Falk v Haugh [1935] HCA 35

High Court of Australia|1935-07-01|Before: Mann J

cial Emergency - Mortgage - Foreclosure - Restriction of mortgagee's right 4. O, op A. E Interest paid to a date within twelve months - Mortgagee in possession - Receipt

1935,

of rents - Right of mortgagor to an account - Financial Emergency Act 1931-1934 fict.) (No. 3961 - No. 4249), sec, 28. Metnourse,

'When payments are received generally on account of a debt, which is in ay 5, 9. 'part interest and in part principal and no specific appropriation is made, they gypyey,

_ to the net rents and profits received by a mortgagee in possession. nia Baa 9 Bo: 23 Gf the Financial Hmergency Act 1031-1984 (Vict:) makes it one =e Evatt, alternative condition of a mortgagor's title to apply for relief that interest has been paid to a date within a prescribed period immediately preceding date of application. Held that this does not require actual payment by or on behalf of the gagor himself, but is satisfied if the interest is obtained by the mortgagee o that either at law or in equity the mortgagor's obligation to pay it would

Held that punctual exact and faithful performance by the mortgagor If is not necessary, but such performance as would be an answer to an for breach, except as to nominal damages. -

'A mortgagor applied under the inancial Emergency Acts 1931-1934 (Viet.) for an order that the mortgagee should not exercise his power of foreclosure, - and alleged that interest had been paid to a date within the immediately preceding period prescribed. There had been no actual payment of interest by the mortgagor during that period, but the mortgagee had entered into posses- sion of the mortgaged property and was in receipt of the rents and profits. ; E .

Held that the mortgagor was entitled to have an account taken for the purpose of showing that interest had been satisfied to a date within the

Decision of the Supreme Court of Victoria (Mann J.) reversed.

By an instrument of mortgage dated 15th May 1929 Harry Falk mortgaged to Edwin Haugh, to secure the repayment of £5,500, certain land upon which was a mansion which had been divided into flats. Payment of interest under the mortgage fell into arrears, and the mortgagee went into possession of the property on 20th October 1930. He employed an estate agent to manage the property _ and to collect the rents. From the rents received the agent, from time to time, deducted rates and taxes which were in arrear at the date of going into possession, current rates and taxes, amounts for repairs, expenses incidental to the management of the property, expenses of minor alterations and improvements, advertising and auction expenses incurred in connection with an attempted sale of the property, and amounts for agent's commission, and remi the balance of such rents to the mortgagee.

On 19th September 1933 the mortgagor took out a summons i the County Court at Melbourne under sec. 28 (1) of the Financid Emergency Act (Vict.), asking for an order that the mortgagee should not before Ist October 1934 exercise any power of foreclosure in res} of the mortgaged property, or any remedy other than any power ol sale. The mortgagor alleged (inter alia) that the interest payabl under the mortgage, being payable quarterly, had been paid to date within the period of twelve months immediately preceding date of the summons. On the hearing of the summons this allegati was the substance of the dispute. The Judge directed an inqui before the Registrar, analogous to an inquiry on the taking | accounts. An inquiry was held, and the Registrar certified as the result. When the matter came on for further hearing the Ji

reserved for the opinion of the Full Court of the Supreme Court a H.C. or A.

number of questions concerning the way in which the rents and profits received by the mortgagee in possession should be treated as having been applied.

The instrument of mortgage provided that all costs, charges, expenses and payments incurred or made by the mortgagee in the exercise or enforcement of any of his powers, rights or remedies, or in any way incurred owing to default in payment of any money thereby secured or the breach of any express or implied covenant by the mortgagor, should be deemed part of the principal money owing on the mortgage and should carry interest ; and provided that the mortgagee might pay any moneys, such as rates and taxes, payable in respect of the land, in the event of the mortgagor's failing

'The above facts appear in Falk v. Haugh (1) where the Supreme

Court held that the mortgagor was not entitled to have an account taken for the purpose of showing that interest had been satisfied to

~ a date within the preceding period of twelve months. The summons, coming on again before the County Court, was dismissed upon the

ground that interest had not been paid to a date within twelve months of the summons. The mortgagor appealed against this order

~ to the Supreme Court. That appeal was pending at the time of the

: On 2Ist December 1934 the mortgagor issued another summons,

_ this time in the Supreme Court, for an order that the mortgagee . should not exercise any power of foreclosure in respect of the property < comprised in the mortgage on the ground that the interest had been ' paid to a date within the period of twelve months preceding the date of the summons. The summons was heard by Mann J., and an adjournment was sought for the purpose of enabling an appeal to be brought to the High Court from the decision of the Supreme

Court in Falk v. Haugh (1). Mann J. refused the application for anadjournment, as he considered that he should not adjourn the matter "until after an appeal not yet instituted was made to the Atigh Court in another matter," and dismissed the summons. : From this decision the mortgagor now appealed to the High Court.

