M.C. Chagla, C.J.
1. This is an appeal from a judgment of Mr. Justice Tendolkar. It seems that on February 9, 1943, the plaintiff and the defendant entered into an agreement whereby the defendant agreed to sell to the plaintiff an immoveable property for the price of Rs. 48,000. The amount of earnest money of Rs. 3,000 had already been paid by the plaintiff to the defendant on January 18, 1943. The defendant was the mortgagee of this property and the mortgagor filed a suit to redeem the property and after some contest a redemption decree was passed in favour of the mortgagor, and as the mortgagor redeemed the property, the defendant informed the plaintiff that he was not in a position to complete the contract and convey the property. He sent a cheque for Rs. 3,000 returning the earnest money which had been deposited with him by the plaintiff. The plaintiff, in the first instance, refused to accept the cheque of Rs. 3,000 and claimed damages for breach of contract. Ultimately he accepted the cheque of Rs. 3,000 without prejudice to his claims and contentions, and filed this suit claiming in the first instance a sum of Rs. 80 being interest on the sum of Rs. 3,000 at 6 per cent, per annum item February 9, 1943, to July 22, 1943, and a sum of Rs. 748-11-6 which were the costs incurred by the plaintiff of and incidental to the agreement for sale, and damages in the sum of Rs. 12,000 or such other sum as the Court may award for breach of contract by the defendant. The learned Judge took the view that the contract between the parties was an absolute one. He then considered whether the rule of Bain v. Fothergill (1873) L.R. 7 H.L. 158 and Flureau v. Thornhill (1776) 2 W.BI. 1078 applied in India, and came to the conclusion that that rule did not apply, that the parties were governed by the plain words of Section 73 of the Indian Contract Act, and that the defendant was liable to-pay damages for the breach of contract. He fixed the date of breach and referred the suit to the Commissioner to ascertain damages on the footing of a breach on that date. The defendant has come in appeal from that decision.
2. Now, it is unnecessary, in my opinion, to express any opinion on the very interesting question raised by the learned trial Judge as to whether the well known English rule in Bain v. Foihergill and Flureau v. Thornhill applies or does not apply in India. As the learned Judge has himself pointed out, there are conflicting decisions of our own Court. There are also decisions of other High Courts to be considered before one can express one's opinion one way or the other. But as this appeal is capable of being disposed of on a much narrower point, it is not at all desirable to launch upon the more ambitious question of the applicability of the rule in Bain v. Fothergill and Flureau v. Thornhill to this country. Therefore that question must still remain undetermined till a proper occasion arises when the whole matter may be considered from all aspects.
3. Now turning to the agreement for sale, in Clause 2 of the agreement it is stated that the vendor is in possession of the property as mortgagee from one Abdul Latiff and has agreed to sell the property as such mortgagee under the power of sale reserved to him under the indenture of mortgage dated February 7, 1936. The vendor alone will execute the conveyance on completion. Then Clause 5 contains the usual provision that the vendor shall make out a marketable title to the said land, hereditaments and premises agreed to be sold. And Clause 7 of the agreement provides that if the title be not proved marketable, the vendor will pay back the earnest money with interest at 6 per cent, per annum from January 18, 1943, and pay costs incurred up to date. It is therefore clear from this agreement that the vendor was entering into an agreement for sale of a property of which he was the mortgagee. It is also clear in law that the mortgagor has the right to redeem a property which he has mortgaged till the equity of redemption has been extinguished, and it is now also clear law, as laid down in Abraham Ezra v. Abdul Latif (1943) 46 Bom. L.R. 159 that an agreement for sale by the mortgagee with a purchaser does not extinguish the equity of redemption vested in the mortgagor. Therefore, in my opinion, this agreement by the vendor to sell the property was not an absolute agreement, but a conditional one. What the vendor agreed with the purchaser was that he would sell the property, convey the property, make out a marketable title, provided the mortgagor did not redeem the property as he was entitled to do under Section 60 of the Transfer of Property Act, 1882. Mr. Peerbhoy says that that is not what the vendor has stated in the agreement. In my opinion, nothing could have been more clearly and emphatically stated than that by reason of Clause 2 of the agreement. Clause 2 does state the fact that the vendor is selling the property as a mortgagee under the power of sale reserved to him under the indenture of mortgage. It is not necessary in an agreement for sale to set out the law, and once the vendor has stated that he is selling as a mortgagee, Section 60 of the Transfer of Property Act makes it clear that his right to self is dependent upon and conditional upon the mortgagor not redeeming the property, and Section 60 also makes it clear that the right of the mortgagor to redeem continues and subsists till the equity of redemption is extinguished. Therefore, with very great respect to the learned Judge, I do not agree that this agreement was an absolute agreement of sale and not a conditional one.
