The Law on Implied Covenant for Title

INTRODUCTION

In the absence of a contract to the contrary, the buyer and seller of the immoveable property respectively are subject to certain liabilities and have the rights or such of them as are applicable to the property sold. A contract to execute a sale deed containing the necessary stipulations is a contract for sale on the conditions implied in the act.[1] The primary aim of laying down the rights and duties of the seller and the buyer in the case of sale is to ensure fair dealings, and as far as possible, to minimize fraud and waste of the property.

The primary duty of the seller is to convey a good title to the buyer and therefore, he is bound to disclose a defect in title, if any.[2] However, the onus of showing a failure to disclose a defect in the title is on the purchaser.[3] This defect would include a material defect both in the property and in the title.

While considering the concept of implied covenant for title we should hold that the buyer has a right to receive a good title to the property and the seller shall be deemed to contract with the buyer that the interest which he professes to transfer to the buyer subsists, and he has power to transfer the same. A transferor cannot enforce for specific of the contract as against the buyer unless he gives him a title free from reasonable doubt[4] and which a court would also accept as serious and sufficient.[5]

Section 55(2) of the transfer of property act provides that:

“The seller shall be deemed to contract with the buyer that the interest which the seller professes to transfer to the buyer subsists and that he has power to transfer the same: Provided that, where the sale is made by a person in fiduciary character, he shall be deemed to contract with the buyer that the seller has done no act whereby the property is incumbered or whereby he is hindered from transferring it. The benefit of the contract mentioned in this rule shall be annexed to, and shall go with, the interest of the transferee as such, and may be enforced by every person in whom that interest is for the whole or any part thereof from time to time vested.”

Covenant for title—what it includes, the covenants for title implied in an English conveyance, include.—

(i)              Right to convey,

(ii)             Right to quiet enjoyment,

(iii)            Right to hold free from Encumbrances,

(iv)            Right to further assurance.

Under the covenant for further assurance, the seller is bound to do such further acts for perfecting the buyer's title as the latter may reasonably require. Thus, if a seller has, after the sale perfected an imperfect title by the purchase of an outstanding interest, he can under this covenant, be compelled to convey it to the buyer.

From the reading of Clause (2) of Section 55 of the Transfer of Property Act, it is clear that, in the sale by the seller to the buyer, there is always an implied warranty that the seller would make good the title in case either he has no title or his title was subsequently found to be discovered to be defective or he should compensate the buyer for the loss sustained by him. In other words, whenever a person proposes to sell the property it is presumed that he shall be deemed to sell his subsisting interest in the property. the buyer can sue the seller in case his title was either found to be defective or he had no title at all on the basis of this implied statutory warranty provided in the said section. To the same effect is the law declared by the Court in a decision[6] . In the said judgment, after extracting provision of Section 55 (2) of the Transfer of Property Act, held that: "Under the above section, every sale for consideration carries with it a covenant for title.”

Such a covenant is implied. It is open to the vendor to contract themselves out of the covenants for title. That contract to the contrary must be express.[7]

"When reliance is placed upon an express contract to exclude the operation of the statute, the contract to be binding must be in plain and unambiguous language." In the present case, there is no express language under the sale deed Ex.B. 1 which can exclude the statutory covenant of title Under Section 55 (2). It was held that, there was warranty of title Under Section 55(2) of the Transfer of Property Act."[8] Such a contract cannot be oral as that is inadmissible in evidence. The onus of proving a contract displacing presumption of contract for title is on the seller.[9] An express stipulation to compensate the purchaser for defect in the title does not exclude implied covenant for title and the vendee is entitled to maintain a suit for refund of the purchase money.[10]

Covenants for Title:-

It is normal practice for the seller to provide covenants for title, in standard form, by selling with “full” or “limited” title guarantee, in accordance with the Law of Property (Miscellaneous Provisions) Act 1994. The effect of this wording is that, following completion, the buyer can sue the seller for breach of the title guarantee. The seller will normally sell the property with full title guarantee, unless the seller is a trustee, personal representative or mortgagee, in which case he will normally sell the property with limited title guarantee.