Ashkanasy (with him Dethridge), for the appellant. The mortgagor is entitled to an account. If the mortgagee brought an action on a covenant claiming more than he was entitled to, a Court of equity would intervene to prevent him from claiming more than was due to him, e.g., if he sued for the whole principal without making any allowance for rents and profits received. The mortgagor was not bound to commence redemption proceedings to enable him to support such claim. No interest was paid directly since 29th October 1930, when the mortgagee went into possession. Since that date the mortgagee has collected the rents and profits which were more than sufficient to pay both outgoings and some interest. The mortgagee has all the rights of an owner at law under sec. 156 of the Transfer of Land Act 1928 (Vict.), but only for the purpose of securing payment. Under the general law the mortgagor would have been in a very much better position (Partridge v. McIntosh & Sons Ltd. (1) ; Groongal Pastoral Co. (in Liquidation) v. Falkiner (2) ; Kerr on Australian Lands Titles (Torrens) System (1927), pp. 21, 355-357). There is no such thing as a redemption action for land under the Heclicr of pang Act (Greig v. Watson (3) ). The mortgagee going

and, therefore, is not liable to account. This cannot obtain the Transfer of Land Act where he goes into possession as creditor. It is sufficient for the purpose of this appeal for the mortgagor to show that there was payment (Trust and Agency Co. v. Markwel ) [No. 2] (4) ; Long v. Town (5) ). There is no provision for account upon foreclosure under the Transfer of Land Act. The Full Court did not allow any inquiry to be made as to the state of the accoun ts at all (Cockburn vy. Edwards (6) ). The mortgagee should apply the income in the first instance to the keeping down of interest in the absence of any express appropriation (Chase v. Box (7); Wrigle y. Gill (8) ). That the mortgagor is entitled to an account without offering to redeem is supported by Bradshaw v. Widdrington (9) and Harlock v. Ashberry (10). Under the Transfer of Land Act th

(1) (1933) 49 CLR. 453. (6) (1881) 18 Ch, D. 449, at p. 461. (2) (1924) 35 CLR. 157. (7) (1702) Freem. Ch. 261; 22 E.R. (8) 0881) 7 VLR. (E.) 795 3 ALT. 1197.

(8) (1906) 1 Ch. 165, at pp. 170, 174 (4) sta) 4QS.C.R. 50. (9) (1902) 2 Ch. 430. [

(5) (1889) 10 L. Re (N'S.W.) (Eq.) 253, (10) (1882) 19 Ch. D. 539, at p. 54.

mortgagee never receives payment except asa creditor. The method of taking accounts is set out in Fisher and Lightwood's Law of Mortgages, '7th ed. (1931), p.733 ; Halsbury, Laws of England, \st ed. (1912), vol. '21, p. 219 ; Lindley on Partnership, 9th ed. (1924), p. 298 ; Noyes v. Pollock (1). Mann J. says the mortgagee has no rights whatever unless he redeems. It is desired to show that rents and profits have been applied in payment of interest so as to extinguish the whole of it, and that therefore (a) no interest is in arrears, or (b) that interest has been paid up to within twelve months. The irreducible minimum to which we are entitled is to have a finding as to whether or not there has been an appropriation made. Sec. 76 'of the County Court Act 1928 (Vict,) says that the Full Court must answer questions submitted to them by the County Court. In

_ Falk vy. Haugh (2) they refused to do so. The Court should send the case back to Mann J. for the purpose of having the case heard.

: _ Adam, for the respondent. On the material before him Mann J.

should have dismissed the summons, but he was asked for an adjourn- ; ment to obtain evidence of further facts, and Mann J. refused the : adjournment and dismissed the summons in view of the Fuli Court ' decision in Falk vy. Haugh (2). The decision of the Full Court _ was right. No inquiries or accounts should have been directed. 'The summons is under sec. 28 (1) (b) of the Act, and the word " paid " there means paid in the ordinary legal sense, a physical payment of money or something agreed upon by the mortgagee as payment. It approximates to the old plea of payment. The alternative to this would involve taking accounts. It is improbable that accounts _ between mortgagor and mortgagee were intended to be taken for

the purpose of this section. The only known form of accounts are inapplicable to this form of proceeding, and could not have been contemplated by the Legislature. Compare Increase of Rents Act (England), 5 & 6 Geo. V. c. 7, sec. 4, which was considered in Walters v. White (3). Wrigley v. Gill (4) is distinguishable on 'Several grounds. The mortgagor has no rights after the mortgagee

. 53, (9) (911) 16 LT. 877; 38 TLR. 5 54, (4) (1906) 1 Ch. 165.

