Madras High Court
N. Palanichami Nadar vs Gomathinayagam Pillai And Ors. on 17 December, 1964
Equivalent citations: AIR 1966 MADRAS 46, ILR (1965) 2 MAD 613 1978 MADLW 186, 1978 MADLW 186
JUDGMENT Veeraswami, J.
1. This appeal turns on the question whether time is of the essence of an agreement to sell immoveable property. The court below has found it was, and, on a further finding that the appellant defaulted, dismissed his suit for specific performance.
(2) Respondents 1 and 2 together owned a land of a total extent of Ac. 3-21 cents comprised in S. No. 1155/2 B in Thiruthangal village. Their predecessor-in-title, one Ulagammal the late wife of the first respondent, mortgaged it on 15-9-1952 to the third respondent securing repayment of Rs. 6000. On 5-3-1959, respondents 1 and 2 entered into an agreement, not reduced to writing, to sell the land to the appellant for Rs. 15106. A sum of Rs. 1006 was paid to them as advance No. Time for execution of sale was specified though, according to respondents 1 and 2, it was to be within two or three weeks, and, according to the appellant, within a reasonable time. On 4-4-1959, the appellant paid a further sum of Rs. 2000 to respondents 1 and 2 and on that day an agreement in writing was executed stipulating that the sale was to be executed before 15-4-1959. The agreement contained a default clause providing that if the appellant defaulted, he should forfeit the sum of Rs. 3006, but if, on the other hand, the default was on the part of respondents 1 and 2, they should be liable to pay the appellant Rs. 3000, evidently by way of damages. The sale not having been executed in the meantime, the parties concluded a further agreement on 15-4-1959, extending the time upto 30-4-1959, but adopting the rest of the terms of the earlier agreement to continue.
On 30-7-1959, respondents 1 and 2 sent a notice to the appellant complaining of breach of contract on his part and intimating him that the agreement to sell, therefore, stood cancelled and that he had forfeited the advance amount of Rs. 3006. Next day, respondents 1 and 2 entered into an agreement with respondent 4 to sell the land to him for Rs. 15000. On receipt of the notice, the appellant replied to them denying that time was of the essence of the agreement and asserting that the default was on their part. He called upon respondents 1 and 2 to execute the sale deed within 3 days of the receipt of the reply. Eventually, the appellant brought the suit on 21-3-1960, out of which this appeal arises. We may add that on 3-8-1959, the appellant had deposited in a bank, as he claimed, Rs. 13906, towards the balance and execution of sale and apprised the fact to respondents 1 and 2.
(3) In the pleadings the parties differed as to whether time was of the essence of the agreement with the appellant and as to whether he or respondents 1 and 2 had defaulted and those were the main issues tried at the trial. In support of his view, that time was of the essence of the agreement with the appellant, the learned Subordinate Judge relied on the following: (1) Though there was no time specified in the first oral agreement, the second and third agreements stipulated for a definite date before which the sale was to be executed: (ii) the second and third agreements contained default clauses and (iii) the circumstances of the case showed that respondents 1 and 2 were in urgent need of money and that it was to meet the urgency they desired to effect a sale of the property. The trial Judge, mainly on the basis of the oral evidence, also found that the appellant, as a matter of fact, was never eager, prompt or desirous or willing to take a sale deed in pursuance of the second and third agreements, and, therefore, committed default. For refusing a decree for specific performance, the court below added that the conduct of the appellant between April 30 and July 30, 1959, showed an abandonment or waiver on his part of his rights under the agreements to sell, and, further, rights of third parties had intervened, namely, respondents 1 and 2 have entered into an agreement with respondent 4 to sell the property to him.
