1. This appeal arises out of the judgment and decree for specific performance of a contract for sale passed by this court in C. S. No. 213 of 1974. The second defendant, H. G. Krishna Reddy and Co., is the appellant. The first respondent herein is the plaintiff and the second respondent is the first defendant in the suit. The facts of the case may be set out as follows.
2. On 26th Jan. 1974, the second respondent executed a receipt Ex. P. 1 for Rs. 3,000 in favour of the first respondent. The receipt recited that a sum of Rs. 3,000 was being received towards the agreed price of Rs. 1,22,500, for the sale of the suit property by the second respondent in favour of the first respondent. It further stated that the sale was to be completed within 456 days from the date of the advocate for the first respondent, passing the title deed. Among others, there was a further clause to the effect that the second respondent should execute a regular contract for sale on a stamp paper within 15 days from the date of the receipt and that if the transaction was not or could not be completed within the said 45 days or the extended time for any reason, the second respondent should return the amount of advance with interest thereon at 12 per cent per annum from that date. Thereafter, in Feb. 1974, the first respondent sent Ex. P. 4 draft agreement of sale to the second respondent for his approval and signature.
The second respondent returned the draft agreement of sale to the first respondent suggesting certain amendments. Subsequently, some correspondence ensued between the parties. Ultimately, on 22nd Feb. 1974, the counsel for the second respondent wrote to the counsel for the first respondent stating that the second respondent, did not propose to keep the contract for sale alive and that he could not execute any agreement for sale. He also returned the sum of Rupees 13,000 which had been paid by the first respondent towards the advance of sale consideration. It is common ground that on 28th Mar. 1974, the first respondent received the cheque for Rs. 13,000, from the second respondent without prejudice to his right under the contract for sale. It may also be mentioned that on 10th June, 1974, the second respondent sold the suit property to the appellant for a sum of Rs.1,10,000. It is in these circumstances, the first respondent filed the suit for the specific performance of the agreement for sale entered into by the second respondent with him in respect of the suit property.
3. The second respondent in his defence contended that there was no concluded contract for sale of the suit property between the first respondent and him. He further contended that Ex. P. 1 receipt did not by itself constitute a concluded contract, but contemplated a written agreement for sale being entered into between the parties. The counsel for the first respondent did not approve the title of the second respondent and wanted further particulars from the respondent to enable him to pass the title as good. Though the second respondent received a draft agreement for sale and a cheque for a sum of Rs. 10,000, he returned the draft agreement with suggestion for effecting certain amendments. But the first respondent did not agree to the amendments suggested by the second respondent. It is the further case of the second respondent that he informed the first respondent that he could not give a good title within a reasonable time and stated that if the first respondent would wait for some time and also give a further sum of Rs. 60,000 for the payment of his debts, he would complete the sale transaction or else he would treat the contract as cancelled. Since the first respondent did not agree to the terms of the second respondent, the latter cancelled the agreement. Pursuant to the cancellation of the contract for sale, the first respondent also received back the sum of Rs. 13,000. Thereafter, the second respondent sold the property to the appellant for a sum of Rs. 1,10,000.
4. The appellant in its defence stated that it purchased the suit property bona fide and for a valuable consideration of Rs. 1,10,000. At the time of its purchase it was not aware that a valid contract for sale, much less a concluded contract for sale existed between the respondents 1 and 2. In Mar. 1974, the appellant was on the lookout for the purchase of a property and it was informed about the availability for purchase of the suit property. Accordingly the appellant inspected the suit property and it was not told that any such contract for sale subsisted between respondents 1 and 2. Since the second respondent was prepared to sell the property to the appellant for a sum of Rupees 1,10,000, provided it paid an advance of Rs. 60,000 the appellant gave an advance of Rs. 60,000 and thereafter concluded the sale transaction under the sale deed dated 10th June, 1974, by paying the balance amount of Rs. 50,000. The document was registered on 12th June, 1974. Ex. P. 17 being the sale deed. The appellant has further stated that the first respondent was aware of the fact that it was going to purchase the property from the second respondent and yet he did not prevent the appellant from purchasing the property. It is a bona fide purchaser for value without notice of the alleged contract for sale between respondents 1 and 2. The appellant has also contended that by his conduct the first respondent allowed the appellant has also contended that by his conduct the first respondent allowed the appellant to purchase the property from the second respondent without informing the appellant about the alleged agreement for sale when he was aware of the fact that the appellant was about to purchase the suit property from the second respondent.
5. The learned trial Judge found that there was a concluded contract for sale in favour of the first respondent and that the said contract for sale was valid and binding on the said contract for sale was valid and binding on the second respondent. The learned Judge further found that the first respondent was entitled to the relief of specific performance and that the appellant was not a bona fide purchaser for value without notice of the agreement for sale. In this view, the learned Judge passed a decree in favour of the first respondent for the specific performance of the said contract for sale against the second respondent and the appellant. Hence this appeal.
6. In the light of the arguments advanced by the learned counsel for both sides, the following points arise for determination in this appeal . (1) Whether there has been a concluded contract between respondents 1 and 2 which could be specifically enforced at the instance of the first respondent. (2) Whether the first respondent has been ready and willing to perform his part of the contract and whether he in entitled to a decree for specific performance of the contract for sale alleged by him. Whether the second respondent is entitled to raise this ground in the appeal. (3) Assuming that there was a concluded contract between respondents 1 and 2, whether the first respondent would be disentitled to enforce the contract in view of the fact that he had taken back the advance amount of Rs. 130,000. (4) Whether the appellant is a bona fide purchaser for value without notice of the alleged contract for sale between respondents 1 and 2.
7. Point No. 1 : Mr. Kesava Iyengar contended that Ex. P. 1 receipt did not create any concluded contract between respondents 1 and 2. Ex. P. 1 only contemplates a contract for sale being entered into on a stamp paper in writing between the parties. According to the learned counsel in order to find out whether there was a concluded contract between respondents 1 and 2, the entire correspondence that passed between them had to be looked into and a perusal of the correspondence would disclose that the parties at no time were ad item and no concluded contract for sale came into existence. Mr. Kesava Iyengar relied upon condition No. 7 in Ex. P. 1 which stated `the vendor shall execute a regular agreement of sale on stamp paper within 15 days from this date', and emphasised upon the fact that pursuant to Ex. P. 1, a draft agreement Ex. P. 4 was sent by the first respondent for approval of the second respondent. The second respondent, however, wanted certain conditions to be incorporated in the agreement and for that purpose returned the draft agreement to the first respondent.
