In the case of Kolli Para Sriramulu v. T. Aswatha Narayana, MANU/SC/0019/1968 : [1968]3SCR387 the Supreme Court has dealt with the effect of a reference to a future formal contract in an oral agreement. It has observed that the fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case.
In the present case if we examine the writing it can be seen that only a sum of Rs. 1101.11 was paid out of the agreed sale price of Rs. 5,75,101.11. The 2nd appellant in his evidence has referred to this payment as a token payment. It does not have the character of earnest money for the due performance of the contract. In fact the respondent did not even encash this cheque.
Bombay High Court
H.S. Khan And Sons And Anr. vs Homi J. Mukadam on 18 September, 1990
Equivalent citations: 1991 (2) BomCR 61, (1991) 93 BOMLR 254
Bench: S Manohar, T Sugla
1. The appellants are the original plaintiffs. The 2nd appellant is a partner of the first appellant firm. The respondent who is the original defendant, owns an immovable property at Bandra, Bombay, being a plot of land bearing No. 59, Final Plot No. 15, situate at Bandra, admeasuring 943.12 sq. metres, together with buildings and structures standing thereon. The respondent is in occupation of the first floor of building standing on this plot. There are four rooms on the first floor. One of these rooms is in the occupation of one Jehangir Contractor, a relative of the respondent, who claims to be a tenant of the respondent. One Pochee, who is also a relative of the respondent, is a tenant in respect of three rooms on the ground-floor. It seems that the respondent was desirous of selling this property. Pochee's son-in-law, one Sharad Doshi introduced the respondent to the 2nd appellant. On 23rd September, 1978 the 2nd appellant visited the respondent at his house and some discussions took place between the parties.
2. On 24th September, 1978 a writing was executed at the residence of the respondent. This writing, which is hand written, is on the letter-head of Sharad Doshi and is signed by the respondent and the 2nd appellant. It is witnessed by E.S. Pochee and Sharad Doshi as also by K.K. Pradhan, an Advocate. It states as follows:
"This is to confirm that I have received (Homi J. Mukadam) today a cheque No. BS 461305 dated 24-9-78 of Dena Bank, Jogeshwari Bombay being deposit against agreed sale of property at Bandra, Bearing Plot No. 59, final No. 15, for Rs. 5,75,101.11 (The sum of Rupees Five lakhs seventy five thousand one hundred one and eleven paises only) owned by me. I also confirm that this sale is subject to the condition that I shall give the vacant possession of the first floor and the part of the ground floor which rented out to Mr. E.S. Pochee. The purchaser takes the responsibility of the remaining tenants". (Sic) At the time of this writing, it was also decided to give to the appellants a power of attorney to enable the appellants to negotiate with the various tenants occupying this property. This power of attorney was accordingly prepared by an Advocate and signed by the respondent on the next day, that is to say, 25th September, 1978. The material recitals of this power of attorney are as follows:
"AND WHEREAS I have agreed to sell to M/s. H.S. Khan & Sons., a Partnership firm having their registered office at Mistry House, S.V. Road, Jogeshwari, Bombay 400 060 and the said H.S. Khan & Associates agreed to purchase from me the said property on "as-is-where-is basis at or for the price and on the terms and conditions mutually agreed upon by us.
AND WHEREAS the formal Agreement for sale on the appropriate stamp paper between myself of the one part and the said H.S. Khan & Sons of the other part recording the terms and conditions of the sale of my said property will be executed in due course.
AND WHEREAS the said H.S. Khan & Sons., have agreed to purchase the said property with a view to develop the same by demolishing the existing structures and constructing new structure consisting of flats, shops and other premises by selling the same on what is known as "Ownership Basis".
AND WHEREAS IT has been agreed that pending execution of the formal Agreement for Sale the said H.S. Khan & Sons are entitled to negotiate with the tenants of my said property and also with the intending purchasers of the flats, shops and premises to be constructed on my said property."
