Account-Mortgagee in possession-Duty to lease premises and collect rents
Mortgage and charge-Mortgagee in possession-Duty to account for rents-
What constitutes possession by mortgagee

The plaintiff mortgaged land to the defendant by way of customary
native mortgage without interest. The defendant did not go into pos-
session or lease the land. The plaintiff sued the defendant for the value
of rent on the land. The district judge found that the defendant was
liable to pay a fair occupation rent.

Held: (i) To be a "mortgagee in possession" within the meaning of
Civil Justice Ordinance, s. 123, requires that the mortgagee have unequivo-
cal, complete and untrammeled possession, and where the parties agreed
that the mortgagee was -to inform the mortgagor of any prospective pur-
chasers or lessees the mortgagee was not a mortgagee in possession.

(ii) An account for rents under Civil Justice Ordinance, s. 123, is to
be taken only in a suit for redemption or a suit for foreclosure and sale.

(iii) Where a sum is found due for rents in an accounting under Civil
Justice Ordinance, s. 123, the judge must deduct from rents collected by
the mortgagee a sum representing a reasonable rate. of interest on the loan
covered by the mortgage.

(iv) A mortgagee in possession, who does not himself occupy the
property, is liable to the mortgagor for a failure to collect rents only if it
can be shown that the failure was due to the mortgagee's wilful default,
mismanagement or neglect.

Civil Justice Ordinance 1929, s. 123.

Revision

1934. Owen CiL: The point in this appeal is whether, on the
facts, the plaintiff (mortgagor) was entitled to claim from the de-
fendant (mortgagee) a sum for the use and occupation of premises
which were in the constructive possession of the latter by way of

* Court: Owen C.l. and Halford J.

security for the repayment of a sum of money lent by the one to the
other.

The learned judge decided in favour of the plaintiff, finding that
the defendant was liable to pay to the plaintiff during the two years
of his possession a "fair occupation rent" in respect of the mortgaged
premises. This decision was based firstly upon the finding of fact
that the defendant was a mortgagee in possession within the meaning of
section 123 of the Civil Justice Ordinance, and secondly upon the
opinion that such a mortgagee was liable to account for, and repay,
all rents and profits received, or which, but for his wilful neglect or
mismanagement, he would have received, or with a fair occupation

rent.

The defendant has appealed from this decision urging that he
was not a mortgagee in possession,' and that, even if he was, there
is no evidence that he was guilty of wilful default, neglect or mis-
management. He had another ground of appeal, which he did not
plead, but to which I shall refer hereafter.

To be a mortgagee in possession within the meaning of the term,
the complete control of the property must be in the hands of the
mortgagee. Not only is it given to him by way of security for the
repayment of his loan, but in this country it is also the customary
means of enabling him to make that profit out of the transaction which
in other countries is .epresented by what is called interest. Interest
in money, as such, :; not recognized amongst the Moslem inhabitants
of this (and other) I ountries, and the custom has arisen that possession
of the mortgaged I operty shall be given to the mortgagee, to make,
within reasonable 1 mits, what profit he can out of it. His possession
must therefore be unequivocal, complete, and untrammeled. It was
argued by the d efendant that the evidence only showed that as
mortgagee in this case he was acting as an agent for the mortgagor
in holding the kt 'Is, and he quoted in support the judge's finding that
the arrangement between the parties was that the mortgagee should
inform the mortgagor of any prospective purchaser or lessee. I agree
that this finding is quite incompatible with complete control by the
mortgagee, and, if it were necessary, I would be prepared to hold tbat
tbis was not a case of mortgagee in possession within the meaning
of section 123 at all.

But even supposing he were a mortgagee in possession within
the meaning of that section, the defendant's second point is one of

considerable substance. Section 123 is directed to the prevention of
inordinate profits by mortgagees in possession. In effect it says that
the law will not allow a greater profit from the loan than would be
represented by a rate of interest (not exceeding 12%) to be fixed by
the court. Any profit made above that will be deducted from the
capital sum due. The section therefore provides that, in a suit for
redemption, or sale or foreclosure, (and this suit is neither, be it
noted) an account shall be taken of the net profits which the mortgagee
has derived from his possession. If these profits exceed the rate of
interest provided or laid down by the court, they shall go, as I have
said, in reduction or discharge of the capital liability. If they do
not, the mortgagee is entitled to retain them. In any event, therefore,
the district judge should have deducted from the sum he found to be due
a sum which would have represented a reasonable rate of interest
on £E.40, the mortgage debt, for two years. This point was not
raised by the defendant, but, in view of what follows, it is unnecessary
to decide whether or not he should benefit by it. His substantial
point is that the learned judge has misdirected himself in his mode
of applying subsection (2) of the section now under discussion. That
subsection provides that in taking the account between the parties,
the mortgagee shall be debited with the rents and profits which be
has received from the mortgaged property, "or which, but for his
wilful default, neglect or mismanagement, he would have received,
or with a fair occupation rent, whichever is the greater, in respect
thereof." What that subsection means, in my opinion is this:

If, as here, the mortgagee received no rents and profits, it is either
due to his misfortune or his fault. If he is guilty of default, neglect
or mismanagement the court will debit him with what he ought to
have received, and, if he actually occupies the premises, the court
will either debit bim with what he ougbt to have received, or a fair
occupation rent, whichever is the greater. But the court cannot change
a fair occupation rent if the mortgagee did not actually occupy the
premises. The test then will be whether or not he bas been guilty
of default.

It seems to me contrary to natural justice to debit this mortgagee
with anything in the way of rent unless it be shown that the failure to
obtain it is due to bis wilful default, mismanagement or neglect. He
is (ex hypothesi) in possession under the terms of an agreement which
gives him possession in the customary way, that is, in a native mortgage
where no interest is charged. He is under no obligation to take the