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Petitioner: UMAR HAYAT VS Respondent: MATHELA
P L D 1953 Lahore 410
P L D 1953 Lahore 410
Before Muhammad Khurshid Zaman end B. Z. Kaikaus, JJ
UMAR HAYAT AND ANOTHER‑Defendants‑Appellants
Versus
MATHELA AND OTHERS‑(Plaintiffs)‑Defendants‑Respondents
Second Appeal No. 298 of 1951, decided on 10th April 1953, from the decree of Ghulam Rabbani, Additional District Judge, Jhang, dated the 23rd July 1951, reversing that of D. Fazal‑ud‑Din, Senior, Civil Judge, Jhang, dated the 13th December 1950.
(a) Transfer of Property Act (IV of 1882),
S. 55‑---Sale--- Deed not effective to transfer title‑Held, breach of contract of sale arose the moment deed was executed.
An agreement for sale is in fact a promise to transfer owner ship of the land and if by the sale deed the land in fact has not been transferred a breach of contract would appear to occur the moment a sale deed is executed which has not the effect of transferring the promised title.
(b) Sale‑
Covenant of title‑Suit by vendee on breach of Limitation‑--Starting point from discovery of defect‑(Obiter).
(c) Sale‑
Contract of‑Defect in title‑Discovery of, does not per se make contract void.
The discovery of a defect in title doffs not per se make a contract of sale void.
(d) Sale‑
Contract of---Cannot be rescinded after execution of sale deed on ground of defect in title unless such warranty incorporated in deed.
If the vendor is unable to show a good title before the execu tion of a sale deed the vendee may refuse to accept a sale deed, may rescind the contract and may sue for damages for breach of contract. The basis of the rescission will be the failure of the vendor to perform the contract.
But after the performance of a contract has been accepted it cannot, in the absence of a special agreement, be rescinded by a party to it except on the ground of a defect in the party's consent either to the original agreement or to the performance of it. What were conditions of the contract before its performance become only warranties or at least are enforceable only as warranties after the performance.
(e) Contract Act (IX of 1872),
S. 65‑Consideration‑ Failure of‑Suit by vendee to recover balance of consideration from vendors after the earlier sale in latter's favour had been declared null and void under agricultural custom‑Competent.
Mathela plaintiff respondent purchased the land in dispute from Umar Hayat and Umar Draz defendant‑appellants for a sum of Rs. 5,000 by a registered deed dated the 24th of September 1946. Allah Ditta the deceased father and predecessor‑in‑interest of the defendant‑appellants had in turn purchased the land from one Muhammad Bakhsh by a deed dated the 20th of November 1940 for Rs. 1,100. This Muhammad Bakhsh happened to be governed by agricultural custom and after his death his sons filed a suit on the 18th of November 1946, for possession of the land (impleading as defendants Mathela as well as the appellants) on the ground that the property was ancestral and the sale without consideration and necessity. That suit was compromised and by the compromise decree the sale by Muhammad Bakhsh was set aside and converted into a mortgage. The following was the joint statement made by Mathela, Umar Hayat and Umar Draz:‑
A decree be passed in favour of the plaintiffs on payment of Rs. 1,100. The sale be set aside and the land be mortgaged in favour of the defendants for Rs. 1,100. The plaintiffs can redeem the land on payment of Rs. 1,100 at all times.
On the 24th of March 19 0, the present suit was filed by Mathela for recovery of Rs. 3,900 from Umar Hayat and Umar Draz defendants.
On an objection that the suit was premature as possession was still with the vendee Mathela
Held, as a result of the previous suit the transaction of sale ceased to have effect and all that remained with the vendee was a security for payment of Rs. 1,100. Title as owner failed at least on that date, though the failure of consideration is only partial. Though possession still remains with the vendee and the land cannot be redeemed except on payment of Rs. 1,100, it cannot be said that as yet there is no failure of consideration at all and the vendee has no cause of action.
The implied covenant for title can be taken away only by clear words find not by doubtful implications. If it was the agreement between the parties, that the vendors had no liability if the title of their own vendors was found to be defective the vendors ought to have got it inserted in the deed in so many words.
