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Gondu Ramasubbu Iyer v. Muthiah Kone And Ors.
Structured Summary of the Opinion
Factual and Procedural Background
The plaintiff sued for recovery of money due under a hypothecation bond executed by the 1st defendant. The 1st defendant's defence was that the debt had been discharged by the sale of property belonging to the 1st defendant. The plaintiff alleged that a fraud was perpetrated by the 1st defendant which rendered the sale-deed void and thereby entitled him to sue for recovery under the hypothecation bond. Both lower Courts found that there was no fraud by the 1st defendant, that the plaintiff purchased with full knowledge of the relevant circumstances, and that the plaintiff was not entitled to sue on the hypothecation bond. The plaintiff brought this second appeal against those findings and orders.
Legal Issues Presented
- Whether evidence (parol evidence) that the plaintiff was aware of an encumbrance not mentioned in the sale-deed (Ex. A/Ex. I) was admissible, or whether it was excluded by Section 92 of the Evidence Act.
- Whether the plaintiff was defrauded as regards the specific property (Survey No. 27/2) and whether the finding of the lower Courts that he was not defrauded should be disturbed on second appeal.
- Whether the plaintiff should have been permitted, at a late stage, to amend the plaint to add a prayer for cancellation of the sale-deed (Ex. I).
Arguments of the Parties
Appellant's Arguments (as presented by Mr. Venkatachariar)
- Evidence that the plaintiff was aware of the encumbrance was inadmissible because it contradicted the clear recital in the sale-deed that there were no other encumbrances, and thus it was barred by Section 92 of the Evidence Act.
- Relied on the principle in Adityam Iyer v. Ramakrishna Iyer to show that important terms recited in a document (e.g., the amount of consideration or similar important statements) cannot be varied by parol evidence.
- Impliedly contended that, because of the recital in the deed, the plaintiff could not be shown to have known of the omitted encumbrance by parol evidence.
Defendant's Arguments
- The defendant's written statement and other evidence showed that the plaintiff was aware of the encumbrance in favour of Karuppan Ambalam and had agreed to discharge it, so it was omitted from the sale-deed intentionally.
- In relation to Survey No. 27/2, the defendant pointed to evidence (attestation by two Pangalis and the fact that the plaintiff presented the document for registration) to show the plaintiff knew the terms and was not defrauded.
- On amendment, implicit position was that allowing a late amendment to seek cancellation of the sale-deed was not appropriate when the plaintiff had chosen to sue on the hypothecation bond and had not established fraud on the evidence.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Adityam Iyer v. Ramakrishna Iyer (21 Ind. Cas. 458; 38 M. 514; (1913) M.W.N. 847; 14 M.L.T. 382; 25 M.L.J. 602) | Parol evidence is inadmissible to vary an important term of a document (example given: recited consideration amount cannot be shown to be different by oral evidence). | The court distinguished this principle: it accepted that while parol evidence cannot vary important contractual terms such as consideration, that rule does not prevent a vendor from proving that the vendee knew of an encumbrance intentionally omitted from the deed. The court therefore allowed parol evidence of the buyer's knowledge of the encumbrance. |
| Haji Essa Sulleman v. Dayabhai Parmanandas (20 B. 522) | Quoted approvingly for the proposition that omission to disclose flaws in title or encumbrance may be fraudulent under the Transfer of Property Act; material defects include defects of title and encumbrance. | The court relied on this approval (and accompanying commentary) to support the view that a vendor's duty to disclose material defects under Section 55 of the Transfer of Property Act extends to defects of title and encumbrance; but where the vendee is aware of the defect, there is no fraud. |
| Rajavam Rao v. Tuljaram Rao (17 Ind. Cas. 43) | Where parties specifically state that all disputes have been settled, one party cannot show that some matters were not settled (i.e., cannot contradict a specific settlement recital). | The court held this precedent did not assist the appellant. It was distinguished on the ground that declarations as to title or absence of encumbrance are not "terms of the contract" in the sense that would bar proof of the vendee's knowledge; thus Rajavam Rao did not preclude proving the vendee's knowledge by parol evidence. |
Court's Reasoning and Analysis
The court proceeded step-by-step through the principal contentions raised on appeal, applying statutory provisions, prior decisions and commentary cited in the record.
