JUDGMENT Kanhaiya Lal, J.
1. This was a suit for the specific performance of a contract of sale in respect of a house situated in Bareilly, and the main question for consideration is whether the persons who entered into the contract of sale had a subsisting right in the property which they could have conveyed to the plaintiff.
2. The allegation of the plaintiff was that the house belonged to the defendants Jagdish Narain and Gopal Narain and their father Hirdey Narain; that on the 24th of July 1920, they agreed to sell the same to the plaintiff for Rs. 10,000, out of which Rs. 9,265 were to be paid to the defendant Ganesh Prashad on account of the money said to have been due on a prior mortgage; Rs. 500 were paid to Raja Lalta Prashad on account of another mortgage; Rs. 200 are said to have been paid as earnest money and the balance was to be paid at the time of registration. The plaintiff also alleged that in pursuance of the said contract he had paid Rs. 500 to Raja Lalta Prashad through the vendors and also advanced Rs. 100 for the purchase of the necessary stamp paper for the execution of the sale-deed. He further stated that a draft sale-deed was eventually prepared and faired out, but in the meantime the defendant, Ganesh Prashad, induced the vendor to resile from the bargain and to refuse to sell the, said property to the plaintiff. The plaintiff also claimed Rs. 140 as damages for having been kept out of the possession of the house.
3. The defendant Jagdish Narain denied having entered into the said contract. The other defendants, Gopal Narain and Hirdey Narain, pleaded that no sale-deed was executed because the plaintiff himself had been guilty of the breach of the contract by insisting on entering in the sale-deed certain terms which were out side the original bargain. He denied that any money had been paid to him by the plaintiff for the purchase of the stamp pager, and further stated that they had returned Rs. 728 to the plaintiff as per detail given by him in the written statement. The defence of Ganesh Prashad was that the defendants Jagdish Narain, Gopal Narain and Hirdey Narain had already conveyed their rights in the house in dispute by an absolute sale to him on the 6th of September 1917, that they had obtained an agreement from him to reconvey the property to them if they repaid this sale consideration with interest thereon in the shape of rent at 12 annas per cent, per mensem within three years, and that on the 6th of September 1920, the vendors relinquished their rights to obtain a reconveyance. He denied that the vendor had any power to agree to sell the house to the plaintiff after they hail sold their rights to the contesting defendant, and that the plaintiff was not entitled to any relief.
4. The Court below found that the house in question had already been conveyed by an absolute sale by the vendors to Ganesh Prashad by the sale deed of the 6th September 1917, and that the agreement to reconvey the house to the vendors on repayment by them of the consideration money and the lease granted by Ganesh Prashad to the vendors were separate transactions which did not in any way derogate from the right of Ganesh Prashad to claim to be the absolute owner of the disputed property on the date on which the vendors purported to reconvey the same to the plaintiffs.
5. In order to appreciate the precise bearing of the various transactions entered into by the vendors it is necessary to go into some of the attendant circumstances in detail. The house in dispute stands contiguous to a temple, and originally belonged to the persons by whom that temple was founded. In 1918 it was purchased by the defendants. Gopal Narain and Jagdish Narain, from those persons, and it was subsequently mortgaged by them with Ganesh Prashad on the 11th of March 1916. In order to pay the money due on that mortgage the transaction, the precise nature of which is here in question, was entered into on the 6th of September 1917. It was evidenced by three documents. One of these documents was a sale-deed purporting to have been executed by Jagdish Narain, Gopal Narain and Hirdey Narain in favour of Ganesh Prashad for a consideration of Rs. 8,500 out of which Rs. 5,925 were to be credited in satisfaction of the prior mortgage; Rs. 200 were paid to have been received in cash in advance and the balance was paid at the time of registration The other was a deed of agreement by Ganesh Prashad to reconvey the property to the vendors, if they repaid Rs. 8,500 with interest at the rate of 12 per cent per mensem in three years. The third was a lease granted by Ganesh Prashad to the vendors for a period of three years reserving a rental of Rs. 63-12 per mensem equivalent to interest on the purchase money at 12 annas percent per mensem. The agreement provided that if the interest chargeable on the purchase-money was not paid annually the vendee shall in no case and on no account execute a reconveyance of the said property in favour of the vendors, and the terms of the agreement shall become altogether void. It further provided that when the amount of rent was paid under the rent agreement executed by the vendors in favour of the vendee, the vendee shall execute a deed of reconveyance on receipt of Rs. 8,500 from the vendors aforesaid and the amount of rent shall be treated as interest. The rent deed provided that the repairs of the house shall be carried out by the lessees during the period of their tenancy and, if the rent secured by the lease was not paid half yearly, the lessor shall be entitled to eject the lessees from the said property. There was a further covenant that if by reason of any negligence or accident or other cause the house fell into ruin or