W. D. BAIYA, Appellant , and K. D. A. KARUNASEKERA, Respondent

067-NLR-NLR-V-56-W.-D.-BAIYA-Appellant-and-K.-D.-A.-KARUNASEKERA-Respondent.pdf

GRATIAEN J.—Baiya v. Karunasekera
265
1954Present: Gratlaen J. and Fernando A.J.W. D. BAIYA, Appellant, and K. D. A. KARUNASEKERA,RespoiulentS. C. 92—D. C. Kurunegala, 5,662 L
Vendor and purchaser—Sale of immovable property—Tender'of price by purchaser—Sufficiency of guarantee that is reasonably adequate— “ Escrow ”—Proviso (3)to 8. 02 of Emdence Ordinance.■
In the absence of an agreement on the point, a purchaser of immovableproperty would make a sufficient tender of the purchase price if he offers securitywhich effectively guarantees payment of the price inunediately upon thevendor's complete fulfilment of his reciprocal obligations.
Held further, that a deed may be delivered on a condition that it is not to tieoperative until some event happens or some condition is performed. In suclia case it is until then an escrow only.
J^^.PPEAL from a judgment of the District Court, Kurunegala.
Certain immovable property had been sold to the defendant subjectto an express agreement that the defendant should in turn sell it to theplaintiff for Rs. 4,200 within a stated period. As plaintiff did not possessthe money to buy the property he successfully negotiated with the Agri-cultural and Industrial Credit Corporation to raise a loan on the propertyfor Rs. 5,000 by mortgaging it to the Corporation immediately on thodefendant signing a conveyance of the property in his favour. Theintention was that Rs. 4,200 out of the loan should be applied towardsthe consideration for the sale. Defendant, however, refused to affixhis signature to the transfer of the property unless he received the purchaseprice at or before the time of the signature. The plaintiff thereuponinstituted the present action asking for a decree ordering the defendant toconvey the property to him.
//. V. Perera, Q.C., with N. C. J. Rustomjee, for the plaintiff appellant.
N. K. Chok&y, Q.G., with C. E. S. Perera, Q.C., and T. B. Dissanayake,fur the defendant respondent.
Cur. adv. vult.
July 20, 1954. Gratiaen J.-—-
Tho plaintiff had sold three allotments of land to two persons namedDon Dharmadasa Gunasekera and Don Lowis Perera in 1945. He wasanxious to re-acquire the properties, but did not possess the-means to do so.Ho succeeded, however, in persuading the defondant to purchase themfor the time being from Perera and Gunasekera (by PI dated 4thNovember, 1946), subject to an express condition that the defendantshould in turn sell them to the plaintiff for Rs. 4,200 at any time before4th November, 1949.
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J. X. B 43185 – 1592 (3/55)
266
ORATIAEN J.—Baiya V. Ranmasekera
The plaintiff was very energetic in his endeavours to place himself in aposition to exercise this option in his favour. Certain proceedingsbetween the parties were initiated before the Debt Conciliation Bpard,but I agree with Mr. Choksy that a settlement arrived at in January, 1948,before that tribunal has not materially altered the legal rights or obliga-tions of the parties under PI. What is important, however, is thatshortly afterwards, in pursuance of that settlement, the plaintiff success-fully negotiated with the Agricultural and Industrial Credit Corporationto raise a loan on the properties for Rs. 5,000 by mortgaging them *o theCorporation immediately on the defendant signing a conveyance in hisfavour in terms of PI. Tho intention was that Rs. 4,200 out of the loanshould be applied towards the consideration required to settle thedefendant’s claim. The defendant agreed to co-operate in implementingthis arrangement which provided a practicable solution to the plaintiff’sproblem without derogating from the defendant’s contractual rights.
The Corporation was precluded by statute from handing over thoamount of the promised loan until the defendant’s deed of transfer infavour of the plaintiff, and tho plaintiff’s primary moj-tgage in favour ofthe Corporation, had both been duly registered. It was thereforearranged that these two instruments should be signed, notarially attested,and forwarded for registration at the same time ; this arrangement, ifimplemented, would make it possible for the Corporation to pay a sumof Rs. 4,200 on the plaintiff’s behalf to the defendant as soon as thoregistration of the transfer and the mortgage had been contemporaneouslyeffected. Accordingly, tho documents were prepared for signature andboth parties were invited to attend a notary’s office together on 25thJanuary, 1949, in order to complete the transaction. Eventually, a dead-lock arose because, although the defendant was still willing to implementthe plan, he maintained that he was legally entitled to receive the purchaseprice at or before the time when he actually signed the transfer. Thoplaintiff denied that this was a correct interpretation of the defendant’srights under PI.
