P L D 1965 (W (PLP)

(4) Whether the plaintiffs rescinded the contract rightly? (5) Are the plaintiffs in the circumstances of the case entitled to the refund of earnest money and damages. (6) Who committed breach of the contract, whether the plaintiffs or the defendants? (7) Whether the defendants were justified in forfeiting the earnest money? (8) Whether the firm of the plaintiffs is registered under the Partnership Act? (9) What should the decree be?"

5. The most important question in this case is as to whether the plaintiffs were within their right to rescind the contract on 25th November 1958, and as to which party was in breach. These questions are the subject‑matter of issues Nos. 4 and 6, but before dealing with these questions it would be necessary to dispose of the first issue on the question as to when did the agreement of sale take place. I shall, therefore, proceed to deal with it.

6. Issue No. 1:‑

The agreement of sale, Exh. 16, is dated 26th August 1958, and the receipt of payment of the earnest money of Rs. 25,000 by the plaintiffs to the defendants is also of the same date. It was however contended on behalf of the defendants upon the evidence of the defendant No. 2 that though the agreement was reached on 26‑8‑58, when the earnest money of Rs. 25,000 was paid, the plaintiffs had not decided as to who should be named as the vendee in the sale‑deed and that this question was only decided by the plaintiffs in the first week of November 1958, and it was then that the agreement, Exh. 16, was executed though it bore the date of 26‑8‑58, which was the date on which the earnest money had been paid. Support for this contention was also sought from Exh. 17, the receipt of payment of the earnest money in which the typed portion shows the name of Muhammad Yousuf as a person from whom this amount of earnest money had been received but in ink there is an addition describing Muhammad Yousuf as being of Messrs Tanzeem Overseas, which is a firm and in whose behalf this suit has been instituted. I, however, do not find it possible to accept this case of the defendants in view of the agreement of sale, Exh. 16 which clearly recites that this agreement was made on 26th of August 1958, between the defendant No. 1 Mst. Zainab Bai and the plaintiffs Messrs Tanzeem Overseas. My finding, therefore, on issue No. 1 is that the agreement of sale took place on 26th August 1958. I shall now deal with issues Nos. 4 and 6 to which reference has been made in the previous paragraph and with these two issues it will be convenient to deal with issues 2 and 3 also, the former relating to the question whether the defendants had introduced an extra tenant in the agreement and the latter to the question whether time was the essence of the contract. I shall proceed to deal with these questions.

7. It would be convenient now to refer to the material terms of the agreement, Exh. 16, paragraph 3 of this agreement provides that the vendor shall obtain the requisite income‑tax clearance and the no‑objection certificates (the letter from the Custodian) and shall have the sale duly registered in favour of the vendee within a period of three months. Paragraph 4 notes that the building is occupied by 6 tenants, one in the main bungalow and 5 in the out‑houses. The vendor was to give possession of the part occupied by tenants by attornment and the rest by actually physical possession. All the expenses of the conveyance and registration were to be borne by the vendee.

8. On 29th October 1958, Mr. Jan Muhammad Dawood, Advocate for the vendor, wrote to Mr. Motiur Rehman, Advocate for the buyer and put it on record that though in the agreement of sale only the authorised occupants had been mentioned but there were 5 unauthorised cabin‑holders, which fact was within the knowledge of the vendee but which had not been mentioned in the agreement of sale and that this should be confirmed. When this letter reached Mr. Motiur Rehman he counter‑signed it in token of the confirmation of the fact of the existence of the five cabin‑holders at the time of the agreement‑a fact which was within the knowledge of his client. A copy of this letter dated 29th October 1958, which bears the signature of Mr. Motiur Rehman is Exh.

