The third defendant, a woman is the appellant. The property in suit at one time belonged to the first defendant. On 14th October 1926 he executed a usufructuary mortgage over it in favour of the plaintiff for a sum of Rs. 1250. Some sixteen years later, that is to say on 29th September 1942, the first defendant purported to sell the property to his daughter, the second defendant, for a sum of Rs. 1500. On 29th September 1943 defendants 1 and 2 entered into an oral agreement to sell the property to the plaintiff for a sum of Rs. 2050, out of which Rs. 1250 was to be adjusted towards the usufructuary mortgage which the plaintiff held. There were certain execution proceedings in connection with this property which are not of present interest. On 3rd May 1945 the first defendant sold the property to the third defendant for a sum of Rs. 2000. The very next day the plaintiff's Advocate sent a telegram to the third defendant informing her that she had made her purchase with notice of the contract of sale in favour of the plaintiff and intimating that a suit would be filed. Four days later the plaintiff brought the suit out of which the present second appeal arises for specific performance of the agreement of sale.
Both the Courts below have found that the oral agreement set up by the plaintiff is true. On the question whether the appellant had notice of the agreement in favour of the plaintiff the trial Court recorded a finding in the affirmative. The lower appellate Court did not record a clear finding on that point but concluded that the appellant must be deemed to have had notice and in this view dismissed the third defendant's appeal. She has now come to this Court.
Mr. Ramachandra Aiyar, the learned Advocate for the appellant based his principal argument on S. 3 of the Transfer of Property Act:
“‘a person is said to have notice’ of a fact when he actually knows that fact, or when, but for wilful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it”.
Three explanations follow, the second of which reads thus:
“Any person acquiring any immoveable property or any share or interest in any such property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof”.
Now argued Mr. Ramachandra Aiyar, the circumstance that the plaintiff was a usufructuary mortgagee of the property and as such in possession of it would put the appellant on notice only of his rights as a mortgagee and of no more and in consequence it will not be right to impute to her notice of any other rights which the plaintiff may have in the property, rights arising from a source other than as a usufructuary mortgagee. He sought support for this argument in certain observations appearing in Babasah v. Haje Mahomed Akbar Sahib (1), regarding cases where the property is in the possession of tenants or lessees.
“He is by their occupation not affected with notice of more than the terms on which they bold including any agreement collateral to their leases, he is not bound to enquire, nor are they bound to answer, to whom they pay rent, so that the purchaser is not in such a case affected with notice of the tenant's lessor's title or rights……..The principle has been embodied in India in S. 27 of the Specific Relief Act and S. 3 of the Transfer of Property Act”.
The appellant admitted that she did not make any enquiry of the usufrucutuary mortgagee in order to ascertain from him whether he had any rights in the property other than as a usufructuary mortgage. The real question in this case, therefore, is whether her omission to do so ban be said to amount to wilful abstention from an enquiry which she ought to have made or whether it amounts to gross negligence. The argument of Mr. Ramachandra Aiyar on this matter was that once it was known that the property was in the possession of a usufructuary mortgagee, there was nothing further that a prospective purchaser of the property need have enquired about. The property was in the possession of the plaintiff. The appellant was bound to ascertain why he was in possession. To that enquiry the answer would turn out to be that he was a usufructuary mortgagee. That would dispose of the question of possession. It would hardly occur in anybody to pursue the matter any further and the omission cannot therefore be said to amount to wilful abstention or gross negligence; it would hardly occur to anyone to suppose that the mortgagee had any other rights or interests in this property.
I do not consider that a prospective purchaser can be held to have made the sort of enquiry he should if he does not pursue the matter further. When a person other than the vendor is in actual possession of the property it behoves a prospective person to ascertain what all rights the person in actual possession really has in respect of the property. And if he omits to do so and if equities exist in favour of the person in possession the prospective purchaser would be bound by them. In Parthasarathi v. Subbaraya Gramani , after extracting the relevant passage in S. 3 of the Transfer of Property Act, which I have quoted, the learned Chief Justice observed:
“In England as hare it has been held that constructive notice of all the rights of a person in possession of property sold or mortgaged is to be imputed to purchasers or mortgagees who made no enquiry of the person in occupation.”
The English law on the subject is stated in Hunt v. Luck (2), where Farwell J. quotes from the earlier decision in Barnhart v. Greenshields (3):
“With respect to the effect of possession merely, we take the law to be, that if there be a tenant in possession of land, a purchaser is bound by all the equities which the tenant could enforce against the vendor, and that the equity of the tenant extends not only to interests oonnected with his tenanoy, as in Taylor v. Stibbert (4), but also to interests under collateral agreements, as in Daniels v. Davison (5). Allen v. Anthoniit (6): the principle being the same in both classes of casee; namely, that the possession of the tenant is notice that he has some interest in the land, and that a purchaser having notice of that fact, is bound, according to the ordinary rule, either to inquire what that interest is, or to give effect to it, whatever it may be.”
The decision in Faki Ibrahim v. Faki Gulam (7), was given on facts scarcely distinguishable from those in the present case. The plaintiff there was in possession of the property as mortgagee from the first defendant. On 4th March 1917 the first defendant agreed to sell the property to the plaintiff. Subsequently he refused to do so and sold the property to the 2nd defendant on 19th January 1918. The plaintiff then sued for specific performance of the agreement. The 2nd defendant relied upon the sale deed in his favour though he admitted he knew that the plaintiff was in possession and that he made no enquiries as to the nature of the plaintiff's possession. The trial Court and the lower appellate Court dismissed the suit on the ground that the second defendant had no notice actual or constructive of the contract of sale between the first defendant and the plaintiff although the second defendant might be fixed with notice of the plaintiff's possession as mortgagee. On second appeal a Bench of the Bombay High Court set aside the decision of the Courts below and ordered specific performance. The learned Judges followed the earlier decision in Sharfuddin v. Govind(8) and the English decision in Daniels v. Davison in which the Lord Chancellor held that:
“Where there is a tenant in possession under a lease, or an agreement, a person, purchasing part of the estate, must be bound to inquire, on what terms that person is in possession…..that this tenant being in possession under a lease, with an agreement in his pocket to become the purchaser, those circumstances altogether give him an equity, repelling the claim of a subsequent purchaser, who made no inquiry as to the nature of his possession.”
Mr. Ramachandra Aiyar argued that that decision in Faki Ibrahim v. Faki Gulam , cannot be now regarded as current law in view of the amendment made in the Transfer of Property Act after that judgment was rendered. I do not however consider that the amendment made in the Transfer of Property Act affects the correctness of that decision in any manner. The omission of the appellant in the present case to make enquiries of the plaintiff or about his right must be treated as wilful abstinence or gross negligence, which means, that the appellant is bound by the existing equity in favour of the plaintiff and cannot obtain the benefit of the proviso to S. 27(A) of the Specific Relief Act. The appeal is dismissed with costs. No leave.
N.R.R