The Securities Law in Business
- Classification of Mortgages
- Rights and Liabilities of Partners
- Mortgage and Pledge
Definition: When a specific immovable property is made the security for the payment of money or the performance of an obligation, the transaction is called is Mortgage.
Section 58(a) of the transfer of Property Act defines mortgage as, “transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.
The person transferring the interest (the debtor) is called the mortgage. The person to whom the interest is transferred (the creditor) is called the Mortgagee. The amount secured is called the Mortgage money. The document in which the transaction is recorded and by which the transfer of interest is made is called Mortgage Deed.
1. In a mortgage there is a transfer of an interest in some specific immovable property.
2. The interest is transferred by way of security.
3. The security is for the due repayment of a loan or a debt, incurred or to be incurred for any purpose, or the performance of an engagement which may create a pecuniary liability.
4. If the money due or the pecuniary liability is not met within the agreed time, the interest transferred can be sold through the court and the dues recovered.
5. A valid mortgage can be affected only by a written document. Signed by the mortgagor and two attesting witness and registered.
6. A mortgage is a contract. Therefore it must satisfy all the essential elements of a contract.
Classification of Mortgages:
The transfer of property Act classifies mortgages into the following six types.
1. The mortgagor retains possession of the property.
2. The mortgagee is given the right, in case of non-payment of the mortgage money, to have the property sold through the court and realize his dues from the sale proceeds.
3. The mortgagor undertakes that if the sale proceeds of the property are insufficient to repay the money due, the mortgagor will remain personally liable for the payment of the debt.
Mortgage by way of Conditional Sale:
In this case the mortgage transaction is entered into in the form of a sale.
1. The mortgagor ostensibly sells the property to the mortgagee.
2. The mortgagee undertakes that if the mortgage money is rapid on certain date he will resell the property to the mortgagor or that he sale shall be void.
3. The mortgagor agrees that if the mortgage money is not rapid on the fixed date, the sale shall be absolute.
4. The conditions regarding resale etc. are incorporated in the mortgage deed.
An English mortgage is very similar to a mortgage by the conditional sale. Below the characteristics:
1. The mortgagor sells the property absolutely to the mortgagee.
2. The mortgagee agrees to re-covey the property to the mortgagor if the mortgagee money is paid up by a certain date.
1. The mortgagor delivers possession of the property to the mortgagee.
2. The mortgagee takes the rents and profits of the property and appropriates the same to the interest and the principal sum due.
3. When the full amount due has been recovered in the manner aforesaid, the mortgagee gives up possession of the property to the mortgagor.
4. The mortgagee cannot sue for the mortgage money or for the sale of the property; has only remedy is to continue in possession till he gets back the money lent, together with interest.
Equitable mortgage is also called mortgage by deposit of title deeds. The transaction may be recorded in a letter or memorandum.
A mortgage which does not come within any of the above classes is called an Anomalous mortgage.
Rights and Liabilities of Partners:
Apart from the provisions of the mortgage deed, the mortgagor and the mortgagee have certain statutory rights and liabilities. Below mentioned:
Rights of Mortgagor:
Any time after the principal amount secured by the mortgagee becomes due, the mortgagor can get back the property by paying off the claims of the mortgagee. This right is called the Right of Redemption or the equity of Redemption. This right is extinguished when the court so orders or when the court passes a decree for the sale of the mortgaged property. A decree of the court by which the mortgagor is prevented from exercising the right of redemption is called a Decree for foreclosure.
The mortgage deed cannot impose any condition which prevents or restricts the right of redemption. Any clause in the deed which purports to do so is called a “clog on the right of redemption” and is void. When a transation is in substance a mortgage, the court will not allow it to be converted into a sale or any other transaction. This principle is expressed in the maxim, “Once a mortgage, always and a mortgage”.
If there is any accession to the property when the mortgagee is in possession, it goes to the mortgagor after the property is redeemed.
2. Inspection and Copies:
The mortgagor is entitled to inspect and take copies of the title deeds of the property while they are in the possession of the mortgagee.
3. Deposit and Suit:
The mortgagor can file a suit for redemption after the mortgage money becomes due. He can also deposit the money due in court. Interest ceases to run after the mortgagee receives notice of deposit.
Where the transaction comes under the Money Lenders Act or any other similar statue, the court can direct the payment of money by installment.
If the mortgagor is in possession, he can under certain circumstance grant a lease of the property. Sec. 65A
Rights of Mortgagee:
- He is entitled to incur expenditure for the protection and preservation of the property and is entitled to and such expenditure to the mortgage money. He has an insurable interest in the property.
- He is entitled to receive the principal amount together with interest at the agreed rate, subject to the statutory provisions regarding the maximum payable rates of interest.
- He can file a suit for the remedy appropriate to the type of mortgage entered into. The usual remedies are a suit for sale of the property and a suit for foreclosure.
- Under certain circumstances the mortgagee can sell the mortgaged property without intervention of the court. Where such a right is given by the mortgage deed.