(1) This appeal, which involves a very interesting question of what is claimed to be a conflict in the case law needing elucidation, arises upon the following facts. We might state, at the outset itself, that the facts are not in controversy.
(2) On 7-10-1954 one A. Abdul Shukoor Sahib (plaintiff) conveyed the suit property 2/74 Sydenhams Road, Periamet. Madras to the first defendant for Rs. 8000 by a registered sale-deed. The second defendant is the husband of the first defendant, claimed to be acting throughout on her behalf. The Parties entered into an agreement in writing (Ex. A 1) on the same date. Under this agreement, the first defendant undertook to reconvey the same property to the plaintiff on payment of the sum of Rs. 8000 within a period of five years from 7-10-1954, it being equally agreed that the plaintiff should exercise the right of repurchase, if he desired to do so, after 7-10-1958 and on or before 7-10-1959. Admittedly, the first defendant entered into possession of the suit property.
(3) The first defendant, along with the second defendant, sold the suit property to the third defendant for Rs. 8000 0n 25-3-1957. It has to be carefully noted that the date of this sale, 25-2-1957, was even prior to the commencement of the period within which the plaintiff could exercise his option to repurchase, namely, 7-10-1958 to 7-10-1959. On the same date the third and the fourth defendants executed an agreement in favour of their vendor. The first defendant, by means of which not only was it made clear that the vendees were fixed with knowledge of the prior agreement to reconvey in favour of the plaintiff. but if further appears, unequivocally, that the vendees undertook to implement this obligation. in specific terms. The relevant part of the document. Ex. A2, may be extracted and set forth here, as this undertaking is of some importance:
"The purchaser and third party, added by way of abundant caution, hereby agree to conform to such agreement by and between the seller and the said A. Abdul Shukoor Sahib and execute the conveyance in his favour at the expense of the said A. Abdul Shukoor Sahib (the third party also joining in the sale-deed by way of abundant caution if so desired) on receipt of Rs. 8000 from the said A. Abdul Shukoor Sahib within the period fixed in that behalf if the said A. Abdul Shukoor Sahib requires the seller to comply with the said agreement in time, on the strict understanding that time is the essence of the contract".
(4) By a notice dated 2-1-1959, namely, within the time permitted for the exercise of his right to repurchase, the plaintiff intimated his readiness to repurchase, and requested defendants 2 and 4 to reconvey the property on receipt of consideration, which he offered. A copy of the agreement between defendants 1 and 2 on the one hand and defendants 3 and 4 on the other, was furnished to the plaintiff by the second defendant. But the third defendant, by a reply notice dated 12-2-1959, declined to execute the deed of conveyance. In the subsequent suit by plaintiff, first and second defendants, the original vendees, did not contest the right of the plaintiff to obtain the reconveyance on payment of Rs. 8000, and the contest has only been by the third defendant (primarily) with the fourth defendant as an ancillary party. The learned Sixth Assistant Judge of the City Civil Court, Madras gave a decree in favour of the plaintiff, and hence this appeal by defendants 3 and 4.
(5) The above facts clarify the situation, and, at the first blush, it would appear that there is little or no room for doubt. Sec 91 of the Trust Act embodies the principle that where a person acquires property with notice that another person has entered into an existing contract affecting that property, of which specific performance could be enforced, the person acquiring the property must hold it for the benefit of the other person to the extent necessary to give effect to the contract. The same principle has been implemented in S. 27(b) of the Specific Relief Act under which specific performance may be equally enforced against another person claiming under a title arising subsequently to the contract, under the party originally bound by it. The only exception is that of a transferee for value, who has paid his money in good faith, without notice of the original contract. Admittedly, that cannot apply to the present facts, for defendants 3 and 4 not merely had knowledge of the contract, but, by another agreement, explicitly undertook to implement the contract. upon demand, by the persons originally bound, defendants 1 and 2. Under these provisions of law, if they are applicable, defendants 3 and 4 have no option but to accept the determined quantum of consideration, Rs. 8000, from plaintiff, and to execute the reconveyance. It is not in dispute that, upon the assumption that time is of the essence of the contract, plaintiff is entitled to succeed, since he exercised his right within the period.
