest laws in Indian legal regime. The Transfer of Property Act, 1882 is considered as an extended version of the law of Contracts and acts corresponding to the Indian Succession laws. In the Indian legal system there are two kinds of properties namely Immovable and Movable property. The term property can be defined as anything which has the capacity to be owned. The term Immovable property is not defined clearly under the Act. Section 3[1] of the Transfer of Property Act, 1882 defines Immovable property as which does not includes standing timber, growing crops or grass. Mortgages and charges are dealt under chapter IV from section 58 to section 104 of the Transfer of Property Act, 1882.

WHAT IS THE MEANING OF MORTGAGE?

The term Mortgage generally refers to an agreement between two parties to transfer an interest upon a property from one party to another if the later fails to fulfil the terms of the agreement. The term Mortgage is defined under section 58[2] of the Transfer of Property Act, 1882 which states that a Mortgage is the transfer of interest of a immovable property for the object of obtaining the money which is already paid or to be paid in future or to perform any obligation which results in monetary liability. Mortgage does not refer to actual transfer of property but refers to the transfer of ownership and interest of the property to obtain the money which is advanced as loan.

According to section 58(a)[3] of the Transfer of Property Act, 1882 Mortgage involves two parties namely “Mortgagor” the person who transfers the property that is the borrower and “Mortgagee” the person who receives the property that is the lender.

The principle amount and interest for which payment is obtained for the time being in a mortgage is called as the “Mortgage-Money”. The instrument through which the Mortgage is performed is called as the “Mortgage-deed”.

Section 2(17)[4] of the Indian Stamps defines Mortgage deed as an instrument  used for the purpose of obtaining the amount of money advanced, or given as loan or future debt ,or on a obligation to perform certain task, one person transfers to another a right over a specific property.

Section 59[5] of the Transfer of Property Act, 1882 provides that if the mortgage money obtained is one hundred rupees or more than that, Mortgage can be performed only through a registered mortgage deed or instrument signed by the mortgagor and affirmed by at least two witnesses. This condition is not required in case of Mortgage by deposit of title deeds. In such cases mere submission of the title deeds shall constitute a Mortgage.

If the principle amount obtained in the Mortgage is less than one hundred rupees, then the Mortgage can be performed either by a registered deed with attestation of the Mortgagor and the witnesses or by just mere delivery of the property.

Section 59A[6] of the Transfer of Property Act, 1882 states that in absence of any contrary claim, the mortgagors and mortgagees under the Transfer of Property Act, 1882 shall also include persons who derive title from these mortgagors and mortgagees. The assignee of a mortgagee could act in the same manner as when he himself has taken part in the mortgage and can claim any property whichever is due to his antecedent’s interest.

COMPONENTS OF MORTGAGE.

Mortgage is the transfer of interest of an immovable property for the object of obtaining the money which is already paid or to be paid in future or to perform any obligation which arises monetary liability. It is like providing security for the loan obtained. The Mortgage involves the following components,

• There should be a transfer of interest of a property to the mortgagee.
• The interest so transferred should be of an immovable property.
• The Mortgage must include consideration.
• The transfer should be by way of security for an existing or future debt or monetary liability[7].

KINDS OF MORTGAGE

As per section 58[8] of the Transfer of Property Act, 1882 the mortgages are divided into six different kinds which are as follows,

• Simple Mortgage.
• Mortgage by conditional sale.
• Usufructuary Mortgage.
• English Mortgage.
• Mortgage by deposit of title deeds.
• Anomalous Mortgage.

The above kinds of Mortgages are discussed in detail below.

1.Simple Mortgages.

The Simple mortgage is discussed under section 58(b)[9] of the Transfer of Property Act, 1882.

It is a kind of mortgage which involves the mortgagor making himself liable to pay the mortgage amount without transferring the interest of the mortgaged property and acknowledge either expressly or impliedly that if he fails to pay back the mortgage amount as per the agreement, the mortgagee has the power to sell the mortgaged property so far as necessary in payment of the mortgage money. Such transaction is called as the Simple Mortgage. In this kind of mortgage the mortgagee is referred as the “Simple Mortgagee”.

In the case Nityananda Ghose v. Rajpur Chhaya Bani Cinema Ltd[10]., the Calcutta High court held that section 58(b)[11] of the Transfer of Property Act, 1882 has defined the term Simple mortgage expressly, which means that the mortgagor binds himself to repay the mortgage money and further held that the mortgage money under section 58(a) of the Act refers to the secured money and does not refers to a promissory note.

2. Mortgage by conditional sale.

Mortgage by conditional sale is discussed under section 58(c)[12] of the Transfer of Property Act, 1882. It is a kind of Mortgage where the mortgagor apparently sells the mortgaged property on particular conditions which are as follows,

• When the mortgagor defaults on payment of the mortgage money within the agreed date, the sale of such mortgaged property will be absolute.
• When the mortgagor fulfils the payment of the mortgage money, then sale of such mortgaged property shall become void.
• When the mortgagor fulfils the payment of the mortgage money the person who purchased such mortgage property shall transfer the property back to the seller.