There were still several months to rim before the expiry of the time-limit within which the plaintiff could exorcise his option. Throughoutthis period the Corporation kept open its offer, in terms of the agreedplan, to hold a sum of Rs. 4,200 (out of the promised loan of Rs. 5,000)at the defendant’s disposal pending contemporaneous execution andregistration of the necessary instruments. The defendant, howovor,was adamant in his refusal to execute the transfer unless tho considerationwas paid to him “ against signature ”. Alternative offers to deposittho money (pending registration) in Court or evon with tho defendant’sown lawyer (who, it was suggested, should himself be responsible forattesting and attending to the registration of the documents) were alsorejected.
The plaintiff thereupon instituted the present action in October, 1949,and asked for a decree ordering the defendant to convey the propertiesto the plaintiff in fulfilment of his obligation under PI. The foundationof his claim was that he had made a good and sufficient tender of theconsideration within the stipulated time-limit.
ORATlAElf J.—Daiya t>. Jtarunasekera
269
Upon tKe facts which I have set out, the question for our adjudicationresolves itself into a question of law. The learned judge decided theissue in favour of the defendant and dismissed the plaintiff’s action.He held that, upon a proper construction of the agreement of sale, thedefendant w’as entitled to insist on payment of the considerationcontemporaneously with the signing of the conveyance demanded by theplaintiff.
It is, of course, a sound proposition of law that a tender of paymentis bad “ if it is subject to conditions to which the (creditor) would have aright to object ”—Odendhal v. de P less is l. As to the form of the tender,the defendant was not averse to accepting in lieu of cash a cheque drawnin his favour by the Corporation. His sole objection to the tender relatedto the point of time when the cheque was to be made available to him.
A slight complication has no doubt arisen in the present case because,in order to obtain the funds to pay the purchase price, the plaintiff wasunder a necessity to mortgage the properties to the corporation. I shallconsider at a later stage whether this complication had the effect ofvitiating the tendcj. At the outset, however, I shall discuss the questionwhether the defendant was justified in demanding payment of theconsideration as soon as he had-signed the transfer, and in refusing otherwiseto proceed further with the implementation of the agreed plan.
Fulfilment of the covenant to sell the properties on payment of Rs. 4,200involved obligations on both sides. In the absence of an agreementfixing some other limit of time for payment of the consideration, thecommon rulo law is that the payment of the purchase price and theeffective passing of title from the vendor to the purchaser should takeplace pari passu—Trichardt v. Muller 2. Where the parties to the contractarc willing to co-operate with one another, the practical difficulty ofsynchronising the performance of reciprocal obligations presents noserious obstacles. Voet 19.1.23. discusses the situation which arises when,owing to mutual distrust or business caution, one party refuses to performhis obligations until the other’s obligations have first been fulfilled.“ Nothing else remains ”, says the jurist, “ but for both the thing sold(if it be a movable) and the promised price to be sequestered, and for thedepositary to deliver the price to the vendor and the thing to the purchaser;or that both parties give adequate security for fulfilment of the contract. ”
This principle of the Roman-Dutch law has also been applied by the•South African Courts where immovable property is the subject of a sale.“’’The expedient which is resorted to in practice is quite reasonable ;transfer is seldom or never passed into the name of the purchaser untilsome kind of guarantee is given, usually a bank guarantee, that the moneywill bo paid ”—Trichardt’3 case (supra) at p. 178.“ When the rule
(for simultaneous payment and delivery) cannot be strictly carried out,Voet says that some reasonable compromise may "bo adopted ” —ibid.at p. 180.
This eminently sensible solution was approved by a very distinguishedbench of judges in Breytenbach v. Van Wijk 3. Wessels J., deliveringthe principal judgment, explained that the vendor was obliged to transfer
> (tots) s. a. a. i). trr,.- (into) r. /J. n. trr,.