6. It appears that there had been some telephonic conversation between Mr. Motiur Rehman and Mr. Jan Muhammad Dawood in which the former had asked the names of the tenants in the main bungalow and the out‑houses, and it was upon this that Exh. 6 was written by Mr. Jan Muhammad Dawood who wrote another letter on the same day being Exh. 7, in which he furnished the information which had been required by Mr. Motiur Rehman. It was stated in this letter that the name of the occupier of the main building was Abdul Khaliq and then were given six names who were occupying the out‑houses as tenants. Mr. Motiur Rehman replied on 6th November 1958, acknowledging Mr. Jan Muhammad Dawood's letter Exh. 7 and adding that he was unable to make his client agree to accept the sixth tenant in the out‑houses because in the agreement of sale only five such tenants have been mentioned. In the last part of the letter Mr. Jan Muhammad Dawood was requested to advise his client to remove the extra tenant. It may be noted here that the agreement of sale does mention that there was a tenant in the main bungalow and five tenants were occupying the out‑houses. There was no further correspondence and on 25th November 1958, which was the date on which the period of three months was to expire, the vendee's Advocate Mr. Motiur Rehman sent a registered letter to the defendant No. 1 canceling the agreement and demanding the refund of the earnest money of Rs. 25,

000. This is Exh.

9. This was followed by another letter, Exh. 10, dated 6th December 1958, in which the demand for the refund of the earnest money was reiterated and a further sum of Rs. 10,000 was claimed by way of damages. Mr. Jan Muhammad Dawood, the vendor's Advocate replied on 8th December 1958, as per Exh. 11 stating that the name of the vendee had been determined only in the first week of November when the agreement was signed and his client had then proceeded to obtain the requisite certificates. The vendee's lawyer was then informed that the vendor had obtained the Custodian's certificate on 27‑11‑58, and was expecting the income‑tax clearance certificate in a few days. It was asserted that the vendee had no right to terminate the agreement of sale and the vendor will have the sale‑deed registered as soon as the formalities of the income tax clearance certificate were completed. The vendee's lawyer was then told that it would be better in the interest of all concerned that he should advise his client to perform his part of the agreement and not to raise excuses for avoiding the contract. Mr. Motiur Rehman replied on 10th December as per Exh. 12 denying that the agreement had not become complete on 26th August 1958, and stated that "the agreement in question stands legally and validly terminated and cancelled". The demand for the refund of the earnest money and damages was once again made and it was added that if it was not done he had instructions to file a civil suit without waiting for any further correspondence on the subject. Mr. Jan Muhammad Dawood again wrote to Mr. Motiur Rehman on 9th January 1959, as per Exh. 13 informing him that his client had now obtained the income‑tax certificate as well and, therefore, prerequisite to the execution of the registration of the sale‑deed had been fulfilled and his client was ready to execute the sale‑deed and to have it registered. It was added that the income‑tax certificate could not be obtained earlier because of the rush at the Income‑tax Office as a result of Martial Law Regulation No.

43. Mr. Motiur Rehman replied on 13th January as per Exh. 14 drawing the attention to his previous letters and added that the agreement already stood cancelled and that his clients were waiting for the refund of the earnest money and for the payment of damages or they would recover it. It was lastly said that Mr. Jan Muhammad Dawood should inform his client that no useful purpose would be served by entering into the futile correspondence. This was followed up by the institution of the present suit.

9. The main question which arises is whether the plaintiff's were entitled to rescind the contract which they purported to do by their letter dated 25th November 1958 (Exh. 9). It would be useful to refer to this letter in some detail. In the first paragraph of it, it is stated that the vendor "had failed to make out a good, subsistent and marketable title of the said property and obtain income‑tax clearance certificate from the Custodian, E. P., and register the proposed sale‑deed within the stipulated time which was essence of contract". In the second paragraph it is stated that the vendor by her lawyer's letter dated 29th October 1958, had introduced fresh tenants and cabin‑holders in the property which the vendee had rescinded, on which account he had sent a letter through his Advocate on 6‑11‑

58. Then comes the third paragraph which is important and may be reproduced: "That our client, now in view of your failure to complete the transaction within time as mentioned in para. 1 above, cancelled the said agreement and requests you to treat the same as cancelled." Then there is another paragraph in which the demand has been made for the refund of the earnest money of Rs. 25,

