ABSOLUTE CONDITIONS RESTRICTING THE ALIENATION OF PROPERTY UNDER SECTION 10 IN COMPARISON TO US AND UK CASE LAWS

This article was written by Apurva Mittal a student of Jindal Global Law School.

INTRODUCTION:

Transfer of Property Act, 1882 is an Indian Legislation that chalks down the varied laws relating to the transfer of property within the territories of India and the numerous conditions so attached to the transfer. The extent to which a person transfers his/her interest in the property to the transferee further determines his/her right of disposition. Imposing restrictions upon the transferee’s right to freely alienate the property at any given time or in whatsoever manner he/she desires is called ‘restraints to alienation i.e. a restraint on alienation is said to exist where property is held by a person subject to a restriction on his/her power to transfer or dispose it off.

Sections 10 to 18 of the Transfer of Property Act deal with the various kinds of conditions that cannot be attached while transferring a property and ones which can be held both unenforceable and void. As this paper primarily deals with that ‘transfer of property’, the person subject to the restraint or the person on whom the restraint would be applicable will be referred as the ‘transferee’ and the person imposing the said restraint will be referred to as ‘transferor’.

This paper would in the first segment trace the historical discourse of the doctrine of free alienation in the US and UK. It will be followed by the Indian law with regards to alienation embedded in Section 10 of the Transfer of Property Act. The next segment provides illustrations of Indian case laws to enable to understand how the Courts have distinguished between a partial and an absolute restraint. Further the paper discusses the rule of alienation followed by the Courts in US and UK. The last part concludes the analogies drawn from various case laws, stating the position of law in the present time.

HISTORY OF THE DOCTRINE OF FREE ALIENABILITY IN US AND UK

The historical discourse of the law on free alienability of immovable property depicts that from time to time conditions restricting alienation has been imposed and permitted by the Courts.

It has been stated historically that in the times of Anglo Saxons, lands could be alienated only through a will or by a deed. The idea of free alienation of land had to be understood in a qualified manner keeping into view that jus disponendi evolved through suggestions and the convenience of the changing times. In Europe the restrictions and various conditions could be imposed only through the feudal policy upon the use and useful enjoyment of the land. The conditions were in tune with the doctrine of the feuds and expedient in reference to that system only. In United Sates, the concept of free alienability has to be looked back in the English common law which was under the feudal system of landholding[1].

Then a gradual decline of the feudal laws and power in England upon alienation was witnessed from the reign of Henry I from where alienation became prevalent in cities and boroughs. The law enacted by Henry I allowed for alienation of purchased land while the restraints upon ancestral properties were still to be abided by.

The law allowing for alienation of purchased property was tolerated during the reign of Granville but now in order to impose a certain kind of restriction, conditional fees was introduced. This principle was challenged by the public in Courts declaring it to be inconsistent with the donor’s intentions.

Finally the statute of Quia Emptores by Edward, permanently laid down the free right to alienate without the lord’s consent. This principle established that right to freely alienate is an incident of ownership of the land and a condition restricting this right absolutely will be deemed to be held void.

In modern terms, the fundamental policy reasoning behind striking down the restraints on alienation can be summed up in a few lines:

The rule that prohibited the imposition of an unreasonable or say an absolute restriction is wholly and solely based on the well established principle of social policy. The ulterior belief underlying this policy is that encouragement is required for developments to take place. Under this belief lies an assumption that a property will be put at its best use if the owner is given the liberty to sell the property to whom he/she intends to for better productive uses[2] .

SECTION 10 OF THE TRANSFER OF PROPERTY ACT:

Section 10 of the Act states that any restriction or limitation that ‘absolutely’ restrains the buyer or transferee from alienating the property is a void condition. But there exist two exceptions to this rule which are:

• In cases of lease where a restraint is for the benefit of the lesser or the estate leased out.
• Where the property is transferred for the benefit of a woman who is not a Hindu, Muslim or a Buddhist, with a condition that she doesn’t. Have the power during her marriage to transfer or create any encumbrance in the sale of property transferred to her.

