MAHADEO PROSAD AGARWALA Vs. NARAIN CHANDRA CHAKRABARTI

JUDGEMENT

(1.) This is an appeal by the plaintiff in a suit to enforce specific performance of a contract for sale of land and machineries described in the schedule to the plaint. On the 25th June 1917 the first defendant entered into an agreement with the plaintiff to convey to him the properties in suit for a sum of Rs. 6,000. Rs. 51 was paid as earnest money and the residue was agreed to be paid at the time of the execution of the conveyance. The vendor undertook to deliver to the attorney for the purchaser within one week from the date of the agreement all documents of title in his possession. The agreement next provided as follows: (a) the purchase shall be completed within three weeks from the date hereof; (b) should the purchaser fail to complete the contract within the time and in manner hereinbefore mentioned, notwithstanding that a good title had been made out, the vendor would be at liberty to cancel the agreement, forfeit the earnest money and claim either damages or specific performance of the contract . On the 1st August 1917 the first defendant sold the land and the machineries to the second defendant. Two days later the plaintiff instituted the present suit for specific performance of the contract. The first defendant pleaded that the plaintiff was in default and was not entitled to a decree for specific performance. The second defendant pleaded that he was a bona fide purchaser for value without notice. The Subordinate Judge found upon the evidence that the second defendant had notice of the prior agreement and could not consequently claim the protection accorded by a Court of Equity to bona fide transferees for value without notice. He held, however, that time was of the essence of the contract and that there was default on the part of the plaintiff. In this view, he dismissed the suit with costs. On the present appeal, no serious effort has been made to dispute the conclusion of the Subordinate Judge that the second defendant was not a bona fide purchaser for value. At the time of his purchase, the title-deeds were in the possession of the first defendant and if he had made an enquiry like an ordinary prudent purchaser, he would have discovered the existence of the prior contract. In these circumstances, it is unnecessary to determine whether he had actual knowledge of the agreement between the plaintiff and the first defendant. The substantial question for consideration is, whether time was of the essence of the contract and whether there had been such default on the part of the plaintiff as to disentitle him to a decree for specific performance.

(2.) The agreement for sale was made on the 25th June 1917. The title deeds were to be delivered to the attorney for the purchaser on or before the 2nd July and the transaction was to be completed not later than the 16th July. The title-deeds were not delivered on the appointed day, for although two documents were made over to the purchaser on the date of the agreement, two others were not sent till the 11th July. The draft of the conveyance was submitted on the 19th July and the time for its execution was extended to the 24th July. On the 23rd July, one of the officers of the plaintiff went to see the land and the machineries of the oil-mill which stood thereon. He found that instead of 600 plates mentioned in the agreement for sale, only 582 were on the spot, and that one of the wheels was broken. He reported to his attorney the next day that the requisite number of plates had not been found and that the machinery was not in a sound condition. On that very day, the 24th July, the vendor went to the office of the purchaser s attorney, probably before the latter had received intimation of the defects just mentioned. As the purchaser did not appear, the vendor left after stating that the time for completion was further extended by 24 hours. On the 26th July, the attorney for the plaintiff wrote to the solicitor for the defendant and informed him of the defects which had been found. He stated that the officer of his client had not been allowed to inspect all the parts of the machinery and expressed his willingness to complete the transaction as soon as the vendor carried out his part of the agreement. A reminder was sent two days later, but on the 28th July the attorney for the vendor wrote to the solicitor for the purchaser that the allegations of his client were unfounded and that as his client had failed to perform his part of the agreement on the date fixed, the contract had been cancelled and the earnest money forfeited; he accordingly asked for the return of the documents of title. It now transpires that the vendor had meanwhile entered into negotiation with the second defendant to sell the properties to him and that an agreement for sale in favour of the latter was actually executed on the 28th July. On the 30th July, the attorney for the purchaser tendered the balance of the purchase-money. This was not accepted by the vendor, who sold the properties to the second defendant on the 1st August for Rs. 6,400. We have now to consider, whether, in these circumstances, time was of the essence of the contract.