000. It may be noted that in the first paragraph it has been stated that time was of the essence of the contract and though in the second paragraph the fact of the introduction of "fresh tenants and cabin‑holders" has been alleged, the cancellation of the agreement, as would appear from paragraph 3 above, has been made upon the ground of the failure of the vendor to complete the transaction within the stipulated time that is within 3 months from the date of the agreement, i.e., 26th August 1958. Now, was time of the essence of the contract in this case, because, if it was, then the plaintiffs' claim must succeed. The agreement (Exh. 16) itself does not say so. It merely fixes a time of 3 months, within which the transaction had to be completed. Now, let me see if there is anything from which it can be sefely inferred that it was the intention of the parties to the agreement that time should be of the essence of the contract. There is no allegation in the plaint that it was so and when the plaintiffs' managing partner Muhammad Yousuf, who had signed the agreement, gave evidence as P. W. 1 he did not even suggest that such was the intention of the parties, nor did he say anything from which such an intention could be gathered. In fact, he merely emphasised the fact of the receipt of the letter dated 29th October 1958, Exh. 7, from Mr. Jan Muhammad Dawood in which 6 tenants of the out‑houses had been named and that he had instructed his Advocate not to accept the existence of an additional tenant and that the vendor should be asked to remove that tenant at their expense and since no reply was received and the period of the agreement had expired he instructed his lawyer to cancel the contract and claimed the refund of the money. There is thus nothing in this case to show that it was the intention of the parties that the period of 3 months fixed in the agreement, Exh. 16 was of the essence of the contract. Merely because a period had been fixed in the agreement for the completion of the sale, that by itself does not make time of the essence of the contract. The law is well settled that in a contract of sale of land though the, period is fixed by the contract, the presumption is that the parties intended that the agreement should be performed within a) reasonable time and that the fixing of the time limit in the agreement does not, by itself, rebut the presumption and lead to an inference that time was intended to be made of the essence of the contract. The question was recently considered by the Supreme Court in the case of Abdul Hamid v. Abbas Bhai Abdul Hussain (PLD 1962 SC 1). In that case the vendor having waited for the time fixed in the contract and also for the extended time sent a notice to the vendee to complete the sale within 10 days and upon the letter's failure to do so he rescinded the contract. The vendee then sued for specific performance of the contract. This was allowed. Rehman, J., with whom the Chief Justice and Fazle Akbar, J. and Hamoodur Rehman, J., agreed, quoted with approval of the observation of the Judicial Committee of the Privy Council in the case of Jamshed Khodaram Irani v. Burjorji Dhunjibhai (48 I A 26) that‑ "an intention to make time of the essence of the contract must be expressed in unmistakable language; it may be inferred from what passed between the parties before, but not after, the contract is made." The learned Judge then observed that if time is not originally made of the essence of a contract for sale of land one of the parties is not entitled afterward, by notice, to make it of the essence, unless there has been some default or unreasonable delay by the other party and in this connection quoted with approval the observation of Fry, J., in the case of Green v. Sevin (13 Ch. D 589) which was reaffirmed in the case of Smith v. Hamilton ((1951) 1 Ch. D 174), Chief Justice observed: "What right then had one party to limit a particular time within which an act was to be done by the other? It appears to me that he had no right so to do, unless there had been such delay on the part of the other contracting party as to render it fair that, if steps were not immediately taken to complete, the person giving the notice should be relieved from his contract. It has been argued that there is a right in either party to a contract by notice so to engraft time as to make it of the essence of the contract where it has not originally been of the essence independently of delay on the part of him to whom the notice is given. In my view there is no such right. It is plain upon principle, as it appears to me, that there can be no such right. That which is not of the essence of the original contract is not to be made so by the volition of one of the parties, unless the other has done something which gives a right to make it so. You cannot make a new contract at the will of one of the contracting parties. There must have been such improper conduct on the part of the other as to justify the rescission of the contract sub‑mode, that is, if a reasonable notice be not complied with. That this is the law appears to me abundantly plain." Kaikaus, J., did not accept the proposition that a party to an agreement has no right when time is not of the essence of the contract to fix a time by notice for performance unless there was some default or improper conduct on the part of the other party. In his Lordship's view the question in such cases to be determined would be whether the time fixed by such notice was a reasonable time in the circumstances of the case. However, he agreed with the result to which the majority had reached and observed that he would not disagree with his brothers on the point that the time of 10 days fixed by notice by one of the parties after the expiry of the time according to the contract was not a reasonable time. In the case before me time was not made of the essence of the contract in the agreement, nor was it alleged to be so in the pleadings or the evidence of the plaintiffs, nor were there any circumstances to warrant an inference that such was the intention of the parties. There was not even a notice by the plaintiffs fixing a time within which the contract was to be performed by the defendants after the expiry of the period stated in the contract. How could the plaintiffs then rescind the contract unilaterally by serving a notice even before the last day fixed by the contract had run out.

