Gangji and Sons v Hemedi (Civil Appeal No. 49 of 1956) [1950] EACA 268 (1 January 1950)

## H. M. COURT OF APPEAL FOR EASTERN AFRICA

Before SIR NEWNHAM WORLEY (President), BRIGGS (Acting Vice-President) and BACON, Justice of Appeal

RAJABALI GANGJI AND SONS, Appellants (Original Plaintiffs)

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## SALIMU HEMEDI, Respondent (Original Defendant)

## Civil Appeal No. 49 of 1956

(Appeal from the decision of H. M. High Court of Tanganyika, Law, Ag. J.)

Landlord and Tenant—Repairs by tenants for agreement for new tenancy—

- Expenditure to be set off against rent—Property sold in execution to tenants —Whether expenditure recoverable—Tanganyika Land (Law of Property - and Conveyancing) Ordinance (Cap. 114), section 11-Tanganyika Rent Restriction Ordinance (No. 16 of 1951) as amended by Ordinance No. 10 - of 1954, section 2 $(3)$ .

The respondent was the owner of premises which were let to the appellant, the tenancy being due to expire on 1st May, 1955. The appellants agreed to expend money on repairs and improvements to the property, they to have an extension of the tenancy and to set off the amount expended against the rent. The amount spent would normally have entitled them to remain in the property for almost 12 months rent free but in May or June, 1955, the property was sold in execution, the tenants being the purchasers. The tenants then sued in the District Court claiming the amount expended by them either as money paid for a consideration which had wholly failed or as damages for breach of contract and judgment was given in their favour for Sh. 1,150, interest and costs. On appeal the High Court held that the suit was barred, being based on a disposition of land which was inoperative for want of the Governor's approval and because it was not in writing (section 11 of the Land (Laws of Property and Conveyancing) Ordinance) and ordered that the suit be dismissed.

Held $(15-8-56)$ .—(1) Any person, other than the appellants, purchasing the property would have taken it subject to the tenants' rights under the Rent Restriction Ordinance and to the equities subsisting between the respondent as judgment-debtor and the appellants as tenants, and the latter knew that the property could only be sold subject to those rights.

(2) The sale was made subject to those rights and as they were enforceable against any purchaser when the tenants purchased the property they obtained precisely what<br>they had contracted for and, while there were other technical grounds this alone was sufficient ground for dismissing the suit.

Appeal dismissed.

Case referred to: Patterson & another v. Badrudin, E. A. C. A. Civ. App. No. 83 of 1955.

N. S. Patel for appellants.

Roden for respondent.

JUDGMENT (prepared by Briggs, Acting Vice-President).—This was an appeal by leave from an appellate decree of the High Court of Tanganyika, whereby it set aside a decree of the District Court of Lindi in favour of the present appellants, ordered that their suit be dismissed with costs, and awarded costs of the appeal to the present respondent. We dismissed this appeal with costs and affirmed the decree of the High Court. We now give our reasons.

The respondent was the owner of certain premises at Lindi and the appellants were his tenants. The appellants alleged that they agreed to expend moneys on repairs and improvements of the premises in consideration of an agreement for an extension of the tenancy as from 1st May, 1955, on which date it should have determined, on terms that no rent should be paid until the amount expended was set off against rent due. They said that the amount so expended was Sh. 1,733 and the rent Sh. 165 per month, which entitled them to occupy for nearly a year rent free. The premises were, however, sold in execution, either on 7th May, 1955, as stated in the pleadings, or on 4th June, 1955, as we were informed during argument. The date is immaterial. The appellants who were then tenants in occupation, were the purchasers. Their claim in the District Court was for Sh. 1.733 expended, either as money paid for a consideration which wholly failed, or alternatively as damages for breach of contract, in either case on the basis that by allowing the sale in execution to proceed the respondent had become unable to grant them the agreed extension of their tenancy. The respondent raised various defences of law and fact. The learned Magistrate gave judgment for the appellants for Sh. 1,150 interest and costs. The learned appellate Judge assumed that the facts were as alleged by the appellants but held that the suit was in effect barred by section 11 of the Land (Law of Property and Conveyancing) Ordinance (Cap. 114). He summarizes the matters as follows:

"The agreement for a further tenancy as from $1/5/55$ was a disposition of land as defined in section 11 of the Land (Law of Property and Conveyancing) Ordinance, and is inoperative for want of the Governor's approval and because it was not in writing the plaintiffs' claim in the case now appealed from was for refund of moneys admittedly expended in consideration of the aforesaid inoperative agreement. As the plaintiffs' claim was based on an inoperative agreement, it should have been rejected by the trial magistrate, and judgment should have been entered for the defendant."

