Appeal No 
741 of 1965
Appeal by special leave from the judgment and decree dated April 1 1963 of the Kerala High CourT in Appeal Suit No 480 of 1958
Sarjoo Prasad and M R K Pillai for the appellant
section V Gupte and A G Pudissery for the respondent
The Judgment of the Court was delivered by Shah J
On October 9 1950 a deed styled an indenture of mortgage was executed by the Cochin Chemicals and Refineries Ltd hereinafter called the Company  and N C John a Director of the Company in favour of I the State of Travancore Cochin
The relevant terms of the indenture were In consideration of the sum of Rupees 25 lakhs 250000 borrowed by the mortgagor No I from the mortgagee the receipt of which sum mortgagor No 1 doth hereby admit and acknowledge mortgagor No I hereby covenants with the mortgagee as follows  a That the mortgagor No I shall supply to the mortgagee 3000 tons of groundnut cake at the rate of 600 tons per month within a period of five months commencing with the first day of November 1950 and ending with the last day of March 1951
bThat the account for the groundnut cakes supplied by mortgagor No I to the mortgagee will be settled and adjusted against the loan amount of Rs 25 lakhs and interest thereon at 41  per annum at the end of March 1951 the groundnut cakes supplied being valued at the average price fixed by the Government during the period for purchases from other sources
If on such adjustment any amount is found due to the mortgagor No I the same will be paid by the mortgagee
If how 558 ever it is found that the price of the groundnut cakes supplied is not sufficient to make up the loan amount with the interest thereon mortgagor No I shall pay the deficit amount to themortgagee immediately after the settlement of account
cThat mortgagor No 1 shall deliver the groundnut cakes
at any depot in the Travancore Cochin State as may from time to time be required by the Director of Agriculture from the mortgagee free of transport charges
 IIFor the consideration aforesaid the mortgagor No 1 hereby transfers by way of simple mortgage to the mortgagee all the assets described in Sch 1 and mortgagor No 2 hereby transfers by way of simple mortgage to the mortgagee the assets described in Sch
11 to the intent that the said premises shall remain and be charged as security for the payment to the mortgagee of the said principal money interest and costs in accordance with the Covenants herein before contained
 IIIThe mortgagors hereby covenant with the mortgagee as follows The indenture was executed by the Company and N C John
and also by the Secretary to the Government of Travancore Cochin on behalf of His Highness the Rajpramukh
A supplementary deed was executed on November 7 1950 whereby it was agreed that Without prejudice to the right to recover the amount secured or any portion thereof as I stipulate  it shall also be recoverable under the Revenue Recovery Act for the time being in force or in other manner as the mortgagee may deem fit
It is common ground that the amount acknowledged in the indenture was not advanced at the date of the indenture and was never advanced thereafter
The Company arranged for the supply of goods agreed to be sold under the terms of paragraph Ia and wrote from time to time letters to the appropriate officers of the State asking them to give instructions about the depots where the supplies were to be made
In reply to the letter Ext
H the Assistant Director of Agriculture by Ext
M dated January 3 1951 replied that I write to invite your attention to my letter of even No dated 12 12 1950 and to inform you that I shalt be placing orders for the supply of groundnut cake as soon as I get orders from Government providing the necessary funds for paying you the advance of Rs 2 and 1 2 lakhs 559 No instructions for supply were however given to the Company to supply the goods agreed to be purchased by the State
The Company instituted on March 9 1953 an action against the State of Travancore Cochin for a decree for Rs 3600 being damages for failure to advance the loan of Rs 250000  and Rs 168600 as damages for breach of contract to purchase 3000 tons of groundnut cake under the indenture
The Trial Court decreed the suit for Rs 3600 being damages for failure
to advance the loan and for Rs 123000 being damages for breach of contract to purchase groundnut cake
In appeal to the High Court the liability of the State to compensate the Company for failure to take delivery of the goods offered to be delivered alone was challenged
The High Court confirmed the decree passed by the Trial Court negativing the contention raised on behalf of the State that the obligation to take delivery of the goods agreed to be purchased was contingent on the Government s advancing Rs 250000 
The State has appealed to this Court with special leave
Two questions arise for determination in this appeal 1 Whether under the terms of the indenture the State by refusing to advance the loan of Rs 250000was absolved from the obligation to purchase the goods referred to in paragraph Ia of the indenture and 2 Whether in the circumstances of the case the Company was not entitled to claim damages for breach by the State to purchase the goods agreed to be purchased