10. Mr. Motiur Rehman relied upon two judgments of my brother Wahiduddin Ahmad, J. The first of these is the case of Mst. Munawar Begum v. Mrs. B. K. Contractor (P L D 1960 Kar. 122). The learned Advocate relied upon the observation that the seller by not obtaining the income‑tax clearance and the Custodian certificates within the stipulated period committed breach of the contract. The learned Advocate however, overlooked the fact that in this case clause (3) of the contract provided that time fixed for the completion of the sale was of the essence of the contract and the purchaser was bound to take conveyance of the property within the aforesaid time‑limit. The learned Judge has observed at page 129 of the report that it was admitted by the parties that time was of the essence of the contract in this case. This case is, therefore, clearly distinguishable. The other case relied upon by Mr. Motiur Rehman is that of Ibrahim Saleh Mayat v. Ghulam Hussain (P L D 1960 Kar. 297). This is also a judgment of Wahiduddin Ahmad, J. In this case the agreement related to the sale of a running factory and the buyer was anxious to complete the transaction within the shortest possible time as he was anxious to procure land in the vicinity of the town to establish a Max Factor Factory, about which at that time negotiations were going on between him and the representative of Max Factor Factory, a foreign company. Upon these facts amongst others it was held by the learned Judge that time was of the essence of the contract in this case. I, therefore, do not see how this case is of any assistance to the plaintiffs before me. In fact there are observations of the learned Judge which support the defendants. At page 301 of the report the learned Judge held that it was well settled that ordinarily in a contract for sale of land time fixed for the completion of the transaction is not considered to be of the essence of the contract. The same view was taken by the learned Judge in another case which appears in the same volume, i.e., the case of Malik Ghulam Mani v. Malik Munir Ahmad (P L D 1960 Kar, 517), wherein it was observed that so far as the contracts relating to land are concerned, time fixed for the completion of the transaction is not considered to be of the essence of the contract. The presumption in such contracts, though specified time is mentioned within which completion is to take place, is that the parties really and in substance only intended that it should take place within a reasonable time.

11. In view of my conclusions my finding on Issue No. 3 is that time was not of the essence of the contract in this case. Let me now consider whether the existence of the 6th Tenant in the out‑houses entitled the plaintiffs to rescind the contract and whether the contract was rescinded upon that ground. This is substantially the subject‑matter of issue No.