has entered into possession, unless he offers to redeem (Harlock v. Ashberry (1); Union Bank of London v. Ingram (2); Gaskell v. Gosling (3)). "Payment" in sec. 28 should not be given a wider meaning than at common law. There is no obligation either at law or in equity to apply profits to payment of interest. There is no difference in operation whether the mortgage is under the Act or not (sec. 156 of Transfer of Land Act 1928; Wiser an on The Transfer of Land, 2nd ed. (1931), p. 257; Farrington vy. Smith (4) ). Sec. 151 of the Transfer of Land Act gives a statuto right to enter into possession of rents and profits. Greig v. Watson (5) decides that in foreclosure proceedings the special provisions of the Act must be followed. The New South Wales and Queensland cases are not relevant, as provisions corresponding to sec. 156 are not contained in those Acts. The mortgagee is not obliged to apply rents first to the payment of interest (Ex parte Harrison ; In re Belt (6); Parr's Banking Co. v. Yates (7) ). In any event the principle of the rule is one intended to favour the creditor and not the deb (Fulthrope v. Foster (8); Richards v. Morgan (9) ). What rule as to accounts should be applied? Redemption accounts cannot apply. An account taken at an artificial date chosen arbitrarily

time. The mortgagor is also out of Court on the footing that th Act not only requires him to pay the interest, but to have complied with all the other covenants, other than for the payment of princip moneys. No rates or taxes have been paid on this property by th mortgagor since the execution of the mortgage. Such a breach is not of a minor or techn ical nature.

Ashkanasy, in reply. The authorities show that the order in which appropriations are to be made by a mortgagee are, first, interest, secondly, outgoings, and thirdly, capital. Walters v. Whit (10) was not a considered judgment and was decided without an

(1) (1882) 19 Ch. D, 539. (6) (1881) 18 Ch. D. 127.

(3) (1896) 1 Q.B. 669, at p. 691. (8) (1858) 1 Vern. 476 ; 23 E.R. 60

(4) (1894) 20 V.L.R. 90, at p. 92; (9) (1753) 4 Y. & C. Ex.) 570; 160 15 A.L-T. 218, at p. 219. E.R. 1136

(881) 7V.LR-(E.)70; 3ALT. (10) (1917) 116 L.T, 377; 38 Tle ; 154,

"reference to authorities ; also, the Act upon which it was decided

differs materially from the present Act.

'The following written judgments were delivered : -

Rios, Dixon, Evarr anp McTiernan JJ. This is an appeal from an order of Mann J. dismissing an application under sec. 28 of the Victorian Financial Emergency Act 1931 as amended: Act

_ No. 3961, sec. 28, as amended by No. 3970, sec. 5; No. 4047, sec. 2; No. 4064, sec. 2; No. 4106, secs. 5 and 6; and No. 4249, sec. 3 (1). 'That provision enables a mortgagor, if certain conditions are fulfilled, to apply upon summons for an order that the mortgagee shall not before Ist October 1935 exercise any power of sale or foreclosure or session in respect of the property comprised in the mortgage, 7 any other remedy for enforcing payment of the principal moneys _ thereby secured, or interest (if any) in arrear at the time of the . The prescribed conditions are two. The first is that under the "mortgage, (a) any interest accrued due and payable is not in arrear, (b) interest has been paid to a date within a specified period _ immediately preceding the date of the application. The specified _ period is twelve months if interest is payable quarterly or more frequently, fifteen months, if half-yearly, and eighteen months, if or less frequently. Interest for this purpose accrues from ly to day, and a tender of interest if refused is equivalent to

second condition is that, apart from the non-payment of al and interest, the mortgagor has performed his covenants if there has been a breach of covenant, it is in the opinion of the Court of a minor or technical character, The mortgagor is entitled such an order if he establishes that he is unable to redeem, either n his own moneys or by borrowing at a rate of interest not g the mortgage rate as reduced by the statute, and that is no serious diminution in the value of the property and that 'the mortgagee's security is not otherwise in jeopardy. The power of sale of a mortgagee in possession is not affected if he took possession the provision came into force.

The mortgagor applied in the present case for an order that t mortgagee should not exercise his power of foreclosure or any oth remedy except his power of sale for enforcing payment of print and interest. The mortgage was given on 15th May 1929 to secu repayment of £5,500 and interest payable quarterly at ten per cen per annum reducible to eight per cent per annum on payme within fourteen days of the quarterly dates. It is a mortgage und the Transfer of Land Act. The land is situated at East St. Kil and is the site of a building divided into a number of flats, mortgagee went into possession on 29th October 1930, interest then in arrear. Ever since he has remained in receipt of rents a profits. In September 1933 the mortgagor applied under sec,

he said, were more than sufficient to keep down the interest defraying all lawful outgoings. The County Court directed at inquiry before the Registrar. When his certificate came before th Judge some questions arose which were reserved pursuant to sec. of the Cownty Court Act 1928. The stated case was heard by Full Court, consisting of Irvine C.J., Mann and Macfarlan JJ., wh refused to answer the questions upon the ground that no oe: had arisen for an account or inquiry between the mortgagor and th mortgagee, as the mortgagor did not seek to redeem, and there hi been no sale by the mortgagee. The reasons of the Court, wl were given by Mann J., are to the effect that the mortgagor rely upon the receipt of the rents and profits by the mortga, possession to establish fulfilment of the condition that interest been paid to a date within the specified period immediately precedin the mortgagor's application (Falk v. Haugh (1) ).

The County Court then dismissed the application upon the g that interest had not been paid to a date within twelve n preceding September 1933, when the application then un consideration was made.