(3.) Section 55 of the Indian Contract Act provides that when a party to a contract promises to do a certain thing at or before a specified time and fails to do any such thing at or before the specified time, the contract or so much of it as has not been performed becomes voidable at the option of the promisee, if the intention of the partita was that time should be of the essence of the contract. If it was not the intention of the parties that time should be of the essence of the contrast, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. As was said in Harakh Singh v. Saheb Singh 6 C.L.J. 176, what is to be ascertained is whether, in fact, performance of the contract by one party was meant to depend on the other party s promise being fulfilled by the day named therefor, or whether a day was named merely in order to secure performance within a reasonable time. It is well settled that the mere fact that a date has been mentioned for the performance of the agreement does not conclusively prove that time was intended to be of the essence of the contract: Hearne v. Tenant (1807) 13 Ves. 287 : 33 E.R. 301, Roberts v. Berry (1852) 16 Beav. 31 : 51 E.R. 687 : 93 R.R. 77 affirmed on appeal 3 D.G.M. & G. 284 at p. 289 : 22 L.J. Ch. 398 : 43 E.R. 112 : 20 L.T. (O.S.) 215 : 98 R.R. 139, Parkin v. Thorold (185l) 2 Sim. (N.S.) J : 61 E.R. 239 : 89 R.R. 196. The Court has to determine, whether from an express promise to that effect or because such a promise is to be implied from a consideration of the real intention of the parties inferred from the nature of the contract, time is to be deemed of the essence of the contract. The principles applicable to cases of this character were considered by the Judicial Committee in the case of Jamshed Khodaram Irani v. Burjorji Dhunjibhai 32 Ind. Cas. 246 : 40 B. 289 : 23 C.L.J. 358 : 43 I.A. 26 : 30 M.L.J. 186 : 3 L.W. 239 : 19 M.L.T. 184 : 14 A.L.J. 225 : (1916) 1 M.W.N. 229 : 18 Bom. L.R. 163 : 20 C.W.N. 744 (P.C.), where their Lordships reversed the decision of the Court of Appeal of the Bombay High Court in the case of Burjor i Dhunjibhai v. Jamshed Khodaram Irani 20 Ind. Cas. 469 : 38 B. 77 : 15 Bom. L.R. 405 and restored the judgment of Mr. Justice Macleod. Viscount Haldane observed as follows: "Under the law of England, equity which governs the rights of the parties in cases of specific performance of a contract to sell real estate looks, not at the letter, but at the substance of the agreement in order to ascertain whether the partier, 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." In support of this view, reference was made to the decision of Lord Redesdale in Lennon v. Napper (1802) 2 Sch. & Lef. 682, of Knight Bruce, L.J., in Roberts v. Berry (1852) 16 Beav. 31 : 51 E.R. 687 : 93 R.R. 77 affirmed on appeal 3 D.G.M. & G. 284 at p. 289 : 22 L.J. Ch. 398 : 43 E.R. 112 : 20 L.T. (O.S.) 215 : 98 R.R. 139, of Lord Cairns in Tilley v. Thomas (1867) 3 Ch. App. 61 : 17 L.T. 422 : 16 W.R. 166) and of Lords Atkinson and Parker in Stickney v. Keeble (1915) A.C. 386 : 84 L.J. Ch. 259 : 112 L.T. 664. The doctrine is concisely stated in the language used by Lord Cairns in Tilley v. Thomas 1867) 3 Ch. App. 61 : 17 L.T. 422 : 16 W.R. 166): "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 toward 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 intervene 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. Of the three grounds...mentioned by Turner, L. J , in Roberts v. Berry (1852) 16 Beav. 31 : 51 E.R. 687 : 93 R.R. 77 affirmed on appeal 3 D.G.M. & G. 284 at p. 289 : 22 L.J. Ch. 398 : 43 E.R. 112 : 20 L.T. (O.S.) 215 : 98 R.R. 139, express stipulations requires no comment. The nature of the property is illustrated by the case of reversions, mines or trades. The surrounding circumstances must depend on the facts of each particular case." 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 thus 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 language will have this effect, if it plainly excludes the notion that these time limits were of merely secondary importance in the bargain, and that to disregard them would be to disregard nothing that lay at its foundation. 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. This is merely an illustration of the general principle of disregarding the letter for the substance.