Report No. 70

22.42. Section 5.-

For cases of the nature involved in Re Frost, section 5 of the Act of 1964 now provides-

"5. Where a disposition is limited by reference to the time of death of the survivor of a person in being at the commencement of the perpetuity period and any spouse of that person, and that time has not arrived at the end of the perpetuity period, the disposition shall be treated for all purposes, where to do so would save it from being void for remoteness, as if it had instead been limited by reference to the time immediately before the end of that period."

22.43. Section 5 of the Act of 1964 reverses the effect of Re Frost1. Take the case of a bequest to A for life, remainder to any widow A may leave for a widow's life, remainder to such of the children of A as survive A and the widow. The gifts to A and his widow are valid at common law. So far as the rule against remoteness is concerned, this position will continue. Gift to children is not presumption valid under the "wait and see" rule, if the question of survivorship is not settled within the perpetuity period. The perpetuity period will normally be the life of A plus twenty one years.

1. Ganham (in re:), (1916) 2 Ch 413.

22.44. If the widow dies within that period, the gift is valid under section 3 of the Act of 1964 (which substitutes the rule of actual events in place of the rule which has regard to possibilities). If the widow is still living twenty-one years from the death of A, the gift-which would be void under common law and not saved by section 3-will vest in the children then living. The ameliorative provision in section 3 would not suffice to cure the invalidity which require some other help. That help is furnished by section 5.

22.45. Options.-

Coming to the question of options to purchase land, it is to be noted that in England it was held in 1882 in the case of London & South Western Railway Co. v. Gomm, (1882) 22 Chancery Division 562, that the rule was applicable to options to purchase land-in that case, a perpetual option. On this proposition being established, specific performance was denied. In a suit in equity against a transferee of the person who gave the original option, an action for damages is also denied, on the theory that the threat of money loss would have the indirect effect of inducing compliance with the option which (according to the hypothesis) is against public policy. Similar course has not been denied in America, however, in regard to options to purchase which are held by a lessee.

22.46. In England, the rules were, at common law, applied even to options to purchase in a lease. One criticism of such an approach is that it seeks to apply to commercial transactions a rule which was evolved in the context of property in the limited sense-excessively long family settlements. It was to meet the needs of public policy in regard to gifts in the family that the period of perpetuities was tailored. The requirement of "lives in being" has no significance in commercial transactions, nor has the period of majority or similar period. Secondly, specific enforcement against a transferee was denied in England against assigns of the lessor,1 but it was granted against the original person who gave the option if he still retained the land.2

Thirdly, even where specific performance was refused, damages were permitted.3 A corrective provision would be a provision exempting from the rule real commercial options to purchase and placing upon such options, if necessary, any time limitations which a study of the commercial dealings in land may show to be desirable.

1. Woodall v. Clifton, (1905) 2 Chancery 257 (265).

2. Hutton v. Waiting, (1948) 1 Chancery 26 (36) (Jenkins, J.) (reviews cases).

3. Worthing Corporation v. Heather, (1906) 2 Chancery 532.

22.47. Not a rule of thumb.-

Finally, it may be stated that the rule against perpetuities, whose origins are usually traced to the opinion of Lord Nottingham,1 is intended to express a policy and not to operate as a rule of thumb. The test, in the opinion of Chancellor Nottingham, was whether the challenged limitation produce a visible inconvenience. Hence any aberrations that produce more inconvenience must require consideration, since such an aberration would defeat rather than promote the objective of the rule.

1. Duke of Norfolk's case, (1682) 22 English Reports 931 (960).

22.47A. Options in India.-

So far as Indian law is concerned, previously there was a conflict in Madras on this point.1-2

1. Avala Charamudi v. Marriboyina Raghavalu, (1915) 28 MLJ 471.

2. Kolathu Ayyar v. Ranga Yadhyar, ILR 38 Mad 114.

22.48. Possible arguments.-

All the arguments pro and con (except one) which we shall presently notice) have been considered in these two cases. The question is one of election between what look like two equally tenable contentions. It can also be argued that a contract which aims at the creation of a future interest contrary to section 14 of the Transfer of Property Act is "of such a nature" that if permitted, it would defeat the provisions of that law.

An argument like this appears to have caught in Jagannatha Raju v. Balasurya Prasada Rao, (1915) 28 MLJ 630, where the High Court held, relaying on section 23 of the Contract Act, that a contract which provided for the conveyance of a property when the defendant inherited it, was bad.

22.49. Supreme Court decisions-Test of interest in property.-

It has now been settled by the Supreme Court1 that the rule against perpetuity does not apply to agreements which do no create an interest in property. Thus, an agreement by a permanent lessee to surrender the lease whenever the land should be required by the landlord is a personal agreement, not void for remoteness.2 An agreement in a lease granting a perpetual option to renew from time to time is not hit by the rule, as it does not create an interest in property.3

1. Rambaran v. Ram Mohit, (1967) 1 SCR 293: AIR 1967 SC 744.

2. Rama Rao v. Thimmappa, (1925) 48 Mad LJ 463: AIR 1925 Mad 732; Ganesh Sonar v. Parendu Narayan, AIR 1962 AP 201.

3. Kempraj v. Barton Son and co., (1970) 2 SCR 140 : AIR 1970 SC 1872 : (1970) 1 SCJ 905.

22.50. Pre-emption.-

As to a covenant for pre-emption, it has been held1 that reading section 14 along with section 54 of the Transfer of Property Act, it is 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 section 40 makes 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 take from the promisor 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 re-semblance between the personal obligation created by the contract of sale described under section 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 applied to equitable estates in English law, cannot be applied to a covenant of pre-emption, because section 40 does not make the covenant enforceable against the assignee on the footing that it creates an interest in the land.

1. Ram Baran v. Ram Mohit, AIR 1967 SC 744.