(6) But, Sri V. K. Thiruvenakatachari for the appellants has advanced before us an argument of considerable interest, upon what he terms a conflict in the case law with regard to this situation, which, according to him requires the most careful reassessment ; his reasoning is that even if we are unable to accept the contentions advanced by him, the matter shall now be referred to a Full Bench, in order to resolve the conflict. It is, hence, necessary to do justice to the argument, by elaborating it in a precise form. After having done so, we shall proceed to consider whether there is really any conflict in the case law, as argued, and the matter requires some further consideration.
(7) The arguments of learned counsel for appellant's are twofold in aspect. Firstly, according to him, the original agreement itself is not a valid contract, for the reason that there is no mutuality in respect of the remedies, as between the parties. Even upon the argument that the sale deed dated 7-10-1954, Ex. B. 1, and the agreement or counterpart if the same date, Ex. A. 1, together form an intrinsic transaction, every effective part of which is consideration for the other part, this would not imply that that the agreement to reconvey by defendants 1 and 2 is not valid for absence of consideration. This is one element of mutuality, no doubt, but it is not the only element, nor the only essential element. The contract being one to sell and purchase, mutuality requires that Abdul Shukoor Sahib (plaintiff) should be equally bound to purchase, and that the opposite party (defendant 1 and 2) should have a right to enforce the purchase; admittedly, that is not the case. Learned counsel summits that this essential element of mutuality has not been sufficiently considered in the case law, particularly, during its subsequent vicissitudes. As S. 54 of the Transfer of property Act makes it clear, a contract for sale per se does not create any interest in immovable property. Illustration (g) to Sec. 3 of the Specific Relief Act shows that a man would be a constructive trustee, within the meaning of that Act, in the event that he buys property with notice that another has already contracted to buy it. But, to be a constructive trustee, with regard to a contract to sell and purchase, that contract should not be a mere option, an unilateral right, but should mutually enforceable between the parties. As laid down in Maung Shwe Goh v. Maung Inn. 32 Mad LJ 6= (AIR 1916 PC 139), the principles of English law, that a contract for the sale of Real Property makes the purchaser the owner in equity of the estate. has no application to any area governed by the Transfer of Property Act, 1882. We are here noting the argument in the form presented; we shall refer to the case law a little subsequently.
(8) The other aspect of the twofold argument can be very clearly and simply stated. Where the contract itself is only an unilateral optional contract, and not a valid and mutually enforceable contract to sell and purchase, any assignee for value, like a third party, would not be bound under Sec. 27(b) of the Specific Relief Act, or the principle of S. 91 of the Trusts Act. This is all the more so, where as in this case the transfer of property to the third property took place before the option was exercised, by the original vendor.
(9) We have very carefully considered this argument, in the light of the case law, which has also been scrutinised by us in detail. We have no doubt, at all that the case law presents no essential conflict. as is sought to be argued. On the contrary, the decisions appear to be perfectly reconcilable. and the entire case law is in a single and consistent direction. The two apparent instances to the contrary, brought to our notice by learned counsel for the appellants, are, when analysed, exceptions, owing to the quite exceptional facts of those cases; the dicta in those cases have to be circumscribed in their effect, and do not affect the main stream of the case law in any manner. We shall immediately proceed to the actual decisions.
(10) The earliest that has to be noticed is Nagappa Naidu v. Munisami Iyer ILR 46 Mad 30=(AIR 1922 Mad 16), a decision of Ayling and Ramesam JJ. In that case the facts are that, under the relevant document, the promisee had the option of paying the price agreed upon within the 30th of Vaikasi of any year, for a quite indefinite future. No doubt, the vendee undertook to reconvey on receiving payment of the sum stipulated. The learned judges referred to the English cases of Helby v. Mathews, 1895 A.C. 471 and Dickinson v. Dodds, (1876) 2-Ch. D. 463 the second of which laid down that unless both the parties agreed, there was no concluded agreement; and, on its facts, decided that there was only an unilateral offer. Referring to Dickinson v. Dodds. 1876-2 Ch. D. 463. the learned judges said--
"..................if the undertaking not to withdraw the offer was not a mere nudum pactum but a blinding undertaking, the promise might maintain an action for damages against the promisor".