4. The learned Judge has relied on Clause 5 of the agreement which states that the vendor shall make out a marketable title. The marketable title contemplated by this clause clearly is the right, title and interest of the mortgagee himself and the equity of redemption of the mortgagor which the mortgagee is entitled to convey as the agent of the mortgagor. The vendor would have to satisfy the purchaser that he as the mortgagee is entitled to convey the property and that the mortgagor also had title to the property being the owner of the equity of redemption. But this clause does not mean that, the vendor had convenanted to make out a title independently of the mortgagor's right to redeem, or that he had agreed in making out a marketable title that the mortgagor had no right to redeem this property.
5. The learned Judge also relied on Section 55(2) of the Transfer of Property Act. Now that corresponds to what is known in English law as a covenant for title. In England there is no statutory guarantee of good title. Our law makes a departure from the English law and provides for a statutory guarantee of good title in the absence of any contract to the contrary arrived at between the parties to the agreement themselves. There is some conflict between the different High Courts as to whether this covenant for title operates at the stage of agreement for sale or at the stage of the execution of the conveyance. But without going into that question I will assume that even in an agreement for sale the vendor guarantees good title to the purchaser. In other words, he guarantees to the purchaser that he has title in the property and that he is in a position to convey the property. If there is no contract to the contrary Mr. Peerbhoy is right that the guarantee or the covenant for title under Section 55(2) would be absolute and it would not be a title defeasible at the instance of any other party. But looking to Clause 2 of the agreement, in my opinion, there is a contract to the contrary between the parties and therefore Section 55(2) of the Transfer of Property Act doss not come into operation. There is no guarantee of absolute title under this agreement, nor does the vender covenant with the purchaser that he is in a position absolutely to transfer the property in when the: sale is completed. On the contrary, there is a clear contract to the contrary by which the vendor makes it clear to the purchaser that ha would only be able to convey this property to the purchaser provided the mortgagor does not exercise his right to redeem the property.
6. Under the circumstances, in my opinion, the learned Judge was in error when he came to the conclusion that the defendant was liable to pay damages for breach of contract. The only right that the plaintiff has under the agreement is to the return of the earnest money with interest at 6 per cent, per annum from January IS, 1913. The defendant has repaid the sum of Rs. 3,000 and all that the plaintiff would be entitled to would be a sum of Rs. 80 for interest which he has claimed in the suit. He has also claimed a sum of Rs. 748-11-6 for costs which he would be entitled to. Mr. Purshottam says that he is prepared to accept the figure of Rs. 748-11-6 as correct. Therefore, the amount which the plaintiff would be entitled to in the suit would be the sum of Rs. 828-11-6.
7. Therefore, we will allow the appeal, set aside the order of the trial Court, and pass a decree in favour of the plaintiff for Rs. 823-11-6. With regard to cases, as the claim is below Rs. 1,000 there will be no order as to costs of the suit. As the defendant has succeeded in appeal, the respondent must pay to the appellant the costs of the appeal and interest on judgment at 4 par cent. The appellant is entitled to set off the order of costs in his favour here and also two orders for costs in the Court below against the decree which we are passing in favour of the plaintiff here.