Thereafter, the second respondent made it clear to the first respondent that he would sign the draft agreement provided he was given more time to complete the sale transaction and that he was paid a further advance of Rs. 60,000. Since the first respondent did not agree to these terms, the second respondent informed the first respondent that he would not be in a position to enter into a contract for sale. The learned counsel also stated that when the second respondent demanded a further sum of Rs. 60,000, the first respondent wanted the second respondent to execute a mortgage for the amount for which the second respondent was not prepared. In this view, according to the learned counsel, respondents 1 and 2 were never in agreement with regard to the essential terms of the contract for sale and therefore there was no concluded contract.
8. Mr. T. R. Ramachandran, on the other hand, argued that a perusal of Ex. P. 1 would make it clear that there was a concluded contract. The fact that there was clause in Ex. P. 1 that a regular agreement for sale on stamp paper would be executed within 15 days would not detract from the fact that Ex. P. 1 was valid and concluded contract. The execution of a regular agreement for sale was only a formal matter. Similarly, the fact that there was some discussion about the demand of Rs. 60,000 by the second respondent by way of additional advance and the fact that he wanted some more time would not take away the binding nature of Ex. P. 1 as a concluded contract for sale.
9. It is now settled that if a document which is entered into between two parties and which is relied on as constituting a contract contemplates the execution of a further regular agreement between the parties. It is a matter of construction whether the execution of a further contract is a condition of the terms of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the original agreement should be performed. In the former case, there cannot be any enforceable contract unless the condition is fulfilled or on the ground that law does not recognise a contract to enter into a contract. In Ridgway v. Wharton, (1857) 6 HLC 238, Lord Cranworth observed that the fact of a subsequent agreement being prepared may be evidence that the previous negotiations did not amount to an agreement, but the mere fact that persons wish to have a formal agreement being prepared may be evidence that the previous negotiations did not amount to an agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a previous agreement.
10. In Hatzfeldt Wildenburg v. Alexander, (1912) 1 Ch 284, Parker, J. observed thus-
'It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties it is a question of construction whether the execution of the further contract is a condition of term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.'
11. In Harichand v. Govind, AIR 1923 PC 47, which has been relied upon by the learned single Judge and by Mr. T. R. Ramachandran, the Privy Council has observed thus :-
'Whether an agreement is a completed bargain or merely a provisional arrangement depends on the intention of the parties as deducible from the language used by the parties on the occasion when the negotiations take a concrete shape. As observed by the Lord Chancellor (Lord Cranworth) in Ridgway v. Wharton, (1857) 6 HLC 238, the fact of a subsequent agreement being prepared may be evidence that the previous negotiation did not amount to an agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a previous agreement.'
Having followed the principle laid down in Wharton's case and Alexander's case, (1912) 1 Ch 284, the Privy Council were of the view that the facts before them were wholly different from the facts in the above two cases. It may be mentioned that in that case the original documents which were in Gujarati clearly showed that the parties had come to a definite and complete agreement on the subject of the sale and that the reservation in respect of a formal document to be prepared by a vakil only meant that it should be put into proper shape and in legal phraseology, with any subsidiary terms that the vakil might consider necessary for insertion in formal document. It is on these facts the Privy Council distinguished the facts of the case from the facts in Wharton's case and Alexander's case.
12. As a matter of fact, in Currimbhoy and Co. v. Creet the Privy Council followed the observations of Parker, J. in Alexander's case, (1912) 1 Ch 284 and stated that the principle of the English Law as stated by Parker, J. would be applicable in India.
13. A similar question arose for consideration before the Bench of the Calcutta High Court in Gostho Behari v. Surs' Estates Ltd., : AIR1960Cal752 , and the Bench observed thus (at p. 758)-
'The second point of the respondent in support of the judgment was that this was not a concluded contract on the ground that it was subject to an agreement for sale. The essential question on this branch of law is to find out whether the formal document is of such a nature that it was the very condition of that contract or whether it was merely commemorative of the evidence on the point.'
The learned Judges then referred to the decision of the Privy Council in Harichand v. Govind, AIR 1923 PC 47 Currimbhoy and Co. v. Greet, and Shankarlal Narayandas Mundade v. New Mofussil Co. Ltd. , and held that on the facts of the case the contract to sell was not subject to any formal agreement of the nature as to preclude the conclusion or inference that there was already a concluded contract for sale.
14. Mr. Ramachandran cited the Full Bench decision of the Allahabad High Court in Deep Chandra v. Sajjad Ali Khan, : AIR1951All93 in support of his proposition that a document would be a record of the term of a validly concluded contract for sale between the parties and the fact that it was described and called as receipt would be immaterial. We are of the view that this case does not in any way run counter to the decision of the Privy Council in Currmbhoy's case which has followed the observations of Parker, J. on Alexander's case, (1912) 1 Ch 284. Agarwala, J. has laid down the ratio thus (at p. 108) :
'Where all the terms of contract are agreed upon, but the parties desire that the contract shall go through the form of a formal document, then the mere fact that there is no agreement upon the shape that the formal document should take will not render the agreement in-conclusive. Where, however, parties expressly declare that the agreement is subject to a formal contract it has been held that these words indicate not merely the desire of the parties that the terms already agreed upon shall be put down in the shape of a formal document, but that they indicate something more namely, that the parties will have further to make up their minds in regard to the minor terms of the contract and that the contract will not be deemed to be concluded till then. This is the effect of decided cases with regard to the implications of the special formula subject to a formal contract.'
