Supreme Court in the case of Rambaran Parosad v. Ram Mohit Hazra (1966), considered this question of perpetuities.
The Meaning of ‘Perpetuities’
“A perpetuity”, as defined by Lewis in his well-known book on “Perpetuities” (p. 164), is ‘a future limitation, whether executory or by way of remainder, and of either real or personal property which is not to vest until after the expiration of, or will not necessarily vest within, the period fixed and prescribed by law for the creation of future estates and interests’.
The rule as formulated falls within the branch of the law of property and its true object is to restrain the creation of future conditional interest in property. The rule against perpetuities is not concerned with contracts as such or with contractual rights and obligations as such. Thus, a contract to pay money to a person, his heirs or, legal representatives upon a future contingency, which may happen beyond the period prescribed would be perfectly valid (Walsh v. Secretary of State for India)[1]. It is therefore well-established that the rule of perpetuity concerns rights of property only and does not affect the making of contracts which do not create rights of property.
The rule does not therefore apply to personal contracts which do not create interest in property (See the decision of the Court of Appeal in South Eastern Railway Company v. Associated Portland Cement Manufacturers Ltd.)[2], even though the contract may have reference to land.
In Witham v. Vane[3] William Harry, Earl of Darlington sold in 1824 the manor of Hutton Henry and other heriditaments to George Silvertop. In the conveyance there was a covenant that the said Earl, his heirs, executors, administrators or assigns would pay six pence for each chaldron of coal which would be wrought or gotten out of the lands so sold and which would be shipped for sale, to George Silvertop, his heirs, executors, administrators or assigns. The covenant was en- forced in 1883 at the instance of an assignee from the legal representatives of George Silvertop against the executors of the Earl. The Lord Chancellor (Earl of Silborne) overruled the plea that the covenant offended the rule against perpetuities on the ground that, though the covenant had relation to land, it did not amount to a reservation of any interest in land.
In English law a contract for purchase of real property is regarded as creating an equitable interest, and if, in the absence of a time limit, it is possible that the option for repurchase might be exercised beyond the prescribed period fixed by the perpetuity rule, the covenant is regarded as altogether void. It has therefore been held that a covenant for pre-emption unlimited in point of time is bad as being obnoxious to the rule against perpetuities. The point was settled by the Court of appeal in London and South Western Railway Company v. Gomm[4] which is the leading English authority on the point. In that case, the plaintiff company conveyed certain lands to Powell in 1865, and Powell covenanted with the company that he, his heirs, and assigns, would at any time, on receipt of Pound 100, reconvey the lands to the company. In 1879, the defendant Gomm purchased the land from Powell’s heirs with notice of the above covenant, and in 1880 the company gave the defendant a notice to reconvey the land, and on his refusal brought the suit for specific performance.
Kay J. gave the plaintiff a decree, being of the opinion that, as the covenant did not create any estate or interest in the land, it was not obnoxious to the rule against perpetuities. This decision was reversed by the Court of appeal, and it was held that the option to purchase created an equitable interest in the land which attracted the operation of the perpetuity rule. Sir George Jessel M. R. observed, in his judgment, that the right to call for a conveyance of land was an equitable in- terest or equitable estate. There was no doubt about it in an ordinary case of contract for purchase, and an option for repurchase did not stand on a different footing. In the course of his judgment the learned Master of Rolls observed as follows:
“Whether the rule applies or not depends upon this as it appears to me, does or does not the covenant give an interest in the land? If it is a bare or more personal contract it is of course not obnoxious to the rule, but in that case it is impossible to see how the present appellant can be bound. He did not enter into the contract, but is only a purchaser from Powell who did. If it is a mere personal contract it cannot be enforced against the assignee.
Therefore, the company must admit that it somehow binds the land. The right to call for a conveyance of the land is an equitable interest or equitable estate. In the ordinary case of a contract for purchase there is no doubt about this, and an option of purchase is not different, in its nature. A person exercising the option has to do, two things; he has to give notice of his intention to purchase, and to pay the purchase money; but as far as the man who is liable to convey is concerned, his estate or interest is taken away from him without his consent, and the right to take it away being vested in another, the covenant giving the option must give the other an interest in land.”
In the case of an agreement for sale entered into prior to the passing of the Transfer of Property Act, it was the accepted doctrine in India that the agreement created an interest in the land itself in favour of the purchaser. For instance, in Fati Chand Sahu v. Lilambar Sing Das[5] a suit for specific performance of a contract for sale was dismissed on the ground that the agreement, which was held to create an interest in the land, was not registered under s. 17, cl. (2) of the Indian Registration Act of 1866.