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Admissibility of evidence as against Section 92, Evidence Act:
The court recognised Section 92's rule that, where the terms of an instrument are proved, no parol evidence is admissible to contradict, vary, add to or subtract from those terms. The appellant argued that the recital in the sale-deed denying other encumbrances was an important term and could not be varied by parol evidence.
The court analysed the nature of such a recital and concluded that a declaration as to title or the absence of an encumbrance is not a term of the contract of sale in the sense contemplated by Section 92; consequently, evidence to show that the vendee was aware of an undisclosed encumbrance does not contradict or vary the contractual terms and is therefore not excluded by Section 92. The court contrasted the situation with the Adityam Iyer principle concerning the amount of consideration, which is an important contractual term that cannot be altered by parol evidence.
The court also examined Section 55 of the Transfer of Property Act and supporting commentary to frame the seller's duty to disclose material defects, including defects of title and encumbrance. The court reasoned that omission to disclose an encumbrance may amount to fraud if the vendee could not have discovered it by ordinary care, but not where the vendee is fully aware of the defect; knowledge by the vendee negates the vendor's duty to disclose under Section 55.
On this basis the court allowed the defendant to prove by parol evidence that the plaintiff knew of the encumbrance in favour of Karuppan Ambalam and had consented to omit it from the sale-deed.
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Allegation regarding Survey No. 27/2 and factual findings:
The court considered the contention that the defendant was not solely entitled to Survey No. 27/2 and emphasised that the plaintiff's knowledge of relevant facts was crucial. Evidence included attestation of the sale-deed by two Pangalis of the 1st defendant and that the plaintiff presented the deed for registration. The plaintiff's contrary allegation (that he was unaware and the deed was sent after registration) was found false by the lower Courts.
The court noted that both lower Courts found the plaintiff was not defrauded with regard to this property, that this was a finding of fact supported by evidence on the record, and that such a finding should not be disturbed in a second appeal.
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Application to amend plaint to seek cancellation of the sale-deed:
The court reviewed the late application to amend the plaint to include a prayer for cancellation of Ex. I. The District Munsif had refused the amendment as the application was made very late. The court observed that the suit as framed was for recovery under the hypothecation bond and that the plaintiff had chosen that remedy rather than a suit for cancellation and return of consideration. Although the question whether the debt was discharged depends on whether the sale-deed is voidable, the court found that the reliefs are sufficiently different and that the District Munsif had exercised his discretion judicially. Given that the evidence did not establish that Ex. I was vitiated by fraud, the court concluded that allowing the late amendment was not appropriate.
Holding and Implications
Holding: The second appeal is dismissed with costs. The court rejected the appellant's contention that evidence of the plaintiff's knowledge of the encumbrance was inadmissible under Section 92, upheld the lower Courts' factual findings that the plaintiff was not defrauded (including as to Survey No. 27/2), and found no abuse of discretion in refusal to permit a late amendment to seek cancellation of the sale-deed.
Implications: As a direct consequence, the lower Courts' findings and orders stand and the plaintiff's claim for recovery under the hypothecation bond fails. The decision affirms that (a) proof of a vendee's knowledge of an undisclosed encumbrance can be admissible and does not necessarily fall within the exclusionary ambit of Section 92, and (b) factual findings supported by evidence at trial should not be disturbed on second appeal. The opinion does not state that it is laying down a novel binding precedent beyond these applications of existing authorities and statutes; rather, it applies established principles (including Section 55 of the Transfer of Property Act and precedents) to the facts before the court.
1. The plaintiff sues for the recovery of money due under a hypothecation bond executed by the 1st defendant. The defence is that the debt due under the hypothecation bond was discharged by the sale of property belonging to the 1st defendant. The plaintiff's case is that a fraud was perpetrated on him by the 1st defendant which make the sale-deed void and he is, therefore, entitled to sue for the recovery of the debt due under the hypothecation bond. Both the lower Courts have found that there was no fraud committed by the 1st defendant, that the plaintiff purchased with full knowledge of all the circumstances wad that he is not entitled, to sue on the hypothecation bond. The plaintiff has preferred this second appeal.