8. The defendant was the mortgagee under an indenture of mortgage dated February 7, 1936. The mortgagor committed default and in exercise of the power reserved to him under the indenture he agreed on February 9, 1943, to sell the mortgaged property to the plaintiff. An agreement for sale was executed on the said date, Clause 2 whereof provided that the 'vendor is in possession of the property as mortgagee from one Abdul Latiff and has agreed to sell the property as such mortgagee under the power of sale reserved to him under the indenture of mortgage dated February 7, 1936. The vendor alone will execute the conveyance on completion.' Under the terms of the said agreement the defendant also agreed to make out a marketable title to the said property, and if the title be not proved marketable, to pay back the earnest money with interest at 6 per cent, per annum from January 18, 1943, and pay the costs incurred up to date. It appears that before the sale could be completed in accordance with the terms of this agreement the mortgagor desired to redeem the property. As he was then advised, the mortgagee resisted this claim of the mortgagor and litigation thereupon took place between the mortgagor and the mortgagee. A suit was filed by the mortgagor to redeem the mortgaged property. This suit came before Mr. Justice Chagla as he then was and he decided that the mortgagor was entitled to redeem the property, the equity of redemption not having been extinguished before the sale was completed by the mortgagee. The mortgagee filed an appeal against this decision and the decision of the Appeal Court is reported in Abraham Ezra v. Abdul Latif (1943) 46 Bom. L.R. 159. The Appeal Court confirmed the decision of Mr. Justice Chagla and held that the mortgagor was, right up to the last moment, viz. the completion of the sale by the mortgagee, entitled to redeem the mortgaged property. This decision having been finally reached by the Appeal Court, the position which arose was that the defendant was not in a position to complete the sale in accordance with the terms of the agreement between himself and the plaintiff and he returned the earnest money of Rs. 8,000 to the plaintiff. The only claim then which survived was the plaintiff's claim for damages as on a breach of the contract, Rs. 80 being the amount of interest which had not been paid by the defendant to the plaintiff and the costs of the sale. This was the claim which the plaintiff filed against the defendant in the suit which was tried by the learned trial Judge. I shall not recount here the pleadings or the amendments which were made in the plaint at the instance of the plaintiff, because so far as the amended plaint was concerned the contentions which were raised by the amendment were given up by the plaintiff at the hearing of the suit. In so far, however, as the original plaint stood, certain issues were raised, issue No. 8 being whether the contract as a conditional one and liable at any time before the completion of the said sale to be set aside by the mortgagor coming in and redeeming the property. On this issue the learned Judge held that the contract was not conditional but was an absolute one, the vendor in his opinion having agreed to convey the property to the plaintiff absolutely and having taken the risk himself of having to pay damages to the plaintiff if the mortgagor intervened and redeemed the property before the sale was completed. The learned Judge also decided another important question whether the rule in Bain v. Fcthergill (1873) 7 H.L. 158 was inconsistent with the plain terms of Section 73 of the Indian Contract Act and was therefore not applicable in India, on the question of damages which were claimed by the plaintiff against the defendant on a breach of the agreement for sale.
9. Adverting to the first question which was decided by the learned Judge, as to whether the contract was conditional or absolute, it is necessary to determine what is the nature of the agreement for sale which is entered into by a mortgagee exercising his power of sale. Under the terms of an indenture of mortgage like the one which the mortgagor had entered into here, the power of sale was reserved to the mortgagee in the event of the mortgagor committing default. The mortgagee was in exercise of that power of sale entering into an agreement for the sale of the property, which would mean not only his right, title and interest therein as the mortgagee, but also the equity of redemption which had vested in the mortgagor. Until that equity of redemption was extinguished either by act of parties or by a decree of a Court, it was open to the mortgagor to redeem the property by exercising the right of redemption. But until that was done, the mortgagee had, by reason of the power of sale reserved to him under the terms of the indenture, power to convey the property including the equity of redemption which was still subsisting in the mortgagor. This is what the mortgagee would in ordinary cases do. That was the position which was quite clear to both the parties to the agreement for sale before us, and in Clause 2 of the agreement which I have set out above the mortgagee clearly stated that he was entering into the agreement for sale of the property in exercise of the power of sale which was reserved to him under the terms of the indenture. There could be no clearer notice to the purchaser than this that what the mortgagee was doing was agreeing to sell and convey the property to the purchaser, which right of his was subject to the terms of Section 60 of the Transfer of Property Act, which clearly laid down that the mortgagor had, until extinguished by act of parties or by a decree of a Court, the right to redeem, the property. If this was so, it could not be argued at all that the mortgagee when he entered into the agreement for sale entered into the same, absolutely agreeing to convey the property to the purchaser, whatever the action or the conduct of the mortgagor was in the future. The mortgagor having the right to redeem up to the time that the equity of redemption was extinguished, would be able to redeem the property, and until and unless the sale was completed by the mortgagee in accordance with the terms of the agreement for sale, the mortgagor's equity of redemption would not be extinguished and the purchaser under the terms of the agreement would not be entitled to insist on the mortgagee conveying the property to him irrespective of the future conduct of the mortgagor. In this case the mortgagor, before the sale was completed, did seek to exercise his right to redeem the property, with the result that it became impossible for the mortgagee to convey the property in the manner in which he had agreed to do. Under the circumstances, there is no doubt in my mind that having regard to the fact that the mortgagee was exercising the power of sale reserved to him under the terms of the indenture, there was a condition that the mortgagee was to convey the property provided the mortgagor did not exercise his right to redeem the property within the terms of Section 60 of the Transfer of Property Act. That was in any event a contract to the contrary which is referred to in the opening part of Section 55 of the Transfer of Property Act, apart however from the discussion as to whether the covenant for good title contained in Section 55(2) of the Transfer of Property Act operates when the contract is at the stage of a contract or when the contract is completed by the execution of a conveyance by the vendor in favour of the purchaser in accordance with the terms thereof.