Following this principle, Markby J. in Tripoota Soonduree v. Juggur Nath Dutt[6] expressed the opinion that a covenant for pre-emption contained in a deed of partition, which was unlimited in point of time, was not enforceable in law. The same view was taken by Baker J. in Allibhai Mahomed Akuji v. Dada Allis Isaac[7] where the option of purchase was contained in a contract entered into before the passing of the Transfer of Property Act.
The decision of the Judicial Committee in Maharaj Bahadur Singh v. Bal Chanad[8] was also a decision relating to a contract of the year 1872. In that case, the proprietor of a hill entered into an agreement with a society of Jains that, if the latter would require a site thereon for the erection of a temple, he and his heirs would grant the site free of cost. The proprietor afterwards alienated the hill. The society, through their representatives, sued the alienees for possession of a site defined by boundaries, alleging notice to the proprietor requiring that site and that they had taken possession, but been dispossessed.
It was held by the Judicial Committee that the suit must fail. The Judicial Committee was of the opinion that the agreement conferred on the society no present estate or interest in the site, and was unenforceable as a covenant, since it did not run with the land, and infringed the rule against perpetuity.
Lord Buckmaster who pronounced the opinion of the Judicial Committee observed as follows “Further, if the case be regarded in another lightnamely, an agreement to grant ‘in the future whatever land might be selected as a site for a temple-as the only interest created would be one to take effect by entry at a later date, and as this date is uncertain, the provision is obviously bad as offending the rule against perpetuities, for the interest would not then vest in presenti, but would vest at the expiration of an indefinite time which might extend beyond the expiration of the proper period.”
But there has been a change in the legal position in India since the passing of the Transfer of Property Act. Section 54 of the Act states that a contract for sale of immovable property “does not, of itself, create any interest in or charge on such property”.
Section 40 of the Act is also important and reads as follows:
“40. Where, for the more beneficial enjoyment of his own immovable property, a third person has, independently of any interest in the immovable property of another or of any easement thereon, a right to restrain the enjoyment in a particular manner of the latter property, or where a third person is entitled to the benefit of an obligation arising out of contract, and annexed to the ownership of immovable property, but not amounting to an interest therein or easement thereon, such right or obligation may be enforced against a transferee with notice thereof or a gratuitous transferee of the property affected thereby, but not against a transferee for consideration and without notice of the right or obligation nor against such property in his hands.”
The second paragraph of s. 40 taken with the illustration establishes two propositions:
(1) that a contract for sale does not create any interest in the land, but is annexed to the ownership of the land and
(2) that the obligation can be enforced against a subsequent gratuitous transferee from the vendor or a transferee for value but with notice.
Section 14 of the Act states as follows: “14. No transfer of property can operate to create an interest which is to take effect after the lifetime of one or more persons living at the date of such transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong.”
Reading s. 14 along with s. 54 of the Transfer of Property Act its manifest that a mere contract for sale of immovable property does not create any interest in the immovable property and it therefore follows that the rule of perpetuity cannot be applied to a covenant of pre-emption even though there is no time limit within which the option has to be exercised. It is true that the second paragraph of s. 40 of the Transfer of Property Act make a substantial departure from the English law, for an obligation under a contract which creates no interest in land but which concerns land is made enforceable against an assignee of the land who takes from the promiser either gratuitously or takes for value but with notice.
A contract of this nature does not stand on the same footing as a mere personal contract, for it can be enforced against an assignee with notice. There is a superficial kind of resemblance between the personal obligation created by the contract of sale described under s. 40 of the Act which arises out of the contract, and annexed to the ownership of immovable property, but not amounting to an interest therein or easement thereon and the equitable interest of the person purchasing under the English Law, in that both these rights are liable to be defeated by a purchaser for value without notice.
But the analogy cannot be carried further and the rule against perpetuity which applies to equitable estates in English law cannot be applied to a covenant of pre-emption because s. 40 of the statute does not make the covenant enforceable against the assignee on the footing that it creates an interest in the land. We are accordingly of the opinion that the covenant for pre- emption in this case does not offend the rule against perpetuities and cannot be considered to be void in law. The view that we have expressed is borne out by the decisions of the Calcutta High Court in Ali Hossain Miya v. Raj Kumar Haldar[9], of the Allahabad High Court in Aulad Ali v. Ali Athar[10] and of the Madras High Court in Chinna Munuswami Nayudu v. Sagalaguna Nayudu.
[1] (1863) 10 H.L.C. 367; 11 E.R. 1068
[2] [1910] 1 Ch. 12
[3] (1883) Challies Law of Real Property, 3rd. Ed., App. V., p. 440
[4] [1882] 20 Ch. D. 562
[5] (1871) 9 B.L.R. 433
[6] (1875) 24 W.R. 321
[7] A.L.R. 1931 Bom. 578
[8] 48 I.A. 376
[9] I.L.R. (1943) 2 Cal, 605
[10] I.L.R. 49 All. 527