Matura Subba, Rao vs Surendra Nath Sahu and Another

Fazl Ali, J.—The circumstances which have given rise to this appeal are briefly these:

On 15th April 1919, defendant 1 took a loan of Rs. 1,200 from the plaintiff and executed a usufructuary mortgage-deed in his favour in respect of a certain building in the town of Cuttack and the land on which it was situated. One of the clauses in the deed ran as follows:

Until the expiry of the term of nine years from to day neither I nor my heirs or representatives shall be competent to pay you the principal or any part thereof on account of the usufructuary mortgage bond nor shall we dispossess you from the building in any way within nine years. Nor until your usufructuary mortgage is redeemed shall I be able to transfer the building by sale, mortgage, simple or usufructuary, or otherwise or in any way encumber it nor shall I sell or surrender my right in the site of the building. If I do so, it will be inoperative. If I ever wish to sell or transfer by usufructuary mortgage or patta or otherwise the building and its site, I shall not be able to transfer it to any one except you and I shall serve due notice on you about it beforehand by registered post.

If you express unwillingness I shall transfer it elsewhere but if you desire to take it I shall not be able to transfer it to anybody else.

I have reproduced this clause in full because the whole case turns on a proper construction of the latter portion of it and on the view that may be taken as to its legal effect. Now, ignoring for the present the controversial matters which have been raised in connexion with this clause, there can be no doubt that by inserting it in the dead the parties meant to provide that (1) defendant 1 was not to sell or mortgage the property within nine years from the date of the execution of the mortgage and (ii) that if he chose to sell the house he was required to give to the plaintiff the right of first refusal to buy the house. It appears, however, that in spite of these provisions defendant 1 mortgaged the house in question to one Radhakrishna Bharathi and then to defendant 2 and ultimately sold the house to defendant 2 for a sum of Rs. 3,000 on 22nd January 1924. The plaintiff thereupon brought the present suit in which he relied on the clause quoted above and contended that in view of the contract between him and defendant 1 he had acquired a right of pre-emption in respect of the house in dispute and was entitled to enforce it against defendant 2 who had purchased it with full notice of the contract between him and defendant 1.

The two Courts below have come to the conclusion that the plaintiff had a right of pre-emption under the mortgage-deed as claimed by him and defendant 2 purchased the house with notice of this right. They have accordingly decreed the suit and ordered the house in dispute to be re-conveyed to the plaintiff on certain terms.

Defendant 2 has now appealed to this Court and it is contended on his behalf that the contract in the mortgage deed is not enforceable because (L) it is void for uncertainty; (2) it is a clog on redemption; and (3) it is obnoxious to the rule against perpetuities.

Now, before proceeding to examine these contentions, I should like to make a few observations with regard to certain matters which have been incidentally raised in the course of the argument It may say at once that merely because there is a condition in the mortgage deed whereby the mortgagor binds himself not to redeem the mortgaged property or to mortgage or sell it during the period of nine years, such a condition is not necessarily to be regarded as a clog on redemption. It has been held in numerous cases that the mere fact that certain covenants in a mortgage-deed are onerous they could not on that ground alone be regarded as fettering the right of redemption and that it is open to the mortgagee to stipulate for his peaceful possession for a fixed number of years. See in this connexion Rambaran Singh v. Ramkar Singh [1911] 10 I.C. 243, Ram Prasad v. Jagrup [1912] 10 A.L.J. 157 and Muhammad Ibrahim v. Muhammad Abiz [1910] M.W.N. 792. I may also observe that the Courts below have rightly held that the passage relied on by the plaintiff was intended to confer on him a right of pre-emption in respect of the property in dispute. The learned vakil for the respondents has cited before us a number of cases in which on the construction of similar passages to that which occurs in the mortgage-deed before us, it has been held that a right of pre-emption had been conferred; but even apart from these cases I have no hesitation in holding that although the word "pre-emption" has not been used in the deed, the contracting parties meant nothing else than this that if the house was to be sold at all, the plaintiff was to have an option of purchase and that any transfer to a third person without offering it to the plaintiff was to be deemed invalid as against him. This is, in my opinion nothing else than the giving of the right of pre-emption to the plaintiff.

Now once it is found that the contract relied on by the plaintiff is really a contract giving him the right of pre-emption, I do not see how it can be attacked on the ground that it is void for uncertainty. It is said on behalf of the appellant that the contract is vague because it does not fix any price at which the house was to be sold and reliance is placed on certain cases in which contracts of sale were held to be incomplete and unenforceable because no price has been agreed upon between the parties. The argument, however, completely overlooks the distinction between a contract which is out-and-out a contract for sale and one which merely creates a right of pre-emption. If it is the former, then it is certainly incomplete if no price is fixed. If it is the latter, than it is not at all necessary that any price should be fixed beforehand because in such cases the price to be paid would be the price at which the property was actually sold to a third party. In fact it has been pointed out in a number of cases that if the mortgagor is tied down to a particular price in a covenant for pre-emption it may make the covenant hard and unconscionable and even a clog on redemption. In my opinion the appellant cannot make a grievance of the fact that no price was fixed in this case and the covenant cannot be avoided on that ground.