The present application to the Supreme Court was made on 2] December 1934. Mann J. dismissed it, following the reasons he hi

in the Full Court. Counsel for the mortgagee expressly ed from taking the point that the question whether the it had been paid to a date within twelve months preceding December 1934 is concluded. The contention is open that is question is decided already, and the applicant is precluded by estoppel. The respondent's refusal to raise it makes it sary to discuss the matter. But it may be remarked that present application raises a different issue from that determined by the County Court. The reasons of the Full Court for refusing determine the questions reserved may be taken to be the basis decision by the County Court that interest had not been The decision in the County Court was that interest had not at that time been paid up to a given date. The question at @ here is whether it has now been paid up to another and ter date. An affirmative answer to that question involves no essary contradiction of the County Court decision. The issues e not the same; but the decision of each issue involves a on question, namely, what, in the case of a mortgagee in amounts to payment. It is this question with which reasons of the Full Court deal. It may, therefore, be right to those reasons as forming only a subsidiary ground leading decision of the issue between the parties, and not as constituting ion of an issue. An estoppel of this kind arises from the cision inder partes of an ultimate issue identical with one of the nate issues that are again raised. But it does not arise from adoption of a process of reasoning in the decision of the issue, ugh the same process may be applicable in the decision of a and different issue. It is upon this ground, if at all, that decision of the Privy Council in Broken Hill Pty. Co. v. Broken Municipal Council (1) is to be reconciled with its decision in ad vy. Commissioner of Taxation (2). materials before us on the present appeal do not include, ely, the actual accounts brought in by the mortgagee as esult of the direction of the County Court Judge. The mortgagor appealed to the Supreme Court against the order of the County dismissing his application to the latter Court. That appeal,

H.C.oF A. which appears to have been instituted with a view of an appeal eS this Court, was pending at the time the present application Fax before Mann J., and is still pending. The mortgagor applied

Haton. this occasion to the Supreme Court in order to preserve his

Bich J. under the Act, and sought an adjournment which, however,

Evatt J refused upon the ground that, in view of the decision of the F

ett Court, on no materials could the application succeed, and an adjoun

ment would be useless. Perhaps the matter might have be disposed of on grounds depending upon the character and an of the actual receipts and expenditure, and the manner or order} which the mortgagee has appropriated receipts against expendi and interest, if an appropriation has been made by him. As the appeal must be decided upon the assumption that, if an accou were taken, it might appear that, after the deduction of all allowa outgoings, the receipts of the mortgagee from the mortgaged prem have been sufficient to answer arrears of interest, and to keep accruing interest. But, in making this assumption, the possibil of the mortgagee's having made an appropriation of receipts again outgoings in priority to interest cannot be neglected. For, aceon dir to the respondent's counsel, the net residue does not suffice to ke down the interest. Whether, when the receipts of a mortgagee possession are sufficient, after the deduction of all prior charg fully to answer the interest payable under the mortgage, the in is to be considered paid, is a question which, as appears from th decided cases, depends more on the meaning with which the wo "payment" is used than upon any obscurity in the relations the mortgagor and mortgagee. Under the operation of secs. and 157 of the T'ransfer of Land Act 1928, the mortgagee in po of land under the Act occupies a situation analogous to that of mortgagee in possession of land under the general law. Hi

possession in his own right, and not as an agent. But he enjoy as mortgagee, that is, for the purpose of securing payment of mortgage moneys. He is, therefore, accountable for what | receives and for what he ought to receive. If a mortgagee's are thrown against principal, they reduce pro tanto the amount up which interest is chargeable. It is not to the mortgagee's advanta therefore, to attempt to appropriate to principal his receipts f

'mortgaged premises. When interest is owing, it is scarcely to supposed that, instead of utilizing the receipts to keep it down, would throw them against principal. Indeed, the contest which 'has most often arisen, is whether the surplus receipts after interest 7 has been answered ought in the hands of the mortgagee to be treated : as partly paying off principal : whether, in other words, an account between mortgagee in possession and mortgagor must be taken with yearly or periodical rests. It has long been a rule that when payments e received generally on account of a debt, which is in part interest | in part principal, they are treated as applicable to interest in ority to principal. In Crisp v. Bluck (1) a bond creditor received ne payments, and afterwards recovered judgment. It was decreed the payments ought to go in discharge of the interest first. The

was again enunciated by Lord Keeper Wright in Chase v. Box ). It has, however, been little discussed. The most recent nt of the rule is contained in Venkatadri Appa Row v. i; Appa Row (3). There Lord Buckmaster said (4) : - is a debt due that carries interest. There are moneys that received without a definite appropriation on the one side or the r, and the rule which is well established in ordinary cases is in those circumstances the money is first applied in payment erest and then when that is satisfied in payment of capital. tule is referred to by Rigby L.J. in the case of Parr's Banking Yates (5) in these words : - '* The defendant's counsel relied ie old rule that does, no doubt, apply to many cases, namely, where both principal and interest are due, the sums paid on must be applied first to interest. That rule, where it is , is only common justice. To apply the sums paid to pal where interest has accrued upon the debt, and is not paid, be depriving the creditor of the benefit to which he is entitled his contract.'" (See too Bamundoss Mookerjea v. Omeish Raee (6).) The rule affords only a presumption in the absence actual or express appropriation by the debtor or the creditor.

