1. The appellant's father sued in the Court of the Subordinate Judge of Chingleput to recover the sum of Rs. 2,30,000, the amount of the damages which he alleged he had suffered as a result of respondent l's default in fulfilling his obligations under a contract for the sale of land, and in the alternative, for the recovery of Rs. 27,500 on the basis that there had been failure of consideration to this extent. The plaintiff died during the pendency of the suit which was continued by the appellant. The Subordinate Judge held that defendant 1 was in default and that a suit in damages lay, but he found that no loss had in fact been sustained by the plain-tiff. He rejected in its entirety the alternative claim. On 14th December 1923 the plaintiff agreed to sell for the sum of Rs. 82,750 his rights in the shrotriem villages of Koduvur and Seekanankuppam. The plaintiff's son was a party to the agreement. The agreement provided that the purchaser should pay to the vendor by 14th January 1924, a sum of Rupees 9000 and a further sum of Rs. 5000 within ten days from the date of the registration of the conveyance. The purchaser was to retain the balance of the consideration for the purpose of discharging the plaintiff's liabilities to his creditors. The agreement did not set out a list of the debts, but these were detailed in a letter written on 10th January 1924 by the plaintiff to defendant l. The liabilities amounted to Rs. 68,689 of which Rs. 29,289 was then due to one A. N. Rangaswami Ayyangar, to whom the plaintiff had mortgaged his rights in these two villages as well as his rights in the village of Vedavakkam and a house which he owned at Conjeevaram. The letter contained a demand for the fulfilment of the contract of 14th December I923.
2. The plaintiff and his son failed to execute the conveyance of the properties sold to defendant l, who instituted a suit (O.S. No. 1 of 1924 in the Court of the Subordinate Judge of Chingleput) for a decree for specific performance. This resulted in a compromise decree being passed on 29th April 1924. The decree provided that the consideration for the sale was still to be the sum of Rs. 82,750, but made certain changes in the contract. Defendant 1 was to pay to the plaintiff and his son the sum of Rs. 12,500 on or before 2nd May 1924 and Rs. 11,500 before 10th June 1924. He was to retain the balance of the money in his hands for the purpose of paying off the creditors, who were named and their debts specified. The sum retained was more than sufficient to pay off all the creditors. The excess was Rs. 7250. Clause (g) of para. 2 of the decree related to the payment to be made to Ranga-swami Ayyangar and as this provision is of special importance we will set it out in full:
That as the suit properties and the other properties belonging to the defendants have been mortgaged to Mr. A. N. Rangaswami Ayyangar residing at Trivellore the plaintifi shall, for the purpose (of payment) to the aforesaid mortgagee retain with him a sum of Rs. 27,500 (Rupees Twentyseven thousand and five hundred) from the sale amount. If it is found that an amount in excess of the sum so retained has to be paid to the aforesaid Rangaswami Ayyangar on 14th December 1923 the date of the suit agreement, the defendants shall without reference to the plaintiff pay such amount, if default is made (in such payment) and any loss should occur to the plaintiff thereby the defendants should make good the same. If the plaintiff does not pay the amount so retained and if loss should occur to the defendants (thereby) the plaintiff shall make good such (loss) to the defendants; that if the defendants have to pay a lesser amount to the aforesaid Rangaswami Ayyangar than the amount so retained and mentioned above the plaintiff shall pay to the defendants such difference (of the amount).
The decree further provided that the conveyance should be to defendant 1 or at his option to him and defendant 2. On 22nd March 1926, on the directions of defendant 1 the plaintiff and his son conveyed the Koduvur properties to defendant 1 and the Seekanankuppam properties to defendant 2. The consideration for the conveyance to defendant 2 was stated to be the sum of Rs. 32,000 and it is common ground that defendant 2 discharged to this extent the plaintiff's liabilities. Defendant 1 fulfilled his obligations, except in respect of the debt due to Rangaswami Ayyangar. Only the sum of Rs. 8000 was paid to Rangaswami Ayyangar and this came out of the moneys provided by defendant 2. On 31st July 1933 Rangaswami Ayyangar filed a suit (O. S. No. 39 of 1933) to enforce his mortgage and on 5th December 1934 he obtained a decree for rupees 52,691-2-9. The difference between this sum and the Rs. 29,289 represented the accumulation of interest. In execution of the decree the properties mortgaged were sold on 18th November 1936. The Koduvur properties were purchased by defendant 4 for Rs. 10,502. He also bought the Seekanankuppam properties. The price paid for these properties was rupees 16,500. The decree-holder bought in the Vedavakkam properties for the sum of Rs. 7501 and the Conjeevaram house for Rs. 3001. The total amount realised by the sale was Rs. 37,504.
3. It was in these circumstances that the plaintiff instituted the suit which has given rise to this appeal. Numerous issues were raised in the trial Court; but in this Court the questions have been confined to (1) whether the plaintiff is entitled to recover from defendant 1 Rs. 19,500, the amount which he failed to pay to Rangaswami Ayyangar, (2) whether he is entitled in the alternative to damages for defendant 1's default, and (3) whether the suit is barred by the law of limitation. The plea that the plaintiff is entitled to the Rs. 19,500 has been advanced first in this Court, as it is now conceded that if his claim is to be one in damages the decree will be for a smaller sum. As we have already indicated, defendant 1 retained in his hands more than sufficient to pay off all the creditors and he had no excuse for failing to pay Rangaswami Ayyangar the amount due to him. He could not, of course, be compelled to refund to the plaintiff this part of the purchase consideration while Rangaswami Ayyangar's mortgage on the Koduvur and Seekanankuppam properties remained outstanding, but it is no longer outstanding as the properties have been sold under the decree obtained by the mortgagee. Defendant 1 is not now in the position to make a payment to Rangaswami Ayyangar and consequently the plaintiff says that there has been a failure of consideration to the extent of Rs. 19,500, the difference between the Rs. 27,500 which defendant 1 had to pay to the mortgagee under the compromise decree and the Rs. 8000 which was paid to him on account.