2. The first point raised by Mr. Venkatachariar, is that the evidence to vary the terms of the sale-deed, Ex. A., should not have been admitted. Though this point was not taken in the Courts below, I allowed him to raise the point as it went into the root of the case. The evidence complained of is the defendant's written statement that the plaintiff was aware of an encumbrance in favour of one Karuppan Ambalam not mentioned in the sale-deed. In the sale-deed the recital is.
"I declare so as to make you believe that excepting the emcumbrance on the said property which has been discharged hereby and this sale which has been effected, I have not effected, any kind of encumbrance in favour of any one else."It is admitted that at the time of the sale there was an encumbrance in favour of one Karuppan Ambalam.
3. The defendant's case is that the plaintiff was aware of that encumbrance that he agreed to discharge it and that, it should not be mentioned in the document. The argument, of Mr. Venkatacharier is that the evidence to the effect that the plaintiff was aware of the existence of an encumbrance is opposed to the clear recital in the document and such evidence should not have been admitted as it was inadmissible under Section 92 of the Evidence Act. His argument is that the declaration that there was no other encumbrance of the property than the one mentioned in it is an important term of the sale-deed and any agreement to vary the terms of the sale-deed could not be proved under Section 92. Section 92 says: "When the terms of any such contract grant or other disposition of property or any matter required by law to be reduced to the form of a document, have been proved, no evidence of any oral agreement or statement shall be admitted as between the parties to any such instrument or their representatives-in-interest, for the purpose of contradicting, varying, adding to, or subtracting from its terms." The defendant's plea that there was an oral agreement whereby the plaintiff undertook to discharge the debt in favour of Karuppan Ambalam cannot be proved by parol evidence, Mr. Venkatachariar addressed an elaborate argument on the point. He mainly relied upon Adityam Iyer v. Ramakrishna Iyer 21 Ind. Cas. 458 : 38 M. 514 : (1913) M.W.N. 847 : 14 M.L.T. 382 : 25 M.L.J. 602 that case it was held that if the consideration for sale is recited as Rs. 35,000 ,it could not be proved that the real consideration was Rs. 36,000. The facts in that case were that there were two sale-deeds for Rs. 35,000. The vendor wanted to prove that the real amount of consideration was Rs. 36,000 and Rs. 1,000 went in discharge of a debt. It was held that parol evidence to prove that the amount of consideration was Rs. 36,000 and not Rs. 35,000 was inadmissible as the amount of the consideration was an important term of the contract and it could not be varied by an oral agreement. In that case the learned Judges held if a certain amount is mentioned in a document as the consideration it was not open to the parties to show that the amount of consideration was something different from that which is mentioned in-the document. That does not prevent a vendor from showing that the vendee was aware of an encumbrance which he did not want to be mentioned in the sale-deed. The existence of an encumbrance undisclosed to the vendee which he could not have discovered by the exercise of reasonable care would no doubt make the sale voidable. Under Section 55 of the Transfer of Property Act, in the absence of contract to the contrary, the seller is bound to disclose to the buyer any material defect in the property of which, the seller is, and the buyer is not aware, and which the buyer could not with ordinary care discover. It has been held that the material defect in the property would also include a defect of title and encumbrance in the property. Mr. Justice Shephard and Mr. Brown in their Commentary on the Transfer of Property Act, 6th Edition, page 202 make the following observation: "It is apprehended, however, that the term any material defect" in the property is not to be so restricted and that omission to disclose flaws in the title or encumbrance which the purchaser has no apparent means of discovering may equally be fraudulent under the section." This passage was quoted with approval in Haji Essa Sulleman v. Dayabhai Parmanandas 20 B. 522 at p. 529 : Chitty's S.C.C.R. 480 : 10 Ind. Dec. (N.S.) 913. The question here is whether the vendor could prove that the plaintiff was aware of a defect in the title. Where the vendee buys property with the full knowledge that the vendor has not got a good title he cannot be said to have been defrauded by the vendor. The 1st clause of Section 55 makes only omissions