Rights and liabilities of mortgagor and mortgagee

1. Rights of the mortgagor

• Right of redemption, s.60. At any time after the principal money has become due, on paying or tendering the mortgage-money at the proper time and place, the mortgagor may require the mortgagee to (a) deliver up the mortgage-deed and all documents of title in his possession or power; (b) where the mortgagee is in possession, deliver possession; and (c) at the mortgagor's cost, retransfer the property or execute an acknowledgment that his interest is extinguished. The right is lost only by act of the parties or decree of a court. It is a statutory right and any term that clogs it is void.
• No partial redemption. The last paragraph of s.60 says a person interested in only a share of the mortgaged property cannot redeem his share alone by paying a proportionate part of the debt, except where the mortgagee has himself acquired the share of a mortgagor. The mortgage is one and indivisible.
• Transfer to a third party instead of retransfer, s.60A. On the same conditions as redemption, the mortgagor may require the mortgagee to assign the debt and transfer the property to a person the mortgagor names, for instance a new lender paying off the old one. This does not apply to a mortgagee who is or has been in possession.
• Inspection and production of documents, s.60B. While the right of redemption subsists, the mortgagor may at reasonable times, on paying the costs, inspect and take copies of the documents of title in the mortgagee's custody.
• Redeeming separately or together, s.61. A mortgagor who has executed two or more mortgages in favour of the same mortgagee may, unless the contract says otherwise, redeem any one of them separately or all together. The English doctrine of consolidation, which forced the mortgagor to redeem all, does not apply.
• Usufructuary mortgagor's right to recover possession, s.62. He may recover possession when the mortgagee is authorised to pay himself out of the rents and profits and the debt is paid off, or on payment or tender of the mortgage-money at the end of the term fixed (or, if none, at any time).
• Accession, s.63, and improvements, s.63A. Anything added to the property while in the mortgagee's possession goes back with it on redemption, subject to paying for separable additions acquired at the mortgagee's cost. Improvements made by the mortgagee in possession go back too; the mortgagor pays for them only if they were necessary to preserve the property or to keep the security sufficient, or were made under the lawful order of a public authority.
• Renewed lease, s.64. If the mortgaged property is a lease and the mortgagee obtains a renewal, the mortgagor on redemption is entitled to the new lease.
• Power to lease, s.65A. A mortgagor in lawful possession may grant leases binding on the mortgagee, within the limits the section sets (in the ordinary course of management, at the best rent, no premium, and not exceeding the stated terms).

2. Liabilities of the mortgagor

Implied covenants, s.65. Unless the contract says otherwise, the mortgagor is deemed to contract that:

• he has the interest he professes to transfer and power to transfer it;
• he will defend the mortgagee's title, or indemnify him;
• while the mortgagee is not in possession, he will pay all public charges on the property;
• where the property is a lease, he has paid the rent and performed the covenants, and will do so while the security lasts;
• where it is a second mortgage, he will pay the interest on the prior encumbrance and discharge it when due.

Waste, s.66. A mortgagor in possession is not liable to the mortgagee for allowing the property to deteriorate, but he must not commit any act which is destructive or permanently injurious if the security is insufficient or will be rendered insufficient by that act. Security is “insufficient” unless the value exceeds the amount due by one-third (one-half for buildings).

3. Rights of the mortgagee

• Foreclosure or sale, s.67. At any time after the mortgage-money has become due and before a decree for redemption or payment, the mortgagee may sue for a decree that the mortgagor be absolutely debarred of his right to redeem (foreclosure) or that the property be sold. The proviso fixes who gets what: only a mortgagee by conditional sale, or an anomalous mortgagee whose deed allows it, can sue for foreclosure; a usufructuary mortgagee as such cannot sue for foreclosure or sale; a mortgagee by conditional sale as such cannot sue for sale. So the simple, English and title-deeds mortgagee sues for sale. Under s.67A a mortgagee holding two or more mortgages from the same mortgagor must sue on all of them together if he sues on any.
• Suit for the mortgage-money, s.68. The mortgagee may sue personally only where (a) the mortgagor has bound himself to repay; (b) the property is wholly or partly destroyed, or the security rendered insufficient, otherwise than by the mortgagee's wrongful act, and the mortgagor has failed to give further security; (c) the mortgagee is deprived of the whole or part of his security by the mortgagor's wrongful act or default; or (d) a mortgagee entitled to possession is not given it, or is disturbed in it.
• Power of sale without the court, s.69. Valid only (a) in an English mortgage where neither party belongs to a class the State Government has notified; (b) where the deed expressly confers the power and the mortgagee is the Government; or (c) where the property is in a town notified for the purpose. Normally three months' written notice after default is required. (Banks today mostly use the SARFAESI Act, 2002, which is separate.)
• Receiver, s.69A, where the mortgagee has power of sale.
• Accession, s.70. Additions to the mortgaged property after the mortgage are part of the security, subject to contract.
• Renewal of a mortgaged lease, s.71, and proceeds of a revenue sale or compensation on acquisition, s.73, which go to the mortgagee to the extent of his claim.
• Expenses, s.72. The mortgagee may spend money necessary to preserve the property, to protect title, to pay revenue and charges having priority, and, where the mortgage so allows or the property is in danger, on insurance, and add the sums to the mortgage-money with interest.

4. Liabilities of a mortgagee in possession, s.76

• manage the property as a person of ordinary prudence would manage it if it were his own;
• use his best endeavours to collect the rents and profits;
• pay government revenue and public charges out of the income;
• make necessary repairs out of surplus income;
• commit no act destructive or permanently injurious to the property;
• where the property is insured, apply insurance money to reinstatement or to the debt;
• keep clear, full and accurate accounts;
• apply the receipts, after expenses, first to interest and then to principal.

If he fails in any of these duties, he may be debited, when the accounts are taken, with the loss caused by the failure. Under s.77 the parties may agree that the receipts are taken in lieu of interest, in which case no account is taken of them against interest.

5. Problem

X mortgages his farm to Y by a usufructuary mortgage. Y lets the farm lie fallow for three years and collects nothing. X now tenders the principal and claims redemption, and asks that Y be charged with the income he could have earned. Y says he owes nothing.

Issue. The liability of a usufructuary mortgagee in possession for income lost by neglect.

Law. Sections 62 and 76; the duty to manage as a prudent owner and to use best endeavours to collect rents and profits.

Application. Y is a mortgagee in possession. Leaving cultivable land unworked for three years is a failure to use his best endeavours to collect the profits. Where the deed applies the profits towards principal, that loss reduces what X owes. Where the deed gives the profits in lieu of interest (s.77), the effect is smaller: no interest is being claimed, so X's complaint goes only to any loss to the land itself.

Conclusion. X can redeem under s.62 on paying what is due. Where the income was to go towards the debt, Y is debited under s.76 with the income a prudent owner would have received, and X pays correspondingly less.

How this is examined

Ten marks: “Explain the rights and liabilities of a mortgagor” or “of a mortgagee.” Arrange by section and give the remedy table: who can foreclose, who can sell, who can sue for money. Short notes: right of redemption; partial redemption; mortgagee in possession; power of sale under s.69. Pair s.60 with the clog doctrine from the previous note.