The indenture incorporated two transactions 1 a mortgage in favour of the State by the Company and N C John charging properties belonging to the two mortgagors for repayment of Rs 2500001  and 2 the Company agreeing to sell and the State agreeing to purchase 3000 tons of groundnut cake at the rate of 600 tons per month for five Months to be supplied at any of the depots in the Travancore Cochin State as may from time to time be designated by
the Director of Agriculture
The indenture expressly recited that the amount of Rs 250000 was ad vanced to the Company but the supplementary deed dated Nov ember 7 1950 and the correspondence make it clear that though the money was recited to have been actually advanced it was pot in fact advanced but it was intended by the State Government to advance it
For some reason where it is difficult to ascertain from the record the State Government did not carry out its obligation to advance the money after obtaining the indenture and the supplementary deed from the Company and its Director
But even as late as January 3 1951 as is clear from Ext
M the Assistant Director of Agriculture reiterated the promise that the money 560 will be advanced and delivery of goods offered by the Company will be accepted
Counsel for the State contended that so long as the loan was not advanced by the State the mortgage was not in law effective and the Company could not enforce the contract relating to groundnut cake agreed to be purchased by the State for the obligation undertaken was in consideration of the loan of Rs 250000 and arose only when the loan was advanced
But the assumption that if the State did not advance the loan which it had undertaken to advance the indenture was ineffective cannot be accepted
There is no such express term in the deed and none can be implied from the covenants and the surrounding circumstances
A transaction of mortgage formally executed does not become void or ineffective merely because the mortgagee fails to advance the amount of money undertaken to be advanced by him
If without advancing the mount agreed to be advanced he sues on the title created under the deed of mortgage the Court will not award him a decree for anything more than what he has But that is not to say that the mortgage is invalid In Tatia vs Babaji1Farran CJ observed  I am not however  prepared to assent to the train of thought which puts conveyances of lands in the mofussil perfected by possession or registration where the consideration expressed in the conveyance to have been aid has not in act been paid in the same category as contracts void for want of consideration
 Similar observations were made in Rashik Lal vs Ram Narain and others  where Karamat Hussain J observed at p 276  
Mortgage under the Transfer of Property Act is a transfer of an interest in the land mortgaged and not a mere contract
It therefore follows that no sooner a valid mortgage deed is registered an interest in the property mortgaged in the absence of any contract to the contrary vests in the mortgagee notwithstanding the fact that the mortgage money has not been paid by the mortgagee to the  mortgagor
The mere non payment of the mortgage money cannot have the effect of rendering the mortgage invalid
 Sulaiman J in Dip Narain Singh vs Nageshar Prasad and others2 observed that once a document transferring immovable property has been registered the transaction passes out of the domain of a mere contract and into one of a conveyance
Such a completed transaction is governed by the provisions of the 1 ILR 3 ILR 52 All
2 ILR 34 All
273 561 Transfer of Property Act and so much of the Contract Act as is applicable thereto
The argument that because the amount was not advanced by the State to the Company the mortgage was void or ineffective therefore cannot be accepted
Nor do the terms of the indenture justify the plea that the liability of the State to purchase 3000 tons of groundnut cake from the Company was conditional upon the State advancing Rs 2 50000 
The two transactions incorporated in the indenture were undoubtedly inter related
The price payable for the supplies of groundnut was to be adjusted towards the amount advanced or to be advanced by the State
But by failing to advance the amount the State could not avoid liability to carry out the obligation to purchase the goods contracted to be purchased
Even if it be assumed that the indenture incorporated reciprocal promises the State to advance Rs 250000 and the Company to deliver 3000 tons of groundnut cake in the absence of any express provision to that effect the contract could not be terminated by the default of the State
Breach of contract by one party does not automatically terminate the obligation under the contract  the injured party has the option either to treat the contract as still in existence or to regard himself as discharged
If he accepts the discharge of the contract by the other party the contract is at an end
If he does not accept the discharge he may insist on performance see the judgment of the House of Lords White and Carter Councils Ltd vs McGregor1
