Karnataka High Court
R.L. Pinto And Anr. vs F.F. Menzes And Anr. on 6 December, 2000
Equivalent citations: AIR2001KANT141, 2001(2)ARBLR107(KAR), ILR2001KAR3168, AIR 2001 KARNATAKA 141, 2001 AIR - KANT. H. C. R. 596, 2001 (2) ARBI LR 107, (2001) ILR (KANT) (1) 3168, (2001) 2 CIVILCOURTC 244, (2001) 4 RECCIVR 836, 2001 WLC(RAJ)(UC) 85, (2001) 4 ICC 45, (2001) 2 CIVILCOURTC 246, (2001) 3 KANT LJ 571, (2001) 2 ARBILR 107, (2001) 4 ICC 124
Bench: Tirath Singh Thakur, K. Sreedhar Rao
JUDGMENT
1. Defendants 1 and 3 being aggrieved by the decree granted by the trial Court in O.S. No. 98/87 directing the refund of the advance amount to the plaintiff have filed the appeal.
2. The appellants are the husband and wife. The second appellant ts the owner of the property and the first appellant, the general power of attorney of the second appellant. The second respondent in the appeal is the second defendant in the suit, who purchased the suit property from the appellants 1 and 2 after the cancellation of contract between the appellants and the first respondent.
3. The first appellant, representing to be the Power of Attorney of the second appellant, entered into an agreement of sale with the plaintiff on 1-10-1986 agreeing to sell 44.27 acres of lands spread over in different Sy. Nos. with different extents, for a sum of Rs. 22 lakhs. At the time of the agreement, an advance amount of Rs. 3,75,000/- was paid by the plaintiff in three instances, i.e., Rs. 50,000/- on 23-9-1986, Rs. 3.00,000/- on 1-10-1986 and Rs. 35,000/- on 6-10-1986. It was agreed that the balance consideration of Rs. 18,50,000/- is to be payable before 31-12-1986, by which date, the registration of sale is to be completed.
4. In the plaint, the following reasons for cancellation of the agreement of sale are set out :
(i) that the second appellant informed by a letter that she is not interested in the sale of the property negotiated by her husband;
(ii) that at the time when the first appellant is constituted as the Power of Attorney on 18-12-1975, the second appellant had not become the owner of Sy. No. 32, therefore, under the power of attorney, the first appellant had no valid authority to have entered into an agreement in respect of property to which the second appellant was not the owner.
(iii) In respect of Sy. No. 34, the second appellant has only equitable right by way of agreement of sale and does not have any marketable title, so also in respect of Sy. No. 41, the appellant has no marketable title.
(iv) The extent owned in Sy. No. 41/1 has been wrongly given and the necessary Coffee Registration Certificates covering all the properties are not obtained.
Having found out the defective title, the plaintiff cancelled the agreement and sought for refund of the advance amount along with the damages of Rs. 50,000/- for the loss and inconvenience sustained together with interest at 18% per annum.
5. Initially, the first appellant alone was sued subsequently by amendment, the second appellant and the subsequent purchaser-second respondent are also made parties in the suit.
6. In the written statement, the plea of defective title is denied as false and untenable. It is contended that the time was the essence of the contract. The plaintiff did not have sufficient funds to pay the balance consideration. Therefore, under false pretext, has sought for cancellation. The contention that the second appellant communicated by a letter refuting the contract as false and concoted. It is also contended that the property has been sold to second respondent for lesser value to an extent of rupees six lakhs for which the first respondent is held to be accountable and prayed for dismissal of the suit.
7. The trial Court has framed as many as 9 issues covering all the material disputed facts and law, excepting the issue regarding equitable set off for the loss of rupees six lakhs incurred by the appellants by the subsequent sale on account of breach and however there is also no specific pleading in that behalf. In the course of arguments the counsel for the appellants sought to make out a case of equitable set off against the suit claim with reference to the pleadings in para 20 of the written statement.