became dismantled the lessees shall be liable to pay the price thereof with damages for any loss which the lessor may sustain in consequence. It is urged on behalf of the plaintiff-appellant that these three transactions were really intended to operate as a mortgage by conditional sale, and that the vendors had a subsisting interest in the property which they could have subsequently agreed to convey to him. The sale-deed ostensibly purports to convey the property absolutely to Ganesh Prashad, but the agreement executed on the same date by Ganesh Prashad shows that his intention was to bold the property for the time being till the vendors had repaid the consideration with interest thereon at 12 annas per cent, per mensem, for which a period of three years was allowed to him. There could hardly have been any question about charging interest on the purchase money, if the transaction had been an out and out sale, much less for allowing the vendors to remain in possession of the house subject to the payment of that interest half-yearly in the shape of rent or for requiring them to execute all repairs and be responsible for its value, if it fell into ruins by reason of any unforeseen accident or any other cause.
6. Before the Transfer of Property Act of 1882 was enacted, there were various kinds of mortgages in vogue in this country one of which was known as the bai-bil-wafa or mortgage by conditional sale. The Transfer of Property Act gave statutory recognition to the different kinds of mortgages then in vogue, and Section 58 accordingly provided that where the mortgagor ostensibly sold the mortgaged property on condition that on default of the payment of the mortgage-money at a certain date the sale was to become absolute or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction shall be regarded as a mortgage by conditional sale. The remedies open to such a mortgagee by conditional sale are laid down in Section 67 read with Order 34, Rr. 2 and 3 of the Civil P.C., and the mortgagor in such a case though figuring as an ostensible vendor, is entitled to redeem the mortgage on payment of the money due on the mortgage. If there is a sale followed by an independent agreement to reconvey within a certain period, restricted by a condition rendering such agreement, void, after the expiry of that period, a right to the specific performance of the agreement may in certain circumstances be permissible. But where the two form parts of the same transaction, the transaction evidenced by such reciprocal deeds must in the absence of any indication of a contrary intention, be regarded as a mortgage by conditional sale, and the right of the mortgagor to redeem the property remains unaffected by the expiry of the term.
7. In Thumbuswami Moodely v. Hossain Rowthen [1876] 1 Mad. 1 their Lordships of the Privy Council pointed-out that the contract of mortgage by conditional sale was a form of security known throughout India and by the ancient law of India, which must be taken to prevail in every part of India where it had not bean modified by actual legislation or established practice, was enforceable according to its letter. In Balkishen Dass v. Legge [1900] 22 All. 149, where a deed of sale of land for value accompanied by a deed of agreement between the parties for re-purchase by the vendor on repayment by him of the purchase-money to the vendee on a further date fixed and the deeds were followed by transfer of possession to the vendee, and the receipt of profits by him, it wag held by their Lordships of the Privy Council that though the vendor did not exercise the right of re-purchase till long after the expiry of the period fixed, he was entitled to redeem the transaction as if it was a mortgage by conditional sale.
8. Their Lordships pointed out that though oral evidence was not admissible for the purpose of ascertaining the intention of the parties to the deeds, the case could be decided on a consideration of the documents themselves with only such extrinsic evidence of circumstances as might be required to show the relation of the written language to the existing facts. They pointed out that it was not necessary in the case of such a mortgage that the mortgagor should make himself personally liable for the repayment of the loan, and if the deeds contained indications that the parties intended to effect a mortgage by conditional sale effect must be given to that intention. In Mauug Kyin v. Ma Shwe La [1918] 45 Cal. 320 their Lordships again pointed out that though as between the parties to an absolute conveyance, oral evidence was not admissible to prove that the transaction was intended to be a mortgage, it was open to a third party like the plaintiff in the present case, who seeks specific performance of a contract of sale to produce evidence to show the real nature of the transaction. In Muhammad Hamid-ud-din v. Fakir Chand [1920] 42 All. 437 where two documents were executed on the same day and between the same parties one of which purported to be an absolute sale of a certain village and the second purported to be an agreement on the part of the vendees to reconvey the property on the repayment of a certain sum of money within a certain period with interest at a certain rate after deducting the profits derived from the village, Its was held that having regard to the terms of the agreement that interest should be paid on the purchase-money, and that the profits of the village should be taken into account in order to ascertain the actual sum which the vendors shall have to pay in order to recover the property, the transaction could not be regarded as a sale with a condition for re-purchase, but a bai-bil-wafa or mortgage by conditional sale.