The above transactions are called Mortgage by Conditional Sale and the mortgagee is called as the “Mortgagee by Conditional Sale”.

In the case Debi Singh And Ors. v. Jagdish Saran Singh And Ors[13], the Allahabad High court held that section 58(c) of the Transfer of Property Act, 1882 when interpreted does not imply that every sale deed with a condition for repurchase employs a mortgage deed and the actual test lies on the intention of the parties which can be obtained from the mortgage deed and circumstances at the time of executing the deed.

3. Usufructuary Mortgage:

Usufructuary Mortgage is discussed under section 58(d)[14] of the Transfer of Property Act 1882.

The main ingredient of the Usufructuary mortgage is right to possession. In this kind of mortgage the mortgagor delivers the mortgage property to the mortgagee expressly or impliedly and empowers him to have possession of that property until the mortgagor repay the mortgage money and also empowers the mortgagee to receive any kind of profit or rents arising from the mortgage property instead of the interest and repayment of mortgage money from the mortgagor or part interest or part payment of the mortgage money. The mortgagee in this kind of mortgage is called as the Usufructuary Mortgagee.

In A. Narayana Rao And Etc. vs Laxmi Amma And Ors[15] the Kerala high court held that a document containing obligations that are not included under section 58(d) of the Transfer of Property Act, 1882 cannot be referred as Usufructuary mortgage, but can be called as Anomalous mortgage. If the document contains a covenant which enables the mortgagee to demand for the mortgage money within a due time, it would not constitute the Usufructury mortgage.

In Moidu v. Mammunhi Beary[16], the court held that the term “mortgage money” does not include compensation for improvements as defined under section 58(d) of the Transfer of Property Act,1882 because compensation payment is not secured, only a promise exits to pay it along with the mortgage amount.

4. English Mortgage.

English Mortgage is discussed under section 58(e)[17] of the Transfer of Property Act 1882.

In this kind of mortgage the mortgagor agrees to repay the mortgage money within a due time and transfers the property to the mortgagee but on one condition that, when he repays the mortgage money the mortgagee should retransfer the mortgage property back to the mortgagor.

In Fozmal Bhutaji vs Shridhar Vithal[18] the Bombay High court held that a stipulation in the deed that the mortgagor would remain in possession until he committed default in payment of the mortgage money will not detract from the absolute nature of the transfer and make the mortgage any less as an English mortgage[19].

5. Mortgage by deposit of title deeds.

Mortga/ge by deposit of title deeds is discussed under section 58(f)[20] of the Transfer of Property Act 1882.

In this kind of mortgage, where a person (mortgagor) entering into a mortgage is situated in Calcutta, Bombay, Madras and in any other towns as prescribed by the state government deposits to the creditor or to any person on his behalf  the title deeds of the mortgage property intending to form security, such mortgage is called as Deposits of title-deeds.

Mortgage by deposit of title deeds is known as “Equitable Mortgage” in England, where the mortgagor is created by the debtor by giving possession of the title deeds to the creditor as a security for the loan.

In Paras Ram v Raja Mohan[21],  the court held that the Transfer of Property Act 1882 was never applied to the state of Punjab and does not invalidate mortgage made in the state of Delhi by deposit of title deeds the plaintiff’s security must have effect and the sign have no claim to priority[22].

6. Anomalous mortgage.

Anomalous mortgage is discussed under section 58(g)[23] of the Transfer of Property Act 1882.

This kind of mortgage refers to a type of mortgage which is not a Simple mortgage, Usufructuary mortgage, Mortgage by deposit of title deeds, Mortgage by conditional sale or English mortgage as discussed under section 58 of the Transfer of Property Act 1882.

In Lal Narsing Partab Bahadur Singhv Mohammad Yaqub Khan[24], The Privy council held a mortgage as anomalous mortgage where the mortgagor covenanted to repay the mortgage money in 35 years. The Mortgage was to take possession and enjoy the possession of the usufruct in lieu of interest. Possession was not delivered and the mortgage sued for enforcement of the mortgage by sale of hypotheca. If the mortgage was purely usufructuary, then a suit for sale would not lie. If it was exclusively a simple mortgage, the suit would be premature since the mortgage money was payable only on the expiration of 35 years from the date of the mortgage[25].

CONCLUSION.

The Transfer of Property Act, 1882 deals with the transfer of property among the living beings. The concept of Mortgage has played a very important role in the Indian legal system. The right of the mortgagor and mortgagee were originally governed entirely by the terms of the contract between the parties. After the enactment of the Act, it paved the way for the mortgages providing the kinds, rights and liabilities of the mortgagor and mortgagee. The essential elements of a mortgage are transfer of interest of immovable property, the interest should be in specific of immovable property and the transfer should be by way of security for an existing or future debt. The courts have interpreted and differentiated the various kinds of mortgages in many cases.