Their Lordships repelled the contention that cause of action does not arise till dispossession or that till then no damage is caused.
[Case‑law discussed]. Aftab Hussain for Appellants.
Mazhar Ali Azhar for Respondent (1).
JUDGMENT
KAIKAUS, J.‑--This regular second appeal has arisen out of a suit filed by a vendee of land against his vendors for damages due to defect in the vendors' title. The trial Court dismissed the suit but on appeal the learned District Judge decreed it and the defendants have filed this second appeal.
The main facts are not in dispute. Mathela plaintiff‑respondent purchased the land in dispute from Umar Hayat and Umar Draz defendant‑appellants for a sum of Rs. 5,000 by a registered deed, dated the 24th of September 1946. Allah Ditta the deceased father and predecessor‑in‑interest of the defendant‑appellants had in turn purchased the land from one Muhammad Bakhsh by a deed, dated the 20th of November 1940, for Rs. 1,100. This Muhammad Bakhsh happened to be governed by agricultural custom and after his death his son filed a suit on the 18th of November 1946, for possession of the land (impleading as defendants Mathela as well as the appellants) on the ground that the property was ancestral and E the sale without consideration and necessity. That suit was compromised and by the compromise decree the sale by Muhammad Bakhsh was set aside and converted into a mortgage. The following is the joint statement made by Mathela, Umar Hayat and Umar Draz:‑
"A decree be passed in favour of the plaintiffs on payment of Rs. 1,100. The sale be set aside and the land be mort gaged in favour of the defendants for Rs. 1,100. The plaintiffs can redeem the land on payment of Rs. 1,100 at all times,
The parties have given up the costs of the case."
After the joint statement, counsel for Mathela had stated:‑
"The above‑mentioned compromise is correct and is admitted but notwithstanding the same if defendant No. 3 (Matbela) has any right against defendants Nos. 1 and 2 (Umar Hayat and Umar Draz) be will bring a separate suit for the same."
On the 24th of March 1950, the present suit was filed by Mathela for recovery of Rs. 3,900 from Umar Hayat and, Umar Draz defendants. He impleaded the sons of Muhammad Bakhsh as pro forma parties. The suit was originally based on the compromise decree in the previous suit as if the decree itself granted a cause of action but this position was soon given up and the suit was alleged to be based on section 65 of tbe. Contract Act and section 55 (2) of the Transfer of Property Act.
The suit was defended Inter alia on the grounds; (1) that according to the sale deed the defendants were not liable, (2) that the sale deed had not become void, and (3) that the suit was premature as the plaintiff had not as yet been dis possessed. The learned Senior Subordinate Judge, who tried the suit, came to the conclusion that the sale never became void as there was no finding by the Court but only a compromise. He found too that as the plaintiff was still in possession he had no cause of action for the suit. On appeal the learned District Judge held that the sale had been set aside because the appellants too were parties to the compromise. He rejected the plea that that was no cause of action at all till dis possession. The possession as owner, he said, had been changed into possession as mortgagee.
Before us learned counsel for the appellants has argued (1) that by a clause in the sale deed the vendors are absolved from all liability, and (2) that the suit is premature as the plaintiff is still in possession.
It will be convenient to begin with the second point. The claim of the plaintiff'‑respondent, as argued before us, is based on four grounds:‑
(i) Breach of implied covenant of title,
(ii) Section 65 of the Contract Act,
(iii) Failure of existing consideration, and
(iv) Express covenant in the sale deed.
It has to be considered with respect to each of the grounds when a right of suit will arise. A number of cases have been quoted by a learned counsel for the appellants which lay down that till dispossession there is no cause of action. We will take up the grounds in their order. We will first state our views with respect to all these grounds and then advert to the authorities quoted by the appellants.
I.‑Breach of implied covenant of title.
Under section 55 of the Transfer of Property Act, which has been applied to the Punjab in a number of cases, there is a covenant of title in every sale. In fact it is not the case for the appellants that the covenant does not exist, the only dispute being as to the time of its breach. Covenant of title is an undertaking that the vendor has title as well as power to convey the title.