4. The rights and liabilities of the vendor and vendee in a sale of immovable property are, in the absence of a contract to the contrary, regulated by the provisions of Section 55, T. P. Act. In Mt. Naima Khatun v. Basant Singh : AIR1934All406 , a Full Bench of the Allahabad High Court pointed out that where property has been transferred by a vendor to a vendee and there is a direction to the vendee to pay off a third person, the transaction may be one of any of the following characters:
(1) The amount left in the hands of the vendee may be a part of the purchase money remaining unpaid, in which case it is obviously money belonging to the vendor and if not paid as directed is still due to be paid to the vendor; or (2) it may amount to a covenant with an undertaking to relieve the vendor from his existing liability, in which ease a suit on the covenant may lie; or (3) it may be a mere promise to perform an act for consideration, or a contract of indemnity, in which case a suit for damages incurred on the breach of the contract would lie under Section 125, Contract Act; but it must be proved that loss has been sustained.
The plaintiff says that the case falls within the first category. On the other hand the contesting defendant says that it falls within the third category. On the contract embodied in the compromise decree, we consider that the plaintiff's contention must prevail. In Raghunathachariar v. Sadagopachariar (1913) 36 Mad. 348 a Bench of this Court held that where a person transfers immovable property to another in consideration of the transferee agreeing to pay debts due by the transferor to third persons, the transferor is entitled to sue the transferee for the recovery of those sums which the transferee has failed to pay to the third persons within a reasonable time and he is not bound to show that he has been 'damnified in any way by the transferee's failure. In that case the transferee had not undertaken to discharge secured debts, but in our opinion the same principle must apply, subject to the proviso that where the debt to be paid off by the transferee is secured by a mortgage the transferor cannot compel him to make a refund while the mortgage is outstanding.
5. In Rama Rachayan Singh Thakur v. Raghunath Prasad Misser : AIR1930Pat46 the Patna High Court had to consider the ease where a vendee had failed to discharge a mortgage which it was his duty to pay off out of the consideration retained by him and it was held that the vendor was entitled to recover the amount notwithstanding that the mortgage had been discharged by a third party. In that case the plaintiff transferred to the defendant immovable property in consideration of the defendant agreeing to apply a portion of the purchase money for payment of a mortgage debt due by the vendor. The purchaser failed to discharge this debt, but the plaintiff's brother did so. It was also held that the vendor was entitled to recover the amount of the unpaid purchase money without any obligation to show that he had been damnified by the vendee's default. In delivering the judgment of this Court in Subbarao v. Varadiah A.I.R. 1943 Mad. 482, Patanjali Sastri J. pointed out that where the vendee retains in his hand money to discharge an encumbrance on the property sold to him he acts as the agent of the vendor as regards the disposal of the sum retained, although the agency is one which cannot be revoked as the vendee has himself an interest in the money being applied in the manner indicated. Consequently, where the immovable property is sold free from incumbranees, the vendor is entitled to call upon the vendee to account to him for any portion of the purchase money which events have shown is not required for the fulfilment of the stipulation. In the present case the property was sold free from incumbranees and these observations have application here. We consider that there is ample authority for the plaintiff's proposition that he is entitled to recover from defendant 1 the Rs. 19,500. Under the contract defendant 1 was bound to pay this money to Rangaswami Ayyangar. As he failed in his duty he cannot be allowed to retain it in his hands. Consequently we hold that the plaintiff is entitled to a decree for the sum of Rs. 19,500, with interest from the date of the sale held in execution of the decree passed in O.S. No. 39 of 1938, namely, 18th November 1936.
6. As this case may be carried further we will deal with the plaintiff's alternative claim for damages. It is conceded on behalf of defendant 1 that he is bound to make good any loss which the plaintiff may have suffered as the result of defendant l's default; but it is said that the Subordinate Judge was right in holding that no loss had in fact been suffered. The finding of the Subordinate Judge that the plaintiff had not been damnified is based on the opinion that there was no value left in the equity of redemption, the amount due to Rangaswami Ayyangar under his mortgage being far in excess of the value of the property. This ignores the fact that as a result of defendant 1's default the plaintiff lost his rights in the village of Vedavakkam and his ownership of the house in Conjeevaram. If defendant 1 had fulfilled his obligations under the compromise decree these properties would not have been lost to the plaintiff as on the date of conveyance defendant 1 had more than sufficient in his hands to pay off the mortgage in full. The value of these two properties is Rs. 10,502, the aggregate price which was realised for them at the court auction. If the plaintiff were not entitled to recover the Rs. 19,500 admittedly he would be entitled; to recover Rs. 10,502 with interest from the date of the plaint, 3rd March 1937, but as we hold that his first claim is well founded, he will have a decree against defendant 1 for the larger amount with interest.
7. There is no substance in the plea that the suit was barred by the law of limitation. The plaintiff's right of suit against defendant 1 arose on 18th November 1936 when Ranga-swami Ayyangar executed his decree. The suit was filed within twelve months of that date. The plaintiff will have his costs here and below on the sum of Rs. 19,500 as against defendant 1. The plaintiff has sued in forma pauperis and defendant 1 must pay the court-fee to Government on this amount. The balance of the court-fee will be paid by the plaintiff. The appeal will stand dismissed as against the other respondents with costs, one set to be divided proportionately.