071-NLR-NLR-V-39-PAIVA-v.-MARIKAR-et-al.pdf
Paiva v. Marikar.
255
1936Present: Moseley J. and Fernando A.J.
PAIVA v. MARIKAR et al.
177—D. C. Kalutara, 18,566.
Specific performance—Agreement to transfer land—Alternative option to paydamages—No right to specific performance—Sale to third party—Noticeoj existing agreement—Trusts Ordinance, No. 9 of 1917, s. 93.
By deed dated April 22, 1931, the first defendant agreed to transfer thepremises in suit to the plaintiff before June 30, 1931, after discharging anexisting mortgage. The agreement was subject to the condition thatin case the first defendant failed to execute the transfer he should pay tothe plaintiff the sum of Rs. 250, consisting of Rs. 125 paid in advance andanother sum of Rs. 125 as damages.
It was further provided that, if the said amount was not paid, theplaintiff could recover the same according to law. On September 4, 1933,the first defendant conveyed the premises to the second defendant;
Held that, on the failure of the defendant to fulfil the contract, hehad the option of paying the sum of Rs. 250 which was an alternativeobligation and that the agreement was not one of which specific per-formance could be demanded.
Held further, that the title acquired by the second defendant was notaffected by the agreement as, in view of the time that had expired, it wasnot an existing agreement within the meaning of section 93 of the TrustsOrdinance.
Mathas v. Raymond (2 N. L. R. 270) followed ; Appuhamy v. Silva{17 N. L. R. 238) distinguished.
T
HIS was an action for specific performance of agreement dated April22, 1931, by which the first defendant agreed to transfer the premises
at a price of Rs. 325, of which a sum of Rs. 125 was paid in advance. Thedefendant undertook to discharge the existing mortgage on the premisesand to convey the same to- the plaintiff before June 30, 1931, free from allencumbrances.-
On September 4, 1933, the first defendant transferred the premises tothe second defendant.
The learned District Judge held that as the agreement had been dulyregistered, there was sufficient notice to the second defendant and that■the transfer to the latter was subject to the agreement in favour of theplaintiff. He therefore entered judgment in fayour of the plaintiffordering specific performance of the agreement.
H. V. Perera (with him G. E. Chitty), for second defendant, appellant.—It is clear from the circumstances that the agreement to pay a sum ofmoney was an alternative to the agreement to convey the property free ofmortgage. Among others, the fact that this was one of several propertiescovered by the mortgage bond to secure a total debt of some Rs. 2,000(a sum far in excess of the value of the property to be transferred) seemsto point to this conclusion. If an alternative method of discharge ofthe liabilities arising on the contract appears, upon a proper interpret-ation, to have been in contemplation of the parties at the time theyentered upon it, the Court will not decree a specific performance of one ofthose alternatives. See Fry on Specific Performance (5th ed.), p. 68, also
256
FERNANDO A.J.—Paiva v. Mari tear.
Mathas v. Raymond' and Appuhamy v. Silva *. The agreement to pay themoney was, it is submitted, a substitute for specific performance of theobligation to convey. In any event the time for performance hadexpired in terms of PI on June 30, 1931, while the purchase by the seconddefendant was on September 4, 1933. .The registration of P 1, thereforecannot be said to have constituted notice of an existing contract in respectof the property, as against second defendant.
N. E. Weerasooria (with him T. S. Fernando), for plaintiff, respondent.—We are here dealing with what is simply an agreement to conveyimmovable property. That is what the contract should be interpreTedto mean. The mention of a sum of money to be paid in default ofperformance does not alter the true nature of the contract. It merelyfixes an amount to be paid as liquidated damages or penalty for a breachof the substantial agreement. The document P 1 was registered as aninstrument affecting land and was sufficient notice to an intendingpurchaser such as the second defendant of a prior agreement binding theproperty in question. It was at least sufficient notice to put upon inquirya third party seeking to acquire interests in the very property which wastfte subject-matter of the earlier agreement contained in P 1. See in thisconnection section 93 of the Trusts Ordinance and Silva V. Salo Nona*.There was at least constructive notice to the purchaser.
