ADAICAPPA CHETTY v. PERERA et al

005-NLR-NLR-V-30-ADAICAPPA-CHETTY-v.-PERERA-et-al.pdf


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Present : Schneider and Garvin JJ.
ADAICAPPA CHETTY v. PERERA et al.
D. C. (Inty,) Colombo, 20,443.
Mortgage of movables—Sale under two hypothecary decrees—Right ofpreference of prior hypothecary creditor—Judicial hypothec.
Where movable property was sold in execution of hypothecarydecrees entered in pursuance of two mortgages effected underduly registered instruments in writing,—
Held, that the prior mortgage creditor had a preferent rightto the proceeds of the sale.
^^PPEAL from an order of the District Judge of Colombo.
H. V. Perera, for appellant.
H. H. Bdrtholomeusz, for respondent.
July 28, 1928. Garvin J.'—
The appellant and the respondent to this appeal were bothholders of duly registered mortgages created over his stock in tradeby one M- A. Perera who was doing business in the Pettah. Theappellant sued on his mortgage in case No. 20,443 which was datedMay 26, 1926, and obtained a hypothecary decree on July 9, 1926.The respondent, whose mortgage was created by a bond datedMay 24, 1925, put his bond in suit in case No. 20,451 and obtaineddecree on July 10, 1926. In each instance an order to sell theproperty was issued to the Fiscal, but inasmuch as the appellant
1928.
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Garvin J.
AdaicappaChetty v,Perera
with great promptitude procured the issue of his order to sell onthe very day on which decree was entered in his favour the orderissued in case No. 20,443 was prior in date.
On July 23,1926, the prootor for the appellant notified the Courtof his decree and moved in case No. 20,443 that the. Fiscal bedirected not to give the resp< ndent credit at the sale of thisproperty which was advertised for August 7. This motion wasallowed. On August 5, however, it was agreed that the respondentbe allowed credit on his undertaking to bring into Court theproceeds of sale if it is held by the Court that the plaintiff in20,451, i.e., the present respondent, had a preferential right.
The property was ultimately purchased by a third party. The jFiscal duly made return to the orders to sell issued in the two cases,and reported that the nett proceeds amounting to Rs. 4,365 • 75had been deposited by him in the Kachcheri.
Upon motion made at the instance of the respondent that theproceeds sale be paid to him as the holder of a decree under a priormortgage a discussion took place and order was made by thelearned District Judge upholding his claim to preference. Theappeal is from this order.
At the time of the sale there was in the hands of the Fiscal twooi'ders to sell issued by the Court in accordance with the decreeentered in cases Nos. 20,443 and 20,451, and it is said that theFiscal announced that he was selling the property under both,orders. But in the view most favourable to the appellant the case 1is that of a sale of a pledge at the suit of a posterior hypothecarycreditor. The respondent, a prior hypothecary creditor, who hadearlier given notice, claimed that he had a preferent right to theproceeds realized by the sale of the pledge and his claim wasadmitted. Was it rightly admitted ?
It is well settled law in Ceylon that immovable property subjectto hypothecs passes to a purchaser subject to the incumbrance—a prior hypothecary creditor therefore remains unaffected by thesale of such immovable property. It has also been held thatwhen movable property subject to hypothecation is sold inexecution of a judicial decree obtained by a third party the pricesucceeds in place of the thing—pretium succedit in locum rei;and the right of the hypothecary creditor to preference in theproceeds has been recognized—vide ex parte M. M. Abdul Rahman,Cosy Lebbe Marilcar v. Aydroos Lebbe Marikar} This judgmentwhich approved and followed the judgment in Ramen Chetty v.liardie 2 and has in turn been uniformly approved in a long seriesof judgments, of which it is sufficient to mention Meera Saibo v:Muttu Chetty,3 Vellaiappa Chetty v. Pitcha Maula,4 and Muttiah 1 2
11C. L. R. 1.
2(18S2) Wendt'e Rep. 217.
2 3 C.L. R. 37.
• 4 N.L. R. 311.
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Ohetty v. Don Marlines,1 establishes the right of a mortgagee ofmovables hypothecated by a duly registered instrument in writingwithout delivery of possession to preference in the proceeds salethereof when seized and sold under an unsecured creditor’s writ.