An agreement for sale is in fact a promise to transfer owner ship of the land and if by the sale deed the land in fact has not been transferred a breach of contract would appear to occur the moment a sale deed is executed which has not the effect of transferring the promised title. That is the view taken in England‑Halsbury, Volume 29, pages 457/458, Dart on Vendors and Purchaser, page 663. The same is the view taken in the following Indian cases Tulsiram and others v. Murlidhar Chatur bhuj Marwadi (I L R 26 Bom. 750), Multanmal Jayaram and another v. Budhumal Kevalchand and others (I L R 45 Bom. 955), Kashirao v. Zabu (A I R 1932 Nag. 5 (F B)) and K. A. Ramanatha Aiyar v. Ozhaloor Pathiri Serri Raman Mambudripad (A I R 1915 Mad. 766). If this proposition be accepted the objection of the appellant as to suit being premature would disappear and although the appellant is able to cite cases saying that there is no cause of action till dispossession (with which cases we will deal later) he is unable to cite a case where it was held that a covenant for title is not broken till dispossession.
We would, however, guard against being understood to lay down that for suing on a covenant of a title time would start from the date of sale. The defect in the vendor's title may be a secret one which even by exercise of diligence may not have be come known. The vendor himself may not know the defect. The question whether the title is good may involve decision of difficult questions of law and fact which may require decision by a Court before they are settled. Litigation between the vendee and a stranger claimant may take more than six years in the case of a registered or more than three years in the case of unregistered sale deeds. Would the vendee be deprived of the benefit of the covenant in such cases because the defect in title is not discovered within six years or three years from the sale deed? The promisor has given an apparent performance of contract. There is no means of knowing whether the performance is good but he guarantees by the covenant for title that it is good. The guarantee cannot be effective unless the covenant be interpreted to mean that in case of discovery of defect in title the vendor shall be responsible for compensating the vendee. Unless limitation be held to start from such discovery a vendee may lose the benefit of this covenant without any fault of his. As we will show later in this judgment the vendee cannot after the execution of the sale deed rescind the contract on account of its breach. He must at least have an effective guarantee.
We are not concerned in the present suit with the question of limitation and for us it is sufficient that the breach has been committed but we are of opinion that it should be regarded as having taken place on discovery of defect, a proposition for which we find support in Bapu Shivaji Naik and others v. Kashiram Xammantrao Ghag (A I R 1929 Bom. 361) and Thillaikannu Achi v. Sheikh Abdul Kadir Rowther (A I R 1933 Mad. 126).
II.‑--Section 65 of the Contract Act
It is not the plaintiff's case that the sale was void from the beginning. What is contended is that the sale was voidable and came to an end with the compromise in the last suit. But has the contract between the parties become void? That the sale or rather the transfer of property has become void in the sense that it ceases have to effect on account of the action taken by the sons of Muhammad Bakhsh is true but that will not render the contract between the vendor and the vendee void. A contract once validly entered into could only become void by virtue of some provision in the Contract Act or some other law applicable. There is no provision in the Contract Act or elsewhere making the original contract between the vendor and the vendee void in the circumstances of the present case. The sale is, in cases like the present, said to be voidable at the option of the third person who can render it ineffective but the word 'voidable' is in such cases not used in the sense in which it is used in the Contract Act. Of course, it is open to the parties to a contract of sale to make the existence of good title a condition precedent to the formation of the contract at all or to provide for its termination on discovery of defect in title but no such condition can be imported into an ordinary contract for sale. T he discovery of a defect in title does not per se make a contract of sale void. If the vendor whose title has been found defective were to acquire a new and better title in the property it would pass automatically to a vendee under section 43 of the Transfer of Property Act, which could only happen if a valid contract for sale existed. Also a suit for damages for breach of covenant for title would lie which too presupposes an enforceable contract.