Rep. temp. Finch $9; 23 (4) (1921) LR. 48 Ind. App.,at p. 153. R. 48. (5) (1898) 2 Q.B. 460, at p. 466. Freem, Ch. 261; 22 E.R. (6) (1856) 6 Moo. Ind. App. 289, at

306 ; 19 E.R. 108, at p. 115. LR. 48 Ind. App. 150. ae

oe oe A. But it is treated by text writers as a rule governing the applicat a of payments in respect of mortgage moneys (Fisher on Mo Faux 6th ed. (1910), par. 1514, p. 770; Coote on Mortgages, 9th ed. (1927

Havox, Vol. 11, ch. 54, sec. 6, p. 1237). There is also some old authorit ring, that a mortgagee in possession must after keeping down int Beate 3; do necessary repairs out of the surplus rents and profits (Ri ane Morgan (1) ). But, from the fact that net receipts are thro

primarily against interest, it does not necessarily follow that th interest is paid as and when the moneys in hand suffice for th purpose. In Brocklehurst v. Jessop (2), indeed, Shadwell V.C. that, at any rate in the case of an equitable mortgagee who had legal estate, the receipts amounted to payment even to defeat Statute of Limitations. He said that the receipt of the rents a profits by an equitable mortgagee in possession ought prima fa to be taken as payment either of the principal or interest of h debt as the case might be. But in Cockburn v. Edwards (8) th view was disapproved as going too far. Jessel M.R., as he had do in Union Bank of London vy. Ingram (4), in that case emphasiz the nature of the account taken between mortgagor and mortgag in possession ; an account where the total receipts, less expen are compared with the total mortgage moneys. He cited Chin v. Evans (5) as showing that within 3 & 4 Wm. IV. c. 27 it was 0 payment, because not made by the mortgagor or his agent. views were, however, by no means shared by Brett and Cotton L. In Union Bank of London v. Ingram (4), Jessel M.R. had alte decided that, under a proviso for reduction of interest on punet payment, a mortgagee in possession, whose net receipts ex the interest, might nevertheless charge the higher rate. The ¢ was followed with some reluctance by Kay J. in Bright v. Cam (6). These decisions, however, were examined thoroughly Wrigley v. Gill (7), first by Warrington J., as he then was, then in the Court of Appeal by Vaughan Williams, Stirling Cozens-Hardy L.JJ. The question there was whether under a pro

(1) (1753) 4 Y. & C. (Ex.) 570; 160 (5) (1864) 11 HLL. Cas. 115; E.R. 1136. 1274. (2) (1835) 7 Sim. 438; 58 E.R. 906. (6) (1889) 41 Ch. D. 388.

(3) (1881) 18 Ch. D. 449. (7) (1905) 1 Ch. 241; (1906) 1 6 (4) (1880) 16 Ch. D. 53. 165.

for the capitalisation of interest due which should be in arrear for fourteen days, interest could be treated as capital by a mortgagee in 'Possession who received rents and profits sufficient to keep down the interest. This question was answered that it could not be so tr . All the judges disapproved of the dicta of Jessel M.R. he conclusion reached was expressed as follows by Vaughan 'illiams L.J. : - But it seems to me that we cannot support the lgment of Warrington J. in the present case unless we are prepared

hold that under such a proviso as we have here the mortgagee

3 in possession he had in his hands on the day appointed for ment of interest, or within twenty-one days afterwards, rents ed by him available for the payment of the interest. In my that is the right view " (1).

views expressed by Mann J. proceed very largely upon the which Jessel M.R. enunciated. The true view appears that a mortgagee in possession is treated as having satisfied st accruing under the mortgage when he has in his hands received from the mortgaged premises which, after the ction of expenditure allowable to him, are sufficient to keep the st down. But, when under a provision of a statute or of the ge deed itself, payment by or on behalf of the mortgagor is the discharge of the obligation out of the receipts of the e in possession is not enough, at any rate without some ppropriation of the moneys on his part. The question then ses under which head the condition laid down by sec. 28 (1) falls.

Tn the provisions contained in sec. 28 it is not difficult to see an to balance the interests of the two parties to the mortgage ion. The section seeks to protect the mortgagor against he remedies which the law gives to a mortgagee ; but at the same me to stop short of giving protection when to do so would inflict t ial loss upon the mortgagee. If the mortgagor can redeem his own moneys, or by borrowing at a proper rate of interest,

in this manner, the question whether he needs protection, (Q) (1906) 1 Ch., at p. 174.