15. The fact that the judgment of the Allahabad High Court, has been confirmed by the Supreme Court in Durga Prasad v. Deep Chand, : 1SCR360 does not in any manner alter the principle of law that is deducible from the decision of the Privy Council in Currimbhoy's case . It is clear from paras 28 to 31 in the judgment of the Supreme Court that on the entirety of the evidence in the case, inclusive of the admission in writing that the contract was a concluded one, the Supreme Court came to the conclusion that there was a final concluded contract for sale.
16. A similar question arose in Spottiswoods Ballantyne and Co. Ltd. v. Doreen Applicance Ltd., (1942) 2 KB 32. There, the plaintiffs who were owners of lease of premises, by a letter written by their agents, agreed to let the premises to the defendants, subject in the usual way to your references being satisfactory, and to the terms of a formal agreement to be prepared by their (the plaintiffs) solicitors. Thereafter, the plaintiffs' solicitors drew up a draft lease, which was sent to the defendants who agreed to the terms with the plaintiffs' agents. A few days later, the plaintiffs refused to proceed with the agreement to let the premises to the defendants and called on them to remove their machinery and to let the premises to the defendants and called on them to remove their machinery and to vacate the premises. As the defendants refused to do so, the plaintiffs brought an action to recover possession, and the defendants counter claimed for specific performance of the agreement by the plaintiffs to give a lease of the premises to them. Lord Greene M. R. observed thus :-
'The question for our determination is very short, and one, and which, to my mind, with all respect to the learned Judge, has a clear answer. It turns on the meaning of the letter of Aug 1, 1941, the crucial words being those which refer to a formal agreement being entered into. It is said by the defendants that the words in the letter mean nothing more than that, as soon as the solicitors for the plaintiffs had put into formal shape the matters on which the parties were in agreement, a binding, unconditional contract would come into existence, notwithstanding that the formal document in which those terms were to be set out was never signed and exchanged by the parties. On the other hand, the plaintiffs contend that the language means that no contract was to exist between the parties unless and until a formal agreement had been entered into. In my opinion, the second construction is unquestionably right. I am quite unable to construe the words `subject to the terms of a formal agreement to be prepared by their solicitors' as meaning that the formal agreement referred to is not one which is to be executed by the parties in the usual way. An unexecuted document would not be a formal agreement..........The real fact of the matter is that the language used here is equivalent to the common and more concise phrase subject to contract and it is well settled that the phrase makes it clear that the intention of the parties is that neither of them is to be contractually bound until a contract is signed in the usual way.'
17. In Branca v. Cobarro (1947) KB 854, the question whether an informal document does or does not constitute a document or whether it is a mere document in contemplation of a contract coming into existence on a formal document being entered into, arose for consideration. On the facts of the case Lord Greene M. R. held that both the parties were determined to hold themselves and one another bound by the provisional contract already entered into. This case turned on its own facts.
18. In K. Sriramulu v. Aswatha Narayana, : 3SCR387 , Ramaswami, J. observed as follows (at p. 1031)-
'It was submitted on behalf of the appellant that there was no contract because the sale was conditional upon a regular agreement being executed and no such agreement was executed. We do not accept this argument as correct. It is well established that a mere reference to a future formal contract will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a formal shape does not prevent the existence of a binding contract. There are, however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case.'
After referring to the evidence in the case the learned Judge held that it was not possible to accept the contention that the oral agreement was ineffective in law because there was no execution of any formal document.
19. It is in the light of these principles, we have to consider the question whether the provision in Ex. P. 1 for the execution of a regular agreement is one of the terms of the bargain between the parties under Ex. P. 1. It is also necessary in this context to refer to another settled principle of law. viz., when there is a written document which is followed by further negotiations in the form of correspondence, the entirety of the correspondence has to be looked into to find out whether there has been a completed contract or not. The authority for this proposition is found in Bristol Cardiff and Swanesa Aerated Bread Co. v. Maggs, (1890) 44 Ch D 616. There, M a baker, on the 29th May, 1889, wrote to G a director of an Aerated Bread co., the following letter - 'I beg to submit to you the following conditions for disposal of my business carried on at 15 Duke Street, Cardiff. Lease and goodwill, 450 (lease from the 29th Sept, 1888 for fourteen years. All fixtures, fittings, utensils & c stock-in-trade connected with the premises to be taken at valuation. Yours truly R. M. This offer to hold good for ten days'.
On the 1st June, 1889 G replied- 'I accept your offer for shop and lease &c.; 15 Duke Stree, Cardiff. Yours truly J. G. (for B. C. and S. Aerated Bread Company). Mr. R. M.' M's solicitor then sent G a formal memorandum of agreement comprising several terms not expressed in the two letters. The company's solicitors added a clause restricting M from carrying on a similar business within certain limits. A correspondence then followed between the solicitors for the company and for M respecting the terms of the memorandum, and on the 7th June, 1889, M's solicitor wrote withdrawing the offer. In an action by the company against M for specific performance of the contract alleged to be constituted by the two original letters it was held that although these two letters would, if nothing else had taken place, have been sufficient evidence of a complete agreement, yet the company had themselves shown that the agreement was not complete by stipulating after-wards for an important additional terms, namely, the restriction of M's carrying on using, which kept the whole matter of purchase and sale in a state of negotiation only; and that M was therefore at liberty to put an end to the negotiations by withdrawing his offer, though within ten days mentioned in his letter. Kay, J. after referring to the decision of House of Lords observed as follows-
'In my opinion, the decision of Hussey v. Horne Payne (1879) 4 AC 311, completely covers this case. I understand it to mean, that if two letters standing alone would be evidence of a sufficient contract, yet, a negotiation for an important term of the purchase and sale carried on afterwards is enough to show that the contract was not complete and so far as my own judgment is concerned. I entirely agree in the justice and equity of such a file.'
20. In Hussey v. Horne Payne (1879) 4 AC 311, followed by the Chancery Division in the above case, the House of Lords held thus-
'The court must look at the whole correspondence from the beginning to end. Of course, if we find a few letters which are perfectly plain in themselves, which show an agreement and the parties do not follow them up by further correspondence, we have a comparatively easy case; but where each letter is follows immediately by another which suggests something else as a topic of further discussion, it becomes most dangerous to draw a line after any particular letter.'