8-9. The trial Court has negatived the contention of the plaintiff that the second appellant has Informed by a letter that she is not bound by the agreement of sale entered by the first appellant and she is not willing to sell the property. The disputed letter is marked at Ex. P. 8. According to the plaintiff's version, PW 2 one Andrew Saldana, a Priest of the Church at Fatimapur said to be the scribe of the letter written at the instructions of the second appellant. However the evidence of PW 2 is totally discrepant and contradicts the very theory put forward by the plaintiff. PW 2 states in his cross-examination that he had written a letter at the instance of the first appellant, virtually giving a go bye to the theory that it was written at the instance of the second appellant. The circumstances under which the letter came to be a written and delivered to the first respondent is fully shrouded in mystery. The person who delivered the letter has not been examined. The trial Court has properly evaluated the oral evidence in the matter while discarding the plea set up by the first respondent that, cancellation was at the instance of the second appellant.
10. The contention to avoid the contract on the ground that in respect of Sy.
No. 32, the second appellant had no full-fledged and valid title at the time when she constituted power of attorney in the first appellant, therefore, the power of attorney had no right to deal with the properties which are acquired and owned by the second appellant subsequent to the date of power of attorney. This argument does not appear to hold water in the eye of law.
11. In the case the general power of attorney relating to movable or immovable properties, the power of attorney constituted will have the necessary legal power to represent the principal and negotiate with the properties of the principal which existed and belonged to the principal as on the date of the power of attorney and any property acquired by the principal subsequent thereto until the power of attorney ceases or is revoked. However in case of special power of attorney, the authority to represent and act on behalf of the principal is limited to the extent mentioned by the terms of the deed, whereas in general power of attorney, no such limitations can be read into the document. As long the general power of attorney legally continues to subsist validly, the power of attorney will have all the necessary authority to deal with all the properties belonging to the principal without a distinction between the property owned and acquired by the principal prior to the power of attorney and subsequent thereto for empowering the power of attorney to deal with them.
12. However, in the instant case, the general power of attorney Ex. P. 37 itself makes it clear that the power of attorney has a right to deal with all the properties belonging to the second appellant as on the date of and any other properties which may be acquired subsequent thereto also. In view of the said material, the contention of the first respondent/plaintiff to cancel the contract on this ground does not appear to be tenable on the facts and in law.
13. The counsel for the appellants contended that under the agreement. Rs. 50,000/- was paid towards cultivation expenses and the plaintiff was entitled to the standing crop for the year 1986-87. The plaintiff failed to take up cultivation and maintenance and such, the standing coffee crop was damaged causing huge loss. As a result, the property which was agreed to be sold for Rs. 22,00,000/- was sold to the second respondent for only Rs. 16,00,000/-. As a result, sustained damages of Rs. 6,00,000/- on account of breach committed by the plaintiff. Therefore, pleaded equitable set off.
14. The counsel for the first respondent relied on the ruling of Sanam Narayanamurthy v Manapalli Nageswara Rao, representing firm of Manepalli Nageswara Rao and Brothers, AIR 1941 Madras, 108, wherein it is held thus :
"A vendee through whose default a contract for the sale of goods falls through is entitled to recover the amount of purchase money paid by him and the vendee can only resist the claim by seeking to set off against the said sum any damages which he might have incurred by reason of the vendor's non-performance of the contract. But before he can substantiate his claim; he must prove his readiness and willingness to perform his part of the contract and that he was in a position to perform the contract on the date fixed for its performance."
The second respondent, who has purchased the estate is examined as DW 3 in support of appellant case. His evidence does not disclose that the crops were damaged in any manner and for that reason he had paid a lesser value of Rs. 16,00,000/- as against Rs. 22,00,000/- agreed by the plaintiff. It is also admitted by DW 3, that he is aware of the transaction of the plaintiff at the time when he purchased. Except by pleading that the appellants have sold the estate for Rs. 16,00,000/-, there is no other convincing evidence or explanation placed as to what were the compelling and justifiable reasons which prompted the sale obviously for a lesser consideration. On the other hand, if the evidence of DW 3 is taken into consideration, it reveals that the total extent of land sold under the registered deed is only 30 acres as against 44 acres agreed to be sold under the suit agreement. The coffee registration certificate in respect of all the suit lands to an extent of 44 acres is not obtained even as on the date when the property was sold to DW 3. The second appellant had not acquired full-fledged title in respect of Sy. No. 34 measuring 5 acres 10 guntas. Obviously, for the aforesaid defects at his risk, DW 3 might have purchased the property for a lesser consideration of Rs. 16,00,000/-. In the light of the said material and in the absence of any convincing explanation and evidence, it cannot be accepted that on account of damage to the crops, the property fetched lesser value in the subsequent sale to DW 3.
