Whether S.73 Contract Act is applicable to breaches of contract relating to immovable property?

It is next urged that the plaintiffs were not entitled to claim damages for breach of a contract relating to immoveable property and that in any case they had no right to re-sell the property. Ordinarily the remedies which are available to a person who is injured by breach of a contract of sale are these. He can either rescind the contract and sue for restitution to his former position or he can affirm the contract and sue either for damages for the breach or for the specific performance of the agreement : see Halsbury's Laws of England, Vol. 25, Part 7, Ss. 3, 5 and 6. It is true that in England the rule enunciated in 2 W.B 1. 1078 Flureau v. Thornhill, (1776) 2 W.B. 1 1078 and confirmed in 7 H.L. 158 Bain v. Fothergill, (1875) 7 H.L. 158=13 L.J. Ex 243=31 L.T. 387=23 W.R. 261, does not permit the purchaser to recover damages for breach of a contract of sale relating to immoveable property, but that rule is of an exceptional nature devised in view of the peculiar difficulties of conveyancing due to the complicated system of titles under which immoveable property is held in England. That rule was no doubt applied in 11 Bom 272 Pitambar Sundarji v. Cassibai, (1887) 11 Bom 272, but in a series of subsequent cases it was held not applicable in India in face of the express provisions of S. 73, Contract Act, which were held to be comprehensive enough to apply to breaches of contracts arising from the sale of moveable and immoveable property : see 32 Bom 165 Ranchhod v. Manmohandas,(1908) 32 Bom 165=9 Bom L.R. 1087, 38 Cal 458 Nabinchandra Saha v. Krishna Barana Dasi, (1911) 38 Cal 458=9 I.C. 525 and 40 Mad 338(4). It is now well settled that S. 73, Contract Act, is applicable to breaches of contract relating to immoveable property. 

IN THE HIGH COURT OF NAGPUR

Second Appeal No. 301 of 1933

Decided On: 16.09.1935

Appellants: Motilal
Vs.
Respondent: Seth Jamnadas and others

Hon'ble Judges/Coram:
Niyogi, A.J.C.

Citation: AIR1936Nag4

1. This is a defendant's appeal against the decree of the District Judge, Jubbulpore, which affirmed the original Court's decree granting damages for breach of contract to sell immoveable property. The plaintiff alleged that the defendant Motilal had offered to purchase two houses out of their estate which was then under the management of the Court of Wards for Rupees 9,000; and that on 24th October 1930 the Court of Wards, acting on their behalf, accepted the offer, whereon the defendant paid Rs. 100 as earnest money. Subsequently, on 6th December 1930, he resiled from the agreement and failed to perform it by payment of the, price and accepting a conveyance which the Court of Wards was prepared to execute in his favour, even when expressly asked to do so by a notice served on him on 2nd January 1931. The Court of Wards thereon sold the houses on 28th October 1931 to one Ratilal of Bombay for Rs. 8,000 after giving due intimation to the defendant of its intention to re sell the houses by a formal notice delivered on 18th April 1931.

2. The Court of Wards, representing the plaintiffs, instituted the suit out of which this appeal arises claiming damages estimated on the difference between the agreed and re-sale prices, with interest. The claim was laid for Rs. 1,693. The defendant contended that the contract of sale was subject to the proviso that the vendors demolished a Dehar (grave) and obtained an agreement from the trustees of an adjoining temple that they would not object to the removal by the defendant of a projecting cornice. The other pleas raised by the defendant are not material for the decision of this case and need not be reiterated. Both the Courts below found the defendant's contentions disproved and decreed the plaintiffs' suit to the extent of Rs. 900 only, which was the difference between the contract price of Rs. 9,000 and Rs. 8,000 realised by re-sale, plus Rs. 100 already paid by the defendant as earnest money. On behalf, of the appellant it was urged in limine that the plaintiffs' suit was not tenable in the absence of proof of sanction by a competent authority to file it. A similar objection was raised as to the sale and the re-sale. The plea was raised for the first time in this Court, but as it went to the root of the case the respondents were asked to produce necessary documents in this connation. They have produced the documents which prove beyond doubt that the suit and the sale were duly authorised, and I am satisfied that there has been no illegality as alleged by the appellant. The appellant's preliminary contention must therefore fail.

