(COURT OF APPEA) *

THE NILE IMPORT AND TRADING OIL CO.

V.

ABDEL HADI ABDEL MAGEED EL GABBANI AND THE SHE CO.(s) LTD                             

(AC-Revision-89-1958).

Principles

·  Contract—Consideration—Executory—Intention to create legal relations—Conditions precedent and subsequent—Misrepresentation of fact—Effect of Landlord and tenant—Lease—Specific performance—Damages in lieu of—Registration to subsequent purchaser bar to specific performance—Land Settlement and Registration Ordinance, s.5/2 Civil practice and procedure—Civil Justice Ordinance, First Schedule, Ord. II,(). 10_s.72

By virtue of a written agreement, first defendant agreed to grant plaintiffs a twenty-year lease over a certain plot of land; three years’ rent was payable in advance. Plaintiffs were intending to construct a petrol-pump filling station on the plot, instead of registering the lease in the name of plaintiffs as required under section 48 of the Land Settlement and Registiation Ordinance. First defendant granted and registered a lease to the second defendants.
A claim by plaintiffs for the specific performance of the agreement and for damages for delay was dismissed by the District Judge, whose decision was upheld by the Honourable the Judge of the High Court. The reasons given for the dismissal of the suit were:
(a) The agreement was not a binding contract: (i) there was no consideration moving from plaintiffs; (ii) the agreement was not intended ‘o be binding before the grant of a licence by the municipality. Alternatively:
(b) The agreement, if binding, was discharged by breach in that plaintiffs refused to pay the enhancement value imposed by the municipality.
(c) There was in the agreement a misrepresentation of a material fact, which rendered it voidable.
Held: (i) There was a binding contract between the parties; the considera tion moving from plaintiffs being their promise. Inter Qua, to pay rent, etc., in return for defendant’s promise to grant the lease. i.e., the consideration was executory, which is sufficient to constitute a binding contract.
(ii) The stipulation as to the obtaining of a licence from the municipality was not to he construed as a condition precedent to the agreement, i.e., one on the fulfilment of which a binding contract is predicated, but as a condition subsequent, the non-fulfilment of which discharges the parties from their mutual obligations.
(iii) Plaintiffs did not commit a breach of contract by their refusal to pay the enhancement value, which was prima facie payable by the owner (Town and Village Planning Act. 1956, s. 9 (3)). Defendants’ allegation in their sub missions of the existence of a contrary agreement should have been specifically pleaded and proved.
(iv) That a misrepresentation of fact does not render an agreement voidable unless it amounted to a material inducement to the making of the contract.
(v) That the misrepresentation in the present case was not a material one. The stipulation that the present agreement was the same as one entered into with Swar ci Dahab, was not the sole inducement for defendants to enter into the contract, so that they could not avoid the contract for this reason, though they could treat it as a breach of warranty and claim damages therefor.
(vi) That, specific performance of the agreement being impossible, the sub sequent registration to second defendants preventing such a relief being granted, the plaintiffs’ sole remedy was in damages

Revision

Advocates: Ahmed Kheir………… for applicants

                   Abdel Wahab Mohamed… for respondents

November 11, 1958. B. Awadalla I.: —This is an application by the Nile Import and Trading Oil Co. against the decision of the Honourable the Judge of the High Court, Khartoum, dismissing summarily their applicat against the decision of the District Judge, Khartoum, in CS/ 457/56. In that suit applicants claimed: (a) Specific performance of a written agreement of lease of Plot No. 322/3/4/I Omdurman which agreement is alleged to have been made at Khartoum on January 28, 1956.

(b) Damages for delay estimated provisionally at £S.5 per day from June 23. 1956 to the date of institution of the suit (i.e., July 11, 1956).

The facts of the case are fully set out in the judgment of the District Court and we need not repeat them here. The points relied on by the court in dismissing the said claim are as follows: (a) That the contract is not binding, because (i) there was no consideration moving from plain tiffs; (ii) there was no intention between the parties that the agreement was to bind any of them before the grant of a licence by the Municipality.

