Monday, 24 August 2015

What if someone reneges on a sale agreement?

Non-defaulting parties should get an agreement to sale enforced under the Specific Relief Act or claim damages for breach of contract.

Though a sale or transfer of a property is complete only upon execution of a sale deed by the seller in favour of the buyer, in some cases a buyer may need extra time to purchase a property or the seller may also need some time to vacate the property and complete the sale. Here, the parties may find it appropriate to execute an agreement to sell (ATS) containing terms and conditions on which they agree to subsequently execute the sale deed. However, no one can rule out the likelihood of a situation whereby one party is willing to perform its obligations contained in the ATS and the other party is not. In such a case usually, the non-defaulting party is entitled to claim damages from the defaulting party for breach of contract. There’s a problem though for contracts of immoveable property such as ATS as it is difficult to ascertain the actual damage done by the defaulting party in not fulfilling its obligations.

In such cases, the non-defaulting party has two kinds of legal remedies at hand - to get the ATS specifically enforced under Specific Relief Act, 1963 (SRA) or claim liquidated damages for breach of contract. An order of ‘specific performance’ of a contract refers to the court’s order requiring the defaulting party to perform its part of the contract.

A situation may also arise wherein the seller dies in the period between the agreement to sell and execution of sale deed. Now, in that case the legal heirs may not want to carry out the sale- purchase transaction. In such a situation, the question that arises is whether the remedy of specific performance is also available against the heirs of a deceased seller.

In a case the Honourable Bombay High Court dealt with this question. An agreement of sale was executed between A (seller) and B (buyer) for sale of certain agricultural land owned by A. A also accepted one-third of the sale amount as earnest money. The balance amount and possession was to be transferred at the time of execution of sale deed when A died and B filed a suit for specific performance against heirs of A.

The Honourable Bombay High Court held that as long as other provisions which would have vitiated the specific performance against A had he been alive did not get hit; specific performance would be awarded against the heirs of the deceased seller as well.

The court held that since it was a breach of a contract to transfer immoveable property which cannot be adequately relieved by compensation money, specific performance was granted.

Thus, when an agreement to sell has been executed, specific performance may be granted by the court depending on the facts and circumstances of the case against the legal heirs of the seller in case of demise of the seller.

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