Report No. 70
Transfer After Revocable Transfer
Doubts or defects regarding title may arise from various causes. The defect may be of a fundamental nature-no title-section 41-or non-existence of the property or right in the property- section 43. But it could be a defect of a different nature, arising from the fact that certain powers which could have been, and ought to have been, exercised by the transferor have not been exercised by him.
In other words, the property is in existence and the transferor has also, in the abstract, power to transfer it, but this power is subject to the fulfilment of a certain condition. The law then, in the, interests of justice, takes a position as to the performance of the conditions. In particular, there may arise a competition between two transferees of the same property, claiming under a transfer executed by the same transferor. Such a situation justifies the application of certain equitable doctrines.
The first transfer is in favour of A, but is revocable. The same property is then transferred to B, but the transferor has not exercised the power of revocation. The transferor, by the second transfer, creates a conflict of interest, which now must be resolved. The approach of equity in such cases is that though the power of revocation has not been exercised expressly, it should be deemed to have been exercised by the transferor. This is analogous to the implied repeal of a statute.
This is similar to the maxim of equity that equity regards that as done which ought to be done, or that equity imputes an intention to perform an obligation. It is this principle which is enacted in legislative language in section 42. This section is fundamentally linked with equity. Its connection with the earlier sections which are themselves based on equitable considerations is also not difficult to perceive, because the object of the section is to protect the subsequent transferee against the fraud, mistake as well as indifference of the transferor.
This protection, of course, is subject to the qualification that if the equities are in favour of any other person deserving of a better protection, then the section does not apply. In equity, where a man covenants to do an act and he does some other act which may be regarded as a completion of the covenant, equity presumes that the latter act was intended to be in performance of the covenant.
Thus, in Sowden v. Sowden, (1785) 1 Cox Eq Cas 165: 29 Er 1111, a husband on marriage, covenanted to pay the trustees the sum of £ 2,000 to be laid out by them in land in the county of D to the uses of the marriage settlement. The husband did not pay the money, but himself purchased lands in the county of D and died intestate. It. was held that the lands must be deemed to have been purchased by the husband in pursuance of his covenant and so subject to the trusts of the settlement.
The doctrine of performance proceeds upon the ground that a person is to be presumed to do that which he is bound to do and, if he has done anything, that he has done it in pursuance of his obligations.1 Section 42 reflects a similar though not identical, principle. According to section 42, where a person transfers any immovable property, reserving power to revoke the transfer, and subsequently transfers the property for consideration to another transferee, such transfer operates in favour of such transferee (subject to any condition attached to the exercise of the power) as a revocation of the former transfer to the extent of the power.
The illustration to the section is a case of lease. A lets a house to B, and reserves power to revoke the lease if, in the opinion of a specified surveyor, B should make a use of it detrimental to its value. Afterwards A, thinking that such a use has been made, lets the house to C. This operates as a revocation of B's lease, subject to the opinion of the surveyor as to B's use of the house having been detrimental to its value.
1. (a) Tubbs v. Broadwood, (1831) 2 Russ&M 487: 39 ER 479; (b) Lechmere v. Lechmere (Lady), (1735) Cas Temp Talb 80: 25 ER 673.
38.3. Two transfers.-
This section contemplates the case of two transfers, one conditional and the other absolute. It lays down that where the transferor reserves to himself power to revoke the first conveyance, and, subsequently transfers the same property to another, the latter transfer operates as a cancellation of the first transfer, subject only to fulfilment of the condition upon which revocation was dependent.
The object of this section is to validate such transfers and to declare that in such a case the subsequent transfer has the effect of cancelling the former, for, the subsequent transfer being only possible when it is made to take effect in defeasance of the prior transfer, the transfer is deemed to have been thereby revoked by necessary implication1.
In construing the section, the intent of the statute is to be expounded against fraud and to suppress fraud and to maintain just dealing2.
2. Bullock v. Thorne, F Moo 615 TPA 63.
38.4. History of section 42.-
The provisions of the section ultimately owe their origin to an English statute passed in 1584-section 5, 27 Elliz., Ch. 4-later repealed by the Statute Law Revision Act, 18631. It may be of interest to note that a power to revoke a transfer can, in certain circumstances, be reserved by the transferor, though not in the case of a gift2.
2. Section 126.
38.5. First transfer.-
It would appear that the first transfer referred to in section 42 could be a transfer for consideration. In fact, if the first transfer is a gift and is revocable at the will of the donor, then the gift is void under section 126. This has been pointed out by Mulla1. It may also be stated that the illustration to the section itself takes the case of lease, which is for consideration.
1. Mulla, (1973), p. 207.
38.6. Recommendation for verbal amendment.-
While no changes of substance are needed in section 42, it seems to be desirable to improve the drafting of the latter half of the section. At present, the language employed is-
"such transfer operates in favour of such transferee " It would be better if the words "such transfer" and "such transferee" are replaced by the words "the subsequent transfer" and "the subsequent transferee" respectively. This would bring this part of the section in harmony with the earlier portion, where the expression "subsequently transfers" is used. It would also indicate that we are speaking of the subsequent transfer, in contrast with "the former transfer" mentioned towards the end of the section. Accordingly, we recommend that section 42 should be revised as under:-
"42. Where a person transfers any immovable property, reserving power to revoke the transfer, and subsequently, transfers the property for consideration to another transferee, the subsequent transfer operates in favour of the subsequent transferee (subject to any condition attached to the exercise of the power) as a revocation of the former transfer to the extent of the power."