2. In the agreement of sale itself the existence of only six tenants is mentioned, one in the main bungalow and five in the out‑houses. However, on 29th October 1958, in answer to a telephonic conversation between the two Advocates of the respective parties the Advocate of the seller furnished the names of the tenants by his letter of that date, Exh. 7, in which he gave the name of the occupier of the main bungalow and in addition he gave the names of 6 persons who were occupying the out‑houses as tenants. The vendee's Advocate wrote to the vendor's Advocate on 6th November 1958, saying that only 5 tenants had been mentioned in the agreement and he should, therefore, advise his client to remove the 6th tenant. No further correspondence took place between the parties or their Advocates and on 25th October 1958, which was the last date of the period of 3 months provided by the agreement, the vendees' Advocate rescinded the contract by his letter, Exh. 9, and in this the contract had been cancelled upon the ground that the vendors had not got the sale deed registered within the stipulated time and bad failed to make out a good subsisting and marketable title of the said property and obtaining of income‑tax clearance and the certificate from the Custodian. It is true that in para. 2 of this letter it has been said that "by your lawyer's letter dated 20‑10‑58, you introduced fresh tenants and cabin holders in the property contrary to the said agreement", but the cancellation of the agreement which is stated in para. 3 of this letter is not upon these grounds but upon the ground stated in para. 1 which relates to good and subsisting title and obtaining of the certificates as stated above. Now, two letters were written by the vendor's Advocate on 29‑10‑58, to which reference has been made in para. 2 of this letter. One was about the cabin‑holders and this was acknowledged by the vendees' Advocate who confirmed that the existence of the five cabin‑holders had been brought to the notice of the vendees and was recognized as such, yet grievance was made of this fact in para. 2 of this letter. As regards the 6th tenant in the out‑houses which was in addition to the 5 tenants mentioned in the agreement I am satisfied that he was not introduced after the agreement of sale. I am inclined to accept the stand taken by Mr. Jan Muhammad Dawood at the time of the argument that this 6th tenant of the out‑houses had not been mentioned by oversight in the agreement of sale. That this is so is supported by the admission of the plaintiffs' partner himself as P. W. 1 who stated that before the date of the execution of the agreement of 26th August 1958, he had gone to see the property and that it was true that he was not to get vacant possession of this property. The vacant possession mentioned in the agreement of sale was therefore either a mistake or was to apply in respect of the open land appurtenant to this property. The omission of the 6th tenant, therefore, in the agreement was due to the mistake of the parties, but this was not a mistake in respect of any essential factor in view of the fact that the plaintiffs admit that they were not to get vacant possession of the property.

12. There is another aspect of the matter. Even if it was to be assumed that vacant possession of an out‑house or a part of an out‑house occupied by the 6th tenant was to be given to the vendee, such possession could only be demanded by the vendee at the time of the execution and registration of the sale‑deed. That stage was never reached and the contract was pre‑emptorily rescinded on 25th November 1958. The vendor's husband has stated in the witness‑box that the vendees gave him no opportunity to have the 6th tenant removed and that he would have done so by paying him some money. But supposing this was not done and the vendor sued for specific performance of the contract, could the vendees have successfully resisted it upon the ground that the existence of the 6th tenant was not mentioned in the agreement of sale. It is well settled that if the vendor is in a position to convey substantially what the purchaser had contracted to get, the Court will decree specific performance with compensation for any small and immaterial deficiency, provided that the vendor has not by misrepresentation or otherwise C disentitled himself to this remedy. Reference may be made to a judgment of the Privy Council in the case of Gilchester Properties, Ltd. v. Gomm ((1948)All ER493). The same principle is contained in section 14 of the Specific Relief Act.

13. Mr. Motiur Rehman relied upon a judgment of the Privy Council in the case of Muhammad Haji Abdullah v. G. M. Shah (PLD1959PC68). This was a case in which an agreement of sale of which performance was sought, stated that on the date of the agreement there were 3 tenants in the property. Prior to the execution of the conveyance one of the tenants surrendered his tenancy of the part of the building let to him to the vendor who without consulting the vendee re‑let the vacant part of the building to a new tenant on the same rent. Owing to the shortage of accommodation the premises with the said vacant part was worth 18,000 shillings more than with that part let. The Court of appeal ordered specific performance on payment of agreed price less 18,000 shillings which, as has been pointed out, was estimated to be the diminition of the value of the property by the relating of the vacated portion by the vendor. This was affirmed by the Privy Council who dismissed the vendor's appeal. Reliance was placed by Mr. Motiur Rehman upon an observation appearing on page 71 of the report in which it was said that the vendor had no right without consultation with the purchaser to diminish the value of the property as it was after the surrender by re‑letting. In the case before me I have come to the finding that the 6th tenant was not let into the premises after the agreement of sale. In any case that would have at best entitled the vendees for some compensation if they had not rescinded the contract which, as I have pointed out, they were not entitled to do. The question of the existence of the 6th tenant must be considered in relation to the cancellation of the contract by the vendees and as I have pointed out this cancellation had been done upon the ground not of the existence of the 6th tenant but upon the ground contained in para. 1 of the letter dated 25th November 1958, Exh. 9, in which it was said that the vendor had failed to make out a good subsisting and marketable title of the said property and obtain the certificate and register the sale deed within the stipulated time. It was admitted at the Bar at the hearing that no demand had at any time been made for the production of the documents of title for inspection nor was any inquiry made about the obtaining of the income‑tax clearance and Custodian's certificates. Therefore, the only ground of cancellation of the contract was that the sale had not been completed within the period of 3 months. In this the vendees were wrong in so far as time was not of the essence of the contract.