The Bench held on the facts before it, that there was not a completed contract, but only an offer to sell, which could become a contract only on acceptance of the price. The offer was at an end on the sale of the property to the third person, and there was, hence, no contract, the specific performance of which could be enforced. The argument now is that, on a parity of reasoning, there is no contract to buy and sell the specific performance of which could be enforced: the sole remedy of the plaintiff, even as against the original vendees, is an action for damages.
(11) In Munuswami Nayudu v. Sakalaguna Naidu, ILR 49 Mad 387=(AIR 1926 Mad 699) the facts were practically ad item with the present case, but only, in that case, it was the son of the vendor, who had died in the meantime, who assigned his rights to a stranger, who in his turn tendered the full amount to the vendee within the determined period, and demanded specific performance by the execution of a conveyance. The very same argument was put forward, as is now advanced before us, that the undertaking was not a contract but was only a standing offer, and, further, that it was void for want of consideration. Both the learned judges agreed that the assignee was entitled to specific performance, but the judgment of Spencer J. clearly shows that he thought that ILR 46 Mad 30=(AIR 1922 Mad 16) was totally distinguished on its facts and that, in contract of this kind there could be specific performance by enforcement of sale. Ramesam J concurred, but the learned Judge referred to 1895 A. C. 471 and thought that the 'pre-contract' would be an undertaking not to withdraw the offer: in other words. it might be a contract not to withdraw the offer, not necessarily a contract for sale and purchase. But it is significant that the learned Judges did not differ. Sakalaguna's case, ILR 49 Mad 387=(AIR 1926 Mad 699) went up to the Privy Council in Sakalaguna's Naidu v. Chinna Munusami Nayakar, ILR 51 Mad 533=(AIR 1928 PC 174) and the judgment and decree of the Bench were confirmed by Sri Lancelot Sanderson. We have very carefully perused the judgment of the Judicial Committee, and we have no doubt whatever that their Lordships interpreted the contract as a completed contract to sell and purchase, enforceable as such. They explicitly stated that " all the elements necessary to constitute a contract" exist in the case, and that the assignee was entitled to 'call upon the defendants. the sons and heirs of Venkatapathi, for a conveyance of the property. "This is a very definite and unambiguous expression of the view that, under such circumstances, the sale deed and counterpart must be read as constituting a total system of rights and obligations, mutually supported by consideration and that, further, the undertaking to reconvey was specifically enforceable as such.
(12) It is noteworthy that in Venkatachalam Pillai v. Sethuram Rao, ILR 56 Mad 433: (AIR 1933 Mad 322)(FB) the matter again fell to be considered Sundaram Chetti J. delivering the judgment on behalf of the Bench. referred to ILR 46 Mad 30: (AIR 1922 Mad 16) to the two English decisions cited therein, and also to Alagarami Naidu v. Kathia Gouden, 1931 Mad WN 957: (AIR 1931 Mad 799) a judgment of Ramesam J. sitting as a single Judge in which he again took the view that such a 'pre-contract' was only a contract to keep the offer open. not a completed contract of sale and purchase; it became such only when the option was exercised. The Full Bench observed at page 438 (of ILR Mad)(at page 323 of AIR).
"But the soundness of this seems to be shaken by the pronouncement of their Lordships of the Privy Council in an almost similar case reported in ILR 51 Mad 533; (AIR 1928 PC 174). Their Lordships have held that it was not a case of a mere standing offer by the vendee which could ripped into a contract to buy and sell only on the acceptance of that offer by the vendor by tender of the purchase money".