21. It is, therefore, clear that in this case in the light of the contentions of the parties, it is open to us to refer to the entire correspondence that followed Ex. P. 1 to find out whether Ex. P. 1 constituted a concluded contract or not. Ex. P. 1 receipt itself is given subject to the terms and conditions mentioned therein. It states that the sale shall be completed within 45 days from the date of the advocate for the first respondent passing the title. The second respondent has to produce the encumbrance certificate for a period of 13 years prior to the date of Ex. P. 1 and also obtain a certificate of satisfaction of the claim of his brother. The second respondent has also to produce receipts for payment of all taxes and other demands. Clause 6 of Ex. P-1 clearly states that if the transaction is not or could not be completed within the said 45 days or the extended time for any reason, the second respondent shall return the amount of advance with interest thereon at 12 per cent per annum from the date of Ex. P-1'. Further, Cl. 6 of Ex. P-1 gives an option to the second respondent to return the advance amount with interest at 12 per cent, if the transaction could not be completed within 45 days as stipulate therein. It is not disputed that the second respondent refunded the amount of advance and stated that he could not complete the transaction within a reasonable time. This clause itself would show that Ex. P-1 was not intended to be a concluded contract. In Baijnath v. Kshetrahari Sarkar, : AIR1955Cal210 one Kshethahari through his agent Gopeswar entered into an oral arrangement for the grant of a lease of the suit property for the grant of a lease of the suit property for a term of 81 years at the stipulated rent with one Baijnath. The latter in turn filed a suit for specific performance of the contract of lease. The defendants contended that there was no concluded contract between the parties. The learned Judge held as follows (at p. 215) :-
'Under S. 25 of the Specific Relief Act, a lessor is bound to give the lessee a title free from reasonable doubt, and where a prospective lessee demands title deeds from the prospective lessor for his investigation an approval, it cannot be said that there has been a final and concluded agreement between them, although most other material terms may have been agreed upon by them. In such a case the lessee is free to back out of the contract if he is not satisfied about the lessor's title and so long as one party is left free back out of a contract at his choice, it cannot be said that any binding contract has been arrived at between the parties.'
22. A contention was urged on behalf of the plaintiff that the plaintiff is not insisting upon proof of defendant's title, and is ready to take the property with such title as the defendant has got. In other words, it was stated that the plaintiff was prepared to waive his right of investigation of the defendant's title. The Bench answered thus (at p. 215)-
'But subsequent waiver of any of his rights by the plaintiff cannot afford any criterion for determining whether there was a binding contract between himself and the defendant at the date of the alleged contract. The true test for determining whether there was such a binding contract is whether the parties were of one mind on all material terms of the contract at the time it is said to have been finalised between them and whether they intended that the matter was closed and concluded between them.'
23. The principles laid down by the Calcutta High Court applies to the facts of this case. Ex. p. 1 as already stated provided that the first respondent's advocate should pass the title and that the certificate of the brother's claim and receipts for payment of public demands should be produced. The second respondent was also given the option to return the advance amount if he could not comply with the conditions within the stipulated time. The second respondent acted according to the provisions of c,. 6 of Ex. P. 1. In addition, it was further stated under cl. 7 that a regular agreement should be executed within 15 days. In the circumstances, we are not persuaded to accept the argument of Mr. Ramachandran that the first respondent is willing to take the sale deed without proof of title or production of the document mentioned in Ex. P. 1 or Ex. P. 4. On the other hand, we are of opinion that Ex. P. 1 was not intended to be a concluded contract.
24. The above conclusion of ours is fortified by the events that followed. On 9th Feb, 1974, the first respondent's counsel addressed a letter to the second respondent's counsel enclosing Ex. P. 4, draft agreement for sale. It stated that the second respondent's counsel approved of the draft, the same might be typed on stamp paper and returned. It also called upon the counsel to send certified copies of the order recording satisfaction of the suit claim in O. S. 3137 of 1973 and the order raising the attachment of the property in I. A. 8619 of 1973. The draft agreement itself contained as many as seven clauses many of which were not found in Ex. P. 1. Clause 2 states that the first respondent should pay a sum of Rs. 17,500 as advance of which Rs. 3,000 had been paid under Ex. P. 1 and a cheque for Rs. 10,000 was sent on 6-2-1974, for settling the claims of the plaintiff in O. S. No. 3137 of 1973.
It further stated that Rs. 4,500 had been paid by the first respondent's counsel on that date. Clause 3 called upon the second respondent's counsel to furnish various documents such as certified copy of the order recording satisfaction of the suit claim against the second respondent in O. S. No. 3137 of 1973 on the file of the First Asst. Judge, City Civil Court, and raising the attachment before judgment of the property agreed to be sold; certified copy of the order of court amending the compromise decree giving the correct R. S. No. of the property wrongly printed as R. S. No. 5306 in the printed copy of the decree in O. S. A. 54 of 1963; a copy of the extract from the permanent land register showing the name of the vendor as the owner and the boundaries numbers and the extent of the property agreed to be sold; and receipt for the payment of the urban and an extract from the Corporation property register and the receipt for the payment of the tax due to the Corporation of Madras relating to the said property up to the end of March 1974; correspondent relating to the property from the Official Trustee and encumbrance certificate relating to the property agreed to be sold and other papers and documents as may be required by the advocate.