Then arises the question as to whether the covenant is a clog on redemption. In order to decide this question it would be necessary to properly construe the clause in the mortgage-deed which gives to the plaintiff the right of pre-emption. It is contended on behalf of the appellant that the use of the word "ever" in the clause indicates that it is to hold good for all times and that it will apply even after the property has been redeemed. In my opinion this is by no means a reasonable construction of the covenant the plain meaning of which is that the right of pre-emption will remain in the plaintiff as long as the mortgage subsists. This being so, the mere fact that there is a covenant in the deed creating a right of preemption in favour of the plaintiff such a covenant cannot by itself be considered to be a clog on redemption If any authority is needed for this proposition, it is to be found in the case of Bimal Jati v. Biranja Kuer [1900] 22 All 238. In that case a similar objection was taken to a covenant for preemption is a mortgage-deed, and Strachey C.J., overruling the objection observed as follows:

Now the condition about fettering the right of redemption only means that no bargain made at the time of a mortgage is valid, which prevents a mortgagor from redeeming upon payment of principal, interest and costs.... But so long as the bargain places no obstacle in the way of the mortgagor getting back the property upon the payment of the mortgage money, it is not open to objection as a fetter on the right of redemption. Then is this covenant for pre-emption Open to objection on this ground? It does not, it appears to me, in the least stand in the way of the mortgagor getting back the property, if and when he pays, the mortgage money, There is no provision whatever requiring the mortgagor to transfer the property to the mortgagee if he does not wish to do so. There is nothing which, assuming the mortgage money to be paid, gives the mortgagee any further right or interest in the property. In Fisher on Mortgagee. 4th, edn., Section 1150, it is expressly stated that the Court will not object to a covenant in a mortgage for a right of pre-emption in the mortgagee in case the estate be sold, though he is liable to be deprived of its benefit by oppressive or fraudulent conduct On by v. Trigg [1722] 9 Mad. 2.

The passage quoted by me disposes of the main argument advanced in this case on behalf of the appellant that a covenant for pre-emption is from its nature a clog on redemption. I may also in this connexion refer to the case of Haris Paik v. Jaharuddin Gazi 2 C.W.N. 575 in which it was held that an agreement by the mortgagor to give the mortgagee a preference of pre-emption in the case of sale was not contrary to public policy and might be enforced against the purchaser with notice of the covenant. See also Rajaram v. Krishnasami [1892] 16 Mad. 301 and Kalimuddin Bhuya v. Reazuddin Ahmed [1909] 10 C.L.J. 626.

It is next contended that the covenant for pre-emption being unlimited in point of time is void on the ground that it violates the rule against perpetuities and reliance is placed on the case of Maharaj Rajaramji and Others Vs. Ramnath Upasni and Others, . That was a case where in a lease the lessee covenanted to make the first offer of sale of the leasehold property to the lessor for purchase, but the former sold it to a stranger and thereupon the lessor brought a suit to eject the lessee for breach of the said covenant, and Das, J. relying on the authority of Nabin Chandra v. Rajani Chandra AIR 1921 Cal. 162 held that the clause was void as it was obnoxious to the rule against perpetuities. The facts of the case are not fully stated in the report; but the lease referred to in that case must have been a permanent lease and the covenant of pre-emption must have been made in such a way as to bind not only the lesson but also his heirs When we refer to the case of Nabin Chandra v. Rajani Chandra AIR 1921 Cal. 162 on which the decision of Das, J., is based we find that the learned Judges who decided that case never meant to lay down the proposition that a covenant of pre-emption, the operation of which is not meant to extent beyond a lifetime, would necessarily violate the rule against perpetuities. What happened in that case was that a Hindu transferred certain immovable property to his son-in-law reserving a condition that if the transferee or his successor found it necessary to sell the property he or his successor must sell to the vendor or to his nephew or his heirs at specified price. This being so, it was obviously a case in which the covenant was intended to apply not only to the parties during their lifetime but also to their heirs and successors and it was rightly held that the case came within the rule against perpetuities. Again Mookerjee, A.C.J., who delivered the judgment in the case of Nabin Chandra Sarma AIR 1921 Cal. 162 referred to two other cases of the Calcutta High Court, (1) Nobin Chandra v. Nawab Ali Sarkar 5 C.W.N. 343 and [1912] 10 A.L.J. 157 Tirpura, Soonderi v. Jaggernath [1895] 24 W.R. 321. In both these cases the covenant extended beyond the lifetime of the parties and was intended to operate as between their heirs and successors and it was accordingly held that it contravened the rule against perpetuities. Now, in the present case the covenant is expressed in the following words:

If I ever wish to sell or transfer.... I shall not be able to transfer it be any one except you and I shall serve due notice on you about it beforehand by registered post. If you express unwillingness I shall transfer it elsewhere but if you desire to take it I shall not be able to transfer it to anybody else.

We must remember that here the covenant is between a mortgagee and a mortgagor who has a right to redeem the property at any time after nine years. Besides the language used clearly indicates that the covenant was between defendant 1 and the plaintiff only and there is nothing in it to suggest that the heirs of the parties were meant to be bound by the covenant. The view I bake is supported by the fact that in other passages in the deed reference is made to the heirs and representatives and also to the sons and grandsons of the parties and there seems to be no reason why they would not have been referred to in connexion with the covenant for pre-emption also if it was intended that it should apply to them. I, therefore, hold that the covenant for pre-emption relied on by the plaintiff is a covenant which he is entitled be enforce and in my opinion this suit has been rightly decreed.

The question whether defendant 2 was a purchaser with notice of such a covenant is a question of fact which has been decided by both the Courts below against defendant 2 and I am bound by the finding.

The result is that the appeal will have to be dismissed. The plaintiff, however, will not be entitled to any costs in this Court, because it appears that the property was mortgaged twice in contravention of one of the conditions in the deed and yet the plaintiff did not raise any objection.

Adami, J.

I agree.