1. The main question to be decided in this second appeal filed by the first defendant from the judgment and decree of the learned Subordinate Judge, Coimbatore, in A. S. No. 1 of 1958, is whether the conveyance under Ex. B-T dated 28-5-1946 is an out and out sale with a covenant for repurchase or a mortgage by conditional sale. The trial Court with which the lower appellate Court agreed held that Ex. B-1 was a mort-gage by conditional sale and granted a decree for redemption. The aggrieved first defendant has preferred this second appeal.
2. The property in question Originally belonged to one Palani Moopan. He executed Ex. B-1 in favour of the first defendant for a consideration of Rs. 4000. The document was styled as a sale-deed and purported to convey the property absolutely to the first defendant by way of sale. Out of the consideration, a sum of Rs. 2000 was reserved with the vendee to pay off and an earlier mortgage on the suit property and certain other properties. The balance of Rs. 2000 was paid to the vendor in cash.
The first defendant discharged the earlier mortgage in accordance with the directions in the sale deed. The sale deed recited that the property having been conveyed to the vendee absolutely, the vendee should thereafter enjoy the property with all rights of ownership. The Tamil recital was: (Portion In Tamil script deleted -- Ed.)
After the schedule Jo the sale deed appeared a covenant that if after five years and before the expiry of seven years from the date of the sale deed, the vendor paid to the vendee the sum of Rs. 4000, the vendee should reconvey the property to the vendor. The Tamil recital ran thus: (Portion in Tamil script deleted -- Ed.) After the death of Palani Moopan his sons executed in favour of the plaintiff Ex, A-1" dated 10-5-1950 for a consideration of Es. 1500. The document is described as a deed ot assignment of the right to repurchase (Portion in Tamil script deleted -- Ed.) Ex. A-l refers to the condition for repurchase in Ex. B-l and states that as the executants namely the sons of Palani Moopan were unable to find the necessary funds to get a reconveyance from the first defendant, they were conveying to the plaintiff their right to repurchase the property from the first defendant.
Basing his right under Ex. A-1, the plaintiff instituted the suit out of which the second appeal arises for a decree directing the first defendant to reconvey to him the suit property for Rs. 4000 Or for such other sum as might be determined by the Court. The plaintiff claimed that Ex. B-l must be deemed in law to be a mortgage by conditional sale and that he was entitled to redeem as the assignee of the equity of redemption. On that basis, the plaintiff also claimed that himself and his predecessors-in-title being agriculturists, they were entitled to the benefits of Act IV of 1938, as amended from time to time.
The plaintiff pleaded alternatively that if Ex. B-l' was held to be an outright sale with a condition to repurchase, the first defendant was bound to reconvey the property to him on payment of a sum of Rs. 4000. The plaintiff averred that he tendered the amount to the first defendant several times but the first defendant refused to accept the same, The first defendant of course denied that Ex. B-l was a mortgage by conditional sale and maintained that it was an out and out sale with a covenant for repurchase and that inasmuch as no offer was made by the plaintiff or his assignees within the time stipulated in the document, the suit to enforce a reconveyance was barred by time.
3. The trial Court reached the conclusion that Ex. B-l was only a mortgage by conditional sale relying on the following circumstances, namely, (1) there was a stipulation that on payment the vendee should retransfer the property to the vendor absolutely; (2) the covenant as to repurchase is embodied in the same document; (3) the patta had not been transferred to the first defendant; (4) the amount agreed upon as the price for repurchase was the same as the consideration for the original sale and (5) the sale price of Rs. 4000 was much less than the real value of the property which fact was born out by Exs. A-4 and A-5,
The trial Court also found that as it had held that Ex. B-1 was a mortgage by conditional sale, the suit for redemption was within time. On those findings, a preliminary decree for redemption under Order 34 Rule 7 of the C.P. Code for taking accounts and for a declaration of the amounts due to the first defendant under Ex. B-1 was passed. The appeal by the first defendant against that decree was unsuccessful. The lower appei'iate Court too took the same view as the trial Court as to the nature of Ex. B-1.