Clause 6 states that if the second respondent committed default in performing any of his obligations mentioned above, he shall return the advance with interest at 12% per annum from the date and if the time for completing the transaction is extended at the discretion of the first respondent, within the extended period. Clause 7 states that if the first respondent failed to complete the transaction within a reasonable time after the second respondent had complied with all the terms and conditions, he should be liable to pay the first respondent a sum of Rs. 1,000 as liquidated damages and receive only the balance of RS. 16,500. It is therefore seen that Ex. P. 4 draft agreement contains many clauses that were not in Ex. P. 1. In Ex. P. 1 the advance amount was mentioned as only Rs. 3,000. In Ex. P. 4 we find the advance as Rs. 17,500 and even before Ex. P. 4 draft agreement was sent to the second respondent a sum of Rupees 10,000 had been paid towards advance. Similarly, cl. 3 of Ex. P. 4 states that the documents mentioned therein as (a) to (f) should be furnished to the advocate within 15 days from the date of Ex. P. 4. Some of the documents mentioned in cl. 3 are not referred to in Ex. P. 1 such as copy of the amended decree in O. S. A. 54 of 1963, extract from the permanent land register, extract from the Corporation property register and correspondence relating to the handing over of the property agreed to be sold by the Official Trustee. Similarly, the cl. 7 as regards the provision for payment of liquidated damages of Rs. 1,000 by the first respondent in case he commits default. We are therefore of the view that when the first respondent sent the draft agreement Ex. p. 4 through his counsel for the approval of the second respondent's counsel he considered it to be the concluded and binding agreement to be entered into between the parties. However, the second respondents counsel very promptly returned the draft agreement to the first respondent's counsel under Ex. P-5 pointing out to the fact that out of the advance of Rs. 17500 mentioned in Ex. P-4 only a sum of RS. 13000 had been received and the balance remained to be paid to the second respondent for settling the claim of one M. L. Abdul Jabbar in O. S. 3137 of 1973.
It further stated that a portion of the property had been set apart for charity and that consequently the revenue authorities proposed to treat the property as trust property and had not claimed any tax under the Urban Land Tax, and the commissioner of Urban Land Tax had asked the second respondent to file an application for subdividing the property and levying tax for the same. The second respondent's counsel therefore called upon the first respondent's counsel to make the necessary alterations in Ex. P. 4 and also send the balance sum of Rs. 4,5000 by cheque in his favour so that the claim of M. L. Abdul Jabbar might be settled. Subject to the amendments, the latter stated that the draft agreement was approved. We are not persuaded to accept Mr. Ramachandran's argument that the draft agreement has been approved by the second respondent's counsel by Ex. P. 3 letter. On the other hand, the draft agreement was returned with certain specific suggestions for alterations and called upon the first respondent to remit Rs. 4,5000. In the circumstances, unless and until another draft agreement had been prepared on the lines suggested in Ex. P. 5 letter and the same was approved by the second respondent, it could not be said that the parties were at concensus ad item. Ex. P. 5 was followed by Ex. P. 6 stated that it would not be possible to get the patta transferred within the period fixed by the first respondent and that therefore the second respondent could not give satisfaction regarding title, and as it would take at least six months time, the second respondent did not propose to keep the contract alive. It further stated that the second respondent wanted further moneys urgently to meet the demands of his creditors who were threatening to file a suit and get attachments and that the first respondent was not willing to advance more than Rupees 17,500.
In these circumstances, Ex. P. 6 made it clear that the second respondent could not execute any agreement. The sum of Rs. 13,000 was also returned by cheque along with Ex. P. 6. The post script stated that the second respondent's counsel had been to the house of the first respondent's counsel in person to hand over the money on the evening of 25-2-1974. Since the first respondent's counsel refused to receive the letter and the money on the ground that he had no instructions from his client, even though the first respondent was personally present at that time, the second respondent's counsel was sending the letter and the cheque by registered post Ex. P. 6 is conclusive proof that the second respondent had refused to sign the draft agreement even before the first respondent's counsel had sent it back with the necessary alterations and the sum of Rs. 4,500 as stated in Ex. P. 5. The amount was returned within 45 days mentioned in Ex. P. 1 in terms of cl. 6 thereof. Ex. P. 6 was replied to by the first respondent's counsel under Ex. P. 7 dated 1-3-1974. In Ex. P. 7 after referring to the contents of the letter dated 22-2-1974 sent by the second respondent, the first respondent's counsel stated that there was a discussion between the two counsel during which the second respondent's counsel is said to have stated that he was not prepared to get the P. L. register entry which stood in the name of the second respondent's father Abdul Salam transferred in the name of the second respondent or apply for copy of the decree amended and that the first respondent had expressed his willingness to give the second respondent time for obtaining and furnishing the same.
It also refers to the fact that during the discussion the second respondent's counsel wanted Rs. 60,000 as further advance to enable his client to settle the claims of other creditors and that first respondent stated that he would advance that additional amount by paying the same directly to the creditors against receipts provided the second respondent agreed to register the agreement for sale and also agreed to pay reasonable interest from the date of expiry of the period fixed in the agreement which was refused to be accepted by the second respondent's counsel. The letter also refers to the fact that the first respondent and his counsel agreed to advance the amount needed by the second respondent on the security of the property which course was not acceptable to the second respondent's counsel. Finally, the letter stated that the first respondent did not acquiesce in the second respondent cancelling the agreement approved by him subject to the modification mentioned in the earlier letter. The next letter is Ex. P. 8 sent by the second respondent's counsel to the first respondent's counsel. The letter referred in what happened between the counsel on 25-2-1974, viz., that the second respondent wanted Rs. 60,000 that he has stated that the property was registered as trust property in the urban land tax register, that it would take some time to effect transfer of the registry that the amount should be paid and no interest should be charged on the amount of advance and that he would execute the sale deed within one month after the property was registered in the name of the second respondent and to this the answer of the first respondent was that he would pay the amount directly to the creditors and that the second respondent should pay interest on the amount to be advanced. This was not agreeable to the second respondent.
Finally, the letter stated that there was no registered agreement, that the entire matter was at the stage of negotiations and that the cheque was being returned. To this the first respondent's counsel sent Ex. P. 9 reply on 7-3-1974. The said letter contained particulars of the discussions the parties had and about the advice the counsel had given to the first respondent with regard to the completion of the transaction. It also referred to certain agreements arrived at between the parties subsequent to Ex. P. 1 receipt, one of which was the clause relating to the payment of interest on the amount of advance mentioned in the receipt dated 26-1-1974, would apply to the total amount of Rs. 17,500 to be advance. The letter further clearly stated `that the counsel drafted the agreement embodying the terms and conditions agreed to between the parties and sent it with a covering letter dated 19-2-1974. It also refers to the fact that the counsel prepared a revised draft as per the letter of the second respondent's counsel sent on 19-1-1974, and that on the night of 22-2-1974 the second respondent's counsel wanted RS. 60,000 more. It also refers to the fact that the second respondent was willing to extend the time and also pay such amounts that might become necessary on behalf of the second respondent directly to his creditors, but that he insisted that the sum of Rs. 60,000 should be paid directly to him and not to his creditors. The letter further states that without prejudice to the first respondent's right under the concluded agreement, he was willing to advance the further advance required by the second respondent and extend the time by a reasonable period for completing the transaction on the second respondent executing and registering the agreement as agreed to between the parties. The post script stated that the first respondent was prepared to send a cheque for the sum of Rs. 4,500 and pay the balance at the time of registration of the agreement.