H.C. oF A. except as to the balance, is regarded as one for decision on the fa pe of the particular case. But, if he cannot so repay any part Fatx the mortgage moneys, he is to get protection provided that ce:

Havow. conditions are fulfilled. These conditions are introduced for t}

Ring Purpose of safeguarding the mortgagee. They do not appear to

Dison J concerned so much with the deserts of the mortgagor as with th

Metieman J. easure of security which must be preserved to the mortgagee.

the value of the property is diminishing seriously, or the mortgage security is otherwise in jeopardy, protection is to be withheld withdrawn. The covenants of the mortgagor must have been fulfi except for breaches of a minor or technical nature. The inte must not be in arrear for too great a time. The original provi was that not more than six months' interest due and payable be in arrear. This has been replaced with the provision governs the present appeal. It requires that interest shall been paid to a date within the specified period, in this case months, preceding the date of the application. It is possible construe the language in which this provision is expressed as req) that the mortgagor or some one on his behalf shall have paid interest to the mortgagee. It is possible, on the other hand, to const it as requiring no more than that the mortgagee shall have obtait payment of his interest, shall have received or derived the amo interest in question. In favour of the former view is the fact th Sargant J. so construed the phrase " so long as interest at the rate is paid and is not more than twenty-one days in arrear " ins (4) of the English Increase of Rent and Mortgage Interest (War R tions) Act 1915, which is said to be the source of all such le (Walters v. White (1) ). But the decision is explained by the cont and restricted purpose of that statute (cf. Wallace v. Fogarty (2) ). imposed upon the mortgagor the necessity of doing other acts paying other moneys as a condition of the protection it gave. A other things, the provision required that the covenants by mortgagor should be performed and observed, and Russell J., then was, has held that this means punctually performed a to their tenor (Evans v. Horner (3) ).

(1) (1917) 16 L.T. 377; 33 T.L.R. (2) (1926) LR. 255. i 154. (3) (1925) Ch, 17.

In favour of the second construction of sec. 28 of the Victorian ct is the fact that sub-sec. 7 expressly provides that the section 'shall not affect any power of sale of a mortgagee in possession where ssion was taken before the. provision began to operate. In case of pastoral companies that time was to be fixed by proclama- and accordingly sub-sec. 7 refers specifically to them. Clearly provision contemplates a mortgagor's obtaining protection withstanding that the mortgagee has been in possession. The sion of a mortgagee, particularly a pastoral company, would | practice mean a complete suspension of actual payments by the gagor. Interest would be kept down by the rents and profits not otherwise. It is to be noticed that the first of the alternative itions is that interest should not be in arrear; the second, as nded, is that it should be paid up to a date within the specified preceding the application. The language in which the first ition is expressed suggests that it is satisfied if the interest is down from whatever source the mortgagee may receive it. It scarcely credible that the second alternative was intended in this respect to have a different meaning from that of the first. these considerations support the conclusion that the conditions

t by or on behalf of the mortgagor himself, but are satisfied e interest is obtained by the mortgagee so that, either at law equity, the mortgagor's obligation to pay it would be discharged.

mortgagor's covenants shall have been performed should be

derstood as requiring not punctual, exact and faithful performance by the mortgagor himself according to the tenor of the covenants. It refers to such a discharge of the obligation of the covenant as be an answer to an action for breach, at any rate except as damages. Thus a condition precedent to a right to a lease, requiring that the covenants on the part of the tenant ll have been duly observed and performed, does not mean that tenant must have strictly observed and performed the covenants ll through the term ; it is satisfied if the covenants have been so

ved and performed that there is no existing right of action 'VoL. Lit, 12

under them at the time when the lease is applied for (per Mellis L.J., Finch v. Underwood (1) ). In Starkey v. Barton (2) a condition of a tenant's option of purchase was that the tenant should in th meantime have duly paid the rent. It was interpreted by Parker J. as he then was, as requiring not strict and punctual payment, but that the rent should be paid up before the expiry of the option. Parker J. referred to the decision of Farwell J. in Benabo v. James (3) and said : - ' In that case there was a covenant not to call in mortgage on leasehold hereditaments if the ground rent was dulj paid. There were special circumstances in the case, but it was hel that if the ground rent was paid in time to prevent the exercise of the right of the lessor to re-enter, that was due payment within th exercise of the right of the lessor to re-enter, that was due paymen within the meaning of the covenant" (4).

The purpose and effect of the conditions precedent to a mortgagor application for relief, which sub-sec. 1 imposes, may be summed yy as requiring that at the date of the application the mortgagee shal have received interest up to a time within the specified period, in this case twelve months, and that no breach of covenant shall unremedied except it be of a minor or technical nature. It consistent with this view of the provision that by reason of the amount and application of the rents and profits received by the mort the mortgagor may not be disqualified from relief by his failu personally to pay interest to the mortgagee and his failure to p rates and taxes to the rating and taxing authorities.

The mortgage contains a covenant by the mortgagor that he bear, pay, satisfy and discharge all taxes, rates, charges, impositi and assessments on the mortgaged premises. The mortgagor left it to the mortgagee in possession to pay rates and taxes. Bu apparently the mortgagee has been able to pay them out of receipts. If the rates and taxes have been paid out of the rem and profits, the breach of covenant may be so far remedied as to b considered performed within the meaning of the section. The fail in the mode of performance, if any longer of importance, might b regarded as a breach of a minor or technical nature. The requiremé

(1876) 2 Ch. D. 310, at p. 316. (3) (1900) 109 L.T. Jo. 408, (2) (1909) 1 Ch. 284, (4) (1909) 1 Ch., at p. 289.

interest shall be paid up to a date within twelve months may be if the rents and profits have been sufficient, and have not been required for some other purpose.