The circumstances relied on by the lower appellate Court for agreeing with the view of the trial Court' were (1) that a price below the true value indicated a mortgage, (2) that there was in Ex. B-l a clause for reconveyance on payment ot the sale price within a certain date and that (3) the vendee did not apply for transfer of patta and the patta admittedly continued in the name of Palani Moopan even after Ex. B'l. In the view of the lower appellate Court, it was clear from those, circumstances that the intention of the parties was to treat the transaction covered by Ex. B-l only as a mortgage by conditional sale. The suit was filed originally in the Court of the learned Subordinate Judge as O. S. No. 216 of 1953 on 26-6-1953 when the Court reopened after summer vacation. Considered as a mortgage by conditional sale, the lower appellate Court held that the suit was within time. The lower appellate Court was also of the view that if the suit had been filed on 28-5-1953, it would have been within time but as the Court remained closed on that day, the suit filed on the date when the Court reopened would still be within time. The first defendant having failed in both the courts below has come up to this Court in second appeal.
4. The crux of the distinction between a mortgage by conditional sale and the sale with a condition of retransfer lies in the fact that the former is a debt the repayment of which is charged on the property conveyed, whereas in the latter no relationship of debtor and creditor subsists. In form the former is an ostensible sale but in reality a mortgage. The very definition, of a mortgage by conditional sale postulates an element of sale. Often the problem, therefore, is to pierce through the form to reach the real intention of the parties to the document that what prima facie appears as price is money repayable for which the transfer is a security.
The introduction of the proviso by the amending Act XX of 1929 to Section 58(c) of the Transfer of Property Act makes it explicit that one or the other of the conditions contemplated in the definition, of a mortgage by conditional sale should find a place in the document iteslf which effects or purports to effect the ostensible sale. The true intention has, therefore, to be gathered from the language of the deed interpreted in the light of the surrounding circumstances. The general principles which have to be borne in mind in interpreting the document have been laid down by their Lordships of the Supreme Court in Bhaskar Waman Joshi v. Shrinarayan Rambilas Agarwal, 1960 SCJ 327 at p. 329 : (AIR 1900 SC 301 at p. 304), in the following terms:-
"But it does not follow that if the condition is incorporated in the deed effecting or purporting to effect a sale, mortgage transaction must of necessity have been intended. The question whether by the incorporation of such a condition a transaction ostensibly of sale may be regarded as a a mortgage is one of intention of the parties to be gathered from the language of the deed interpreted in the light of the surrounding circumstances. The circumstance that the condition is incorporated in the sale deed must, undoubtedly be taken into account but the value to be attached thereto must vary with the degree of formality attending upon the transaction. The definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and mortgagee, the price being charged upon the property conveyed. In a sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor is the price charged upon the property conveyed, but the sale is subject to an obligation to retransfer the property within the period specified. What distinguishes the two transactions is the relationship of debtor and creditor and the transfer being a security for the debt. The form in which the deed is clothed is not decisive. The definition of a mortgage by conditional sale itself contemplates an ostensible sale of the property......the circumstance that the transaction as phrased in the document is ostensibly a sale with a right of repurchase in the vendor, the apperance being laboriously maintained by the words of conveyance needlessly iterating the description of an absolute interest or the right of repurchase bearing the appearance of a right in relation to the exercise of which time was of the essence is not decisive. The question in each case is one of determination of the real character of the transaction to be ascertained from the provisions of the deed viewed in the light of surrounding circumstances. If the words are plain and unambiguous they must in the light of the evidence of surrounding circumstances be given their true legal effect. If there is ambiguity in the language employed, the intention may be ascertained from the contents of the deed with such extrinsic evidence as may by law be permitted to be adduced to show in what manner the language of the deed was related to existing facts. Oral evidence of intention is not admissible in interpreting the covenants of the deed but evidence to explain or even to contradict the recitals as distinguished from the terms of the documents may of course be given. Evidence of contemporaneous conduct is always admissible as a surrounding circumstance; but evidence as to subsequent conduct of the parties is inadmissible."
