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V. Alagarsami Naidu v. Kathia Goundan
Factual and Procedural Background
This second appeal arises from a suit filed by a mortgagee seeking recovery of Rs. 60 under a mortgage dated 19th December 1921 executed by defendants 1 to 5 in favour of the plaintiff. Defendant 6 was impleaded as a subsequent purchaser of the mortgaged property under a sale deed dated 27th November 1924. Defendant 6, in his written statement, claimed ownership of the entire site where the suit house and other houses are situated, asserting that he permitted others to build and reside there without granting them permanent rights or interests, including rights to sell or mortgage the property. Defendant 6 relied on certain sale deeds and agreements as evidence of his claimed rights.
Legal Issues Presented
- What is the legal effect of the agreement (Ex. 1) wherein defendant 1 undertakes to offer defendant 6 the right to repurchase the property at Rs. 60 before alienating it?
- Whether such an agreement amounts to a valid restraint on alienation, including mortgages, and if so, whether it renders the plaintiff’s mortgage invalid as against defendant 6’s rights?
- Whether defendant 6’s right under the agreement can be equated to a right of preemption or a similar proprietary right enforceable against third parties, including purchasers and mortgagees?
Arguments of the Parties
Defendant 6's Arguments
- Claimed ownership of the entire site and asserted that occupants have no permanent rights to alienate the property.
- Relied on a sale deed (Ex. C) and a registered agreement (Ex. 1) with defendant 1, which undertakes that defendant 1 or his heirs will not alienate the property without first offering to reconvey it to defendant 6 at the original sale price of Rs. 60.
- Argued that the agreement creates a right similar to preemption or a right to repurchase, which should invalidate the plaintiff’s mortgage and any alienation by defendant 1 without defendant 6’s consent.
Appellant's (Plaintiff’s) Arguments
- The lower courts held the agreement to be a void restraint on alienation.
- Maintained that the mortgage in favour of the plaintiff is valid and not rendered ineffective by defendant 6’s claimed right under the agreement.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Aramproth Illoth Vasudevan Moosad v. Kattadi Moothedath Ittirarichan Nair [1918] 41 Mad. 582 | Preemption rights are not enforceable against compulsory sales such as sales in execution of a decree or under revenue authority orders. | Court relied on this precedent to reject the view that defendant 6’s right under the agreement could invalidate the plaintiff’s mortgage or subsequent court sales. |
| Baij Nath (Defendant) v. Sital Singh (Plaintiff) [1891] 13 All. 224 | Preemption rights do not affect compulsory sales executed under authoritative orders. | Supported the principle that defendant 6’s claimed right cannot invalidate mortgage or court-ordered sales. |
| Govindaswami Pillai v. Doraiswami Mudali, A.I.R 1926 Mad. 120 | Contractual undertakings to sell property upon necessity do not constitute a continuing offer enforceable by specific performance. | Used to analogize defendant 6’s agreement as an undertaking to offer, not a binding offer, limiting enforceability to damages rather than specific performance. |
| Papa Naidu v. Muniswamy Ayyar, A.I.R 1922 Mad. 16 | Distinguished between a continuing offer and a mere undertaking to make an offer; specific performance is not enforceable without a completed contract. | Referenced to explain that defendant 6’s right is an option, not a binding sale contract, limiting remedies to damages. |
| Sheobaran Singh v. Kulsum-un-nissa, A.I.R 1927 P.C 113 | Official Assignee takes bankrupt’s property subject to all rights but involuntary sales (e.g., execution sales) are free from preemption claims. | Applied to emphasize that involuntary sales cannot be invalidated by rights akin to preemption, supporting the validity of the plaintiff’s mortgage. |
Court's Reasoning and Analysis
The court analyzed the nature of the agreement (Ex. 1) between defendant 1 and defendant 6, which undertakes to offer defendant 6 the right to repurchase the property for Rs. 60 before alienation. It rejected the lower courts’ view that the agreement is a void restraint on alienation. Instead, the court held that the agreement is a valid contract constituting an undertaking to make an offer, not a continuing offer itself. Consequently, no completed contract of sale arises until defendant 1 chooses to sell and makes the offer, which defendant 6 may accept or reject.