9. In Mohindra Man Singh v. Mahraj Singh A.I.R. 1923 All. 48 it was similarly hold that where a document purporting on the face of it to be a deed of sale contained a provision for the reconveyance of the property on payment of the sale consideration within a certain period in addition to the arrears of rent which may be then due by the tenants of the property conveyed, it was held that the transaction was a mortgage by conditional sale, and the right of the ostensible vendor to claim pre-emption as a co-sharer of the village must be deemed to subsist. In Madhavrao Keshavrao v. Sahebrao Ganpatrao [1915] 39 Bom. 119 and Kasturchand Lakhmaji v. Jakhia Padia Patil [1916] 40 Bom. 74 it was held in somewhat similar circumstances that in view of the facts and the contemporaneous nature of the two documents, the proper construction would be that they constituted a conditional sale, and that the real intention of the parties was to effect a mortgage by conditional sale by the contemporaneous execution of the two documents of sale and re-sale.
10. On behalf of the contesting defendants reliance has been placed on the decision in Bhagwan Sahai v. Bhagwan Din [1890] 12 All. 387; Jhanda Singh v. Wahid-ud-din [1916] 38 All. 570 and Muthuvelu Mudaliar v. Vythilinga Mudaliar [1919] 42 Mad. 407. But the facts in each case must necessarily be judged by the language of the documents and the surrounding circumstances, if any, proved to show the relation of the language used to the existing facts. In Narasingerji Gyanagerji v. Panuganti Parthasaradhi A.I.R. 1924 P.C. 226, where two deeds of the same date were so phrased as to be ostensibly a sale of a certain property with an agreement of a re-sale and re-purchase at the same price at a certain date, it was held by their Lordships of the Privy Council on a consideration of the covenants entered in these deeds and the price ostensibly paid for the property and the intrinsic value of the property that the transaction was a mortgage by conditional sale. There is no evidence here to show what the intrinsic value of the disputed property was at the date of the alleged transaction. The property had originally been purchased in 1898 by the vendors for Rs. 6,000. The contract of sale in favour of the plaintiff was effected in lieu of Rs. 10,000 and it is reasonable to assume that in 1917, when the alleged transaction took place the property must have been very nearly of the value which it fetched at the time of the sale to the plaintiff. In any event the agreement here was that the vendors were to get back the property on payment of the purchase-money with interest at a certain rate, and that the rent payable by the vendors was in substance only the interest chargeable on the purchase-money and taking these and the other covenants into consideration together, the transaction must be regarded as a mortgage by conditional sale. The deed of relinquishment on which the contesting defendants-respondents rely was not executed till after the agreement sought to be enforced was entered into. The vendors had clearly a subsisting interest in the property on the date of that agreement and the plaintiff is entitled to enforce that agreement subject to such considerations of equity or law as may arise in the other pleas which the Court below has not determined. The appeal will, therefore, be allowed and the suit remanded to the Court below with a direction to re-admit the suit under its original number and to dispose of it after determining the other pleas raised in the case in the manner required by law. The costs here and hereto will abide the result including fees in this Court on the higher scale.
Ashworth, J.
11. I agree in the order passed, but not with the test invoked by any learned brother for determining whether a deed or series of deeds executed subsequent to the Transfer of Property Act (4 of 1882) coming into force, are to be construed as effecting an out and out sale. There are three deeds of even date, one has been construed by the lower Court as an out and out sale the terms of which should beheld to be unaffected by the other two deeds. Of these other two deeds one provided for reconveyance if the purchase-money is repaid on the expiration of three years with interest or without interest in the event of the buyer having received interest in full in the shape of rent. The third deed is a lease by the buyer to the seller of the property dealt with in the first two deeds.