to make such disclosures as are mentioned in the section, para. 1, Clause (a) and para. 5, Clause (a) fraudulent. Paragraph 1 (a) casts the duty on the seller to disclose material defects in the property of which the buyer could not with ordinary care discover, but where the vendee is perfectly aware of the defect in title or existence of an encumbrance, there is no duty on the part of the seller to inform the buyer of that which the latter is perfectly aware. What is contended before me is that no evidence can be adduced to show that the buyer was aware of the-defect in title when there is a definite recital in the sale-deed that there is no encumbrance. The evidence to prove the knowledge of the buyer of the existence of an encumbrance not disclosed in the sale-deed does not offend against Section 92, for such evidence does not contradict, vary, add to or subtract from its terms. A declaraticn as to title or the absence of an encumbrance is not one of the terms of the contract of sale. The existence of an undisclosed encumbrance might vitiate the transaction. A declaration that there is no encumbrance or that the vendor has a good title to convey is not one of the terms of the contract and evidence to prove that the vendee was aware of such defect cannot be said to vary or contradict the terms of the contract. The decision in Rajavam Rao v. Tuljaram Rao 17 Ind. Cas. 43 does not help the appellant. It was held in the case that where the parties specifically state that all the disputes between them, have been settled it was not open to any of the parties to show that some matters were not settled. If a person sells all the "pictures in his house he cannot be allowed to prove that Millais was excepted. But there is no fraud if a vendor sells a picture which he describes as Millais which in-fact is not by the famous painter but by somebody else, and if the buyer knowing that the picture was not by Millais but by somebody else buys it, it cannot be said that the, vendor has defrauded the vendee. It might be that both of them with the object of defrauding third persons have consented to enter a recital in the document which is false to the knowledge of both. In this case the evidence is that the plaintiff was aware of the existence of the encumbrance in favour of Karuppan Ambalam and his knowledge of that fact and that he consented to omit all reference, to that encumbrance in the document can be proved by parole evidence, and such evidence is not against the terms of Section 92 of the Evidence Act. I disallow this contention.
4. The second contention is that the defendant is not solely entitled to Survey No. 27/2 and there are other persons entitled to the, property. Here again the plaintiff's knowledge is important. Two of the Pangalis of the 1st defendant attested the sale-deed and the plaintiff himself presented it for registration. The plaintiff wanted: to make out that he was not aware of the terms of the sale-deed, Ex. I and that it was sent to him after registration. This allegation was found to be false. Both the lower-Courts have found that the plaintiff was not defrauded with regard to this item of property and it is a finding of fact which is supported by evidence on record, and such a finding should, not be disturbed in second appeal.
5. The third point urged is that the plaintiff should, have been allowed to amend his plaint so as to include a prayer for cancellation of the sale-deed, Ex. I. The plaintiff's Vakil applied for amendment at a very late stage of the case, and the District Munsif refused to allow the plaintiff to amend his plaint, by inserting a prayer for the cancellation of Ex. I. The suit is for recovery of money due under a hypothecation bond. The plea is that it was discharged by the, sale of the 1st defendant's property. It was open to the plaintiff to have sued for cancellation of the sale-deed in which case he could have asked for the return of the consideration for the sale. But he has chosen to sue on the hypothecation bond. Though the question of discharge would depend upon the question whether, the sale-deed is voidable or not, yet I think the reliefs are so different that it cannot be said that the District Munsif did not exercise his discretion in a judicial manner. The District Munsif having exercised his discretion which is the circumstances cannot be said to be an improper exercise of discretion, I do not think the plaintiff could be allowed to amend his plaint at this late stage when on the evidence on record he has failed to make out his Case that Ex. I was vitiated by the fraud of the 1st defendant.
6. In the result the second appeal fails and is dismissed with costs.
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