(4) Before us Mr. K. S. Desikan for the appellant made no attempt to canvass the finding that his client had defaulted in the sense that on 30-4-1959, or before that date the appellant was not ready with the necessary funds to go through the sale. But learned counsel urged that the court below was wrong in its view that time was of the essence of the agreement. Before we deal with the merits of this question, we must notice the principles that govern interpretation of agreements to sell immoveable property in the context of whether time is of the essence. These principles are not in doubt and are very well-settled. Equity will look, not at the letter, but the substance of the transaction in ascertaining the intention of the parties to the agreement, and that, notwithstanding an express stipulation for execution of sale within a specified time, it would in substance regard the intention of the parties as that the agreement should be performed within a reasonable time. That was laid down by Lord Cairns in Tilley v. Thomas, (1867) 3 Ch A 61 and the principle was held in Jamshed Kodaram v. Burjorji Dhunjibai, ILR 40 Bom 289: (AIR 1915 PC 83) to be the same in this country as well and that S. 55 of the Indian Contract Act, 1872 in no way differed from it. Lord Cairns in that case stated the law:
"The construction is, and must be, in equity the same as in a court of law. A court of equity will indeed relieve against and enforce, specific performance, notwithstanding a failure to keep the dates assigned by the contract, either for completion, or for the steps towards completion, if it can do justice between the parties and if.... there is nothing in the 'express stipulations between the parties, the nature of the property, or the surrounding circumstances,' which would make it inequitable to interfere with and modify the legal right. This is what is meant, and all that is meant, when it is said that in equity time is not of the essence of the contract....... "
After referring to these observation and the decisions in certain other English cases, Viscount Hanlane in ILR 40 Bom 289: (AIR 1915 PC 83) P. C. added:
"....... equity, which governs the rights of the parties in cases of specific performance of contracts to sell real estate, looks not at the letter but at the substance of the agreement in order to ascertain whether the parties, notwithstanding that they named a specific time within which completion was to take place, really and in substance intended more than that it should take place within a reasonable time........ The special jurisdiction of equity to disregard the letter of the contract in ascertaining what the parties to the contract are to be taken as having really and in substance intended as regards the time of its performance may be excluded by any plainly expressed stipulation. But to have this effect the language of the stipulation must show that the intention was to make the rights of the parties depend on the observance of the time limits prescribed in a fashion which is unmistakable."
The noble Lord further pointed out that prima facie equity treats the importance of such time limits as being subordinate to the main purpose of the parties, and it will enjoin specific performance notwithstanding that from the point of view of a court of law the contract has not been literally performed by the plaintiff as regards the time limit specified. But, as pointed out by him, equity will not assist where (1) there has been undue delay on the part of the party seeking specific performance of a contract, (2) the other side has given reasonable notice to him that he should complete within a definite time, and (3) the exercise of the equitable jurisdiction will result in injustice. One other point to be observed from the judgment of the Judicial Committee is that equity would further infer an intention that time should be of the essence from what has passed between the parties prior to the signing of the contract. ILR 40 Bom 289: (AIR 1915 PC 83) is the leading case on the subject and clearly lays down practically all the principles of equity which should govern the interpretation of agreements to sell immoveable property and in gathering the intention of the parties thereto as to whether they meant time to be of the essence of the agreement.
(5) On facts too, ILR 40 Bom 489: (AIR 1915 PC 83) appears to be very apposite to the instant case, which we are called upon to decide. In that case, the respondent before the Judicial Committee, who owned a leasehold right from the then Secretary of State for India, entered into an agreement with the appellant on 8-7-1911, to sell that right for a certain sum of money of which a portion was paid on execution of the agreement and the balance was agreed to be paid on execution of the sale, within two months from the date of the agreement. It was a part of the agreement that title was to be made marketable, that is, it should be found that the respondent had title to sell the leasehold right. It has particularly to be noticed that the agreement also contained a default clause to the effect that if the purchaser did not pay the amount of the purchase money within the fixed period, he should forfeit his rights to the earnest monies, and the vendor should be at liberty to resell the property. After expiry of the time of two months, on behalf of the appellant, a requisition by his solicitor was made of the respondent for certain documents in connection with an enquiry as to his title to the land. The respondent declined to comply with this requisition, but on October 6, asserted a right to put an end to the contract on the ground that time was of its essence, and claimed that the appellant had forfeited the money paid as advance.