Subsequently, as will be clear from a scrutiny of the case law, the entire case law has been in a single and consistent direction. There is one apparent exception relied on by Sri Thiruvenkatachari, the unreported judgment of Rajamannar C J and Panchapakesa Aiyer J. in A. S. 762 of 1951 (Mad). But it appears to is to be very clear that the facts of that case, as in ILR 46 Mad 30: (AIR 1922 Mad 16). were quite exceptional and peculiar and that the case will have to be totally distinguished. The facts there were that a certain Arunachala Nadar executed three mortages to the defendant. and just before the revenue auction of the immovable properties by government for recovery of land revenue, Arunachala Nadar and the defendant entered into an agreement Ex. A. 1 on 31-8-1922. Under the terms of this agreement, the defendant (usufructuary mortgagee) agreed to purchase Arunachala Nadar's properties at the revenue auction, not merely those hypothecated but others as well, for the benefit of Arunachala Nadar, and to transfer the said properties to Arunachala Nadar, whenever he paid back the bid amounts, expenses and costs. Upon such an unilateral undertaking, which appears ex facie to be altogether lacking in consideration, the question was whether the plaintiffs, the legal representatives of Arunachala Nadar, could enforce any obligation against the defendant Rajamannar C. J. referred to passages in Chitty on Contracts, 21st Edn Vol. I pages 35-36, Leake 8th Edn page 3 and Cheshier's Law of Contracts, 1945 Edn page 402. All these emphasis that for enforceable contract, there must be reciprocity of obligations; there could be no specific performance without mutuality. As Cheshire states, "It must be possible to give full relief to both parties". Further, the contract must have been such, namely, supported by consideration, and with mutuality, at the time when it was concluded. The Bench then set forth the dicta in several English decisions to the same effect, namely, Routledge v Grant, (1828) 130 E. R. 920; Cooke v. Oxley, (1790) 100 E. R 785; Sykes v. Dixon, (1839) 112 E. R. 1374 and Martin v. Mitshell, (1820) 37 E. R. 685. Some of these decisions referred to an unilateral contract of service in favour of a person, who was not bound to employ. Kenyon C. J. said in (1790) 100 E. R. 785 that where the engagement was all on one side, the contract was nudum pactum. The Bench referred to ILR 46 Mad 30: (AIR 1922 Mad 16) but Sakalaguna's case, ILR 51 Mad 533 : (AIR 1928 PC 174) and the authoritative doubts thrown upon the soundness of the view in ILR 46 Mad 30: (AIR 1922 Mad 16) do not appear to have been brought to the notice of the learned Judges. The case then went upon their questions, namely whether a mere offer contained in Ex. A. 1 was not specifically enforceable, as an undertaking to sell. We think we have sufficiently stressed that the facts of this case render wholly upon exception, and the dicta did not furnish any authority for the view that an ordinary agreement to reconvey, executed as part of a sale and supported by consideration is not enforceable as such, for want of mutuality. Indeed, that would be strange, for, as we shall presently show, such cases have come up before the courts of this land, including the Supreme Court and in instance do we find that the enforceability of the contract to reconvey was doubled, because the original vendor was not legally bound to purchase.
(13) We might immediately refer to a recent decision of this court, where again, the facts were almost identical with the present case namely, Kanakasabapathi v. Govindarajulu, , a judgment of the Bench of myself and Jagadisan J. Both of us held that the contract was specifically enforceable, and Jagadisan J. made explicit reference in his judgment to Sakalaguna's case. ILR 51 Mad 533: (AIR 1928 PC 174). Upon the argument relating to consideration (Section 2(d) of the Contract Act) and absence of mutuality. I have observed as follows, at page 138 (of Mad LJ):(at p. 220 of AIR):
"Further, in our best judgment, and after giving careful consideration to the matter, we are also convinced that the transaction is supported by the element of mutuality. For, it is clear enough the vendors need not have agreed to the sale at all, but for the fact that there was to be an agreement to reconvey in favour of themselves, or of others whom they chose to associate with the themselves. It may be even be that the amount of consideration was determined in relation to these mutual rights and obligations. Since the vendors were not bound to convey, the properties at all, but did so only because there was to come into existence an agreement to reconvey to be enforced within a specified period, the element of mutuality in essentially present".