Or alternatively: (b) That the agreement though binding was dis charged by breach committed by plaintiffs who made it impossible for themselves to rely on its terms: in that (z) they failed to pay the enhance ment value imposed by the Municipal authorities; (ii) they misrepre sented a material fact in clause i6 which contains a stipulation that the said agreement is the same as the one signed by Sayed Swar el Dahab.

Applicants applied to the Honourable the Judge of the High Court who dismissed the application summarily. It would seem from a consideration of the reasons relied on by the learned District Judge that they have no relation whatsoever with the points in controversy in the suit as dis closed by the pleadings. It was never suggested on behalf of the defen dants in the court below, either in the pleadings or submissions, that the first agreement between applicants and first respondent was void for lack of cohsideration or because of the absence of an intention to create legal relations. All that the first respondent had contended was that applicants committed a breach of the agreement either as originally concluded or as later varied by parol.

Before dealing with the grounds upon which the judgment is based. we would like to point out that this is a case where at the opening of the proceedings the court purported to invoke Order II of the First Schedule to the Civil Justice Ordinance but afterwards neglected the very important provisions thereof. Rule to of this Order says:

“The defendant shall raise by his pleading all matters which show the suit not to be maintainable, or that the transaction is either void or voidable in point of law, and all such grounds of defence as, if not raised, would be likely to take the opposite party by surprise, or would raise issues of fact not arising out of the plaint, as, for instance, fraud, limitation, release, payment, performance, or facts showing illegality.”

If this rule was not strictly complied with by the counsel for first defen dant then the court cannot surprise the plaintiffs by itself raising the points for the first time in the judgment. If at the time the court was considering its decision, the judge is of opinion that the real point for that decision is one which did not at all occur to the minds of the parties, then he has power under section 72 (3) o the Civil Justice Ordinance to draw their attention thereto and frame new issues.

Turning now to the grounds of the judgment: As to (a) (i): we regret we are unable to understand the vew of the learned District Judge that the agreement is void for k.ck of consideration and we entirely agree with the views of the learned counsel for applicants (given in his memorandum of appeal) that the learned District Judge is confusing executory considera tion with absence of consideration. Anson on Cc’ntract, at page 8ç, says that consideration is something done, foreborn or suffered, or promiseeUd to be done, foreborne or suffered. In the present case it needs no intelligence to see reciprocal promises of a mutual benefit accruing to both partie in their contemplated relation of landlord and tenant.

As to (a) (ii): Here again, the reasoning of the learned District judge is certainly incorrect. He says that this agreement “was not intended to be binding on either party because it was made purposely to enable the parties to obtain the necessary licence for the erection of the Pump Filling Station.” In making this decision the District Judge says that he is relying on the evidence of first respondent. In our view it was contrary to all rules of construction to ignore the agreement itself and then rely on extraneous evidence like the statement of first respondent to explain its purport or effect. Clause xo of the agreement says that applicants are entitled to cancel the lease in case the authorities shall refuse, cancel or withdraw the permit thereon. Here we have an express provision in the agreement that the occurrence of a cert event shall discharge applicants from their obligations under the agreement for lease. It is what in the law of contract is termed “a condition subsequent” by which promise is made defeasible upon the happening of some specific event. Such a provision can only be operative when the intention of the parties is that the agreement shall be binding from the start. Of course in so far as the contemplated lease itself is concerned, the grant of the permit by the Municipal authorities is a condition precedent and in either case, i.e., whether in its operation on the agreement of lease as a condition subse- quent or in its operation on the lease as a condition precedent the effect of the event is the same, i.e., a total discharge of applicants-from their promise. In the circumstances of the present case and as long as the licence was duly granted the agreement must be given its full force and effect.