The appellant there, then brought a suit for specific performance, which was decreed by a learned Judge of the Bombay High Court on the Original Side, but the decree was reversed on appeal by a Bench of that court on the view that the learned trial Judge was not right in his view that time was not of the essence of the contract. The Judicial Committee did not agree with the view of the Appellate Bench, and, allowing the appeal, restored the first decree. The reasoning of the Judicial Committee is to be found in the following observations:
"Applying these principles to the agreement before them, their Lordships are of opinion that there is nothing in its language or in the subject-matter to displace the presumption that for the purposes of specific performance time was not of the essence of the bargain. They do not think that the subject-matter of the character of the lease sold were such as to take the case out of the class to which the principle of equity applies".
It is obvious that the Judicial Committee did not consider either the stipulation in the agreement for a definite time for execution of sale or the provision of a default clause or even the term in the agreement that in case of default the vendor should be at liberty to resell the property, justified the conclusion that time was of the essence of the agreement. They, in fact, proceeded, while interpreting the agreement, on the basis that there was a presumption in cases of agreements to sell immovable property that time was not of the essence and that unless this presumption was displaced by plain language, the principle of equity should prevail.
(6) The above principles have been adopted and applied in several decision of the High Courts in this country. But we do not think it necessary to refer to those decisions, though we would like to notice Madan Mohan v. Jawala Prasad, AIR 1950 EP 278, as the facts in that case have a resemblance to those in the instant case. In that case, as here, there was first an oral agreement and a contemporaneous receipt for payment of a part of the price agreed, followed by two further agreements, each of which extending the time for performance. The suit, out of which the matter went up before the East Punjab High Court, was itself one for recovery of sum of Rs. 6000 as damages for breach of contract on the part of the persons who agreed to sell, who, according to the plaintiff there, had defaulted. The appeal before the High Court turned among other things, on the question whether time was of the essence of the contract agreement. In support of the contention that time was of the essence, it was urged that a period was specified, that liquidated damages had been settled upon in case of default and that the house, which was the subject-matter of the agreement, was required for the personal residence of the plaintiff and he wanted vacant possession. The East Punjab High Court negatived this contention, observing that the contract being one for sale of immoveable property, time was not of its essence and that there was nothing in the language of the agreement which displaced the presumption which Viscount Haldane in ILR 40 Bom 289: (AIR 1915 PC 88) referred to.
(7) Applying these principles to the case before us, we are clearly of the view that time was not of the essence of any of the agreements between the appellant and respondents 1 and 2. Neither the stipulation in the second and third agreements of a particular time before which execution of sale was contemplated nor the default clause in any of them, in our opinion, displaced the presumption that time is not of the essence of an agreement to sell immoveable property. That presumption, as we think, arises mainly from the nature of the property, namely, the land, and justice of the circumstances, Unlike in the case of contracts to sell perishable articles or things which are subject to decay, there will prima facie be no reason why there should be any urgency about an agreement to sell immoveable property requiring execution within the time specified therein. The conduct of the parties at the time of the oral agreement dated 5-3-1959, shows that the parties thereto did not think it necessary to stipulate any time for performance. It is true each of the two succeeding agreements in writing stipulated time, but the fact that the time was extended more than once also shows that the parties did not stick to the time and regard the same as the essence of the contract. We also think that there is nothing in the language employed in the agreements that necessarily displaces the presumption against time being of the essence.
(8) Mr. R. Gopalaswami Aiyangar for respondents 1 and 2 contended that the fact that they were in urgent need of money, that they thought it necessary in the second agreement, unlike in the first oral agreement, to specify the time, and that after giving the go-by to the second agreement they again stipulated a time in the third agreement, would indicate that both the parties to the agreement intended time to be of their essence. It is no doubt true that the brother of the second respondent and the son of the first were involved in a murder case, which was committed to the Sessions in March 1959. It ended in a conviction by the Sessions Court on 31-3-1959, with a sentence of imprisonment for life. There was, therefore, the urgency of money for respondents 1 and 2 in March 1959, and also in the first part of April in connection with the trial as also the filing of a criminal appeal. But we are not persuaded that, by itself, is enough to hold time to be of the essence of the agreement. As we mentioned, as a matter of fact before and at the time of the oral agreement they did not think it necessary to stipulate for any time, and if they thought that time should be of the essence, the fact of extension of time more than once would sound against it.