I may here add that in the present case, as in this previous case, our attention was drawn to a passage in Halsbury's Laws of England, 3rd Edn. Vo. 36, page 269, paragraph 367, stressing the principle that, in the absence of mutuality infusing the contract, the contract is not specifically enforceable. But in the very book, on the next page (page 270 paragraph 368) it is laid down that the rule regarding lack of mutuality is not without exceptions, or apparent exceptions; one such exception is of "a contract where one party has an option by the exercise of which the other party becomes bound to perform his part". It seems to us fairly obvious that the contract in the present case, and contracts of this kind, must fall within the exception. Sri Thiruvenkatachari has relied upon a passage in Banerji's Law of Specific Performance, Tagore Law Lectures, 1965 Edn. page 85, where the learned Author refers to what may be called option contracts, and enunciates that where the option is not exercised within the time limited, the other party would be entitled to damages for breach of covenant. The principle on which the proper measure of damages should be assessed is then stated with reference to Coller v. General Petroleum Ltd. Canada. 1951 S. C. R. 154(160), Canada, etc. But the point is that there is overwhelming authority for the view that a contract of the present kind, characterised by both consideration and mutuality, in the sense of a system of mutual rights and obligations, is not a mere optional contract which is only an unilateral offer: it has to be distinguished from such cases and is enforceable as a contract to buy and sell, and assignable as such, Thiruvenkatachari has also referred to Dold on "Stipulations for a third party" 1948 Edn, and to the summary of the Indian Law at pages 107 and 108. The decisions referred to therein are Krishanalal Sadhu v. Promila Bala Dasi, ILR 55 Cal 1315: (AIR 1928 Cal 518) Subbu Chetti v. Arunachalam Chettiar, ILR 53 Mad 270: (AIR 1930 Mad 382)(FB) summarizing the categories of third party obligations, and Umanath v. Jang Bahadhur, AIR 1938 P C. 245. It is clear that the language of Section 2(d) of the Indian Contract Act differs from the English law which is to the effect that consideration must proceed from the promisee, and that where, constructively, there is a trust in favour of the plaintiff, a third party would be equally bound.
(14) We may now refer to a considerable catena of decisions of courts, in all of which, upon facts of an identical situation, the contract to reconvey has been held specifically enforceable against the original vendee, and against assignees with notice of the contract. No doubt, it is not the case that in every such decision, that situation has been discussed; but it has been assumed, and the decisions have proceeded on other related aspects, such as the existence of the element of mutuality with regard to a minor, or the manner in which such original contract of sale with a separate agreement has to be distinguished from a mortgage by conditional sale.
(15) The following decisions could be usefully referred to here. It is hardly necessary to set forth the facts of each at any length, since the situation is well recognised and, indeed, of almost daily occurrence in courts. In Shanmugam Pillai v. Annalakshmiammal, AIR 1950 FC 38 it was held that, with regard to the right to repurchase, this was dependent on the fulfillment of certain conditions, and that when there was infringement of those conditions, the right to repurchase was lost, and could not be specifically enforced. It was not in the nature of a penalty, and the court had no power to afford relief against the forfeiture. Confining ourselves to the Supreme Court cases, for the present, we may then notice Chunchun Jha v. Ebadat Ali, . This deals with the criteria upon which a sale with a contract for reconveyance has to be distinguished from a mortgage by conditional sale. In Bhaskar v. Srinarayanan, the
same topic is elaborated, with specific reference to the interpretation of the language, and the tests which had led to be compiled. Simrathmul v. Manjalingiah, may be referred to, as the sale
deed, the deed of reconveyance and the rental agreement were held, on the facts, to be parts of an integral transaction. But the Court could not relieve the plaintiff against the forfeiture clause. In Bhoju Mandal v. Debnath Bhagat, , the legal distinction
between the two concepts of a mortgage by conditional sale and a sale with a contract of repurchase has again been elaborated.
(16) Coming now to the decisions of this court, we have the judgment of the Bench of Mack and Krishnaswami Nayudu JJ. in Balasundra Mudaliar v. Muthuvenkatachala Mudaliar, . The following conclusion of the Bench is of significance upon the present argument:
"The plaintiff having allowed the period specified in the agreement to pass, would not be entitled to any right for specific performance. The fact that the argument to reconvey is described as a counterpart of the document of sale would not make any difference, and the right of repurchase being vested only in the Vendor, the option must be exercised according to the strict terms of the contract. The contract itself would not be an opinion contract as commonly understood".