In Raghunathan v. Chellammal[11], Section 55(2) of the Transfer of Property Act and the learned Judge ultimately held that Section 55(2) of the Act makes it clear that the benefit of covenant for the title runs with the land and is enforceable by the subsequent purchasers of the land and if the buyer resells to several purchasers, each of the purchasers is entitled to sue on the covenant in respect of his part.[12]

The benefit of the contract mentioned in this rule shall be annexed to, and shall go with, the interest of the transferee as such, and "may be enforced by every person in whom that interest is for the whole or any part thereof from time to time vested.”

In Ramalinga Padayachi v. Natesa Padayachi it was held that Section 55(2) whereby there is an implied contract by the seller with the buyer that the interest which the seller professes to transfer to the buyer subsists and that he has power to transfer the same, would be applicable only to cases where there is representation which the buyer accepted though he might have been aware of the defect but hoping that the defects would not affect him; but when the buyer himself knew full well that the seller had no title and was entering into the transaction with full knowledge of want of title, this implied warranty could not be invoked.[13]

In the case of Adikesavan Naidu v. Gurunatha Chetti[14] it was held that the implied warranty of title under Section 55(2) is available to a buyer even if he is aware of the defect in title of the seller. In the case of Md. Ali Sheriff v. Venkatapathi Raju[15] wherein a Bench of the Madras High Court held that mere knowledge on the part of the buyer of the defect in title of the vendor would not by itself defeat the buyer's right on the basis of the covenant implied by Section 55(2) of the T. P. Act.

Enforcing implied covenants for title:-

The benefit of the implied covenants runs with the land (i.e. they can be enforced by every person in whom the estate or interest, whether in whole or in part, is vested). Therefore, if the owner discovers a defect in title, he can (subject to any express term in an instrument to the contrary) take action against the person who covenanted in his favour and, in a case where a full title guarantee has been given, does not have to determine which previous owner was responsible for the defect. Each previous owner can then enforce the guarantee given by its immediate predecessor in title.

There is authority for holding that clause (2) of Section 55 applies not only to a completed sale but also to an agreement to sell, and that, in any case, if section 55(2) only refers to a completed sale and does not in express language refer to an agreement to sell, the warranty of title essential in the former case must be field to be necessarily implied in a contract for sale also.[16]

The covenant for title implied by Section 55(2) gives the buyer, no doubt, a remedy in case of defects discovered after conveyance, but, where a suit for the return of the purchase money is based on an express covenant contained in the conveyance itself, it is only an additional safeguard, over and above the statutory obligation under Section 55(2), but, in no case, it either narrows or wipes out the obligation under the statute. Express covenants, no doubt, override and do away with the effect of all implied covenants, and, an express covenant is a special stipulation, which alone governs the rights of the parties, yet the implied covenant cannot be got rid of except by clear and unambiguous expressions, and, as such, the express covenant is over and above that implied by Section 55(2).[17]

A seller cannot give a higher title than what he has.[18] If he professes to transfer personal occupancy rights, he is not liable if the buyer is evicted by the title paramount,[19] but if he represents an absolute entitlement while he does not have it, he is liable in damages for the breach of the contract.[20]

Consequences of Breach

Any omission to make disclosure is fraud, and where a person discovers the material defect after the conveyance, he has to make out a case for fraud to set aside the sale. The measure of damages for the breach of the covenant of title is the market value of the land on the date of eviction.[21]

Covenants Running with the Land:

A covenant is said to run with the land in the event that the covenant is annexed to the estate and cannot be separated from the land or the land transferred without it. Such a covenant exists if the original owner as well as each successive owner of the property is either subject to its burden or entitled to its benefit. A covenant running with the land is said to touch and concern the property. For example, an individual might own property subject to the restriction that it is only to be used for church purposes. When selling the land, the person can only do so upon an agreement by the buyer that he or she, too, will only use the land for church purposes. The land is thereby burdened or encumbered by a Restrictive Covenant, since the covenant specifically limits the use to which the land can be put. In addition, the covenant runs with the land because it remains attached to it despite subsequent changes in its ownership. This type of covenant is also called a covenant appurtenant. Certain easements also run with the land. An easement, for example, that permits one landowner to walk across a particular portion of the property of an adjoining landowner in order to gain access to the street would run with the land. Subsequent owners of both plots would take the land subject to such easement. A covenant in gross is unlike a covenant running with the land in that it is personal, binding only the particular owner and not the land itself. A subsequent owner is not required to keep the promise as one would with a covenant appurtenant. Thus the covenant for title runs with the land[22].