Here, it must be taken into consideration that Section 10 only bars an absolute restraint on alienation whereas a partial restraint is permissible. A restraint on alienation is generally overtly expressed, be it restraining alienation completely, or only to a particular class of people, or after the lapse of a specific time etc[3]. Whether a condition is absolute or partial has to be looked upon by analysing its substance and not the form of the transaction leading to the transfer. The actual effect of the condition so imposed is termed as the substance of the transfer which must be considered[4].

Professor Merill Schnebly, J.C. Gray and Sir Wiliam Holdsworth have now propounded a commonly accepted position that the doctrine of free alienation of property rests upon the principle of public policy. Their justification take into account the reasons due to which restraints on property must be opposed ranging from obstruction in productivity and commerce to encouraging ‘survival of the least fit’ by protecting property owner[5].

On the first look it appears that any sort of restriction upon the power of an owner to alienate his/her property should be, on the face of it, regarded as impermissible. To some the right to freely alienate is seen as an inescapable incident of having a property and any restriction hampers these incidents must be waived off. But restrictions imposed when a land is given out for lease are permitted both by the law and the Courts in India. It is allowed for the sole reason of maintaining lesser’s rights intact and keeping the leased premises in a condition as expected from the lessee.

THE DILEMMA OF PARTIAL AND ABSOLUTE RESTRAINTS IN INDIA:

Indian Courts have been time and again disturbed with the issue of determining whether a certain restraint is partial or absolute in nature. The legal system permits for a partial restraint which are worthy of being categorized as both fair and reasonable.

Certain leading Indian cases that construct a line of demarcation between partial and absolute restraint on the basis of the facts would be now discussed as illustrations:

• Shri Ramchandra Bhakta v. Shri Krusha Chandra Bhakta and Ors. (1999)- in the given case the transferee was only allowed to sell the property to a certain person if he agrees to buy it in the first instance. The Court held this condition to be partial and not absolute and thus Section 10 inapplicable.
• Reza v. Abbas Bandi– Privy Council applying the English rule held that a restriction forbidding alienation of property to strangers, allowing it only to the family members was a partial restraint. A similar verdict was given out in the case of Zoroastrian Co-operative…v. District Registrar Co-operative (2005).
• Muniswamy v. K. Venkataswamy, (2001)– preventing free circulation of property, in light of sound public policy, was held void and lying under the ambit of Section 10.

UK COURTS AND THE LINE OF DECISION MAKING:

What would amount to an absolute restraint and what would not have been a conflicting issue in the Courts of both US and UK. The first leading case upon this issue came up in 1805 which was the case of Doe v. Person. This case was ruled on the basis of the facts and circumstances where the restraint imposed was not found to be absolute and thus not void. It was case in which a person had devised certain land to his two daughters and their heirs as tenants in common. But the condition which was imposed was that if either of them didn’t have any issue, they or she having no issue will have no power to dispose off her share except to her sister or their children.

It was soon over-ruled by the case of Atwater v. Atwater[6] where the Court argued that “notwithstanding anything in the case of Deo v. Pearson, a condition that restraints alienation for twenty-five years will be considered to be repugnant and hence void.” Another English case that clearly laid down that an absolute restriction on the alienation is bad and thus void was the Largis case[7].

The law in England was highly disputed in this matter as the Courts were deciding basing their decision on the facts of each case and not a law and were scarcely considering precedents. The case of Malelay[8] imposed restraint upon alienation that read as “devisee should never sell it out of the family”. This restraint was found to be partial and not repugnant.

THE AMERICAN COURTS ON THE QUESTION OF PARTIAL V. ABSOLUTE:

Mr. Boone has, in his writings on Real Property has clearly remarked that the law annexed has to every estate some inseparable incidents and the foremost amongst them is right of alienation. Any condition annexed to the creation of an estate is absolutely void if it is against alienation.

Indian law and the law in US and UK with regards to the issue of alienability has seen a similar course in decisions taken by the Courts where partial restraints were permitted and determination of the kind of the restraint was based upon the facts and circumstances.

As far as directly stating the law applied and used in the state of New York, the early case of DePeyster v. Mechose can be directly stated that read as follows:

“Upon the highest authority therefore it may be affirmed that in a fee simple grant of land a condition that the grantee shall not alien or that he shall pay a certain sum of money to the grantor on alienation, is void upon the ground that it is repugnant to the estate granted.”