In Adinarayana v. Venkatasubbayya, 1940-1 Mad LJ 251: (AIR 1940 Mad 625) a significant passage from Salisbury v. Hatcher, (1842) 63 E. R. 24 is quoted to the effect that in cases of specific performance, the want of mutuality is a consideration generally material "but it is contrary to principle and authority to say that perfect mutuality is requisite in order to call a court of Equity into action".
(17) Again in Srinivasalu Naidu v. Raju Naicker,
Rajamannar C. J. and Rajagopala Aiyangar J. were concerned with a suit for specific performance of the agreement to reconvey under the usual circumstances. The sale and agreement to reconvey were held enforceable as parts of the same transaction; the agreement to reconvey need not be separately justified by family necessarily or benefit. In Sitarama Rao v. Venakataraama Reddiar,1956-1 Mad LJ 5: (AIR 1956 Mad 261) (FB), the problem arose with regard to special cases of mutuality, where a minor is a member of the joint Hindu family, and the transaction is entered into by the manager on behalf of the family. It is not necessary to proceed into the authorities cited here, which have received elaborate discussion. The point is that, apart from the special cases of the existence of mutuality with regard to a minor, the agreement to reconvey was held specifically enforceable. Further "consideration for the reconveyance should be the sale itself. In those circumstances, it was held that such contracts can be specifically enforced". We may then refer toVardarajulu Iyer v. Arumugha Goundan, where Rajagopalan J. and Ramachandra Iyer J. (as he then was) held that the right to enforce reconveyance the part of the original vendor should be constructed strictly, and that time was of the essence of the contract; but, there was never any doubt thrown upon the position that such a contract was specifically enforceable as a contract to sell and purchase. Lastly, we may refer to Sellappa Chetti v. Marappa Gounder, , a judgment of Ramakrishnan J. and myself. It was
again held, in this decision, that there are mutual rights and obligations between the parties, in such cases, and that the agreement to repurchase the properties is prima facie assignable. See alsoVenakatasami Naidu v. Annamalai Gounder, a judgment of Kunhamed Kutti J. which cites Mir Sarwarjan v. Fakhruddin Md., ILR 39 Cal 232(PC), which itself relates to the special case of mutuality with regard to a minor.
(18) Thus, as we have seen, there is really no conflict in the case law of any kind, and every essential test of mutuality is satisfied, where the document of sale and its counterpart (agreement) are interpreted as one transaction, each obligation corresponding to a right, and characterised by full consideration between the parties. In such cases, this is not a mere unilateral contract to keep the offer upon, and the right to obtain a reconveyance is assignable and enforceable between the original parties and successor's, within the scope of Sec. 27(b) of the Specific Relief Act.
(19) There is a further argument, which we shall briefly note, supporting the same conclusion As Equitable Estates are not known to Indian law. at least where the Transfer of Property Act is prevalent, it cannot he held that the original sale itself conveys to the vendee an absolute and indefeasible title. On the contrary, that would, in terms of the entire transaction, be a defeasible if the vendor exercises the option to repurchase within the time specified. Of course, if that option is not exercised within that period, the title becomes absolute and indefeasible. Any subsequent assignee from the vendee will, therefore, not be bound by the obligation to reconvey. This line of reasoning appears in certain of the decisions, but it is not necessary to reinforce the argument by citations here. It is clear enough that this is a perfectly valid line of reasoning, upon our law of Real Property. In this perspective also, defendants 3 and 4 are indisputably bound to execute the reconveyance.
(20) There is one final matter that may be briefly referred to before parting with the appeal. Defendants 3 and 4 claim that they had effected, bona fide, improvements on the property and are entitled to the value of such improvements. The matter of bona fides would appear to be highly doubtful, to say the least. Since the subsequent vendees were not merely fixed with the knowledge if the contract to reconvey, but specifically undertook to implement it, if the original vendor made a demand. However, the matter could be shortly disposed of, for the simple reason that upon issue 5 the lower court itself has held that the value of the alleged improvements (construction) would be Rs. 2500. and the respondent (plaintiff) consents to this value. and agrees to reimburse the appellants to this extent; we consider that a very equitable and proper direction to make, in view of the very sharp trend of urban land values in recent years. Subject to this modification, the decree of the court below is confirmed, and the appeal I dismissed with costs.
(21) Appeal dismissed.