As regards (b) (i): The learned District Judge says at page 4 of his judgment that the non-payment by applicants of the enhancement value (Ls, 5/2) entitles the first respondent to avoid the contract. Payment of enhancement value was never at all stipulated for in the agreement and there is no doubt that it is payable in law by first respondent. This enhancement value is payable under the Town and Village Planning Act. 1956. Because of the importance of that section in so far as it concerns this case, I shall quote it in full

“9.(1)Subject to the provisions of Section 8 of this Act, and with out prejudice to the powers conferred by the Land Acquisition Ordinance, i 930, whenever any exercise, other than an exercise under the provisions of the Town Replanning Ordinance, 1950, of any power in relation to town or village planning, including that of variation of boundaries, classifying previously unclassified, or of re classifying already classified land, is likely to cause any loss or enhancement of value to any privately owned land, notice of inten tion to make such exercise (in the following sections referred to as ‘the plan’) shall be published by the authority concerned in such manner as it considers most appropriate for bringing it to the atten tion of the persons interested, and thereafter such loss or enhance ment shall be assessed in the manner provided for by this Act.

“(2)The full amount of any loss revealed by such assessment shall be paid to the owner.

“(3) If the assessment reveals an enhancement of the value of the land affected, the owner shall pay to the Government a sum equivalent to seventy-five per cent. Of such enhancement.”

It is clear from subsection (of this section that an enhancement value is in law payable by the owner or lessor and not by a tenant. Any other interpretation of the agreement of which the effect is to disregard this provision would, in our opinion, be quite wrong. So the question as to who was liable to pay the enhancement value could not have operated to affect the rights of the parties under the contract and if the first respondent wants to allege a parol variation of the agreement, i.e., that it shifted the responsibility of paying enhancement value from the shoulders of the owner to that of the lessees, then he ought to have pleaded this fact and he cannot raise it for the first time in his submis sions. Anyway, and even on the facts deducible from the evidence, no such variation was proved and all that seems to have happened was that the Director gave a verbal promise to contact his headquarters to obtain approval for payment of live instead of three years’ rent in advance. That in our opinion does not amount to a variation of the terms of the written agreement of lease.

As regards (b) (ii): Here the learned District Judge is relying on another fact which was not raised in the pleadings, viz., the variation between the agreement under consideration and that between the company and a certain Mohamed Swar ci Dahab. This variation resides in the fact that in this agreement there is a penalty clause of £S. while there is none in Swar el Dahab’s agreement and as applicants had expressly covenanted in clause i6 that the two agreements are the same, then if this fact turns out to be untrue the first respondent is discharged from all obligations under the agreement. To us this seems not only to be highly illogical but contrary to the very rudimentary principles of the law of contract. Even assuming that there is a misstatement as contended by respondents, then such a misstatement can only operate to affect the rights of the parties under the contract in accordance with the rules governing fraudu lent or innocent misrepresentations of fact. Therefore, in order that the first respondent might avoid the effects of this agreement, by reason of such alleged misstatement, they have to prove that—whether made fraudu- lently or innocently—the misstatement was a determining ground of the transaction or, in other words, an inducing cause of the contract. Kerr on Fraud and Mistake, p. 74, says:

“a misrepresentation goes for nothing unless it is a proximate and immediate cause of the transaction. It is not enough that it may have remotely or indirectly contributed to the transaction—or may have supplied a motive to the other party to enter into it. The repre sentation must be the very ground on which the transaction has taken place.”

I do not think that in this case first respondent can be heard to say that he had only leased his land because Sayed Swar el Dahab did likewise. We have no doubt that the real inducement to the agreement in this case was the -rent reserved and the fact that first respondent will have (vide clause 15) the right to run the pump filling station for a period of at least one year. Had there been any misrepresentation on this fact, it would not in our opinion operate to affect the transaction any more than did the misrepresentation in Green v. Gosden (1841) M. & G. 446. In that case, upon the negotiation for a loan of money; the lenders repre sented that it was lent by a joint stock company, but it was in fact lent by themselves only and the misrepresentation was held to be immaterial, the real inducement to the borrower being the advance of the money. I have dwelt at length on the point because there seemed to have been some misapprehension in the mind of the court as to the legal effect of a misrepresentation of fact relating to an ancillary matter of this sort inducing a contract. But was there any misrepresentation in this case? When such a representation of this sort is embodied in the contract and it turns out to be not true, the disappointed party can of course have a right of action for breach of warranty.