3. It is also necessary to note that the Power of Attorney authorises the appellants, inter alia, to approach tenants of this property and to negotiate with them. However, the appellants have agreed and undertaken that under this power of attorney they shall not receive or collect any amount, nor shall they enter into an agreement for the sale of any flat, shop or premises in the building proposed to be constructed. Even the power to negotiate for finance does not authorise the appellants to enter into any agreement of sale or to accept any amount by way of earnest money deposit or part payment until the completion of sale.
4. According to the respondent negotiations for the sale of the property fell through. Hence by his advocate's letter dated 14th October, 1978 the respondent stated that the negotiations had failed and the parties had not agreed to the terms and conditions on which the sale could be completed. Under the circumstances the power of attorney dated 25th September, 1978 stood revoked and cancelled and the appellants were directed to deliver the power of attorney to the respondent.
5. Under the writing of 24th September, 1978 the appellants had also given to the respondent a cheque for Rs. 1,101.11 ps. as token money. This cheque had not been encashed by the respondent. The respondent stated in the letter of 14th September, 1978 that the cheque would be returned to the appellants on receipt of the power of attorney. By their reply dated 24th October, 1978 the appellants denied that there was no concluded contract. They stated that the agreement for sale was valid and subsisting and that the respondent was not entitled to revoke the agreement.
6. About 2 years thereafter by their letter dated 28th August, 1980 the appellants called upon the respondent to complete the sale. There was a second letter of 20th March, 1981 to the same effect and ultimately the present suit was filed on 5th July, 1981, for specific performance of the agreement of 24-9-78 and for other reliefs. The learned Single Judge had dismissed the appellants' suit by his judgment and order dated 18th December, 1987. Hence the present appeal.
7. The first question that we have to decide is whether there was any concluded contract between the appellants and the respondent for the sale of the said property. The writing of 24th September, 1978 mentions the agreed sale price of Rs. 5,75,101.11. It also states that the sale is subject to the condition that the respondent would give vacant possession of the first floor and the part of the ground floor rented out to E.S. Pochee, while the appellants take the responsibility for the remaining tenants. It also records that the 2nd appellant handed over a cheque to the respondent. It is in evidence that this was for Rs. 1101.11 only, and according to the 2nd appellant himself, as stated in his evidence, it was for a token amount. No other terms and conditions are recorded in this writing.
8. Apart from this writing, a power of attorney was executed on the next day pursuant to the arrangement between the parties. From the recitals in the power of attorney it is clear that the parties contemplated a formal agreement for sale on appropriate stamp paper recording the terms and conditions of sale, which was to be executed at a future date. In fact the 2nd appellant as well as the respondent, in their evidence have accepted that they contemplated the execution of a formal agreement of sale on a later date. We have therefore to see whether the parties intended not to be bound until a formal agreement of sale was executed or whether they intended to be bound by the writing of 24th September, 1978, as an agreement of sale.
9. In the case of Kolli Para Sriramulu v. T. Aswatha Narayana, the Supreme Court has dealt with the effect of a reference to a future formal contract in an oral agreement. It has observed that the fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case.
10. In the present case if we examine the writing it can be seen that only a sum of Rs. 1101.11 was paid out of the agreed sale price of Rs. 5,75,101.11. The 2nd appellant in his evidence has referred to this payment as a token payment. It does not have the character of earnest money for the due performance of the contract. In fact the respondent did not even encash this cheque. Secondly, apart from stating that vacant possession of the first floor and part of the ground floor rented out to E.S. Pochee would be handed over by the respondent to the appellants, and the appellants take the responsibility for the remaining tenants, no other terms and conditions of the contract have been spelt out. It is in evidence that at the stage when this writing was executed, the appellants had not met any of the tenants of the said building apart from Pochee. Nor were the appellants in a position to ascertain whether they were in a position to get these tenants vacated so as to develop the property. This aspect is relevant because, the appellants wanted vacant possession of the property in order to develop it. Even in the power of attorney which is executed the next day, it is set out that the appellants have agreed to purchase the property with a view to develop it by demolishing the existing structure and constructing a new structure. If this was the purpose of purchasing the property, the appellants would, naturally, be expected to ascertain or atleast enquire from the tenants whether, on offer of alternate accommodation, they should be willing to vacate. It is not likely that the appellants would enter into an agreement of sale without any enquiry. No such enquiry was admittedly made by the appellants up to 24th September, 1978. In fact, this is the very reason why on the next day, a very limited power of attorney was granted by the respondent to the appellants in order that the appellants may ascertain from the tenants whether they could be persuaded to vacate, as also to ascertain whether they could raise any finance for the project of developing this property. It is important to note that under the power of attorney the appellants did not have any authority to make any binding commitments either in respect of development of the property or to sell any of the flats or premises to be constructed on this property. Had there been a concluded agreement for the sale of this property there would not have been any such limitation on the power of attorney which was executed on the next day.
