SC:Term “name proposed by vendee” doesn’t mean subsequent assignees

The Hon’ble Supreme Court, on 25th November 2019, in the matter of Kapilaben & Ors. v. Ashok Kumar Jayantilal Sheth Through POA Gopalbhai Madhusudan Patel & Ors. observed that even where in an agreement to sell there is no express bar against assignability, the term ‘name proposed by the vendee’ refers to a nominee to be proposed at the time of execution of the sale deed and not a subsequent assignee.

The Hon’ble Supreme Court observed that:

The term ‘representative-in-interest’ includes the assignee of a contractual interest. Though the provisions of the Contract Act do not particularly deal with the assignability of contracts, but a party to a contract cannot assign their obligations/liabilities without the consent of the other party. (Para 7)

Even in a case of assignment of rights simplicitor, such assignment would necessarily require the consent of the other party to the contract if it is of a ‘personal nature’. (Para 8)

It is true that Section 15(b) of the Specific Relief Act does not specifically state that ‘obligations’ may not be assigned except with the consent of the other party. The rule stated in Section 15(b) is that any interest in a contract can be specifically enforced by the assignee thereof, except where the ‘personal quality’ of the party is a material ingredient in the contract; or where the contract, expressly or by necessary implication, prohibits the beneficiary from transferring their contractual interest to third parties. Hence Section 15(b) does not contradict the general law on assignability of contracts, but rather clarifies that the same conditions will have to be satisfied if an assignee seeks to secure specific performance of the assigned contract.  (Para 9)

Where the conferment of a right or benefit is contingent upon, or coupled with, the discharge of a burden or liability, such right or benefit cannot be transferred without the consent of the person to whom the co-extensive burden or liability is owed. (Para 10)

It further has to be seen whether conferment of benefits under a contract is based upon the specific assurance that the co- extensive obligations will be performed only by the parties to the contract and no other persons. It would be inequitable for a promisor to contract out his responsibility to a stranger if it is apparent that the promisee would not have accepted performance of the contract had it been offered by a third party. This is especially important in business relationships where the pre-existing goodwill between parties is often a significant factor influencing their decision to contract with each other. This principle is already enshrined in Section 40 of the Contract Act. (Para 10)

The promisor ‘may employ a competent person’, or assign the contract to a third party as the case may be, to perform the promise only if the parties did not intend that the promisor himself must perform it. Hence in a case where the contract is of personal nature, the promisor must necessarily show that the promisee was agreeable to performance of the contract by a third person/assignee, so as to claim exemption from the condition specified in Section 40 of the Contract Act. If the promisee’s consent is not obtained, the assignee cannot seek specific performance of the contract. (Para 10)

Whether or not an assignee can seek specific performance would depend upon the construction of the contract in each case. The Court would have to determine the nature of interest sought to be transferred, whether such interest was meant to be enforceable only between the parties to the contract and whether the contract expressly or by necessary implication bars assignment of such interest. (Para 11)

Even where in an agreement to sell there is no express bar against assignability, The term ‘name proposed by the vendee’ refers to a nominee to be proposed at the time of execution of the sale deed and not a subsequent assignee. (This inference has been drawn on the basis of Para 11)

A contract for sale of immovable property does not by itself create any interest in or charge on the property. The buyer only obtains a right to get the sale deed executed, upon fulfilment of the applicable terms and conditions as consented to by all the parties. (Para 12)

It is true that Section 15(b) does not stipulate in what form the promisee’s ‘acceptance’ of performance by a representative- in-interest of the promisor should be communicated. It may be either through express written consent, or implied from the actions of the promisee; though as a matter of caution, the former mode of acceptance would inevitably have higher evidentiary value. (Para 14)

Copy of judgement: Judgement_25-Nov-2019

-Adv. Tushar Kaushik

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