Learned counsel for respondents 1 and 2 invited our attention to Bal Saroop v. Lakhbir Singh, AIR 1964 Punj 375 and contended that the subsequent conduct of the parties revealed that in reality their intention was to treat time as of the essence of the agreement. We cannot accept this contention. In our opinion, the subsequent conduct would be irrelevant and cannot bear upon the interpretation of the agreements. This was pointed out by Viscount Haldane in ILR 40 Bom 289: (AIR 1915 PC 83). Even assuming that such conduct would be relevant, we are not satisfied that there is any such conduct proved which supported the case of respondents 1 and 2 that time was of the essence. The question whether time was of the essence of the contract did not arise for consideration in AIR 1964 Punj 375, and the decision was rested on the special facts before the Punjab High Court. We hold that neither the language of the agreements nor the subject-matter thereof warrants a finding that time was of their essence.
(9) The question then is, whether the appellant being, as found by the trial court, which, as we said, is not contested before us, a defaulting party, he is entitled to a decree for specific performance. That would depend upon whether there was undue delay on the part of the appellant and whether respondents 1 and 2 have given him reasonable notice that he must complete the agreement within a definite time. In this case there was undoubtedly delay on the part of the appellant in performing his part of the contract on and from 30-4-1959 to 30-7-1959. But we cannot by any means call it as undue delay, keeping in view that the contract related to sale of immoveable property and that there was no great urgency about it. Respondents 1 and 2 no doubt gave a notice to the appellant on 30-7-1959. But that was not a notice giving the appellant reasonable time for compliance with the agreement within a stated time. In fact it told the appellant that the contract was at an end and that the appellant had forfeited his advance. The appellant was given no chance by respondents 1 and 2 to perform the contract within a reasonable time. Not only so, but respondents 1 and 2 on the very next day, after their notice to the appellant, entered into an agreement with respondent 4 to sell the land to him. As we mentioned, on 3rd August, 1959, the appellant deposited Rs. 13906 in a Bank, thereby showing that he was in a position to complete the sale. We do not, therefore, think that the default on the part of the appellant would disentitle him from getting a decree for specific performance.
(10) Mr. G. Ramanujam for the fourth respondent urged that the grant of a decree for specific performance is a matter of discretion and that the court below having exercised its discretion in favour of respondents 1 and 2 and his client, this court should not interfere with it. His argument is two-fold. He says that to decree specific performance in favour of the appellant would mean injustice to respondent 4. We are unable to appreciate this contention. Admittedly, respondent 4 had notice of the agreement or agreements in favour of the appellant. In fact he stated in his evidence that he knew about it one month prior to the agreement in his favour. The other point of the learned counsel is that the appellant, by his conduct, showed that he had either waived or abandoned his rights under the agreements in his favour. In our view, there is no factual basis for this contention. It is true the court below arrived at some such finding but we are unable to accept it. The only substantial basis on which the trial court gave that finding is the delay on the part of the appellant in not taking any steps towards the implementation of the sale agreement from April 30, 1959. In our opinion, this will be a slender basis from which to infer abandonment or waiver.
(11) In the result, the judgment and decree of the court below are set aside and the suit is decreed as prayed for. The appeal is allowed, but, in the circumstances, the parties will bear their costs throughout, (and the above appeal having been set down for being mentioned this day, the court made the following order):
(12) The appellant will deposit in the court of the Subordinate Judge, Ramanathapuram, at Madurai, Rs. 12,100 on or before 6th January, 1965. The sale will be completed by defendants 1 and 2 and the appellant within two weeks of the receipt of the decree of this Court by the said court of the Subordinate Judge.
(13) Appeal allowed.