11. Ordinarily when a property is to be purchased with a view to develop it by demolishing the existing structures and constructing a new structure consisting of flats, shops and other premises which are to be sold on what is known as ownership basis, the developer proceeds to develop the property on the strength of the agreement of sale. It is only after a co-operative society or a condominium is constituted that a conveyance of the property is executed by the original seller in favour of such a co-operative society or a condominium. The developer, therefore, is ordinarily entitled to proceed with the development of the property on the strength of the agreement of sale.
12. In the present case however, the appellants have not been authorised to develop the property until a formal agreement of sale is executed. This clearly indicates that the intention of the parties was not to be bound by any agreement of sale until a formal agreement of sale was executed. Before entering into a contract of sale the appellants wanted to negotiate with the tenants in occupation of the said property in order to ascertain whether the appellants were in a position to obtain vacant possession of the entire property. It was only after so ascertaining that the parties contemplated a formal agreement of sale. Moreover, the appellants did not take any steps even to investigate the title of the respondent to the property. They would normally have done so if there had been a concluded agreement of sale. In these circumstances in our view, if we read the writing of 24th September, 1978 along with the power of attorney of 25th September, 1978 it becomes clear that the writing of 24th September, 1978 cannot be considered as a binding agreement between the parties. At the highest, it is an agreement to enter into an agreement for sale, which cannot be legally enforced.
13. In Chitty on Contracts Volume I, 26th Edition, Paragraph 824 (Page 522) it is stated, quoting from Marks v. Whiteley, (1912)1 Ch, 735, 754, that "where several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to the case as if they were one deed". Yet although the words " contemporaneously executed have been used, there is no doubt that this is not essential, so long as the Court, having regard to the circumstances, comes to the conclusion that the serious of documents represents a single transaction between the same parties". In the present case the writing of 24th September, 1978 and the power of attorney of 25th September, 1978 are both a part of the same proposed transaction. They show the intention of the parties in signing the two documents. Looking to the terms of the documents and the circumstances set out earlier, there was no concluded agreement of sale between the parties at all in the present case.
14. There is another circumstances also which indicates that the writing of 24th September, 1978 was not a concluded contract. Some important terms relating to the time and manner of payment of the consideration amount have not been specified in the writing. This aspect assumes importance in the present case because the respondent has stated in his evidence that apart from the rent which he received from this property, he had no other source of income. If that is so, he had to arrange for alternative accommodation for himself as well as for his tenant Pochee and for Jehangir Contractor so that he could hand over the vacant possession of the 1st floor and 3 rooms on the ground floor to the appellants. This could only have been done with the help of the appellants out of the consideration money receivable. In his cross examination the respondent has stated that he was on the lookout for alternative accommodation and that he had taken the responsibility of securing vacant possession of the premises occupied by Pochee and Jehangir Contractor. He did not have any money or resources to acquire alternative accommodation . This evidence is not shaken in cross examination. Presumably therefore, according to the respondent, he needed the appellants' assistance for acquiring alternative accommodation. As against this, it is the appellants' evidence that they were required to pay consideration amount in one lumpsum only after negotiations with the tenants were concluded. The 2nd appellant has stated in his cross-examination that there was an oral agreement to pay the consideration after the tenants vacated the premises. The parties were therefore clearly not ad idem in respect of the date and manner of payment of the consideration amount. This also supports the conclusion that all the terms of the agreement of sale were not finalised when the writing of 24-9-78 was executed. Hence there was no concluded contract.