12. Now there can be no doubt that the sale-deed, as we may call it, if considered alone, does effect an out and out sale, But the lower Court treated the three deeds as constituting one agreement by which must be meant that the total consideration proceeding under the three deeds from one party was to be regarded as set against the total consideration proceeding under those deeds from the other party. Neither in the Court below nor in this Court has any objection been taken to this by either party, and so I consider it unnecessary to vindicate the treatment of the three deeds as a single agreement, which I consider correct, by any lengthy argument. It suffices to say that if the three deeds are not treated as a single agreement, there would be no consideration for the agreement to recovery, and there is a presumption always in favour of parties intending their mutual promises to be effective. Had it been permissible to treat the deeds of sale as evidence of an independent transaction or completed agreement, then under Section 92 of the Evidence Act, it would not have been permissible to take into consideration the other two deeds; and there could have been no question as to the correctness of the lower Court's finding that there had been an out and out sale.
13. The question, then, is whether the three deeds when real together should be construed as effecting two separate and independent covenants, one of an out and out sale and one of an agreement to resell on tender of the sale price along with interest (if not previously realized), or as effecting a single mortgage by conditional sale. My learned brother has relied upon a passage in the judgment of their Lordships of the Privy Council in Jhanda Singh v. Wahid-ud-din [1916] 38 All. 570. This passage is:
It was not disputed that the test in such cases is the intention of the parties to the instruments. That intention, however, must be gathered from the language of the documents themselves viewed in the light of the surrounding circumstances.
14. In the light, however, of a previous decision of their Lordships in Balkishan Das v. Legge (2), which is referred to in Jhanda Singh v. Wahd-ud-din [1916] 38 All. 570, it must be understood that surrounding circumstances can only be looked to for explaining the relation of the language of the deed to existing circumstances where the meaning of that language is open to doubt. It is noticeable that in Jhanda Singh v. Wahid-ud-din [1916] 38 All. 570 their Lordships did not invoke surrounding circumstances.
15. The two Privy Council decisions just referred to and also another earlier decision of their Lordships of the Privy Council in Bhagwan Sahai v. Bhagwan Din [1890] 12 All. 387 all were made with reference to transactions effected before the enactment of the Transfer of Property Act (4 of 1882). I do not consider that these decisions are a safe guide to the interpretation of deeds effecting a transaction subsequent to the enactment of the Transfer of Property Act. It is true that in the case of Balkishan Das v. Legge [1900] 22 All. 149, already referred to, Lord Davey stated that it might be assumed that the framers of the Transfer of Property Act intended to state the law previously existing. This remark, however, was merely an obiter dictum. It has been held by their Lordships of the Privy Council that there is no presumption one way or another that a statute is intended to maintain or alter the existing law, and that the intention of a statute must, if possible, be gathered from its language: see Barendra Kumar Ghose v. Emperor A.I.R. 1925 P.C. 1.
16. Section 58(c) of A6t IV of 1882 prescribes that where the mortgagor ostensibly sells the mortgaged property on condition that on payment of the mortgage-money on a certain date, the buyer shall transfer the property to the seller, the transaction is to be regarded as a mortgage by conditional sale, and as such it will attract the provisions of the Act applicable to mortgages in general and to this kind of mortgage in particular. It has been contended that this definition of the mortgage by conditional sale can only be held to apply where it is first established that the transaction is a mortgage. A careful consideration, however, of the whole of Section 58 will show that this is not the case. The expression "Where the mortgagor ostensibly sells the mortgaged property," clearly shows that the relationship of the mortgagor and mortgagee arises solely from the sale of the mortgaged property, when that sale is "on condition that on repayment the buyer shall transfer the property to the seller. If the parties were to set forth that the transaction was a mortgage, it would be impossible for the dead to fulfil the requirement that it shall be an ostensible sale. Now, it being an ingredient of a mortgage by conditional sale that the transferrer shall ostensibly sell we cannot infer that the transaction is not a mortgage because the transferrer used language, in any portion of the deed applicable to a sale and not applicable to a mortgage. It is only by using such language that ex hypothesi the transferrer can effect a mortgage by conditional sale. We must, therefore, in construing deeds of this class, ignore all expressions indicating that the transaction is a sale and not a mortgage, or indicating that the relationship of mortgagor and mortgagee or of creditor and debtor, is not to subsist. Nor, again does it appear to me that we may invoke, as indicating an out and out sale, language expressing an intention that the remedies of either party shall be other than those prescribed by the Act for the parties to a mortgage by conditional sale. Such language really only carries into effect the requirement of the section that the transaction shall be an ostensible sale. Moreover, in the case of other mortgages, provisions as to the taking of accounts or as to restriction on the right of redemption are ignored where they conflict with the provisions of the Act, as being a clog on the equity of redemption. I see no, reason why the parties to a mortgage by conditional sale should be allowed to contract themselves out of the Act any more than the parties to any other kind of mortgage.