Cur. adv. vult.
October 15,1936. Fernando A.J.—
By deed of agreement P 1 of April 22, 1931, the first defendant agreedto transfer the premises specified therein. The purchase price was fixedat its. 325 and Rs. 125 was paid on the date the agreement was signed,and it was provided in P 1 that the first defendant would on or beforeJune 30, 1931, discharge the present existing mortgage and convey thepremises to the plaintiff free of all encumbrances. The agreement wasalso subject to the condition that in case the first defendant fails to get thetransfer executed, the first defendant should pay to the plaintiff the totalsum of Rs. 250, consisting of the Rs. 125 paid in advance by the plaintiffand another Rs. 125 as damages sustained by the plaintiff, and the bondrecites, “ If the said amount is not paid, the second party can recover thesame according to law ”.
On September 4, 1933, the first defendant executed deed No. 1061marked 2D1 conveying the premises to the second defendant.
The learned District Judge held that as the agreement had/ been dulyregistered that registration was isufficient notice within the meaning ofsection 93 of the Trusts Ordinance, and that the transfer in favour ofI'.e second defendant was therefore subject to the agreement in favourof the plaintiff. He, therefore entered judgment ordering the seconddefendant to transfer the property .to the plaintiff and both defendantsto pay the plaintiff his costs of this action.
Two questions were argued in appeal, namely, first, is the agreement P 1of such a kind as would entitle the plaintiff to ask for specific performanceof it ? and second, whether the agreement can be regarded as an existingcontract within the terms of section 93 of the Trusts Ordinance.
1 17. N. L. It. 238.
2 N. L. R. 270.
» 32 A’. L. R. SI.
FERNANDO A.J.—Paiva v. Marikar.
257
With regard to the first point, we were referre3 to the case of Mat has v.Raymondwhere Bonser C. J. said that the stipulation for damages in theagreement before him was intended to be a substitute for specific perform-ance. Withers J., in the same case said, that the intention of the partieswas the material questio/i, and that if the penal stipulation is intended tobe merely accessory to the principal obligation, then' it is open to theseller to exact specific performance, but if, on the other hand, the penalstipulation is an alternative obligation, specific performance cannot beenforced. “ If it is intended ”, he says, “ that the party making the penalstipulation may break the principal obligation, but shall pay the conse-quent damages, then the party is restricted to his right of action to recoverthose damages ”, and Laurie J. who joined in the judgment agreed thatin that case “the only remedy competent to'the plaintiff was to exactpayment of the damages The Court there appears to have adoptedthe rules applicable in England, which are set out in Fry on SpecificPerformance (5th ed.), p. 68, in which contracts of this kind are dividedinto three classes :—(1) Where the sum mentioned is strictly a penalty, asum named by way of securing the performance of the contract, as thepenalty in a bond ; (2) Where the stun named is to be paid as liquidateddamages for a breach of the contract; (3) Where the sum named is anamount the payment of which may be substituted for the performance ofthe act at the election of the person by whom the money is to be paid orthe act done ; and it is stated that where the stipulated payment comesunder either of the two first-mentioned heads, the Court will enforce thecontract if in other respects it can, and ought to be enforced. On theother hand, where the contract comes under the third head, it is satisfiedby the payment of the money, and there is no ground for the Court tocompel the specific performance of the other alternative of the contract.The question to which of the three foregoing classes of contracts a parti-cular one belongs is a question of construction. In considering it the Courtsmust in all cases look for their guide to the primary intention of the partiesas may be gathered from the instrument upon the effect of which theyare to decide, and for that purpose to ascertain the precise nature andobject of the obligation." •
We were also referred to the case of Appuhamy v. Silva*, wliereLascelles C.J. said, “ was it intended that the plaintiffs should be entitledto a reconveyance on payment of the agreed sum, a penalty being annexedto secure performance ? If this be the true construction, the fact of apenalty being annexed will not prevent the Court enforcing performanceof what is the real object of the contract. Or does the contract meanthat one of two things has to be done, namely, the reconveyance of theproperty or the payment of the penal sum at the election of the defendant ?If this is the case, the contract is satisfied by payment of the penalty, andthere is no ground for claiming performance of the other alternative ”.From the manner in which this statement of the law is set out it seemsclear that Lascelles C.J. was impressed, if I may respectfully say, correctlyimpressed by the fact elicited in that case that thex plaintiffs were .askingfor a reconveyance of their own land which they had transferred to the
defendant on payment of a certain sura of money.