15. In the light of the aforesaid facts and circumstances, it is to be held that, before a party could successfully plead equitable set-off in a suit for specific performance, it is necessary to establish on his part that he was fully ready and prepared to perform his part of the contract as per the terms of the agreement. In the absence of such proof of readiness and preparedness, the plea of equitable set-off cannot be considered and we are in full agreement of the view expressed in AIR 1941 Madras 108 (supra).
16. It was strenuously contended that defective title pleaded by the plaintiff for cancelling the contract is only a ruse to cover up the breach committed by him as he has no sufficient funds to pay the plaintiff in time and was fully aware of the non-alienation clause in respect of Sy. No. 34, which is borne out in the recitals of the agreement. Therefore, the plaintiff is estopped from taking such a stand.
17. In the light of the arguments of the counsel for the appellants precisely, a question would arise whether prior knowledge of the purchaser about the imperfect or defective title of the vendor would estop him from rescinding the contract and whether he is bound to carry out the terms of the agreement on his part. Then again a further question would arise whether in law, a distinction can be made between a case where a purchaser has a prior knowledge of the defective title of the vendor and contract is only at an executory stage and the cases the purchaser has a prior knowledge of defective title of the vendor despite that enters into a contract and the contract is fully completed, in both the cases whether the purchaser is estopped and disentitled to have the refund of the consideration amount paid.
18. The provisions of Section 12 of the Specific Relief Act declare that if a party to the contract is unable to perform the contract in its entirety and unable to perform small portion or marginal portion of the contract, the law enables equally both the parties to the contract to sue the other for performance of the contract to the extent possible and for the unperformable part, the compensation could be allowed. However, the relief under Section 12 can be granted when only the right under Section 12 of the Act is invoked by the party, seeking enforcement of the contract. In the instant case, the plaintiff has not invoked the rights under Section 12 of the Specific Relief Act and wants to fully avoid the contract. On the other hand, the appellants also have not filed any suit for enforcing the contract to the extent possible and invoke rights under Section 12 of the Specific Relief Act.
19. The provisions of Section 13 of the Specific Relief Act confers rights on a purchaser as against the vendor or the lessee who has no title or imperfect title. The relevant provision of law in Section 13(1)(c) of the Specific Relief Act declares that if a suit is filed by the vendor for specific performance is dismissed on the ground of want of title or defective title, the purchaser is entitled to have return of the money paid with interest and costs and further, the right to have a charge over the property in question for the realisation of the said amount. In the present case, virtually a converse situation is found and at the executory stage of contract on the ground of imperfect title and the plaintiff purchaser has cancelled the contract and seek return of the advance amount.
20. The provisions of Section 55(2) of the Transfer of Property Act reads thus :
"(2) The seller shall be deemed to contract with the buyer with the interest which the seller professes to transfer to the buyer subsists and that he has power to transfer the same.
Provided that, where the sale is made by a person in a fiduciary character, he shall be deemed to contract with the buyer that the seller has done no act whereby the property is incumbered or whereby he is hindered from transferring it.
The benefit of the contract mentioned in this rule shall be annexed to, and shall go with, the interest of the transferee as such and may be enforced by every person in whom that interest is for the whole or any part thereof from time to time vested."
The said provision deems implied contract for title and even in cases where there is a completed contract of sale, the purchaser is entitled to cancel the contract and seek the refund of purchase money.
21. In Mt. Chandrawatibai v. Valabdas, AIR 1931 Sind 141, following the ruling of Patna High Court, it is held that, every conveyance imports a covenant of title under Section 55(2) of the Transfer of Property Act and this is so whether the buyer has or has no notice of infirmity of the seller and that the purchaser would be entitled to refund purchase money.