We should have great difficulty in following the learned Judge on these lines. We think it follows from our judgment in *Patterson and another v. Badrudin*, Civil Appeal No. 83 of 1955, that a disposition within the ambit of section 11, though inoperative, is not unlawful. The claim for damages for breach of it might well be barred, but the transaction is not so tainted with illegality as to make money paid on the faith of the agreement irrecoverable in case of supervening impossibility of performance.

We thought that the suit must fail for reasons much more fundamental. If any person other than the appellants had been the purchaser at the sale in execution, he would have taken the "freehold" (to use a simple, though perhaps loose, description) subject to the rights of the appellants as sitting tenants entitled to the protection of the Rent Restriction Ordinance (No. 16 of 1951) as amended by Ordinance No. 10 of 1954, under which section 2 (3) of the principal Ordinance now provides that, although an agreement of tenancy may be "inoperative" under the provisions of section 11 of Cap. 114, the provisions of the Rent Restriction Ordinance shall apply in all respects as if a valid tenancy subsisted. The appellants had for at least a few days been in occupation in these circumstances. The purchaser would also have taken subject to the equities subsisting immediately prior to the sale as between the respondent as judgment-debtor and the appellants as tenants. In effect, the purchaser would not only have been unable to eject the appellants, but would have been obliged to allow them to set off their expenditure against the standard rent until they had recouped themselves. On this basis the respondent would completely have performed the agreement alleged by the appellants. The sale in execution would in no way have curtailed the appellants' rights over the land. Those rights were (i) de facto occupation (ii) under an "inoperative" agreement of tenancy. which (iii) was none the less to be treated under section 2 (3) as if it were operative and valid and which, therefore (iv) conferred protection under the Rent Restriction Ordinance, subject in addition to (v) a right to recoup their expenditure properly incurred, as if under the inoperative agreement, out of future rent. We will refer to this somewhat complex group of rights as "Y".

If the freehold of the premises be "X", the purchaser at the execution sale<br>could not buy anything more than " $X-Y$ ", for nothing more than that was vested in the judgment-debtor. It is irrelevant to speculate whether potential purchasers were warned by the conditions of sale that "Y" existed, and that only "X-Y", and not "X", was being sold. A third party purchaser without notice might in the absence of such warning have had some grounds for embarking on difficult litigation. But the appellants had the best notice that "X-Y", and not "X", was for sale, since "Y" was vested in them. Their successful bid, whatever it was, was a bid for " $X-Y$ " and they acquired " $X-Y$ " by purchase.

Put shortly, their claim is now: "You promised us 'Y', and have not given it to us". To be logical, they must add "because we bought 'X'". But they did not buy "X": they bought only "X-Y". They now enjoy "Y", not by virtue of their purchase of "X", but by derivation from the prior title of the respondent, which is precisely what they contracted for. This was sufficient ground for dismissing the suit.

There are, however, other and somewhat more technical grounds. As regards the claim for money paid on a consideration which wholly failed, it is relevant to note that, even on the appellants' own view, it did not wholly fail, since an extension of the tenancy was admittedly enjoyed for a few days. The claim could succeed only on a basis of severance, which does not appear to have been put forward in argument. The claim for damages on an inoperative agreement was, we think, not maintainable. Finally an argument might well be founded on the equitable rules governing merger of a lesser estate in a greater. Merger in equity depends primarily on the intention of the party entitled to the interests, but we think there is some authority for the proposition that estates will not be deemed in equity to have merged if such merger would injuriously affect the rights of an innocent third party. See 14 Halsbury, 3rd ed., 615, et sqq., paras. 1135-1140. On this basis we think the appellants cannot merge "Y" in "X" and say that they have not had "Y"; but this is perhaps no more than a technical description of what is apparent to common sense.

We heard argument on costs. It is true that the respondent raised issues on which at various stages he failed, but we think he did not exceed the bounds within which a successful defendant may raise defences which fail without being deprived of the full costs of the proceedings.