Contract for Quiet Enjoyment

An express covenant for the quiet enjoyment does not wipe out the statutory covenant for title[23] but the usual express covenant for title includes a covenant for quiet enjoyment.[24] There is no breach of quiet enjoyment covenant where no possession was delivered and no subsequent dispossession.[25]

Implied covenants for full title guarantee

Where a seller transfers the property with full title guarantee, the following covenants for title are implied:

That the seller has the right to dispose of the property in the manner purported;

That the seller will at his own cost do all that he reasonably can to give the transferee the title he purports to give;

That the seller is disposing of his whole interest in the property, where that interest is registered, and of the whole lease, where the interest is leasehold (clearly this implied covenant may need to be amended on a sale or lease of part);

That the seller is disposing of a freehold, where it is unclear whether the interest is freehold or leasehold (a highly unlikely situation where the property is registered at the Land Registry, but the seller should in any event state in the contract that the property is leasehold if it is not a freehold property, in view of this implied covenant);

In the case of a subsisting lease, the seller covenants that the lease is still subsisting and that there is no subsisting breach which might result in forfeiture (Condition 3.2.2 of both the Standard Conditions of Sale and the Standard Commercial Property Conditions expressly exclude from this covenant any wants of repair which may entitle the landlord to forfeit the lease on the grounds of a breach of the repairing covenant. Where, however, there is any other breach of covenant, even if the buyer is fully aware of this, the contract must expressly exclude that breach from the implied covenant for title);
In the case of a mortgage of a property which is subject to a rent charge or lease, the seller covenants that the mortgagor will observe and perform the obligations under the rent charge or lease

Limited title

Where the transfer is made with limited title guarantee, all the above implied covenants are given, only the final implied covenant set out above is changed. The seller covenants that the transferor has not encumbered the property nor granted third party rights, and is not aware that anyone else has done so since the last disposal for value, but there is no covenant relating to the transferor’s predecessors in title, unlike in the case of a transfer made with full title guarantee.

In the case of Pattrachariar vs Alamelumangai Ammal.[26] There is no provision of law according to which a plaintiff who upon failing to obtain one remedy sues for an alternative one is entitled to exclude the time taken up by the former proceedings. It was open to the plaintiff here, if he had any doubt of his vendor's ability or willingness to give him a good title and possession, to ask in the alternative either for possession or for the refund of his purchase money.

CASE STUDY: Basaraddi Sheikh vs. Enajaddi Maleah[27]

Issue: Under Sub-Section (2) of Section 55 of the Transfer of Property Act, a vendor of immoveable property must be, in the absence of any contract to the contrary, taken to covenant for title.

FACTS

The plaintiff bought a small piece of land of the defendant in the year (1888) and the consideration money was thirty rupees. A conveyance was duly executed and registered. Subsequently, after the conveyance to the plaintiff had been executed and registered, a question arose as to the title of the defendant, and certain proceedings were taken in which it was virtually decided that the defendants had no title. In his defence in the suit, the defendant did not allege that he had a title to the property in question. Under these circumstances the plaintiff sued the defendant, and asked, amongst other things, for the recovery of his purchase money and interest.