The court further considered whether this right could be equated to a right of preemption that could invalidate the plaintiff’s mortgage. Relying on precedent, the court concluded that rights akin to preemption do not operate against compulsory sales such as execution sales or mortgages. Thus, defendant 6’s right cannot render the mortgage invalid or prevent court-ordered sales.
The court recognized that defendant 6 may have a cause of action for damages if defendant 1 breaches the undertaking but held that specific performance is not enforceable, as there is no continuing offer. The agreement does not restrain alienation by mortgage or sale and therefore does not affect the plaintiff’s rights.
Holding and Implications
The second appeal is dismissed with costs.
The direct effect of this decision is the validation of the plaintiff’s mortgage and rejection of defendant 6’s claim to invalidate it based on the repurchase undertaking. The court clarified the legal nature of such agreements as enforceable undertakings to make an offer rather than binding preemptive rights, limiting remedies to damages rather than specific performance. No new precedent was established beyond the application of existing principles to the facts.
1. This second appeal arises out of a suit by a mortgagee to recover an amount of Rs. 60 due on the mortgage Ex. A dated 19th December 1921 executed by defendants 1 to 5 in favour of the plaintiff. Defendant 6 was impleaded as a subsequent purchaser of the suit hypotheca under Ex. 2 dated 27th November 1924. In his written statement defendant 6 does not merely rely on the subsequent sale deed but upon an earlier transaction. He says in his written statement that the whole site on which the suit house and other houses are situate was part of the Survey No. 13 belonging to him. Then he says:
“In the said Re-Survey No. 13 this defendant has built a big bandy stand (Vandipettai) and provided it with all conveniences for stay of bandies going to and fro on the highway. The said pettai, and all the shops, houses, vacant space etc., round it absolutely belong to this defendant. For the sake of safety and protection to the said pettai, this defendant gave permission to people to build houses there and reside and in the houses built by defendant 6 all conveniences for tenants have been provided. The people so residing have no permanent right or interest in the said houses or the vacant space. The people residing there have no right either to sell, mortgage etc., either the buildings or the vacant space.”
2. He also says that he has been paying a tax of Rs. 25 per year to the Government. In support of this right which he has pleaded in the written statement whatever right it may be called he relies upon Exs. C and I. Ex. C is the sale deed he gave to defendant 1 for Rs. 60.
3. He says he gave similar deeds to others. And Ex. C is accompanied simultaneously-by Ex. 1 which is a registered agreement executed by defendant 1 to defendant 6. Undoubtedly the two ought to betaken together to see the nature of the transaction. Ex. 1 says:
“As I have taken a sale deed from you of the site and house mentioned below, I will be residing in the said site and house. While I so reside, neither I nor my heir shall mortgage or hypothecate or otherwise alienate the property. If myself or my heirs should not like to reside in the said site and house, we shall reconvey the property to you for a price not exceeding the sale price of Rs. 60.”
4. The first question that arises is what is the effect of agreement like Ex. 1? The Courts below have thought that the agreement is one prohibiting alienation and is therefore void. But I am not satisfied with that mode of disposing of the case. Mr. Narayanaswami Ayyar, the learned advocate for the appellant, contends that it is an agreement to resell the property to defendant 6 at a favourable price of Rs. 60, the consideration for this agreement being that the house was sold to defendant 1 at the favourable price of Rs. 60. I am willing to accept these suggestions. Probably the house is worth much more than Rs. 60 and because it was given to defendant L for Rs. 60 he gives a counter-agreement be resell it, for Rs. 60. But there are difficulties in enforoing this agreement. It is not an agreement absolutely binding on defendant 1 to sell it in a particular time or within any time at all. He is bound to sell it to defendant 6 whenever be thinks of parting with the property.