10. The learned Judge in the course of his judgment laid particular stress on the terms of Clause 5 of the agreement which provided that the vendor was to make out a marketable title, observing that the making out of a marketable title clearly involved not only a title to the property but also a power to transfer it at the time of the conveyance. There is no doubt that the vendor agreed to make out a marketable title to the property. The marketable title, however, in the circumstances of the case, would mean the right, title and interest which the mortgagor had at the time when he executed the indenture of mortgage in favour of the mortgagee and the right, title and interest which the mortgagee himself had under the terms of the indenture of mortgage. The equity of redemption and the mortgagee's rights are the only two things which would have to be considered when the marketable title to this property which was agreed to be purchased was investigated, and this is what the mortgagee agreed to make out when the marketable title to the property would be investigated by the attorneys of the purchaser. The right, title and interest of the mortgagor would be investigated at the time when the indenture of mortgage was entered into. Nonetheless, the mortgagee would agree to make out a marketable title so far as the right, title and interest of the mortgagor was concerned, because he, in the exercise of the power of sale which was reserved to him under the indenture of mortgage, would also be conveying to the purchaser the equity of redemption on the completion of the agreement. That is how he would have to make out a marketable title to the property. It is not imported in the terms of Clause 5 of the agreement that the mortgagee would convey the property to the purchaser, whatever the conduct or the attitude of the mortgagor would be thereafter, and by no stretch of imagination could it be stated that the mortgagee absolutely agreed to convey the property to the purchaser irrespective of the mortgagor thereafter seeking to exercise the right to redeem the property which he had under Section 60 of the Transfer of Property Act. Both the Clauses 2 and 5 of the agreement for sale have got to be read together. If Clause 5 were read in the manner in which the learned trial Judge did, it would negative all that was stated in Clause 2 and Clause 2 would be rendered nugatory. Reading, therefore, Clauses 2 and 5 of the agreement together, as should be done, the only conclusion which can be arrived at is that the contract was not an absolute contract to convey the property to the purchaser irrespective of what the mortgagor would do after the date of the agreement up to the time that the completion of the transaction took place. It was conditional on the mortgagor not exercising the right to redeem which he had under Section 60 of the Transfer of Property Act.
11. Under the circumstances aforesaid, I agree with the conclusion reached by my Lord the Chief Justice in the judgment just delivered that the contract was conditional and liable at any time before completion of the sale to be set aside by the mortgagor coming in and redeeming the property, and in the events that happened the mortgagee, the vendor, was absolved from all liability under the agreement for sale of completing the transaction.
12. In view of the conclusion reached above, it is absolutely unnecessary to go into the other question which was discussed at considerable length in the judgment of the learned trial Judge whether the rule in Bain v. Fothergill was contrary to the provisions of Section 73 of the Indian Contract Act and was inapplicable in India. Any observations on the same would be obiter and therefore one need not go into the same. I may, however, observe that when the question crops up for determination, it may, in view of the conflicting decisions of our own appellate Court here, have to be referred to a full bench as was envisaged in the judgment of Sir Lallubhai Shah Ag. C.J. and Mr. Justice Fawcett in Dhanrajgirji Narsinggirji v. Tata Sons Ltd I.L.R. (1924) 49 Bom. I.
13. The result therefore is that the plaintiff would be entitled to a decree for Rs. 828-11-6 and the order for costs which has been already made by my Lord the Chief Justice.