14. In view of my conclusion my finding on issue No. 6 is that it were the plaintiffs (vendees) who committed the breach of contract by canceling the agreement on 25th November 1958. From this it must follow that the plaintiffs were not entitled to rescind the contract as they did and I answer issue No. 4 in the negative. With regard to issue No. 2 my finding is that the defendants had not introduced an extra tenant. The effect of it has already been discussed above and I find accordingly.

15. That brings me to issues Nos. 5 and 7, the former relating to the question whether the plaintiffs are entitled in the circumstances to the refund of the earnest money and to damages and the latter on the question of whether the defendants were justified in forfeiting the earnest money. In view of my finding that the plaintiffs were not entitled to rescind the contract and were, therefore, in breach it must follow that the vendor would be entitled to forfeit the earnest money. It was held by Privy Council in the case of Chiranjeet Singh v. Harswarup (94 I C 782), that under a contract of sale of immovable property the earnest money is part of the purchase price when the transaction goes forward: It is forfeited when the transaction falls through, by reason of the fault or failure of the vendee. In order, however, that the vendee might exercise his right of forfeiting the earnest money it must also appear that he was ready and willing to perform his part of the contract. In the present case, the vendor's Advocate wrote to the vendee's Advocate on 8th December 1958, as per Exh. 11 that the vendor had obtained the Custodian's certificate on 27‑11‑58, and was expecting the income tax certificate in a few days and he called upon the vendees to perform their part of the agreement and not to raise excuses for avoiding the contract gain on 9th January 1959, he informed the vendees' Advocate that the vendor had obtained the income tax clearance certificate also and that she was ready to execute the sale‑deed and to have it registered. Delay in the obtaining of the income‑tax certificate was explained on the ground of the rush of work in the income‑tax office as a result of the Martial Law Regulation No.

43. The vendees however remained firm and adhered to their position that they had cancelled the contract on 25‑11‑

59. In view of my finding that time was not of the essence of the contract I hold that the vendor was ready and willing to execute the sale‑deed on obtaining the necessary certificates as evinced by the two letters referred to above.

16. The next question is about the damages. This has been claimed on the basis of certain amounts paid to the brokers and the lawyer's fee. A broker's receipt was produced in evidence but I am very doubtful if this receipt is a genuine document. No reference to any such payment was either made in the correspondence or in the plaint. However, in view of the finding that the breach was by the plaintiffs it must follow that their claim for damages must also be rejected.

17. The next question is as to what should be the decree. Though I have found that the vendor was entitled to forfeit the earnest money I must take note of the fact that her husband in his evidence stated that a few months after the cancellation of the contract by the plaintiffs he sold away the property to Messrs J. B. & Co. of Marriot Road, Karachi for Rs. 2,60,

000. That means Rs. 22,000 less than the price of the agreement between the present parties. This is a Court both of law and equity and in order to do complete justice between the parties I am of the opinion that the vendor should be entitled to retain out of the earnest money only Rs. 22,000 which is the loss which she suffered by the cancellation of the contract by the vendees. If she had sued for specific performance there is no doubt that the Court would have decreed her claim but she would have only got Rs. 2,82,000 for the property. In all fairness she should not be placed in a better position than what she would have been if the contract had been specifically performed. I, therefore, hold that the vendor is entitled to retain Rs. 22,000 out of Rs. 25,000 which she had received from the vendees. The remaining Rs. 3,000 she must refund. I accordingly decree the plaintiffs, claim for Rs. 3,

000. In the circumstances of the case I order that the parties shall bear their own costs. K.B.A. Suit partly decreed.