The case before the House was a Scottish case but the law of Scotland is not different on the matter under consideration from the English law and the Indian Contract Act closely follows the English Common Law in that matter
It cannot therefore be said that by refusing to advance the loan which the State had undertaken to advance the obligation to purchase groundnut cake from the Company came to an end
Nor is there any substance in the second contention that the State was by its default liable to compensate the Company only for loss arising out of its failure to advance the money and not out of its failure to purchase the goods
The State had undertaken to advance Rs 250000 to the Company
It had also undertaken to take delivery of 3000 tons of groundnut cake offered by the Company under the terms of contract of sale
These were two independent though inter related transactions and by committing a breach of its own obligation to advance the sum of Rs 250000the State did not absolve itself from liability for the breach arising from the refusal to take delivery of the goods offered
The cause of action arising out of the refusal to take delivery of the goods offered was independent of the cause of action arising out of the 1 1962 AC4131961 3 AII
ER1178 562 breach committed by the State in not advancing the loan
The two causes of action were cumulative and not alternative
There is therefore no warrant for the plea that by claiming damages for loss suffered by it as a result of the failure to advance the loan the Company elected to give up its claim for damages for breach of the contract to take delivery of 3000 tons  of groundnut cake by the State
The appeal fails and is dismissed with costs
RKPS Appeal dismissed


Summary:
A mortgage deed was executed by the respondent company and one of its directors in favour of the State of Kerala
It was provided inter alia by the terms of the deed that in consideration of the State granting a loan of a sum of Rs 25 lakhs to the company the latter would supply to the State 3000 tons of ground nut cake within a specified period and make deliveries in accordance with instructions to be given by the State and the account for this supply will be adjusted against the loan amount and the interest thereon
It was common ground however that the loan amount though acknowledged in the mortgage deed as received by the company was never in fact advanced by the State
The respondent company arranged for the supply of goods as agreed and sought the necessary instructions for delivery but these we re never given
The company instituted a suit in March 1953 against the appellant State for damages for failure to advance the loan amount and for breach of contract to purchase the groundnut cake
The trial court decreased the suit for Rs 36000 being damages for failure to advance the loan and for Rs 123000 as damages for breach of contract
An appeal to the High Court challenging the liability of the State to compensate the company for failure to take delivery of the goods was dismissed
It was contended on behalf of the State that the obligation to take delivery of the goods agreed to be purchased was contingent upon the Government s advancing the loan amount so long as the amount was not advanced by the State the mortgage was not in law effective and the Company could not enforce the contract relating to ground nut cake a reed to be purchased by the State
 HELD  Dismissing the appeal A transaction of mortgage formally executed does not become void or ineffective merely because the mortgagee fails to advance the amount of money undertaken to be advanced by him
Under the terms of the mortgage deed liability of the State to purchase the groundnut cake
from the Company was not made conditional upon the State advancing the loan
By failing to advance the loan amount the State could not avoid liability to carry out the obligation to purchase the goods contracted to be purchased
Even if it be assumed that the indenture incorporated reciprocal promises in the absence of any express provision to that effect the contract could not be terminated by the default of the State
Breach of contract by one party does not automatically terminate the obligation under the contract  the injured party has the option either to treat the contract as still in existence or to regard himself as discharged
If he accepts the discharge of the contract by the other party the contract is 557 at an end
If he does not accept the discharge he may insist on performance
560 C D 561 D
Tatia v Babaji ILR  Rashik Lal vs Ram Narain and Others ILR 34 All
273 Dip Narain Singh V Nageshar Prasad and Others ILR 52 All
338 White and Carter Councils Ltd vs Mc Gregor  referred to
There was no substance in the contention that the State was by its default liable to compensate the Company only for loss arising out of its failure to advance the money and not out of its failure to purchase the goods
The State s undertakings to advance the loan and to take delivery of ground nut cake were two independent though inter related transactions and by committing a breach of its own obligation to advance the loan the State did not absolve itself from liability for the breach arising from its refusal to take delivery of the goods offered 561 F H