The next question is whether after the execution of a sale deed the vendee could rescind a contract of sale on the ground that there being a defect in the vendor's title the vendor has not performed his part of the contract. The existence of a title with power to convey is a condition of every contract of sale. The vendor contracts with the purchaser that he will make an effective transfer of title to the vendee. If the vendor is unable to show a' good title before the execution of a sale deed the vendee may refuse to accept a sale deed, may rescind the contract and may sue for damages for breach of contract. The basis of the rescission will be the failure of the vendor to perform the contract.
But after the performance of a contract has been accepted it cannot, in the absence of a special agreement, be rescinded by a party to it except on the "ground of a defect in the party's consent either to the original agreement or to the performance of it, What were conditions of the contract before its performance become only warranties or at least are enforceable only as warranties after the performance. This is implied in the acceptance of a performance for the acceptance involves an element of consent, similar to that involved in a contract. It is open to the party to reject a perfor mance but if he accepts it then in the absence of a contract to the contrary, the transaction is (apart from defects in consent) closed except for covenants and warranties to which the performance gives rise. That conditions of a contract are, in the absence of express or implied contract, to the contrary, enforceable only as warranties after acceptance of performance is expressly incor porated in section 13 of the Sale of Goods Act but the principle is one of general application. One may also, in this connection, refer to what is stated in Dart on Vendors and Purchasers at page 683 of English Edition:
"In general, where parties enter into a preliminary contract, which is afterwards to be carried out by a deed, the contract be comes extinguished in the deed when it is executed, and can no longer be looked at for any purpose. But the ordinary provision for compensation is construed not as one which is intended to be carried out by the deed of conveyance but as continuing to exist outside it, and may therefore by enforced after conveyance. "
We hold that on account merely of a defect in title the contract cannot be rescinded at this stage, there being no special agreement to that effect between the parties. We may also point out that the plaint in the case does not properly make out a case of rescission.
III.--‑Failure of consideration
A consideration which was to be received or was received fails when it ceases to exist or to be available to the party concerned for a cause the effect of which it should be the duty of the other party to bear. The basis of the suit for recovery of money paid for such a consideration is an implied or rather a constructive contract that the money would in the circumstances that have arisen be returned Some cases of failure of consideration are covered by section 65 of the Contract Act but the doctrine is of wider application and enables a party to a contract to recover money which it would be inequitable for the other party to retain. Whether the party receiving the money was bound to return it would depend upon whether a constructive contract to return the money in the circum stances that have occurred could be imputed.
In a contract of sale there is an implied contract that title and power to convey exist and that if vendee loses what he has received the purchase money will be refunded. If the suit be regarded as far failure of consideration it would be one for money paid whereas if it be based on the covenant for title it would be a suit for compensation for breach of contract. In the present case the difference ii not material.
A consideration is any benefit, anything of value. In cases of sale of land it would consist of title as well as possession. The time from which cause of action would arise for failure of consider ation would differ according as title or possession or both passed or not. For deciding the point of time when cause of action for a suit based on failure of consideration will arise transactions of sale may be classified under the following heads:‑
(i) Void sale without delivery of possession.
(ii) Void sale accompanied by delivery of possession.
(iii) Voidable sale without delivery of possession.
(iv) Voidable sale with delivery of possession.
In cases falling under clause (i), consideration would fail from the very beginning. In cases falling under clause (ii), consideration would fail partially, i.e., as regards title, on the date of sale, and totally on the date of eviction. A cause of action would in such cases arise even on the date of sale although for the purpose of limitation a suit brought within time from eviction may not be barred. In cases falling under clause (iii) con sideration would fail when the option to terminate the sale is validly exercised. In cases falling under clause (iv) consideration would fail as regards title when the option to terminate the con tract is validly exercised and as regards possession on the date of eviction. As was the case with respect to clause (ii) a cause of action would in such a case arise even on the exercise of option though so far as limitation is concerned time may start from dispossession. In the present case, we are not concerned with the question of limitation and we are making question of limitation only because authorities which upon by the appellants in this connection are cases of to which we will have to refer.