To get a comprehensive knowledge of the rule so applied, various passages from the judgments can be used, one of them being:

“It is well settled rule at common law that a perpetuated and total restriction upon the power of alienation of an estate is void as repugnant to the estate and its failure does not affect the validity of the grant or devise.”[9]

In the case of Shemmergorn v. Hegus, the lands were devised to certain children upon the condition that they were not supposed to sell or alienate it to anyone except each other whenever required to. The Court, like the Indian and civil code countries, found the transfer to be valid and the condition to be void.

Even Pennsylvania and Massachusetts are conducted through a similar law where a condition of alienating the land only to the transferee’s heirs was found inconsistent with a reasonable enjoyment of the property.

Mr. Washburn in his book on real property remarks “if the restriction only be to limited extent, as to A,B and the like, or for a limited amount of time, provided it to be reasonable, the condition may be  valid and the transferee may forfeit the transfer by violating the said condition.”[10]

It is also important to know that in a world in which a sale of assets is generally a welcome event why does certain restraints on alienation persist and are declared permissible by the Courts of law. The need to control problems of external harm and the common pool are ascertained to be some major counters put forward by those accounting for permitting restrictions on alienation.

One assumption embedded in the case of free alienation is that the buyers’ use of the property after alienation ones not violate any rule of tort or criminal law. If direct and absolute restraints on alienation are rejected, and then an application of tort law can be invoked as a partial restraint/condition which must be adhered to strictly. The second scenario in which restriction on alienation becomes important is with common pool resources i.e. in cases where one person is not the exclusive owner of a single resource or property but shares are not always. In definite proportions due to this whenever a part removes his share, there are chances of over exploitation and he/she removes with gain accompanied with very few costs.

This problem of common pool can be left unregulated for some time but the potential long term effects can be tremendously costly therefore, restraints on the right to alienate are one tool in the system of controls[11].

CONCLUSION:

Right to alienation, kept along with a bundle of other rights, extends to properties that are real, personal, tangible or intangible. Sale, mortgage, hire, pledge, bail etc are different ways of alienating a piece of property. In turn, these alienations can be restricted in a number of ways which can be either partial or absolute. The purpose of this paper was to understand how the doctrine of free alienability came into being and how it is operative in India, US and UK. The outlook of the various Courts in the aforementioned countries was clear on the part that an absolute restraint on the right to freely alienate will be held void, rendering it unenforceable. Be it a written law (Section 10 of the Transfer of Property Act) or be it reasoned by the doctrine of public policy, if the Court finds that a restraint imposed on a transfer, completely restricts the abovementioned right, it will not be validated by the decree of the Court. Though, the transfers in either case would be held valid. Individual freedom and social utility are the key principles behind this rule which continues to hold importance even today.

[1] CORNELIUS J. MOYNIHAN, Introduction to the Law of Real Property ch. 1 (2d ed. 1988) (discussing Medieval English land law after the Norman Conquest); 1 AMERICAN LAW OF PROPERTY pg. 1.2-1.5 (A. James Casuer et al. Eds., 1952).

[2] McInerney v. Slights (1988) WL 34528 [19](Chancellor Allen) quoted in Libeau v. Fox 880 A 2d 1049, 1058-9 (Del ch, 2006)(Vice Chancellor Strine).

[3] JOHN C. GRAY, Restraints on Alienation of Property (2^nd Ed.,1895).

[4] http://articles.economictimes.indiatimes.com/2007-10-28/news/27673266_1_transfer-property-act-condition.

[5] SIR WILLIAM HOLDSWORTH, A History of English Law (Sweet and Maxwell, first published 1903) Vol. 2, 262, 578; vol. 3,73-87, 103, 111-120; vol. 7, 193-238, cited in Williams, above n 3, 349.

[6] 18 Beaan, 330.

[7] 2 Leonard, 32.

[8] 15 Law Reports, 20 Eq. 186

[9] Littleton, 465;  4 Kent’s Comm., 131;  Maurice, 345;  Monroe v. Hall (97 N. C. 206);  Hall v. Tufts (18 Pick. Mass. 455).

[10] Pg. 54, Vol. 1.

[11] RICHARD A. EPSTEIN, Why Restrain Alienation, (1985), University of Chicago Law, Chicago Unbound.