5. Apart from the terms appearing in the deed itself, the surrounding circumstances such as (1) a price below the true market value on the date of the transfer, (2) the continuance of the transferor in possession of the property transferred and the like are regarded as suggestive of a mortgage. But none of such circumstances taken by itself or taken along with, others may be conclusive on the real intention of the parties to the document. The Court has to look into the language of the deed as a whole and the cumulative effect of all the surrounding circumstances, in order to determine the true nature of the document, namely, whether it is a mortgage or a sale.
Except expounding the general considerations which should weigh in dealing with a question like this, the decided cases are not and cannot be of much, assistance in determining the real intention of the parties to a particular document. The question being one of intention, it will depend on the particular facts and circumstances of each case. In one of the conditions embodied in the deed of
transfer there under Consideration was that if within four years and six months from the date of the conveyance, the right of, reconveyance in respect of the three houses or any of them was not exercised by the transferors and if the transferees did not desire to retain all or any of the houses, they had the right to recall from the transferors the amount of the consideration and to return all or any of the three houses in the condition in which they might be.
Another condition, among others, contained in She deed was that in the event of failure on the part of the transferors to comply with the request to take back the houses, a breach of agreement, of reconveyance rendering the transferors liable to pay damages should be committed. It was also found that the consideration for the transfer of the properties was inadequate. On these facts and circumstances in the main, the Supreme Court held the document in that case to be a mortgage and not a sale.
6. In this case the language of the deed which has already been referred to in the earlier part of the judgment does not, in my opinion, suggest the existence of any relationship of debtor and creditor. Throughout, the document proceeds on the basis that the transfer is an absolute sale except that at the concluding part of the document is found the condition for repurchase within the stipulated period. The question is whether in view of this condition taken along with the surrounding circumstances, namely, (1) that there was no transfer of patta to the vendee, (2) that the consideration for repurchase is of the same amount as the consideration for the transfer to the vendee and (3) that the consideration for the transfer was below the market value of the property transferred, it may be held that Ex. B-1 is a mortgage and not a sale.
Mr. R. Gopalaswami Aiyangar, the learned counsel for the appellant, contends with force that the fact that the condition for repurchase is embodied in the same document is not by itself conclusive on the question. As regards the alleged inadequacy of consideration, he argues that first of all there was no such plea at all in the plaint and that secondly the consideration for the transfer under Ex. B-l has not been established to be so much below the market value as to point to the document being a mortgage and not a sale.
It appears from Ex. B-l itself that the entirety of the property, and not merely the half share covered by Ex. B-1, and other properties were mortgaged prior to Ex. B-l for a sum of Rs. 4000. Further as the learned counsel contends, the consideration for Ex. A-1 itself being only Rs. 1500, at the most the property conveyed under Ex. B-l could only be valued at Rs. 5500. Exs. A-4 and A-5 justify the view that the consideration for Ex. B-l was not appreciably below the real market value.
It appears to me, therefore, that the adequacy or otherwise of the Consideration for Ex. B-1, in the circumstances, is not of much assistance in determining whether Ex. B-l is a mortgage or a sale. The only other circumstance is that there was no transfer of patta in favour of the vendee at any lime after Ex. B-l. But this circumstance again Is not decisive. It is true that the vendor and subsequently his sons and their assigns under Ex. A-1 were in possession of the property covered by Ex. A-l. But it is in evidence that the possession so held was under a lease granted by the first defendant, the vendee.
The condition embodied in the document Ex. B-l, though an important circumstance, is not by itself sufficient to conclude that Ex. B-l was intended to be a mortgage. Even regarding the language of the deed as a whole including the condition for reconveyance and taking into consideration all the surrounding circumstances, I am unable to hold that Ex. B-l is a mortgage. There is nothing in the deed and there are no surrounding circumstances which clearly point to the existence of a debt repayable under Ex. B-l for which a transfer is a security. In my opinion, Ex. B-1 is an out and out sale but with a covenant for repurchase.