Ex. P. 11 dated 18th Mar. 1974, was sent by the first respondent's counsel to the second respondent's counsel. It refers to the fact that he had already returned the cheque along with his letter dated 7th Mar. 1974, and that the former might send the cheque and the original draft agreement to the first respondent at his Bangalore address. Thereafter on 19th Mar. 1974, the second respondent's counsel wrote Ex. P.12 to the first respondent at his Bangalore address returning the cheque for Rs.13,000, and also the original agreement. It also stated that the agreement had been cancelled and was no longer in force. This was answered by the first respondent by his letter Ex. P. 13 dated 28th Mar, 1974 addressed to the second respondent's counsel. While acknowledging the cheque for Rs. 13,000 it stated as follows : 'I have received the same without prejudice to my right under the agreement to sell by your client, door No. 5 Kandappa Chetti St. G. T. Madras 1 in my favour'. However, by oversight the first respondent sent back the cheque also to the second respondent's counsel along with his letter EX. P. 13. He therefore addressed Ex. P. 16 to the second respondent's counsel on 30-3-1974, by which he requested the second respondent's counsel to return the cheque which he would accept without prejudice to his right under the agreement as stated in Ex. P. 13. The cheque was duly returned by the second respondent's counsel along with Ex. P. 14 dated 1-4-1974.
Though in Ex. P. 16 the first respondent had stated that his counsel would be sending a detailed reply to the letter sent by the second respondent's counsel on 19-3-1974, no such letter was sent till 24-6-1974. On 10-6-1974, the second respondent executed the sale deed in favour of the appellant for a consideration of RS. 1,10,000. On 12-6-1974, the appellant wrote to Messrs M. M. Mandalappa. A. G. Balasubramania Mudaliar and Co. informing them that the appellant had purchased the suit property and calling upon them to attain the tenancy to the appellant and pay the rent directly to the appellant with effect from 11-6-1974. The second respondent also sent Ex. P. 17 (a) to Messrs M. M. Mandalappa and A. G. Balasubramania Mudaliar and Co. informing them that the suit property had been sold to the appellant. Thereafter on 24-6-1974, the first respondent through another counsel sent the suit notice to the second respondent and the appellant. It is therefore clear from a conspectus of the entire documentary evidence in this case that there was no concluded contract at all between the parties, that Ex. P. 1 was not intended to contain the whole of the term of the bargain, that Ex. P. 4 draft agreement was not accepted and signed by the second respondent and that the parties were only negotiating with suggestions and counter suggestions and were never at consensus ad item.
25. Point NO. 2 : We proceed to consider the second point on the assumption that Ex. P. 1 evidences a concluded contract for sale between respondents 1 and 2. The contention of Mr. Kesava Iyengar was that there is no averment in the plaint, nor was there evidence to prove that the first respondent was ready and willing to perform his part of the contract. In this connection, the learned counsel relied upon S. 16(c) of the Specific performance unless the plaintiff averred and proved that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him. No doubt, there is no specific issue with regard to this. However, issue No. 4 relates to the question whether the plaintiff is entitled to the specific performance of the contract for sale. In para 14 of the plaint, the first respondent has stated that he had been and was ready and willing to perform his part of the contract and take a conveyance and that both the second respondent and the appellant were bound in law to convey the property to the first respondent.
This has been traversed in the written statement. The second respondent has stated in his written statement that apart from the fact that there was no contract for sale at any time, the first respondent received back the sum of Rs. 13,000 paid by him, though stated to be without prejudice. He has also stated that the first respondent was not entitled to the relief of specific performance as he by his own conduct and willful knowledge of all the facts had allowed the property to be sold by the second respondent to the appellant for a lesser price. The appellant has in para 4 of its written statement stated that at no time the first respondent has expressed his readiness and anxiety to purchase the property. Section 16(c) of the Specific Relief Act 1963 reads as follows-
'16. Specific performance of a contract cannot be enforced in favour of a person-
(c) who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant.
Explanation : For the purposes of cl. (c)-
(i) Where a contract involved the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in court any money except when so directed by the court;
(ii) the plaintiff must aver performance of. or readiness and willingness to perform, the contract according to its true construction.'
26. This corresponds to S. 24 of the Specific Relief Act, 1877.
27. In Ardeshir v. Flora Sassoon, AIR 1928, PC 208, Lord Blanesburg observed thus-
'In a suit for specific performance the plaintiff has to allege, and if the fact is traversed, he is required to prove a continuous readiness and willingness from the date of the contract to the time of the hearing, the perform the contract on his part. Failure to make good that averment brought with it the inevitable dismissal of his suit.'
This was approved by the Supreme Court in Gomathinayagam Pillai v. Palanisami Nadar, : 1SCR227 . Shah, J. speaking for the court observed as follows (at p. 872)-
'The respondent (plaintiff) must in a suit for specific performance of an agreement plead and prove that he was ready and willing to perform his part of the contract continuously between the date of the contract and the date of hearing of the suit.'
27-A. Again in Premraj v. D. L. F. Ltd., : 3SCR648 Ramaswami, J. peaking for the Bench observed thus (at p. 1357)-
'It is well settled that in a suit for specific performance, the plaintiff should allege that he is ready and willing to perform his part of the contract.'