We have been invited to reconsider these judgments. It isurged that they proceed upon a misapprehension of a passage inVoet XX. 1,13, which is relied on as authority for the propositionthat the price succeeds in the place of the movables under hypothe-cation when there has been a sale thereof in execution of a judicialdecree. If I correctly apprehended the argument of Counsel, it wasthat having regard to the context in which the material wordspretium succedit in locum, rei occurred they must be- understood toapply to the case of immovables, sold by the Fisc or under a judicialdecree when creditors having the right of hypothec have kept silent.
In section 13, Voet is contrasting the Boman and Boman-Dutchlaw. Commencing with the Boman-Dutch law in regard to im-movables, he lays down the broad proposition that immovables passsubject to any existing hypothec, and specifies as exceptions thecase of the sale of property subject to a hypothec by the Fisc andof formal sale and delivery under judicial decree without oppositionby the hypothecary creditor, and proceeds to complete his statementof the law by reference to the rule that in such cases the pricesucceeds in the place of the thing. He then proceeds to referto the rule of the Boman law that the burden of hypotheccontinued to effect not only immovables but movable propertyas well even after it had been transferred by the owner, andcontrasts it with the Boman-Dutch law where the maxim mobilianon hahertt sequelam applies. He does not refer again to the rulepretium succedit in locum rei ; but was there any necessity to doso ? The Boman-Dutch law attached a special sanctity to saleson behalf of the Government revenue and to judicial sales whichaccordingly passed a title free from hypothec ; hence the rulepretium succedit in locum rei was a natural and a necessarycorollary, unless the rights of all others including the preferentclaims of the holders of valid and effectual hypothecs are to bewholly ignored and extinguished.
This is made clearer by Voet in a passage in Bk. XX. 5, 11(Berwick, p. 448)—
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Gabvjst J.
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“ But as by Modem Usages every sale of conventional, legal,and judicial pledges must be solemnly made under ajudicial decree, and as the price thence obtained is notmade over to the creditors unless thay have given securityfor its restitution in the event of others coming forwardwith preferent rights, and so the price is surrogated bypublic authority in place of the thing, the law now rather
i 10 N. L. X. 175.
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is that purchasers fortified by the addiction and thepublic oredit cannot be disturbed by those who claimto be preferential mortgagees, but the latter must suethe posterior creditors who have been paid out of the price,when they have just excuse for not having earlier prose-cuted their rights when the matter was still res Integra.”
The price succeeds to the thing, irrespective of whether it bemovable or immovable, whenever a pledge is sold under a judicialdecree.
I see no reason therefore to differ from the long chain of judicialdecisions of this Court by which the proposition that the purchasemoney takes the place of the thing sold when movable propertyis sold by the Fiscal is so well established.
It was then urged that by virtue of a decree in his favour andthe sale held thereunder a judicial mortgage came into existenceby virtue of which the appellant obtained a preferent right to theproceeds. A judicial mortgage it is said is constituted whenproperty has been actually seized and discussed in execution of ajudicial decree and gives a preference to the person who first causedit to be seized in accordance with the rule qui prior tempore potiorjure est.
“ In Holland, however, no preference over other creditorsarises from the inchoate execution of a judgment, butonly from the time it has been carried through to an endand payment been obtained (in satisfaction of thejudgment debt) so that persons who come forwardpending execution already commenced by anothercreditor concur (rank) with the judgment creditor in theproceeds of the property seized”—VoeUXX. 11, 32{Berwick's Translation, p. 353).
Had this been an action by an unsecured creditor a judicialmortgage would under the Roman-Dutch law have been consti-tuted when property had been actually seized in execution of adecree obtained by him. The purpose of a hypothecary action—and this is such an action—is to procure the sale of property subjectto an existing mortgage. It is a little difficult to see how jn sucha case a judicial mortgage is superimposed over an existingconventional mortgage or how if that were possible the appellant’sposition is improved thereby.
I am aware of no authority for the proposition that a judicialmortgage gives the creditor at whoee instance property is taken inexecution a preference over the holder of prior effective hypothecs.Indeed the passage just referred to definitely denies to the seizingcreditor a preference over other creditors who are admitted toconcurrence with him in the proceeds before they have been paidout—the creditors contemplated are unsecured creditors.