■2iV. L. R. 270.
* 17 N. L. R. 238.
258
FERNANDO A.J.—Paiva v. Marikar.
Applying that test to the facts of the present case, it seems to me clearthat the condition set out in P 1 constitutes an alternative obligation.The conveyance by the first defendant was to be preceded by a discharge ofthe present existing mortgage which the parties then contemplated wasfor a sum of Rs. 2,000 and affected a number of other lands belonging topersons other than the first defendant. It is true that the first defendantagreed to discharge that mortgage, and to transfer the land to plaintiff,but if the mortgage bond had to be paid by other persons and involvedsuch a large sum as Rs. 2,000 is it likely that the parties intended tocompel the plaintiff to secure a discharge of that mortgage ? It is also tobe noted that at the concluding part of that condition the expressionthat is used is that “ if the said amount is not paid, the second party (theplaintiff) can recover the same according to law I think these wordscan only mean that the parties set out the only remedy that would beavailable to the plaintiff in such an event. The first defendant wasapparently anxious to receive a sum of Rs. 125 on the day the agreementwas signed, and although he was willing to transfer his land at that timein order to secure the money he was not in a position to transfer owing tothe existing mortgage. It was probably expected that that mortgagemight be discharged within the short period of two months that was toelapse between the deed of agreement and of June 30, 1931, whichwas the date contemplated for the transfer, and if within the two months,the first defendant succeeded in getting the mortgage discharged, it wasagreed that he should transfer the land to the plaintiff on the plaintifftendering him the money, but if that mortgage could not be dischargedthen the first defendant was to pay back to the plaintiff Rs. 125 which hereceived along with a further sum of Rs. 125 as damages. In thesecircumstances, I would hold that the intention of the parties was that incase of failure on the part of the first defendant to fulfil his contract, hehad the option of paying the sum of Rs. 250, which was an alternativeobligation, and in view particularly of the discharge of the mortgage bondthat was contemplated, the agreement contained in P 1 was not one ofwhich specific performance could be'demanded.
The plaintiff must also fail on the second question, namely, with regardto.the effect of section 93 of the Trusts Ordinance. It is true that in the.case of Silva v. Salo Nonal, this Court held that the mere registration of anagreement to sell land is of itself notice within the meaning of section 93to a person who acquires the land subsequent to such agreement, but thesection refers to an existing contract of which specific performance will beallowed and the date of the purchase by the second defendant wasSeptember 4, 1933, whereas June 30, 1931, was the date contemplatedfor the transfer to the plaintiff. In my opinion, as I have already stated,the contract was not one of which specific performance would be ordered,and in view of the time that had expired I do not think it can be statedthat in fact this was an existing contract in September, 1933. The mereregistration of the agreement would not be sufficient to show whether thecontract had been waived, or any action brought upon it, or the mattersettled by payment or otherwise. For these reasons I would hold that
32 N. l. R si.
FERNANDO A.J.—Salee v. Natchia.
259
the title acquired by the second defendant on his purchase is not affectedby the agreement P 1, and that the plaintiff must fail on the third issueframed at the trial. I would accordingly allow the appeal, set aside thedecree of the District Court and enter an order dismissing plaintiff’s actionas against the second defendant with costs in appeal and in the Courtbelow.
Moseley J.—I agree.
Appeal allowed.