7. It is next argued by Sri R. Gopalaswami Aiyangar that the plaintiff cannot compel specific performance of the condition to reconvey for two reasons, namely, (1) that the covenant for repurchase was personal to the vendor and could not, therefore, be assigned and (2) thai, in any Case, the plaintiff or his assignor having not offered to repurchase within the specified time, the covenant for repurchase was no longer enforceable. As regards the first ground of the learned counsel I have no hesitation in rejecting it.
There is nothing in the covenant for repurchase embodied in Ex. B-1 to suggest that it was personal to the vendor. It is true that the language which I have already extracted above in Tamil is that the vendor would tender the price within the stipulated time and that thereupon the vendee should reconvey the property to the vendor. But that does not mean that there was any personal element in the covenant.
There is no condition in Ex. B-l that the covenant for repurchase was not assignable. Prima facie the rights and liabilities under a contract like an agreement for repurchase are, in my opinion, assignable. It is this principle that has been embodied in Section 21 (b) and Section 23 (b) of the Specific Relief Act, 1877. Under the former provision a contract dependent upon the personal qualification or volition of the parties cannot specifically be enforced. Section 23 (b) states:-
"23. Except as otherwise provided by this chapter, the specific performance of a covenant may be obtained by (a) ..... (b) the representatives in interest, or the principal of any party thereto; provided that, where the learning, skill, solvency or any personal quality of such party is a material ingredient in the Contract or where the contract provides that his interest shall not be assigned, his representative in interest or his principal shall not be entitled to specific performance of the contract, unless where his part thereof has already been performed."
Unless the contract involves a personal quality of a party as a material ingredient or there, is an express stipulation in the contract forbidding assignment of the rights or obligations thereunder, specific performance of the contract has to be directed. This is what Fry on "Specific Performance of Contracts" 6th Edn. states in Section 222:-
"As a general rule, the benefit of a contract may be assigned in Equity, and the assignee can enforce specific performance of it, making his assignor a party." Again in Section 225 Fry observes:-
"It is an obvious principle, that where the learning, skill, solvency or any personal quality of one of the parties to the contract is a material ingredient in it, then the contract can be performed by him alone.
It may be a matter of indifference to A, whether B or C be the purchaser of the stock or paid-up shares' lie is selling; but it is a matter of great moment whether a distinguished artist, or his nominee, is to paint a picture for which A may have agreed to Pay a certain sum." In Chinna Munuswami Nayudu v. Sagalaguna Nayudu, ILR 49 Mad 387 : (AIR 1926 Mad 699) the covenant for repurchase read;-
"..... I shall again convey to you the said village after a period of 30 years from this date i. e., in the Ani cultivation season of the 30th year in case you wish to have the village again, and on your paying the said sum of Rs. 10,000 to me."
It was argued that the emphasis was on the word "you" and that, therefore, the benefit under the covenant was not assignable. The trial Judge was of the opinion that the word "you" should not in the context, where it occurred, be interpreted to mean that the purchaser undertook to reconvey the property to the particular vendor personally and" not his heirs or assigns. Spencer and Ramesam, JJ. accepted that view and observed that prima facie a contract for repurchase was assignable and that the fact that the vendee had a period of 30 years to exercise his option to repurchase was indicative that the Covenant was not intended to be personal. The matter went up in appeal to the Privy Council in Sakataguna Nayudu v. Chinna Munusami Nayakar, ILR 51 Mad 533 : (AIR 1928 PC 174) and the Privy Council in dismissing the appeal observed:-
"A document executed by the parties to, and on the date of, a sale of immoveable property providing that the purchaser shall reconvey the property to the vendor after a period of 30 years on the vendor paying the purchase price, constitutes a contract enforceable by the assignee of the vendor against the sons of the purchaser; it is not merely an offer incapable of assignment until accepted by tender of the price."