The present case is one of a voidable sale falling under clause (iv). The word 'voidable' we are using not in the sense in which it is used in the Contract Act but in the broad and comprehensive sense which includes a transfer effected by one party in favour of another which a stranger has the power to render of no further effect. The sale in favour of Mathela was valid when made but (as was the sale by Muhammad Bakhsh to Allah Ditta) it was subject to the right of succession vesting in the sons of Muhammad Bakhsh. As a result of the previous suit the transac tion of sale ceased to have effect and all that remained with the vendee was a security for payment of Rs. 1,100. Title as owner did fail at least on that date, though the failure of consideration is only partial. Though possession still does remain with the vendee and the land cannot be redeemed except on payment of Rs. 1,100, it cannot be said that as yet there is no failure of consideration at all and the vendee has no cause of action. The vendee has lost its title. The value of what he holds has been reduced to Rs. 1,100. Learned counsel for the appellants says that the sons of Muhammad Bakhsh may never redeem the land and, therefore, no loss may ever occur. If they do not, then Mathela will get something by virtue of the statute of limitation which he does not possess now. If he wanted to sell his rights today they would not fetch any more than Rs. 1,100. The fact that the value of his right has diminished is by itself a loss capable of grounding a suit for damages. In cases of sale of land it cannot be said that possession is the only consideration or that till possession is lost no part of the consideration has failed. There may be cases where possession has not passed at all and a title is by some means lost. Could it be said that there was no failure of consideration at all in such cases? We will have to revert to this subject when we consider the question as to the damage caused. We hold that failure of consideration did take place at least when decree was passed in the last suit.
IV.‑--Express contract
The following are the words used in the sale deed relating to the vendor's liability in case of defect in title:
"Mazhiran ne woh haquq jo walid mazhiran ne barue bai. nama ragistry shuda moarkha 20th November 1940 bar No. 1306 mahkama Janab Sub‑Registrar, Jhang, minjanib Muhammad Bakhsh bahaq Allah Ditta hasil kiey hain bai kar diay hain. Aur muqirran ki koi zimmawari nahin hal. Agar koi bar kisi qisam ka sabit howay ya naqs nisbat malkiat sabit howay to zat mazhiran wa deegar jaidad mazhiran zimmawar hogi."
It will be convenient here to deal also with the contention of the learned counsel for the appellants that by a provision in the sale deed they are absolved from all liability. He relies upon the words:
"Aur mazhiran ki koi zimmawari nahin hai." Had these words stood by themselves and were not followed by the succeeding sentence quoted above, they may have been capable of the interpretation suggested by the learned counsel for the appellants. The words do show that some responsibility is being excluded but really it is not possible to find out of what respon sibility the appellants were being absolved for the sentence which follows makes the appellants liable for any defect in title. While no such interpretation of the earlier portion is suggested by the learned counsel for the respondent as well reconcile it with the latter portion, the words used in the latter portion are plain and not reasonably capable of any interpretation consistent with the appellants' contention. The implied covenant for title can be taken away only by clear words and not by doubtful implications. If it was the agreement between the parties, that the vendors had no liability if the title of their own vendors was found to be K defective the vendors ought to get it inserted in the deed in so many words and should not have agreed to the widely worded clause that follows.
We now turn to the effect of this express covenant. Apparently the words would give a right of suit if a defect in title is discovered. The covenant does not say that the vendee will have a right to sue only when he is dispossessed. It may be argued, however, that the covenant is only the ordinary implied covenant of title which is being put expressly in the deed and that it is not intended to give a greater right of action. Construing the words. in their plain sense they do give a right of action on discovery of the defect though it should be obvious that discovery must be such as does adversely affect the vendee's rights. The clause does really embody the covenant for title, only it expressly gives a right on discovery and may be one of the answers to a plea of limitation. It may also be said that the clause is in the nature of a provision for indemnity but only to the extent of loss caused by a defect in title.
The question whether the loss has been caused to the vendee already is one of the matters for consideration not only in connection with the express covenant but generally with respect to all the pleas of the plaintiffs for the damages awarded are to be regulated by the damage actually suffered.…
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