15. In view of this conclusion we need not examine the other contentions raised before us by the parties. Since both sides, however, have made submissions which were considered by the trial Judge, we propose to deal with them briefly. It is the contention of the respondent that even if one assumes that there was a concluded agreement of sale, it should not be specifically enforced because (1) the terms of the agreement are uncertain and hence cannot be specifically performed; (2) the appellants were not and are not ready and willing to perform their part of the contract; and (3) the contract is a conditional contract, subject to the respondent giving vacant possession of the 1st floor and three rooms on the ground floor. The respondent is not in a position to comply with this condition. Hence the contract cannot be enforced.
16. We have already held that the terms relating to the time and manner of payment of consideration are uncertain. Moreover, the performance of the condition stipulated in the document of 24-9-78 relating to the respondent handing over vacant possession of certain portions, depends, on the payment of consideration or at least a part thereof. The appellants contend that consideration is to be paid on the completion of sale. In these circumstances, looking to the uncertainty of terms, specific performance cannot be granted, especially as the terms require a third party to hand over vacant possession.
17. The appellants submit that they have been throughout, ready and willing to perform their part of the contract and their readiness and willingness is not denied by the respondent in his written statement. Nevertheless, an issue has been framed on these aspect and evidence is also led. We have therefore, to decide on the basis of the material before us whether the appellants have been, throughout, ready and willing to perform their part of the contract. In the correspondence which is exchanged prior to the filing of the suit, there is no averment that the appellants were ready and willing to purchase the property even though the defendant-respondent was not in a position to give vacant possession of the property in the possession of Pochee and Jehangir Contractor.
Nor does the plaint contain an averment that the appellants are willing to purchase the property even if vacant possession of the portion in the possession of Pochee and Contractor is not given. A statement to this effect only in the cross-examination of the 2nd appellant, in our view, is not enough to establish the appellants' readiness and willingness, throughout, to purchase the property.
18. It is also alleged that the appellants were not ready and willing to perform their part of the contract because they never tendered the consideration amount nor did they tender a draft conveyance to the respondent. In our view these factors do not necessarily show a lack of readiness and willingness on the part of the buyer to perform the contract. But looking to the totality of circumstances, there is little material to establish that the appellants were, throughout ready and willing to perform their part of the contract, even if the respondent was not able to give vacant possession as per the writing.
19. This, however, would not have deprived the appellants of damages, had there been a breach on the part of the respondent, of a concluded conduct Since there is no contract, the question does not arise.
20. The respondent also contends that the document of 24-9-78 is a conditional contract (assuming it to be a contract) because it is subject to the condition that the respondent was to hand over vacant possession of the premises not merely in his own occupation but also in the occupation of his tenant Pochee. This, he was unable to do. Hence the contract has come to an end. Pochee, in his evidence, as well as Jehangir Contractor in his evidence, have stated that if alternative accommodation had been offered to them by the respondent, they were willing to hand over possession of the premises in their occupation. But they were not given alternate accommodation by the respondent. The respondent however, has stated that he was not in a position to obtain alternative accommodation, looking to his financial condition, without the assistance of the appellants. The appellants did not help him adequately in securing alternate accommodation. The 2nd appellant has denied any responsibility for securing alternate accommodation for the respondent. One thing is clear from the evidence. Despite some attempts the respondent did not get suitable alternate accommodation for himself and for Pochee and Contractor. The failure to secure such accommodation does not appear to be deliberate or motivated by a desire to get rid of the contract. Hence there is substance in the contention of the respondent that he was unable to fulfil the essential pre-condition of the contract. We also do not have any evidence that this condition was waived by the appellants.
21. In our view, looking to the circumstances of the present case, there is no concluded contract between the parties on the basis of which any relief can be granted to the appellants.
In the premises the appeal is dismissed with costs.
On the application of the appellants interim order dated 29th February, 1988 in this appeal to continue for a period of 8 weeks from today.
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