Before the Privy Council it was not disputed, as seen from the judgment, that if the transaction in question amounted to a completed contract, the benefit of the contract might be assigned. In this case, the words 'Naan' and 'Engalukku' which occurred in the covenant for repurchase, do not in the context, I think, keep in view any personal element as a material ingredient of the covenant. There is no reason to assume merely from the use of those words that the vendee alone could ask for performance by executing a resale in his favour. I therefore, hold that the covenant for repurchase in the instant case was assignable.
8. The second ground of Sri B. Gopalaswami Ayyangar, namely, that as no offer has been made by the purchaser or his assigns or their assignee to repurchase by tendering the required amount to the vendor within the specified time, the right to enforce the covenant was lost, has, however, much force and has to be accepted. The stipulation in Ex. B-l was that at any time after five years and within seven years of the execution of the deed the vendor could tender the sum of Rs. 4000 to the purchaser and call upon him to reconvey the property to him.
The deed expressly stated that this condition would be void after the expiry of the specified period. The right to purchase must be exercised according to the strict terms of the power. That English doctrine referred to in Fisher on Mortgages has been accepted by Sadasiva Aiar and Napier, JJ, in Samarapuri Chettiar v. Sudarsanachariar, ILR 42 Mad 802 : (AIR 1919 Mad 544), to be applicable to this country as well. The learned Judges have held that the doctrine that time may not be of the essence of the contract which arises on the construction of contracts of sale of immoveable property, is not applicable to contracts of resale of property conveyed. The same principle was applied by the Federal Court in Shanmugam Pillai v. Annalakshmi 'Ammal, AIR 1950 FC
38. The Federal Court by a majority observed:-
"The agreement reserved an option to A to repurchase the property and was in the nature of a concession or privilege on fulfilment of certain conditions with a proviso that in case of default the stipulation should be void. A not having paid the instalments punctually according to the terms of the contract, the right to repurchase was lost and could not be specifically enforced. It was not in the nature of penalty and the Court has no power to afford relief against forfeiture for its breach."
The lower appellate Court approached the question as one of limitation and formulated the point whether the suit was barred by limitation. Dealing with the point so formulated, it went on to say; "The suit would be within time if filed on 28-5-1953. But the Court was then closed on account of summer vacation. The suit was filed originally in the Sub-Court, Coimbatore, as O. S. No. 216 of 1953 on 28-6-1953, the date when the Court reopened after summer vacation.
Considered as a mortgage by conditional sale, it is admitted the suit is not barred. Thus either way the suit is not barred by limitation." In my opinion, this is obviously a misdirection. Where the condition for repurchase has under the terms of the agreement to be performed within the stipulated time and the time limit has not been adhered to with the result that the right is lost, I fail to see what the Limitation Act has to do with it.
Sri K.S. Desikan, the learned counsel for the plaintiff-respondent referred me to Section 4 and Article 113 of the Limitation Act and contended that as the Court remained closed on 28-5-1953, the suit filed on the date of the reopening should be considered to be within time. In my opinion, the argument has only to be stated to be rejected. The period fixed in the document is a condition for the performance and after the expiry of the period, the right reserved is itself at an end. The period fixed in the deed is not the period of limitation prescribed for any suit. Section 4 of the Limitation Act can, therefore, have no application to the present case,
No offer was made at any time within the stipulated period by tendering the required amount for repurchase. There is nothing in Ex. A-8 to which my attention was drawn by Sri K. S. Desikan to show that any offer or tender was made by the plaintiff within the stipulated time to repurchase the property. That being the case, and the right to repurchase having been lost after the expiry of the period, by reason of the very terms of the covenant, it seems to me that Art. 113 of the Limitation Act can have no application. The plaintiff having defaulted and as a result lost the right to repurchase, he canot resurrect and save the right by resort to the Limitation Act.
9. In the result, the second appeal is allowed. The judgment and decree of the lower Courts are set aside and the suit will stand dismissed. The appellant will have his costs throughout.