3. It is contended that the grave and the projecting cornice detracted from the utility of the houses and that they therefore constituted not only material defect in the property but also defect in the title so as to justify the defendant to rescind the contract of sale. Reliance is placed on 54 All 774 Nawal Kishore v. Sarju Ram Sahu, 1932 All 516=139 I C 99=1932 A.L.J 611=54 All 774, 50 Cal 615 Nursing Dass v. Chuttoo Lal, 1923 Cal 641= 74 I.C. 996=50 Cal 615=MANU/WB/0493/1923: 27 C.W.N. 639, 52 Bom 883 Harilal Dalsukhram v. Mulchand, 1928 Bom 427=113 I.C. 27=52 Bom 883=30 Bom L.R. 1149 and 40 Mad 338 Adikesavan Naidu v. Gurunatha Chetti, 1918 Mad 1315=39 I.C. 358=40 Mad 338=32 M.L.J 180 (F.B). All the cited cases were those in which compensation was awarded on account of defect of title and not material defect in the property. Apart from these cases it may be conceded that the material defect in the property may include defect in title, as was held in 20 Bom 522 Hali Essa Sulleman v. Dayabhai Parmanandas, (1896) 20 Bom 522. The legislature accepted the view and gave effect to it by inserting the words "or in the seller's title thereto" in sub-Cl. 1(a), S. 55, T.P. Act. But this will not make any difference if the buyer is aware of such a defect. It is virtually admitted in the present case that the defendant was aware of the defect, if at all it was one, in the property which he contracted to purchase. Any suggestion of non-disclosure of this defect is refuted by the very nature of the plea raised by the defendant to the effect that the plaintiffs had stipulated to remove the defect. Faced with this difficulty it is urged on the authority of the abovementioned decisions that the buyer's knowledge of the defect in the seller's title to the property does not preclude him from repudiating the contract of sale. It must be noticed that in none of the cited cases the contract was allowed to be rescinded but the aggrieved party was only allowed compensation. I find it difficult to accede to the contention that a buyer is justified in repudiating a contract of sale on account of the existence of some defect in the subject-matter of the sale notwithstanding that he was aware of it when he entered into the contract. Although in a sense all defects in the land agreed to be sold are defects of title, still from a practical point of view the two defects must be distinguished, since the defects in the property only prejudice a purchaser in the physical enjoyment of the property and the defects in title expose him to adverse claims. While the defect in the property is immediately known to the buyer, who can estimate the value of the property taking into consideration the defect, the defect in title is not capable of being provided for at the moment as it is in its operation and effect potential and prospective. Until the person having the real or superior title comes forward to assert it and claim his remedy the exact nature and the scope of the danger arising from the defect in seller's title cannot be ascertained, but this cannot be said of defect in property which is visible and capable of being remedied, or, at any rate, definitely provided for by the purchaser. I cannot therefore persuade myself to the view that the buyer is entitled to resile from the contract of sale when he enters into it with full knowledge of the limitations on his physical enjoyment of the property due to any defect in it.

4. It is next urged that the plaintiffs were not entitled to claim damages for breach of a contract relating to immoveable property and that in any case they had no right to re-sell the property. Ordinarily the remedies which are available to a person who is injured by breach of a contract of sale are these. He can either rescind the contract and sue for restitution to his former position or he can affirm the contract and sue either for damages for the breach or for the specific performance of the agreement : see Halsbury's Laws of England, Vol. 25, Part 7, Ss. 3, 5 and 6. It is true that in England the rule enunciated in 2 W.B 1. 1078 Flureau v. Thornhill, (1776) 2 W.B. 1 1078 and confirmed in 7 H.L. 158 Bain v. Fothergill, (1875) 7 H.L. 158=13 L.J. Ex 243=31 L.T. 387=23 W.R. 261, does not permit the purchaser to recover damages for breach of a contract of sale relating to immoveable property, but that rule is of an exceptional nature devised in view of the peculiar difficulties of conveyancing due to the complicated system of titles under which immoveable property is held in England. That rule was no doubt applied in 11 Bom 272 Pitambar Sundarji v. Cassibai, (1887) 11 Bom 272, but in a series of subsequent cases it was held not applicable in India in face of the express provisions of S. 73, Contract Act, which were held to be comprehensive enough to apply to breaches of contracts arising from the sale of moveable and immoveable property : see 32 Bom 165 Ranchhod v. Manmohandas,(1908) 32 Bom 165=9 Bom L.R. 1087, 38 Cal 458 Nabinchandra Saha v. Krishna Barana Dasi, (1911) 38 Cal 458=9 I.C. 525 and 40 Mad 338(4). It is now well settled that S. 73, Contract Act, is applicable to breaches of contract relating to immoveable property. The only question is whether it can be said that any loss or damage accrues to the vendor when the vendee refuses to implement the contract of sale. It is argued that the breach of a contract by the buyer does not in any way affect the value of the property and therefore it cannot be predicated that any loss has arisen in the natural and usual course of things from such a breach.

5. It is true that it is not easy or even possible to determine the precise value of the land after the breach in relation to the contract price, as in the case of marketable goods, but it cannot be contended that nor loss whatever accrues from the breach. The loss which is patent is the loss of the bargain. The seller who wishes to part with his property for cash attaches ex hypothesis more value to cash than to his property. If as the result of the breach committed by the buyer he is deprived of the money that he expected to get from the sale, his deprivation of it is the loss which naturally and directly follows from the breach, and there is no reason why he should be deprived of his remedy at law to claim damages when he, in equity, is entitled to specific performance. The real difficulty is as to the measure of damages. In regard to sale of goods the rule is settled that the measure of damages upon a breach by the buyer is the difference between the contract price and the market price at the date of the breach : see 43 Cal 493 Jamal v. Moola Dawood Sons & Co., 1915 P.C. 48=31 I.C. 949=43 I.A. 6=43 Cal 493=8 L.B.R. 343 (P.C.) and 47 Bom 563 Keshavlal Borthers & Co. v. Diwanchand & Co.,1923 P.C. 105=74 I.C. 396=50 I.A. 142=47 Bom 563 (P.C.). But this criterion is not easily applicable to contracts relating to land in which case the principle adopted by the Common Law Courts in England must come into play. It is well expounded in 8 Q.B. D 357 Wigsell v. School for Indigent Blind,(1882) 8Q.B.D. 357=51 L.J.Q.B. 330=46 L.T. 422= 30 W.R. 474, at p. 364 in these terms :