5. If he does not think of parting with the property, he is not bound to sell it. That is the first difficulty in the case. The second difficulty is that he is bound to resell it for Rs. 60. At one stage Mr. Narayanaswami Ayyar said that the right was analogous to the right of preemption. But on that footing he was met by the decision in Aramproth Illoth Vasudevan Moosad v. Kattadi Moothedath Ittirarichan Nair . [1918] 41 Mad. 582. Sir John Wallis says there citing the judgment of Mahmood, J., in Baij Nath…(Defendant); v. Sital Singh…(Plaintiff).* . [1891] 13 All. 224, that a compulsory sale, such as a sale in execution of a decree or a sale under an authoritative order of the revenue authorities for arrears of Government revenue, does not render preemption enforeible whether it is a customary right or a right arising out of private contract. In this case it is necessary for defendant 6 to show that his right of sale is such that the mortgage in favour of the plaintiff is invalid as against his own right. A mortgage by the owner of a house will often end in a suit by the mortgagee and in Court sale and if the Court sale can be made free of defendant 6's right to repurchase under Ex. 1, the right is useless. So he has to contend that not only absolute alienation but also mortgages by defendant 1 are void if they are to affect his right of repurchasing it for Rs. 60.
6. Now, the decision in Aramproth Illoth Vasudevan Moosad v. Kattadi Moothedath Ittirarichan Nair, is against this view if it is to be described as a right of preemption. So Mr. Narayanaswami Ayyar contended that it is somewhat similar to preemption but is not actual preemption. I am willing to accept this suggestion. What shall we describe this right as? In my opinion if it is not a right of preemption, the undertaking which defendant 1 made in Ex. 1 is merely an undertaking to give defendant 8 the first offer for Rs. 60 whenever he chose to sell it. This undertaking is not without consideration and therefore cannot be disposed of as nudum pactum. It had consideration and it is a complete contract, the contract being the under taking to make the offer. In the language of the Judges who decided Helby v. Mathews, it is a pre-contract to a contract to sell and purchase. It seems to me that such a contract does not amount to an offer, it is only an undertaking to make an offer whenever he thinks of selling the property; he has yet made no offer and therefore it is incapable of acceptance. Mr. Narayanaswami Ayyar has cited before me a decision in Govindaswami Pillai v. Doraiswami Mudali, A.I.R 1926 Mad. 120. In that case Krishnan, J. following the decision in Papa Naidu v. Muniswamy Ayyar . A.I.R 1922 Mad. 16, held that there was only an offer, that the other side to the contract was not bound and that until the offer was accepted there could be no complete contract to sell and purchase. There also the contract begins with the words:
“If it so happens that I have to sell it (property) out of necessity, I will sell it to you.”
7. In my opinion the undertaking in that case did not amount to a continued offer kept open but only an undertaking to make an offer when he thinks of selling the property as in the present case, and I think there is neither an offer nor can there be an acceptance in that case. However the learned Judge thought that there was an offer and he gave an opportunity for the respondents by calling for a fresh finding whether there was an acceptance of the offer. But the finding was that there was no completed contract with the result that the appeal was allowed. But it seems to me that in such a case there is no offer, nor can there be an acceptance of the offer. If no offer is made by the person who makes the undertaking no doubt he is guilty of breach of his undertaking. It is possible that he is liable to be sued for damages. But I do not see how a person to whom option is given I say option, because it is no more than an option to repurchase the property can sue for specific performance. He can only sue for damages. This is also the view in Papa Naidu v. Muniswamy Ayyar the only difference being that in that case there is a continuing offer left open. In the present case there is no offer at all. Defendant 6 may be able to sue defendant 1 for damages for breach of his undertaking in Ex. 1. I do not want to say that Ex. 1 is void as the lower Courts have said. It cannot amount to a transaction which has the effect of restraining alienation by way of mortgage or sale.
8. Mr. Narayanaswami Ayyar relied on Sheobaran Singh v. Kulsum-un-nissa . A.I.R 1927 P.C 113, in which it was held that the Official Assignee takes the property of a bankrupt exactly as it stood in his person with all its advantages and all its burdens. That may be so, so far as the Official Assignee is concerned. But it is conceded in that case that a sale in execution of a decree transferred the property free from a claim of pre-emption: see p. 375 (of 49 All.) It is clear that whatever may be the nature of the Official Assignee's powers, involuntary sales cannot be made invalidated by a right of preemption. It seems to me that the mortgage in this case cannot be invalid by reason of Ex. 1. The second appeal fails and is dismissed with costs.
P.R.S/P.N
9. Appeal dismissed.
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