17. There is a further reason why the language of Section 58(c) of the Act should be construed strictly. Strictly construed the section means that only two conditions have to be established, namely that the deed is an ostensible sale-deed and, secondly, that the sale is made on condition that, on payment of the mortgage-money on a certain date, the buyer shall transfer the property to the seller. In English Law a covenant to re-sell, even without consideration, is binding if contained in a document under seal. "The deed imports consideration." In India unless we can find that the promise to resell was in consideration of the sale, that promise will be deemed to be without consideration and unenforceable. There is a strong presumption that parties to a document intend their covenants to be enforceable. This fact does appear to have been brought to the attention of their Lordships of the Privy Council in the cases recited.
18. Accordingly I hold that since the passing of the Transfer of Property Act the test to be applied in such cases is merely whether the parties, from the language of the deed, are to be deemed to have intended that the covenant to re-sell should form a part, along with the purchase money, of the consideration for the execution of the ostensible sale. The language of the deed will be irrelevant for any other purpose. Outside evidence will only be admissible when the relation of the language of the deed to the existing circumstances is doubtful, that is to say, outside evidence will seldom be admissible. Any provision as to accounting or as to redemption which would conflict with the provisions of the Transfer of Property Act will be deemed a clog on the equity of redemption. The expression 'mortgage-money' in Section 58(c) must be deemed to mean the purchase price, along with interest or without it, and after deduction or addition of any further sum according as the Act prescribes such interest, addition or deduction.
19. The adoption of this view will simplify the law and hearing of such cases, and is well suited to this country. It is unnecessary to consider the historical origin of Section 58(c). The framers of the Transfer of Property Act may well have considered that, in a case where a promise to resell forms part of the consideration for the original sale, the transaction should be treated as a mortgage. They may have desired this quite apart from any such consideration, as that Muhummadans desire to conceal a claim to interest. Indeed, if the view set forth in this judgment is not accepted as correct law it would appear desirable to alter the law for the purpose of simplifying it. The application of the rules of the English Court of Chancery to the law of India as laid down in the Acts of the Indian Legislature was deprecated by their Lordships of the Privy Council in Balkishen Dass v. Legge [1900] 22 All. 149 though it is difficult to reconcile with this deprecation certain expressions of their Lordships in the later case of Jhanda Singh v. Wahid-ud-din [1916] 38 All. 570 where they appear to have invoked the rule laid down in Alderson v. White [1858] 2 De G. & J. 97 by Lord Cranworth. It may be observed that the test suggested in this judgment would have resulted in the same decision in all the three Privy Council cases referred to. In two of these cases, where the promise to re-sell was stated to be merely arising out of good will, and was, in one case, described by their Lordships as an afterthought, it is clear that the parties did not express an intention that the covenant to re-sell should be part of the consideration for the original sale. In the third case where the covenant was held to be a mortgage, there was no language of a similar character.
20. In the present case there is no language indicating that the promise to re-sell should not be considered part of the consideration for the original sale and consequently the presumption that the parties intended the covenant to re-sell to be operative, will justify a decision that such covenant was part of the consideration for the original sale-deed. I may remark that if the test laid down in Alderson v. White [1858] 2 De G. & J. 97, and applied by their Lordships to transactions preceding the Transfer of Property Act, be applied, the result will be the same. There is in these deeds a provision for the calculation of interest at the time of re-sale, if such interest has not been paid. Such a provision may be said to have continued a relationship between the transferrer and the transferee which cannot be regarded as anything but the relationship of creditor and debtor. For the above reasons I concur in the remand of the case as proposed by my learned brother.