The effect however of electing to bring the action for damages is to convert the right to the performance of the contract into a right to have compensation in money, and the rate in such a case, stated in its most general terms, is that the plaintiff is entitled to have his damages assessed at the pecuniary amount of the difference between the state of the plaintiff upon the breach of the contract and what it would have been if the contract had been performed : per Parke, B., in 1 Ex 855 Robinson v. Harman, (1848) 1 Ex 855, adopted in 1 C.P. 441 Lock v. Furze, 1 C.P. 441.

6. In other words, a party who has sustained loss by reason of a breach of contract is with respect to damages to be placed in the same position as he would have been if the contract had been performed : see 9 Q.B. 249 Wall v. City of London Heal Property Co. (1874) 9 Q.B. 249=43 L.J.Q.B. 75=30 L.T. 53, at p. 253. This means that the damages must be assessed on the footing of what the vendor would have got had the contract been carried out. It follows that the Court awarding damages must see that the vendor gets the amount which he expected to receive as the price of his land, which in the present case is Rs. 9,000. Thus if the plaintiffs were entitled to recover Rs. 9,000 as damages then the question is whether they were entitled to re-sell the property with a view to reimburse their loss arising from the breach. If, as I hold, S. 73, Contract Act, is applicable, the plaintiffs were bound to minimise the loss in accordance with the explanation appended to that section which says:

In estimating the loss or damage arising from a breach a contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

7. It was pointed out in 43 Cal 493(1) at p. 502 that

it is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach.

8. The only course which was left to the plaintiffs to mitigate the loss was to sell the property to a third party and that is what the Court of Wards did for the plaintiffs. It is urged that there is no express provision of law authorising a re-sale of immoveable property as in the case of goods. It is true that there is no express provision, but I do not see anything wrong in principle in the vendor reselling the property. The principle is recognised in O. 21, R. 71, Civil P.C. In England there appears to have been some difference of opinion as to whether a vendor is entitled to sell after a breach of contract of sale in the absence of any stipulation in the written contract of sale giving the vendor liberty to sell, but it appears from the observations of Bacon, V.C. in 5 Ch D 378 Noble v. Edwardes, (1878) 5 Ch D 378=37 L.T. 7, at p. 388 that even in the absence of any express reservation of the right to sell made in the written contract there is always the implied right of re-sale. The law as enunciated by the learned Judge may be stated in his own words :

In that passage Lord St. Leonards cautions and advises persons who are preparing contracts for sale to insert such a provision, but he nowhere says that the right does not exist if it is not inserted. It is very convenient that the light should be expressed in the terms of the contract; but without any such expression the law implies such a contract and provides the remedy for the breach of it. The other authority referred to, namely Davidson's Conveyancing (Vol. 1, p. 568), means just the same thing, and no more; and unless it can be shown that there is no right to recover damages for the breach of this contract, which does not state that there shall be no right to re-sell, I am prepared to hold that such common law right, which is of universal practice and in the city of London, acted upon every day, is a right which a plaintiff complaining of a breach of contract may at any time exercise. What else is he to do ? Is the only remedy provided for him a bill foe specific performance ? No one can say that; and if the contract has been broken and damage has been sub stained; no one can say that there is no right to bring an action.

9. Under S. 55(4)(b), T.P. Act, the vendor is entitled to a charge upon the property in the hands of the buyer for the amount of the purchase money which remains unpaid. This implies that the vendor can ask for sale of the property in the event of the buyer failing to pay the price due to him. If the vendor has such a right when the property passes into the possession of the vendee, I fail to see how it can be logically contended that he has no such right when the property remains in his possession. Having regard to the various considerations set forth above it appears to me impossible to hold that the vendor has no right to resell the property to reimburse the loss caused to him by the breach of contract of sale. My attention is invited to a decision of Pollock, A. J. C, in First Appeal No. 20 of 1932. That case is distinguishable on facts in as much as in that case the property remained unsold after the breach and the plaintiff claimed some amount on the allegation that he would have been profited to the extent of it if the buyer had performed the contract, and further that the value of the property had fallen by some specified amount between the date of the contract and the date of the breach. The decision proceeded on quite different considerations and cannot be of any assistance in this case.

10. The result is that the lower appellate Court's decree is affirmed and the appeal is dismissed with costs.