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The law in Ceylon is now codified—vide section 353 of the Civil 1928.Procedure Code—and the right to concur in the proceeds of Qa^vjn jexecution is limited to creditors who have prior to the realization ——applied to the Court by which such assets are held for executionof decrees for money against the same judgment-debtor. And Perernit has been'held that this section does not affect and leaves intactthe rights of mortgagees (Vallaiappa Chetty v. Pitcha Manila (supra)).
The general rule in regard to the holders of hypothecs is quiprior tempore prior jure eat, and this rule applies whether thehypothec be conventional, legal, or judicial (Voet XX. 4,28).
Whether the hypothec in favour of the appellant be regardedas the conventional hypothec which it was the purpose of thisaction to enforce or a subsequent judicial hypothec, the respondentis the holder of a hypothec prior in point of time and thereforepreferent in right.
Counsel for the appellant contended however that the maximqui prior tempore prior jure eat gives no right of preference wherethe hypothec for which preference is claimed is a hypothec ofmovables without delivery of possession. If there is any substanceiu this contention the appellant who was also a mortgagee withoutpossession is in no better situation and the respondent is at leastentitled to concurrence.
Under the Roman-Dutch law a mortgagee of movables withoutdelivery undoubtedly was in a precarious position. “ If therebe an alienation, or a new mortgage of it (the movables) by thesame debtor to another person, accompanied by delivery, thecreditor loses his right of pledge and preference and the thing,if alienated, passes to .the alienee free of the encumbrance, or if ithas been again given in pledge to another, that other has the rightof preference.” (Voet XX. 2,13.)
In the case under consideration there has been no alienationor subsequent mortgage accompanied by delivery made by thedebtor. So long as the movables remained in the possession ofthe debtor, he was in a position—as the law stood in the days ofVoet—to deprive the original mortgagee of his right of preferenceby alienating the property or by creating a subsequent mortgageaccompanied by delivery. But he has not done so. The saleof this property is the act of the Court and the proceeds take theplace of the thing.
But the respondent’s right to preference is impeached on thesupposed authority of a single passage in Voet XX. 1,13 which isrendered by Berwick at p. 288 as follows:—
“ Nay, if the maxim mobilia sequdam non habent be true, itfollows that even when things pledged with delivery haveagain reverted to the debtor without the flaw of theft,and, after he has absconded, they are found among his
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Adaieappa
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Perera
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other movables having been possessed by him up tillthe time of his concealing himself, the creditor whopreviously had possession of a movable by right of pledge,but had subsequently ceased to possess it, will not bepreferential in it in a concursas with other creditors inthe estate of the bankrupt debtor.”
Voet is here dealing with a special case—that of a mortgageewith possession who permits the movable to revert from hispossession to that of his debtor. In such circumstances it isconceivable that a mortgagee may justly be regarded as havingsurrendered his rights.
. But this very point was considered in Tatham v. Andree1 knownas Ledward’s case and was held not to be a sufficient warrant forthe contention that a mortgagee without delivery was not entitledto preference. Their Lordships approved the view of the Courtsof Ceylon that according to the Roman-Dutch law as prevailingin Ceylon a mortgage-of movables'by writing before a Notarythough unattended with possession is valid not only against thedebtor himself but against his creditors.
,In Miller v. Young 2 it was held following Ledward’s case that aspecial mortgagee of movable property unaccompanied by deliverycannot prevent the sale of such property in execution of a thirdparty’s judgment on an unsecured debt but has a right to preferen-tial payment of the mortgage debt out of the proceeds of such sale.
Then followed a long series of decisions, to some of which I havealready referred, in which the preferent right of a mortgagee ofmovables without delivery to the proceeds of the pledge whensold under an unsecured creditors writ has been uniformly affirmed.
The law as amended by Ordinances Nos. 8 of 1871 and 21 of 1871now requires that a mortgage of movables without delivery givesthe pledgee or mortgagee no right or priority in respect of suchproperty unless it is created by writing signed by the personeffecting the same and unless such writing shall within fourteendays be duly registered.
The mortgage by virtue of which the respondent claims apreference to the fund in Court conforms in all respects to theserequirements. He is therefore entitled to the preference he seeks.
The judgment of the District Judge will stand affirmed.
This appeal is dismissed, with costs.
Schneider J.—I agree.
Appeal dismissed.
1 (1863) Moore's Privy Council Cases, Vol. I, p. 387. N. S.
• (1872-76) Rum. 23.