3 (1022) s. A. A. I).
ORATTAEN J.—liatya v. Karniumel-rrn
2flS
liis title if he was offered adequate security for the due fulfilment of tliopurchaser’s part of the contract. “ Any guarantee that is reasonablyefficient ”, he said, “ will meet the case ”. The security or guaranteeoffered must of course be adequate ; in addition, its availability forimmediate realisation must not be delayed beyond the point of timewhen the vendor’s contractual obligations have been completely dis-charged. In the present case, the adequacy of the security or guaranteeoffered (i.e., payment by the Corporation’s cheque) is not disputed ;the only question is whether the refusal to hand over the cheque as soon asthe transfer was signed and before it was even delivered, constituted,in the circumstances of this case, a bad tonder.
In this country the bare execution of a notarially attested conveyanceof land represents only a partial fulfilment of the vendor’s obligations undera binding agreement to sell immovable property. He must implementthe agreement not only by executing an appropriate instrument-in proper form, but also by taking certain other steps effectively totransfer his title to the purchaser. Under our law, the affixing of thovendor’s signature to the conveyance does not automatically operato topass title. Delivery of the deed is the minimum pre-requisite (osconstituting constructive delivery of the land itself) to the creation of atitle which is sufficient even to enable the purchaser to maintain anaction to recover the property from “ a third parly in possession without,or under a weaker, title ”—Appuhamy v. Appuhamy l. Berwick J.explained at p. 67 that in Ceylon “ the notarial execution and tlioregistration of the deed—formerly in Court and now with the Registrarof Lands—with delivery of the deed takes the place of the old Dutchsymbolical delivery before the judge and registration of the proceedingsamong the acts of court ; noth the same result as in Holland, tho principlesbeing the same—viz., contract of sale plus symbolic delivery, equal todominium, with the consequent right to sue in ejectment ”. As againstthe vendor, however, “ the purchaser is not bound to accept the convey-ance only ; he is entitled to ask to be put in vacant possession ”—Ratwalte v. Dullewe 2.
It is always a wise precaution to insert an express torm in the agreementof sale unambiguously fixing the time for payment of the consideration.In that event, the agreement would precisely regulate the rights andobligations of the parties in this respect. If the contract is, howover,Bilent on the point, a purchaser would make a sufficient tender of theconsideration if he offers security which effectively guarantees payi&ontof the consideration immediately upon the vendor’s complete fulfilmentof his reciprocal obligations. Provided, therefore, that the securityoffered is perfectly adequate to ensure the vendor’s protection, he cannotjustifiably refuse to fulfil his part of the contract unless he is assured ofpayment of the consideration before title has passed to the purchaser.In South Africa, apparently, the registration of the deed is a pre-requisiteto the transfer of dominium. I do not say that this is also the law ofCeylon, but a binding agreement to “ convey ” immovable property isnot fulfilled in this country by the mere affixing of a signature to a notarialconveyance. In the present case, the defendant had been invited, and1 (1880) 3 S. C. C. 61 F. B.« (1907) 10 X. L. Ii. 301 F. B.
Q RATI ABN J.—Balya v. Karunasekera
200
he had. agreed, to pass dominium by delivery of a deed of transfer onlyafter it had been duly attested and registered. In view of this agreement,the time fixed for delivery of the deed was also the proper time for thereceipt of the purchase price.
For these reasons, the plaintiff’s action would certainly have beenmaintainable if the Corporation had, on the plaintiff’s behalf, guaranteedpayment of the purchase price as soon as the defendant’s conveyance, dulyregistered, was actually delivered to the plaintiff. Indeed, the plaintiffmight well have demanded vacant possession as well before the money wasreleased.•
The only outstanding question is whether the additional conditionimposed by the Corporation vitiated the tender—namely, that theplaintiff’s contemporaneous mortgage in favour of the Corporation mustalso be registered before the money was finally released to the defendant.