REFERENCES.

1. Section 3 of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/1345438/#:~:text=%E2%80%94Any%20person%20acquiring%20any%20immovable,being%20in%20actual%20possession%20thereof. Last seen on 12/04/2023.
2. Section 58 of the Transfer of Property Act, 1882, Indian kanoon, available at  https://indiankanoon.org/doc/63739/ last seen on 12/04/2023.
3. Section 58(a) of the Transfer of Property Act, 1882, Indian kanoon, available at  https://indiankanoon.org/doc/192689270/ last seen on 12/04/2023.
4. Section 2(17) of Indian Stamps Act, 1899, Indian Kanoon, available at https://indiankanoon.org/doc/13922401/ last seen on 12/04/2023.
5. Section 59 of Transfer of Property Act, 1882, IBC Laws, available at https://ibclaw.in/section-59-mortgage-when-to-be-by-assurance/ , last seen on 12/04/2023.
6. Section 59A of Transfer of Property Act, 1882, Indian Kanoon , available at, https://indiankanoon.org/doc/346329/#:~:text=1%5B59A.,deriving%20title%20from%20them%20respectively.%5D last seen on 12/04/2023.
7. G.C.V.Subbarao’s Transfer of Property Act,  (Prof.A.Chandrasekaran,16^thed.,2016)
8. Section 58(b) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/18670523/ last seen on 12/04/2023.
9. Section 58(c) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/180422881/ last seen on 12/04/2023.
10. Section 58(d) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/21459250/ last seen on 12/04/2023.
11. Section 58(e) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/154018224/ last seen on 12/04/2023.
12. Section 58(f) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/63739/  last seen on 12/04/2023.
13. Section 58(g) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/28151416/  last seen on 12/04/2023.

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[1]Section 3 of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/1345438/#:~:text=%E2%80%94Any%20person%20acquiring%20any%20immovable,being%20in%20actual%20possession%20thereof. Last seen on 12/04/2023.

[2] Section 58 of the Transfer of Property Act, 1882, Indian kanoon, available at  https://indiankanoon.org/doc/63739/ last seen on 12/04/2023.

[3]Section 58(a) of the Transfer of Property Act, 1882, Indian kanoon, available at  https://indiankanoon.org/doc/192689270/ last seen on 12/04/2023.

[4] Section 2(17) of Indian Stamps Act, 1899, Indian Kanoon, available at https://indiankanoon.org/doc/13922401/ last seen on 12/04/2023.

[5] Section 59 of Transfer of Property Act, 1882, IBC Laws, available at https://ibclaw.in/section-59-mortgage-when-to-be-by-assurance/ , last seen on 12/04/2023.

[6]Section 59A of Transfer of Property Act, 1882, Indian Kanoon , available at, https://indiankanoon.org/doc/346329/#:~:text=1%5B59A.,deriving%20title%20from%20them%20respectively.%5D last seen on 12/04/2023.

[7] G.C.V.Subbarao’s Transfer of Property Act, 270 (Prof.A.Chandrasekaran,16^thed.,2016)

[8] Supra 2.

[9]Section 58(b) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/18670523/ last seen on 12/04/2023.

[10] Nityananda Ghose v. Rajpur Chhaya Bani Cinema Ltd AIR 1953 Cal 208

[11] Supra 9

[12] Section 58(c) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/180422881/ last seen on 12/04/2023.

[13] Debi Singh And Ors. vs Jagdish Saran Singh And Ors ,AIR 1952 All 716

[14]Section 58(d) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/21459250/ last seen on 12/04/2023.

[15] A. Narayana Rao And Etc. vs Laxmi Amma And Ors AIR 1994 Ker 371

[16] Moidu v. Mammunhi Beary,1974 Ker LT 879.

[17]Section 58(e) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/154018224/ last seen on 12/04/2023.

[18] Fozmal Bhutaji vs Shridhar Vithal (1946) 48 BOMLR 327

[19] G.C.V.SubhaRao’s Transfer of Property Act, 284  (Prof.A.Chandrasekaran,16^thed.,2016)

[20]Section 58(f) of the Transfer of Property Act, 1882, Indian kanoon, available at https://indiankanoon.org/doc/63739/  last seen on 12/04/2023.

[21] Paras Ram v Raja Mohan (1944) 1 M.L.J 282 (P.C)

[22] G.C.V.SubhaRao’s Transfer of Property Act, 286  (Prof.A.Chandrasekaran,16^thed.,2016)

[23] Section 58(g) of the Transfer of Property Act, 1882, Indian kanoon, available at  https://indiankanoon.org/doc/28151416/  last seen on 12/04/2023.

[24]Lal Narsing Partab Bahadur Singhv Mohammad Yaqub Khan, 58 M.L.J 401 (P.C)

[25] G.C.V.SubhaRao’s Transfer of Property Act, 289 (Prof.A.Chandrasekaran,16^thed.,2016)