We have before us the two agreements, i.e., the one made with Sayed Swar ci Dahab and the one under consideration. They are absolutely identical save for clause, which contains the penalty provision. There is no such clause in Swar ci Dahab’s agreement because apparently his land was vacant and unoccupied at the time of the agreement while in the case before us the land was occupied and first respondent had to remove the occupiers in order to give vacant possession to enable the required demolition to be carried out by applicants. The finding that a breach of clause i6 was committed is therefore wrong and we are of opinion that the statement under consideration was absolutely correct and that there is no difference between the two agreements save that dictated by the different physical considerations prevalent in the respective plots.

Having found that first respondent is not bound by the agreement, it was natural that the learned District Judge left unanswered the remaining issue as to whether second respondents had notice of this agreement when they concluded their own, but as the point was dealt with by the Honourable the Judge of the High Court, I will deal with it presently when considering the grounds given by the Honourable the Judge of the High Court in dismissing the application for revision.

The Honourable the Judge of the High Court says that the contract was not binding either because of a mistake of fact or by reason of the fact that applicants had accepted all liability for applying for and obtain ing the necessary permits. In our view this finding is wrong. With all respect to the Honourable the Judge of the High Court, we think that no statement can do more injustice to the law of contract than to suggest that there is no consensus ad idem between the parties because they had forgotten to provide for a fact (e.g., the enhancement value) already pro vided for by law. We are really unable to understand the paradoxical pronouncement of the Honourable the Judge of the High Court that “there is no contract because the plaintiffs (applicants) accepted all liability for applying for and obtaining the licence,” etc., for we cannot conceive of a liability under an agreement without that agreement having a binding effect as a contract. We are therefore of opinion that the contract under consideration is binding upon and enforceable against the first respondent.

We now come to the question of whether specific performance of this agreement is possible, and this brings us to the question whether registration of another lease by first respondent to second respondents renders specific performance impossible. We have no doubt that it does. Whether second respondents, when concluding their agreement, had or did not have notice of applicants’ prior agreement is absolutely immaterial. In England the effect of the equitable rule that “the taking of a legal estate after notice of a prior right makes a person a mala fide purchaser” has been greatly abrogated by the rules as to registration contained in the Land Charges and Law of Property Acts of 1925. The position is the same here under the Land Settlement and Registration Ordinance and the submissions of the learned counsel for second respondents on the point that the lease of applicants is void against them are quite corr’ct. But L is not for first respondent to avail himself of this flaw and say that the agreement is not enforceable because it was not registered. It was due to his own failure that it is now impossible to register this agreement and as he was under an obligation (vide clause 6) of th agreement to see that it was registered, he has no doubt committed a breach of that stipula tion and—specific performance being impossible—must be liable in damages to applicants. Applicants have no doubt done themselves great: harm by not applying to the Registrar of Lands for an entry of notice of lease under section 5/2 of the Land Settlement and Registration Ordinance, nonetheless, this failure cannot affect their contractual rights against first respondent.

Specific performance not being available for applicants, the court has. Jurisdiction, whether damages were claimed or not, to afford relief byway of damages. No inquiry was made by the court as to the question of damages due to applicants and we therefore return case for this pur pose so that the court might, after due investigation, order payment by first respondent to applicants of such damages as might come within the rule in Hadley v. Baxendale ((1854) 9 Exch. 341).

This application is therefore allowed with costs, the decree of the District Judge is being set aside and case returned for rehearing on the lines indicated in the preceding paragraph.

M. A. Abu Rannat C.J.: —l concurs.

                                                                            (Application allowed)