22. In Basappa v. Kodlaiah, AIR 1959 Mysore 46, it is held thus (para 485) :
"The factum of the sale in favour of the plaintiff as well as in favour of the second defendant's husband is established. This is found for the plaintiff by both the Courts below. The warrantee of title pleaded is a statutory one. No contract to the contrary is pleaded. The covenant in question runs with the land. Hence, the non production of the sale deed is immaterial, as there is the statutory warrantee of good title.
Even if the vendee knew the defect in that title of the vendor still he can avail himself of the statutory warranty, vide AIR 1944 All 243 and Mt. Saraswathabi v. Madhukar, AIR 1950 Nagpur 229."
In Nagamma v. Ayyavu Thevar, it is held thus : (para 8) "Although the vendor in the present case had a life interest in the suit property, she purported to convey an absolute title to the purchaser. Even if the buyer was aware of the defect in title of the vendor at the time of the contract, he will be entitled to claim a return of the purchase money under Section 55(2) of the Transfer of Property Act. The plaintiffs, therefore, are entitled to a refund of the advance paid under the suit agreement."
It is also open to the parties to waive the implied warrantee of title by a contract to the contrary. In a case of an accomplished sale if the parties have contracted out the rights under Section 55(2) of the Transfer of Property Act, the purchaser may not have any legal grievance if he has risked to purchase within full knowledge of imperfect or defective title. However, in a contract where it is only at an executory stage, it would not be proper in law to force upon the purchaser to purchase the property on the ground that he was aware of the defective or imperfect title at the time of agreement of sale. It does not prevent in law for the purchaser to revise his opinion before the contract is concluded; however with a qualified liability on the purchaser to compensate any loss or damages which the vendor has sustained in the course of such transaction for which the purchaser has equally contributed by his folly.
23. The appraisal of the recitals in the agreement of sale in para 14 disclose that only in respect of Sy. No. 33 to an extent of one acre 33 guntas, there was a prohibition against alienation for a period of fifteen years. However, in respect of Sy. No. 34 measuring 5 acres 10 guntas, there is no categorical mention or inkling indicating inchoate title. The recitals in para 15 of the agreement are as follows :
"Under S. No. 34, the seller has acquired 5 acres 10 guntas (Five acres Ten guntas) and under Section No. 78, the seller has relinquished his right to about two acres of Land. The cost of these lands is included in the price stated in Item 1 viz., rupees twenty lakhs (Rs. 20.00,000.00)."
The recitals in para G of the agreement are as follows :
"The seller hereby declares that they are the full and absolute owners of the schedule property and that they have a marketable title and that the sale shall be free of all encrumbrances (See items 14 and 15 below). Seller hereby further assures the purchaser that the schedule property is not subject-matter of any litigation."
The combined reading of paras 6 and 15 on the face of it does not indicate the imperfect or inchoate title of the vendor in respect of Sy. No. 34 measuring 5 acres 10 guntas. However, subsequently it reveals to the plaintiff that the second appellant had yet to acquire full-fledged title in respect of the said land. Even as on the date of sale in favour of DW 3, the second appellant had not acquired full-fledged title. In so far as Sy. No. 34 is concerned, it is clearly established that the second appellant had no marketable title and the same was not within the knowledge of the plaintiff as on the date of the agreement of sale. Therefore, on facts also, it is evident that the second appellant had no title to an extent of 7 acres 3 guntas. In the context of law discussed above, the plaintiff-purchaser is entitled to avoid the contract notwithstanding the fact that he may have the knowledge of defective or imperfect title, in respect of Sy. No. 33 to an extent of 1 acre 33 guntas only. Under the circumstances, on the ground of imperfect and defective title in (respect of S. No. 34 measuring 5 acres 10 guntas which forms part of the subject matter of the contract, the first respondent/plaintiff was justified in avoiding the contract and seeking the return of the advance amount. Besides, coffee registration certificates in respect of entire subject-matter is also not obtained by the appellant before the completion of the time stipulated.
In the light of the reasons and discussions made above, the decree granted by the trial Court does not call for interference. Accordingly, the appeal is dismissed with costs.