The defendant would certainly have been justified in rejecting thiscondition if it was calculated to prejudice the defendant’s rights or,alternatively, if its implementation would have resulted in the slightestpostponement of the appropriate point of time for the receipt of theconsideration (for instance, if the execution and due registration of bothinstruments could not have been virtually synchronised). But in truththere was no such risk. Both instruments had been prepared for signaturein due form, and the arrangement agreed to by the defendant was thatboth parties should attend the notary’s office at the same time ; thatthe signature to the mortgago should be taken immediately after thetransfer was signed, and that both instruments should contempora-neously be tendered for registration by the same attesting notary. Inthe result, the implementation of the agreed plan would have ensured thatthe defendant would receive the Corporation’s cheque exactly as if thetransaction had not been complicated by this special feature.
0 Mr. Choksy raised a pertinent question which I must hot overlook.What, he asked, would be the position if the plaintiff refused to sign themortgage after the transfer had been signed ? In that event (it wasasked) would not the defendant have parted with his title to the landand also been deprived of his consideration ? The answer is that therewas no legal or practical foundation for the entertainment of suchfears. I have already explained that the title could not have passed with-out delivery of the deed, mid it was implicit in the procedure agreed to thatthe deed should not be delivered to the plaintiff by the notary until afterthe contemporaneous registration of both instruments. In other words,the notary (selected by the defendant himself) was required in this parti-cular case to perform the functions of the “ depositary ” recommendedby Voet {supra). “ A deed may be delivered on a condition that it isnot to be operative until some event happens or some condition is per-formed. In such a case it is until then an escrow only ”—Macedo v.Strand h If, therefore, the plaintiff dishonestly backed out of thearrangement by refusing to sign the mortgage after the transfer had beensigned, the entire transaction would have fallen through and the title wouldhave continued to vest in the defendant. Vide also Proviso (3) to section92 of the Evidence Ordinance and Punchi Nilame v. Dingiri Etana 2.
> (1922) A.a. 330 at 337.* (1909) 1 Curr. L. B. 239.
270
GRATIAEN J.—Baiyav. Katunasekera
In the particular circumstances of this case, the defendant wrongfullyrejected in anticipation any form of tender or guarantee except paymentbefore the title had effectively passed to the plaintiff in terroB of the.agreed plan. The plaintiff has therefore established his cause of actionto claim a transfer of the properties in terms of the covenant contained inVI…
‘Mr. H. V. Perera informed us at the conclusion of his argument thatthe plaintiff is now willing and able to deposit Rs. 4,200 unconditionallyin Court, to be paid to the defendant upon the execution, attestation anddelivery of the deed of transfer. I would therefore set aside the judgmentunder appeal in so far as it dismisses the plaintiff’s action, and enter adecree in the following terms :—.
(а)that the plaintiff be ordered to deposit a sum of Rs. 4,200 to the
credit of this action within 14 days from the date on whichthis record is received in the lower Court, and that an orderfor payment be issued in favour of the defendant upon theexecution and attestation of the deed of transfer hereinaftermentioned ;
(б)that, within 14 days from the date of such deposit, tho defendant
must execute a conveyance at the plaintiff’s expense infavour of the plaintiff (in a form agreed upon or, in the absenceof such agreement, in a form approved by tho Court) of thoproperties described in the schedule to the deed Pi ;
(c) that if the defendant fails to comply with (b) above, the learnedDistrict Judge should take steps to have tho approvedconveyance signed by an officer of the Court in terms of thoCivil Procedure Code.
There remains for consideration the defendant’s claim in rcconvention.It has been established that or 3rd March, 1950, i.e., some months after theinstitution of this action, the plaintiff, without due process of law, tookforcible possession of two of the properties specified in the schedule to FI.■and also refused to hand over a third property which ho had pieviouslvoccupied with the leave and licence of the defendant. This conduct waswholly unjustified, and the decree ordering him to pay damages to tho■defendant at the rate of Rs. 350per annum must therefore be affirmed.The damages will be payable with effect from 3rd March, 1950, until thedate of the conveyance ordered to be executed in terms of my judgment.
Should the plaintiff fail to deposit the consideration within the timestipulated in this decree the plaintiff’s action will stand dismissed withcosts in both courts, and the decree for ejectment in favour of tho defon••dant will also be restored. In that-event, the damages will be payableuntil the date on which the defendant is restored to possession of thoproperties. Subject to compliance with paragraph (a) of this decree,■the defendant must pay to the plaintiff the costs of this appeal togetherwith half the costs of the proceedings in the Court below.
Fernando A.J.—I agree.
Jinhjment set asi'te.