PRINCIPLE

If the plaintiff has based his case to some extent on the grounds of fraud in the lower court, although he may not be able to succeed for fraud, as a matter of law he is entitled to succeed upon the ground that there was a covenant for title on the part of the vendor.
The Doctrine of ‘Caveat Emptor’ would not apply under s.55 (2) of the TPA, having regard to this section, there was a covenant on the part of the vendor that the interest which he professed to transfer to the plaintiff subsisted, and that he had power to transfer the same.
In the absence of any contract to the contrary, Sub-Section 2 of Section 55 of the Transfer of Property Act must be taken as incorporated into the contract between the plaintiff and the defendant, which in effect is tantamount to a covenant for title on the latter's part. This is irrespective of fraud being alleged or even proved by the plaintiff (plaintiff cannot recover costs on grounds of the fraud); in such cases the plaintiff would succeed on the ground of the implied covenant.
The rule of implied covenant to title will not apply when a contract to the contrary is expressly or impliedly present or proved by the defendant, barring such contract even prior knowledge (both actual or constructive)  by the plaintiff would not vitiate the implied covenant.

DECISION

If it turns out that the seller has no saleable interest in the property, he is liable for damages even if he is not guilty of fraud.

Plaintiff was able to recover costs for the appeal on the ground of breach of duty by the defendant in respect of an implied covenant to contract u/s 55 (2), irrespective of fraud being alleged by the plaintiff.

Bibliography

BOOKS:

Dr. Singh Avtar “The Transfer Of Property Act” (Delhi: Universal Law publishing co.pvt. Ltd.)
Poonam Pradhan Saxena, “Property Law” 1st edition, Lexis Nexis Butterworths Wadhwa Publications, Nagpur
Vepa P. Sarathi, “Law of Transfer of Property”, 1st edition, EBC Publications, Lucknow.

BARE ACT:

The Transfer Of Property Act, 1882

INTERET RESOURCES:

http://www.findlawindia.com

http://www.scribd.com

http://www.maupatra.com

[1] Ram Sunder Saha v. Raj Kumar Sen AIR 1927 Cal 889.

[2] A purchaser can compensate for any loss or damage which the seller has sustained in the course of such a transaction for which even the purchaser was liable; See RL Pinto v FF Menezes AIR 2001 Kant 141.

[3] Ratanlal v Nanabhai AIR 1926 Bom 175.

[4] See Specific Relief Act, 1882 s. 17 (b).

[5] Rajendrakumar v Poosammal AIR 1975 Mad 379.

[6] N.Narasingarayadu v. N. Ankineedu, AIR 1962 A.P. 192

[7] Digamber Das v. Nishibala Debi, 8 Ind. Cas 91 (Cal)

[8] Tavvala Veerabhadra Rao vs Bonam Venugopala Rao And Ors., 1997 (4) ALT 713

[9] Sri Ram v Kedari AIR 1925 Lah 481.

[10] Nathuni Sah v Satyanarain Prasad (1961) AP 11.

[11] 94 LW 755

[12] B. Kutpuddin vs Zuleika Bibi And 5 Ors., 1997 (1) CTC 29, (1997) IMLJ 15

[13] A.K. Parvathambal vs Attimuthu Gounder And Ors., (1978) 1 MLJ 196

[14] ILR 40 Mad 338, AIR 1918 Mad 1315

[15] 39 Mad LJ 449, AIR 1920 Mad 634

[16] See Deep Chandra v. Md. Sajjad Ali Khan, AIR 1951 All 93 (FB), Shankerlal And Anr. vs Jethmal And Anr., AIR 1961 Raj 196

[17] Nathuni Sah And Ors. vs Satyanarain Prasad And Ors., AIR 1961 Pat 11

[18] Mani J Meenattoor v Amy Homi Calabawalla AIR 1986 Ker 149 (DB), wherein it was held that if the title was subject to a statutory charge then plaintiffs preventing the defendants from cutting and removing the trees is not in breach of the covenant.

[19] Kulla Mal v Umra 61 IC 604

[20] Shaligram v Narain 45 IC 669.

[21] Siddiq v Nur AIR 1930 All 771.

[22] Bapu v Kashi AIR 1929 Bom 361.

[23] Bhagwati v Banarasi AIR 1928 PC 98.

[24] Nagardas v Ahmad Khan (1897) ILR 21 Bom 175.

[25] Vishvanath v Deokabai AIR 1948 Nag 382.

[26] AIR 1927 Mad 273

[27] (1898)ILR 25Cal298