28. Mr. Ramachandran referred to the decision of the Supreme Court in Ramesh Chandra v. Chuni Lal, : 2SCR573 and drew our attention to the following observations (at p. 1242)-
'Radiness and willingness cannot be treated as astrait-jacket formula. These have to be determined from the entirety of facts and circumstances relevant to the intention and conduct of the party concerned. In our judgment there was nothing to indicate that the appellants at any stage were not ready and willing to perform their part of the contract.'
These observations in our opinion do not in any way detract from the ratio laid down in Ardeshir v. Flora Sassoon, AIR 1928 PC 208, Gomathinayagam Pillai v. Palanisami Nadar, : 1SCR227 and Premraj v. D. L. F. Ltd., : 3SCR648 .
29. In this case, there is absolutely no evidence on the side of the first respondent to prove that he was ready and willing to perform his part of the contract and such readiness and willingness continued till the date of the decree. It is certainly the duty of the first respondent to have gone into the box and given formal evidence that he was ready and willing to perform his part of the contract and subjected himself to cross-examination. In the absence of the first respondent from the witness box, we are unable to find that the first respondent plaintiff has discharged the duty enjoined on him under S. 16(c) of the Specific Relief Act 1963, entitling him to a decree for specific performance. No doubt, it is not specifically clear from the judgment of the trial Judge whether the question regarding the readiness and willingness of the first respondent to perform his part of the contract was urged before the learned Judge. In our opinion, it would be certainly open to the appellant to raise the question before us.
Section 16(c) of the Specific Relief Act 1963 is prohibitory and that a duty is cast on courts by a public statute that a specific performance of a contract cannot be granted in favour of a person unless he avers and proves his readiness and willingness to perform his part of the contract. That being the nature of the statute, it would be the duty of the court to see whether the person who seeks to enforce the contract satisfies the mandatory provisions of S. 16 of the Specific Relief Act, 1963. The Privy Council and the Supreme Court have interpreted the section to mean that if the conditions are not satisfied, the court is bound to dismiss the suit. Though no precedent is necessary to support this conclusion of ours we shall refer to two decisions in this context. The first one is shiba Prasad Singh v. Srish Chandra wherein the Privy Council was called upon to interpret the meaning to be given to the word `mistake' in S. 72 of the Contract Act. The question was not raised, nor evidently argued before the Subordinate Judge and the High Court, and therefore the respondent raised an objection that no argument could be advanced before the Privy Council based on S. 72. However, their Lordships negatived the objections stating that they were unable to exclude from their consideration the provisions of the public statute.
30. In Surajmull Nagoremull v. Triton Insurance Co. Ltd. , the question was whether a contract for sea insurance was valid even though it was not expressed in a sea policy as provided under S. 7 of the Stamp Act 1899. The section had not been pleaded by the defendant in the suit. It was only during the hearing of the appeal before the Privy Council it was discovered that that S. 7 of the Stamp Act provided that no contract of sea insurance would be valid unless the same was expressed in policies of sea insurance. It was argued by the plaintiff that it was too late to plead as an answer to the plaintiff's claim. Lord Sumner observed thus-
'The suggestion may be at once dismissed that is too late now to raise the section as an answer to the claim. No court can enforce as valid, that which competent enactments have declared shall not be valid, nor is obedience to such an enactments have declared shall not be valid, nor is obedience to such an enactment a thing from which a court can be dispense by a consent of the parties or by a failure to plead or to argue the point at the outset (Nixon v. Albion Marine (1867) LR 2 Exc 338). The enactment is prohibitory. It is not confined to affording a party a protection, of which he may avail himself or not as he pleases. It is not framed solely for the protection of the revenue and to be enforced solely at the instance of the revenue officials, nor is the prohibition limited to case, for which a penalty is eligible. The expression of an agreement for sea insurance, otherwise than in a policy, is a thing forbidden in the public interest, and the statutory insistence on a policy is no mere collateral requirement or prescription of the proper way of making such an agreement. To allow the suit to proceed in defiance of S. 7 would defeat the provisions of the law laid down therein.'
31. We are not impressed with the submission of Mr. Ramachandran the learned counsel for the first respondent that a finding should be called for on the issue whether the first respondent was ready and willing to perform his part of the contract and that the first respondent should be given a further opportunity to let in his evidence on the question. We have already pointed out that the question of the first respondent's readiness and willingness to perform his part of the contract has been clearly taken in the written statement. The second respondent has clearly averred back the advance amount of Rupees 13,000 and that his past conduct had allowed the property to be sold to the appellant. Issue No. 4 relates to the question whether the first respondent is entitled to a decree for specific performance. In the circumstance, it was the duty of the first respondent to have gone into the box and given evidence that notwithstanding the acceptance of Rupees 13,000 he was willing and ready to perform his part of the contract. To give a further opportunity to the first respondent at this stage to let in evidence over again before the trial Judge would be to permit him to fill up the lacuna in the evidence at the expense of the appellant. The point raised by Mr. Kesava Iyengar is a pure question of law and can be decided on the materials available on the records. We therefore reject the prayer of Mr. Ramachandran for remand for the trial Judge for a finding on this question after giving the first respondent an opportunity to let in evidence.
32. Point No. 3 : This point relates to the legal effect to be attached to the conduct of the first respondent in receiving back the advance amount of Rupees 13,000 from the second respondent. Under Ex. P. 13 dated 28-3-1974, while receiving the cheque for Rs. 13,000 the first respondent stated that he was receiving the same without prejudice to his right under the agreement to sell, Ex. P. 1. The contention of Mr. Kesava Iyengar was that inasmuch as the first respondent had received back the advance amount of Rs. 13,000 he could not enforce the agreement and that the words `without prejudice' used by the first respondent in Ex. P. 13 would not take away the effect of the first respondent having accepted the cancellation of the contract by the second respondent. On the other hand, Mr. T. R. Ramachandran argued that inasmuch as the cheque was accepted `without prejudice' to the first respondent's right under the contract for sale his right to specifically enforce the contract would not be adversely affected. The effect of the acceptance of the amounts under protest have come up for consideration in cases relating to forfeiture of leases.