Counsel for the mortgagee stated that it would be found that in _ fact his client had appropriated the receipts primarily to expenditure and outgoings in connexion with the maintenance and management 'the mortgaged premises, and that the residue was insufficient to keep down the interest to the extent necessary to enable the mortgagor to succeed in his application.

Counsel for the mortgagor said that he did not concede that all the mortgagee's expenditure was proper and could be debited against 'the receipts, but that, in any event, under a covenant given by the wtgagor all such expenditure by the mortgagee was to be deemed capital. He contended that as the outgoings, if allowable, were capitalised, rents and profits could be applied in discharging them : only after the interest was satisfied.

_ This last contention is erroneous. The rule that rents and profits e applicable to interest before principal operates in the absence of S appropriation. It is unnecessary to consider whether a in possession is at liberty to apply the receipts from the ortgaged premises primarily in discharge of the principal of the . Apart from such legislation as that now under consideration,

so. But the fact that the mortgagee's expenses are capitalised prevent him applying current revenue to discharge the iture and thus intercept capitalisation. These are questions Which can arise only on the taking of accounts, but, in the cireum- ie of the case, it seems undesirable to allow this contention of le mortgagor to pass unnoticed. Once a construction is adopted of 28 (1) which makes it possible that the net revenue coming to hands of the mortgagee may constitute or provide a payment up 'interest to the date that provision requires, the question whether interest has in fact been kept down in this matter must be deter- d by the Court to which the application is made. Then is there reason why an account should not be taken to ascertain whether receipts do or do not suffice for the purpose ?

should they not be invoked? It is true that, when the principal

"When a question is stated to be referred to an establis! Court without more, it, in my opinion, imports that the ordi incidents of the procedure of that Court are to attach " (per Viscount Haldane L.C., National Telephone Co. v. Postmaster-General (1) ). The application may be made in the County Court and in Supreme Court, which have ample powers of taking accounts. Why

secured is not more than £1,000, a Court of Petty Sessions may be applied to. But the provision implies nothing more than that th Legislature contemplated cases of little complication arising out comparatively small loans. To say that the mortgagor is not entitled to an account unless he offer to redeem is to apply a general rule of equity to this special enactment. The purpose of the statut

means of deciding that question, it is a proceeding to which applicant is entitled to resort. ;

The appeal should be allowed. The matter should be remitt to the Supreme Court for hearing or rehearing.

Srarke J. The Financial Emergency Act 1931-1934 (Viet. sec. 28 (1), provides : - '* Where under a mortgage - (a) any intere accrued due and payable is not in arrear ; or (6) interest has been paid (i.) in the case where interest under the mortgage is to be p quarterly . . . to a date within the period of twelve month immediately preceding the date of application . . . but oth

principal moneys have been performed, such mortgagor may app to the Court upon summons for an order that the mortgagee shal not . . . exercise any power of sale or foreclosure or repose in respect of the property comprised in the mortgage or any othi remedy for enforcing payment of the principal moneys thereb secured or interest (if any) in arrear at the time of such application. The application may be made to the Supreme Court, the Co Court, or, in cases where the principal money secured by the mor ga (1) (1913) A.C. 546, at p. 552.

"Police Magistrate (sec. 14). If possession has been taken by a mort- gagee before the coming into operation of the Act, the provisions _ of the section do not affect any power of sale of any mortgagee in possession (sec. 28 (7) ).

Falk had given a first mortgage to Haugh over certain lands "under the Transfer of Land Act, to secure £5,500 with interest payable "quarterly at the rate of ten per cent per annum reducible to eight cent per annum on punctual payment. The mortgagor made default in payment of the interest due under the mortgage, and the gagee took possession of the mortgaged property about the end October 1930, and received the rents and profits therefrom. In the mortgagor applied on summons to the County Court at elbourne for an order that the mortgagee should not exercise any of foreclosure in respect of the property. But the Act, as dy stated, requires that interest should have been paid to a within twelve months of the summons. The mortgagor sted that if accounts were taken, it would be found that the and profits received by the mortgagee were sufficient to sink e interest payable under the mortgage. A case was stated for opinion of the Supreme Court upon a number of questions erning the manner in which the rents and profits received by he mortgagee should be applied, but the Supreme Court thought » questions did not call for solution. The Court observed that an as between mortgagor and mortgagee in possession was enough, but that such accounts were " ordered when, and y when, the occasion for them arises - that is to say, when the rtgagor desires to redeem or the mortgagee desires to terminate 'option of redemption by foreclosure, or after a sale by a mort- ee" (1). And such an occasion had not arisen (Falk v. Haugh ). The summons, coming again before the County Court, was upon the ground that interest had not been paid to a date twelve months of the summons. An appeal, it was stated, ending in the Supreme Court against this order. In December M, the mortgagor issued another summons, but this time in the e Court for an order that the mortgagee should not exercise

the mortgage. It came before Mann J., and an adjournment was applied for, but refused, because it was inevitable that the summons should be dismissed, having regard to the decision already given by the Supreme Court. We need not consider whether the decision on the former summons operated as an estoppel, for the learned counsel for the mortgagee waived the contention, so that the construction of the Act and the position of the parties might be here determine

