LLOYDS BANK, LTD Vs. PEGUZDAR AND CO

JUDGEMENT

(1.) This is a case of conflicting equities. The defendant firm P.E. Guzdar & Co. mortgaged 42, Chowringhee Road, Calcutta, to the National Bank of India by delivery of the title deeds to secure an overdraft in their current account with the bank, and afterwards, having regained possession of the title deeds, mortgaged the property in like manner to Lloyds Bank to secure a loan of Rs. 5,00,000. The question is, which of the two mortgages in the circumstances is entitled to priority? Now, the defendant firm consisted of two partners E.P. Guzdar and M.C. Guzdar, and, by a power-of-attorney executed on 23 November 1922, the partners invested their respective sons, J.B. Guzdar and K. M. Guzdar, with a general power to manage and carry on the business of the firm.

(2.) It appears from the evidence and I find that at all material times the business of the firm - at any rate in connexion with the plaintiff and defendant banks - was carried on by J.B. Guzdar; that J.E. Guzdar was the only representative of the firm who had any dealings personally with either of the banks, and in the transaction relating to the mortgages in suit J.E. Guzdar alone was interviewed by the officials of the banks. The title deeds of 42, Chowringhee Road, stood in the name of E.P. Guzar, and on 17 September 1924, when the deeds for the first time were deposited by J.E. Guzdar, and again on 26 November 1927, when they were redeposited by him with the defendant bank, J.E. Guzdar produced a letter, which the defendant bank retained, purporting to have been written by E.P. Guzdar admitting that the title deeds had been deposited as security for the repayment of the advances. No <JGN>Page</JGN> 2 of 16 such letter was produced when J.E. Guzdar subsequently deposited the title deeds with Lloyds Bank, but both Thomas and Allan stated that when the title deeds were deposited they dealt with J.E. Guzdar upon the footing that he was acting as the agent of the firm under the power of attorney, and having regard to the course of business, the power-of-attorney, and the fact that the members of the firm have never denied the authority of J.E. Guzdar to mortgage the firm's property by delivery of the title deeds to secure advances from the banks or either of them. I am of opinion that J.E. Guzdar in effecting the mortgages in suit purported to be, and was, acting, within the scope of his authority as the1 agent of the firm. Now, prima facie and apart from notice the priority of mortgages in India depends upon the respective dates of their creation, the earlier in date having the precedence Transfer of Property Act (4 of 1882), Secs.48, 58, 59, 78, 79, 80; Imperial Bank of India V/s. U. Rai Gyaw Thu & Co. Ltd. A.I.R. 1923 P.C. 211, Webb V/s. Macpherson [1903] 31 Cal. 57, Coggan V/s. Pogose [1884] 11 Cal. 158, Gokul Dass V/s. Eastern Mortgage and Agency Co. [1905] 33 Cal. 410.

(3.) It is necessary, therefore, to ascertain the circumstances in which the two mortgages in suit were created in order to determine whether in law the mortgage to the National Bank, which is earlier in date, has lost its right to priority. I will consider first the circumstances attending the creation of the mortgage in favour of Lloyds Bank, the plaintiff. It is common ground that at all material times prior to 3 July 1928, when P.E. Guzdar & Co., failed, the defendant firm was regarded as a sound and reliable commercial undertaking, and that neither bank, where the deeds were deposited, was under the impression that the firm would not be able to carry out its obligations. In each case, however, the deeds were deposited by way of security for monetary advances, and each bank relied upon the title deeds as effective security for repayment of its loan. It appears that since 1926 the firm had been customers of the plaintiff bank, and from time to time had obtained loans from the bank, which had duly been repaid. In the early part of June 1928, J.E. Guzdar obtained an interview with Thomas, the manager of the bank, and informed him that Guzdar & Co., would be requiring a temporary loan at the end of June for the purpose of floating a limited company to acquire their aluminium business, and Thomas said thatthe bank would provide the necessary accommodation if reasonable security was forthcoming. At that time the current account of the firm was in debit to the extent of about Rs. 60,000. On 20 June, J.B. Guzdar called at the bank; produced the title deeds of 42, Chowringhee Road; asked Thomas to satisfy himself that there were no encumbrances upon the property, and said that he would return in a few days and formally deposit the deeds. Now, it is of importance to bear in mind that under Section 59, T.P. Act, a mortgage may be created by delivering to the mortgagee the documents of title to immovable property in Calcutta and in certain other districts. Such mortgages being created merely by depositing the title deeds ex necessitate rei would not be registered, and Thomas stated that when J.E. Guzdar referred to "encumbrances upon the property" he understood him to mean registered encumbrances, and not mortgages by way of the deposit of title deeds which in India are commonly, though loosely and inaccurately, called equitable mortgages. On 21 June the plaintiff bank instructed their solicitors, Morgan & Co., to have the registers <JGN>Page</JGN> 3 of 16 searched for encumbrances, and were informed, though not before 30 June that no encumbrances had been registered. Meanwhile, on 26 June, J.E. Guzdar personally deposited the title deeds with the bank by way of security for a loan of live lacs, and signed a promissory note for that amount in the name of the firm. The loan was placed in deposit account, and against the five lakhs so deposited J.E. Guzdar became entitled to overdraw on the firm's current account. On 27 June, J.E. Guzdar drew cheques against the loan of five lacs, and the total sum due from the firm to the.plaintiff bank in respect of the loan and the current account when the present suit was filed was Rs. 4,65,747-3-9. In the course of his examination Thomas was asked: Q. 31. - You gave him accommodation for five lacs against the deposit of these title deeds? Yes. Q. 33. - When you did that had you any suspicion at all that there were any encumbrances on this property? None whatever, otherwise I should not have accepted them. Q. 34.-Had you any suspicion that there was an equitable mortgage attached to this property? None, there could not be. Q. 35.- Why do you say "there could not be"? Because I had the deeds. Q. 36. - Because he produced the deeds? Yes.