Standard Bank of South Africa Ltd v Begum (C.C. 134/1932.) [1932] EACA 39 (1 January 1932)

ORIGINAL CIVIL.

Before GAMBLE, Acting J.

THE STANDARD BANK OF SOUTH AFRICA, LTD.

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MRS. FEROZI BEGUM.

C. C. $134/1932$ .

Indian Contract Act, section 64—Vendor and purchaser.

Held (16-7-32): If contract avoided payment of deposit by way of security, if reasonable, is irrecoverable.

Held further: -- Instalments paid by way of purchase price, being a benefit received under the contract, must be restored if the contract goes off by default.

Harrison for Plaintiff.

Mangat for Defendant.

JUDGMENT.—The plaintiff in this suit is claiming the rescission of an agreement for sale, and that all moneys paid under the agreement be forfeited, and for the costs of the action.

The facts are, shortly, that the plaintiff agreed to sell the defendant a plot of land with buildings thereon for Sh. 23,500. Payment was to be made by a cash payment of Sh. 2,000, Sh. 9,500 by monthly instalments, twenty-one of Sh. 440 each and one of Sh. 260, and the balance of Sh. 12,000 was to be secured by the defendant executing a legal mortgage in favour of the plaintiff. When the sum of Sh. 9,500 was paid the defendant was to be entitled to a legal assignment of the premises.

It is admitted that the defendant has paid the initial cash payment of Sh. $2,000$ and also Sh. $3,520$ by way of monthly. instalments. The agreement was apparently entered into in January, 1931, instalments were paid for eight months and since then there has been a complete default.

Mr. Mangat contends that the Standard Bank of South Africa has no standing to institute this suit as they were merely acting as trustees for the Delamere Trust. I can find nothing to support the claim that the plaintiff is suing as trustee of the Delamere Trust. The original mortgage of the premises was to the Standard Bank of South Africa: The assignment of the premises by the Official Receiver was to the Standard Bank of South Africa. The agreement for sale was between the Standard Bank of South Africa and the defendant. The letter from the defendant's advocate has no reference to any trustees, and the

only documentary reference to the bank as trustees is in the letter of 30th December, 1931, which states that the balance of Sh. 12,000 would be covered by a mortgage in favour of the trustees of the Delamere Trust. The mortgage was never, in fact, executed: were these proceedings in any way connected with this mortgage for Sh. 12,000 it might be necessary for the bank to sue in a representative capacity, but on the suit as framed there is nothing to show that the bank is suing on behalf of anyone else and I hold that the plaintiff is correctly described.

A series of promissory notes were passed in respect of the 22 monthly instalments: they were made by Imtiazali & Son in favour of Mr. Harrtz, who endorsed them over to the bank. The defence is that these promissory notes were accepted as payment of Sh. 9,500, and that therefore the present defendant is relieved from liability and that no breach of the agreement has been made by defendant. The plaintiff alleges that these notes were by way of collateral security, i.e., if the defendant failed. to pay recourse would be had to the promissory notes.

It may not be out of place to remark here that it is clear from the evidence that Mr. Yakoobali was the real purchaser of this property, and that for reasons of convenience to himself the agreement for sale was to Mr. Yakoobali's wife. Mr. Yakoobali is a partner in the firm of Imtiazali & Son, which went bankrupt in November, 1931.

Mr. Duggins gives evidence to the effect that notes were by way of collateral security only: so also does Mr. Harrtz. The latter's evidence is more valuable on this point as it was. he who actually conducted the negotiations, whereas I surmise that Mr. Duggins' information on this point would be in the nature of hearsay.

Mr. Yakoobali is equally insistent that the notes were not as security, but were an absolute liability. I regret I do not regard him as at all a satisfactory witness. The agreement for sale is drawn up by Messrs. Delany & Stratton, who are solicitors. to Mr. Yakoobali though not to the bank. Yet Mr. Yakoobali would have the Court believe that he knew nothing about the conditions of sale until he received the agreement. It is a coincidence perhaps that the agreement for sale mentions the cash payment of Sh. 2,000, which was paid, and monthly payments of Sh. 440, which were paid for eight months.

It is also to be observed that if, as Mr. Yakoobali contends, these promissory notes were an absolute liability there is no mention of them in the statement of affairs in bankruptcy. Nor is there any mention of the bankrupt firm's liability to Mrs. Begum (Yakoobali's wife), which Yakoobali estimates at from Sh. 10,000 to Sh. 12,000.

The defendant though not purdah nor in any way deparred from coming to Court has not appeared to give evidence. No explanation of her absence has been tendered.

On this issue I prefer to accept the evidence of Mr. Harrtz, corroborated to some extent by Mr. Duggins, to that of Mr. Yakoobali. I accordingly hold that these promissory notes were passed by way of collateral security and not in payment of the monthly instalments when due.

There remains to be considered whether the money already paid-Sh. 5,520-can be considered forfeited to the plaintiff through the default of the defendant. Mr. Harrison relies on paragraph 6 of the agreement of sale on this issue. There is in my opinion no doubt but that the plaintiff is entitled to retain Sh. 2,000. On the facts there seems no doubt but that this payment can be regarded as a deposit by way of guarantee or security of the contract of sale. I do not think Sh. 2,000 can be regarded as an excessive or unreasonable deposit on account of a sale for Sh. 23,000. An authority directly covering this issue is to be found in Vol. 38, Madras Reports, 1915 at p.

178. Natera Aiyar v. Appavu Padayachi. I refer also to the dictum of Bramwell, B., in Collins v. Stimson, 11 Q. B. D. 142: "According to the law of vendor and purchaser the inference is that such a deposit is paid as a guarantee for the performance of the contract and when the contract goes off by default of the purchaser the vendor is entitled to retain the deposit."

The question of the retention of the instalments paid under the contract, Sh. 3,520, is more difficult, but I think this is governed by the second portion of section 64 of the Indian Contract Act, which reads: "A party rescinding a voidable contract shall if he have received any benefit thereunder from another party to such contract restore such benefit, so far as may be to the person from whom it is received."

The deposit of Sh. 2,000 is not a benefit under the contract: it is a security that the purchaser would fulfil his contract, and is ancillary to the contract for the sale of the premises and is therefore not recoverable. The instalments paid by way of purchase price are, I consider, a benefit received under the contract and therefore, under section 64 quoted above, they must be restored.

As against this, however, is the fact that from 10th September, 1931, till to-day the defendant though in occupation of the premises has paid no rent. I consider therefore that in equity the plaintiff is entitled to set-off against this sum of Sh. 3,520, which has to be returned to the defendant, a reasonable rent from the date she entered into occupation.

The Order will be:-

1. That the agreement for sale is rescinded and that the defendant do hand over the premises to the plaintiff within one month from to-day.

That the Sh. 2,000 deposit be forfeited to the plaintiff. $2.$

That of the Sh. 3,520 paid by defendant towards the $3.$ purchase price the sum of Sh. 2,964 be retained by the plaintiff, being rent for nineteen months based on 8 per cent on the capital value of Sh. 23,500.

4. That plaintiff do have the costs of the suit.