The first question is the meaning of the words " interest has been paid," which condition the mortgagor's right to make application under the Act. It is contended that the mortgagor must himself have paid the interest (cf. Walters v. White (1) ), or discharged it in some manner equivalent in law to payment. But there seem

no reason for so restricting the Act if rents and profits are in hand sufficient and applicable for sinking or keeping down the interest. Technically the mortgagor would not pay the interest, for mortgagee receives the rents and profits in his own right, tho gl accountable to the mortgagor, but the result would be the same. Under clause (a), where interest is not in arrear a mortgagee wo ld not be allowed to say that interest was in arrear if he had in h hands rents applicable for its payment (Wrigley v. Gill (2) ). change of words in clause (6) is relied upon in support of the argumen but little reason can be found for any distinction. The purpose 0 the Act is to relieve impecunious mortgagors, and the payment

interest required by the Act is the receipt of moneys satisfying nd applicable to payment of interest, and not the precise legal effec of that receipt. No doubt the ordinary rule of equity was that mortgagor, or anyone claiming under him, could not make th mortgagee party to any suit without offering to redeem. Inde of the mortgagee was the condition of redemption, and account were taken for the purpose of ascertaining the amount owing t him. But unless otherwise directed the practice in England is thi the accounts are taken as a whole, and the mortgagee is not t eate as repaid until the account is taken (Nelson v. Booth (3); Unio Bank of London v. Ingram (4); see Fisher and Lightwood's

(1) (1917) 116 LT. 377; 33 TLR. (3) (1858) 3 DeG. & J. 119; 448 154. 1214. } (2) (1906) 1 Ch., at p. 179. (4) (1880) 16 Ch, D. 53.

on 7th ed. (1931), p. 734). Such a practice cannot determine proper construction of the Financial Emergency Act, nor, indeed, that of any other instrament. So much is recognized in cases such as Wrigley v. Gill (1), by Cotton LJ. in Cockburn v. Edwards (2), and in Chinnery vy. Evans (3). If the statute only requires the

receipt of moneys satisfying and applicable for payment of interest, then the statute prevails, whatever the practice be in redemption other actions. It must be remembered, however, that a mort- who enters into possession of the mortgaged estate enters for purpose of recovering his principal, interest, and any other eys secured by the mortgage (Lord Kensington v. Bouverie (4) ). 'mere collection, therefore, of the rents and profits does not ish that they have been applied in reduction or satisfaction of st; something more must appear. It is said that where the or claims to be discharged by the receipt of rents and profits,

ll (1); Venkatadri Appa Row v. Parthasarathi Appa Row That may he so if the mortgagee does not show that he d the moneys in payment of anything else under the mortgage 'rigley v. Gill (7) ). But if he receives the money in his own t, and for payment of what may be due to him under the mort- », then he may appropriate and apply it in satisfaction of such rt of the mortgage debt as is most advantageous to himself - |, interest, and costs. The right to appropriate may be d, I should say, in accordance with the general principles g to appropriation, at any time after receipt of the rents and and certainly before the settlement of any account between 'or and mortgagee or proceedings taken under the Emergency Act. We have been informed that the rents d profits in the present case have actually been applied in and ds recouping the mortgagee various expenses incurred by him

. D., at p. 463. .L. Cas. 115; 11 E.R. (5) (1702) Freem. Ch. 2

(6) (1 L.R. 48 Ind. App. 150. (7) (1906) 1 Ch., at p. 177.

in relation to the mortgage security, and that the balance is insufl

cient to sink the interest. Unfortunately the facts have not bee ascertained, by reason of the decision of the Supreme Court it Falk y. Haugh (1), and the case should therefore go back to th Supreme Court so that they may be determined. The provision 0 the 6th clause enables the mortgagee to capitalise costs, ¢ and expenses under the mortgage, but it does not compel him so t capitalise them, and in any case does not preclude him fi on appropriating the rents and profits in and towards satisfaction o any moneys due under the mortgage.

The difficulties suggested during argument in the case of proceed ings under the Act before the Police Court are more apparent th real. The Police Court must mould its procedure so as to carry ou the jurisdiction conferred upon it by the Act. f

The result, in my opinion, is that the appeal should be allowe and the summons remitted to the Supreme Court.

Per Curram. In the circumstances of this case, which is appeal in formd pauperis, the Court thinks no order as to the cost of the appeal should be made.

Appeal allowed. Order of Mann J. set Matter remitted to the Supreme C rehearing. Costs of first hearing to be the discretion of the Supreme Court. order as to costs of the appeal.

Solicitors for the appellant, Walter Kemp & Townsend. Solicitor for the respondent, David Thomas.

At a glance

Court

Decision date

Before

Source

Judgment (116 paragraphs)

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