In George Henry Davenport v. Her Majesty the Queen. (1878) 3 Ac 115, a lease of Crown lands for eight years having been granted by the respondent under 31 Vict. No. 46, subject to the terms and conditions contained in the Agricultural Reserves Act of 1863 and the Leasing Act of 1866, the lessee failed to perform his convenient to cultivate one sixth of the said lands within a year from the allotment thereof. Rent, however, for the whole term of year was subsequently received by the Government, the latest being in 1873 with full knowledge of the above breach of covenant, but after notification in the gazettes of 1869, 1870 and 1871, that the same would be received conditionally and without prejudice to the rights of the Government. Thereafter, the Government brought a suit in ejectment on the ground that a forfeiture had accrued. After quoting the case of House of Lords in Croft v. Lumley (1858) 6 HLC 672 the Privy Council observed thus-
'Without finding it necessary to invoke this opinion to its full extent in the present case, it is enough for their Lordships to say that where money is paid and received as rent under a lease, mere protest that it is accepted conditionally and without prejudice to the right to insist upon a prior forfeiture, cannot countervail the fact of such receipt.'
32-A. The Privy Council took the view that 'assuming a forfeiture had accrued, it was waived by the receipt of rent, notwithstanding the conditional acceptance.'
33. This case was followed by the Calcutta High Court in Kali Krishna Tagore v. Fuzle Ali Chowdhry, ILR (1883) Cal 843, where payments made by the lessee were accepted by the lessor as rent but were kept in suspense subject to payment by the lessee of the remaining amount, it was held that such a qualification did not make the payments anything else than payment of rent, and that the lessor had waived his right to insist on re-entry on the lessees' failure to measure the land, or execute a kubiliat when called on to do so.
34. Again in Satyanarayana v. Venkataramamurthy : AIR1935Mad454 the question arose before a Bench of this Court whether the receipt of rent by the lessor amounted to a waiver of a prior right of forfeiture of the lease. It was held that a conditional acceptance of rent by the lessor after default involving a forfeiture is nonetheless a waiver.
35. In Chotu Mia v. Mt. Sundri, AIR 1945 Pt 260, a Full Bench of the Patna High court held where after the forfeiture of the lease the lessee remits certain amount to the lessor as rent and intends it as payment of rent and the landlord accepts it only as damages for use and occupation, the acceptance of payment by the landlord must be deemed to be as rent and operates as a waiver of the forfeiture.'
36. We are of the view that the same principle applies to the case on hand. The second respondent had already stated that he was not intending to execute the draft contract for sale and that the contract was no longer in existence. Assuming that Ex. P. 1 amounted to a concluded contract for sale, the first respondent has accepted the refund amount of Rs. 13,000 knowing full well that the second respondent has cancelled the contract. In the context, therefore, the mere conditional acceptance by the use of the words `without prejudice' to his rights under the contract for sale cannot in any manner derogate from the fact that he had acquiesced in the breach of the contract committed by the second respondent. As was observed in Doe d. Morecraft v. Meux, (1824) 1 Cal 347, what was of importance was what the first respondent did and not what he said. The first respondent had received the money back and the effect of it cannot be taken away by the words `without prejudice' which he said.
37. Mr. Ramachandran cited the decision of the Supreme Court in Ganga Dutt Murarka v. Kartik Chandra Das : 3SCR813 wherein the Supreme Court held that where a contractual tenancy to which the rent control legislation applied, had expired by efflux of time or by determination by notice to quit and the tenant continued in possession of the premises, acceptance of rent from the tenant by the landlord after the expiration or determination of the contractual tenancy will not afford ground for holding that the landlord had assented to a new contractual tenancy'. No exception can be taken to this proposition of law laid down by the Supreme Court. The effect of the rent control legislation was that notwithstanding the determination of the tenancy, the tenant continued to be a statutory tenant by operation of the statute. Consequently, the receipt of rent after the determination of the tenancy by notice to quit cannot create a new contractual tenancy. This decision cannot apply to the situation with which we are now concerned. We therefore hold that assuming Ex. P. 1 constituted a concluded contract for sale the acceptance of the refund amount of Rs. 13,000 the first respondent waived his right cannot be preserved merely because he had accepted the amount `without prejudice' to his right.
38. The last of the points that arises for consideration is whether the appellant is a bona fide purchaser for value without notice of the contract for sale. DW 1 a partner of the appellant firm had given evidence regarding the payment of consideration. The first respondent has not gone into the box. There is clear evidence to show that the appellant purchased the property for value. As regards notice DW 1 has given evidence that he was not aware of the contract for sale, that before purchasing the property he inspected the property, when one Jaraman a gumastha and Athimoolam the watchman were present and no business was being carried on there. The first respondent has not gone into the box to rebut the evidence given by DW 1. the learned counsel for the first respondent relied upon the fact that DW 1 has stated that on 4-3-1974, he was told by the broker that there was an original offer for a sum of Rupees 1,22,500 from the first respondent and that ultimately, the sale consideration was fixed at Rs. 1,10,000. This statement cannot in any way be taken to mean that the appellant was aware of the fact that there was a subsisting contract on the date of his purchase. On the other hand, it is borne out by evidence that the first respondent had already taken back the refund amount and consequently even if there had been any such valid and enforceable contract for sale, he has waived his right to enforce the contract. In the circumstances, we hold that the appellant is a bona fide purchaser for value without notice of any subsisting contract for sale.
39. In the result, we set aside the judgment and decree of the trial Judge and allow the appeal, with costs throughout and dismiss the suit.
40. The memorandum of cross objection filed by the first respondent with regard to costs disallowed by the trial Judge has also to be dismissed and we dismiss the same without costs.
The Chief Justice
41. After the judgment was delivered, the learned counsel for the respondent has orally prayed for leave to appeal to the Supreme Court under Art. 133 of the Constitution of India. As we have decided the case after taking into consideration all the relevant evidence and after following the decisions of the Supreme court, we are not satisfied that there is any substantial question of law of general importance which needs to be decided by the Supreme Court.
42. The prayer for certificate to leave to appeal to the Supreme Court is rejected.
43. Order accordingly.