Supreme Court rules unilateral termination of agreement to sell is impermissible except for determinable contracts - subsequent purchasers with notice of prior agreement cannot claim bona fide purchaser status when termination was invalid and without refund of earnest money.
Can a seller unilaterally terminate a property sale agreement without valid grounds, and can subsequent purchasers claim bona fide status if they had notice of the prior agreement?
No, unilateral termination without valid grounds is impermissible, and subsequent purchasers with notice cannot claim bona fide status.
The Supreme Court has ruled that unilateral termination of an agreement to sell is impermissible in law except where the agreement is determinable in nature under Section 14 of the Specific Relief Act, 1963. Subsequent purchasers who had notice of the prior agreement and its invalid termination cannot claim the protection of bona fide purchasers for value without notice.
ATS Execution - Original vendors execute Agreement to Sell (ATS) for 354 acres of agricultural land to original vendees for Rs. 26,95,501
Payments Made - Original vendees pay total of Rs. 8,12,500 to original vendors including earnest money of Rs. 2,00,000
Termination Notice - Original vendors issue termination notice citing pending litigation and death of one vendor
Reply to Termination - Original vendees refute termination, assert readiness to perform contract
Withdrawal of Suit - Original Suit No. 30/2001 withdrawn, status quo order vacated
Sale to Subsequent Purchasers - Original vendors execute sale deeds in favor of subsequent purchasers for Rs. 71,00,000
Suit for Specific Performance - Original vendees file suit for specific performance of ATS
| Legal Principle | What It Means | Application in This Case |
|---|---|---|
| Unilateral Termination | One party ending contract without other's consent | Original vendors' termination without valid grounds held invalid |
| Determinable Contract | Contract that can be terminated as per its terms | ATS was not determinable, so unilateral termination not allowed |
| Bona Fide Purchaser | Purchaser without notice who pays value in good faith | Subsequent purchasers had notice through termination notice |
| Specific Performance | Court order to perform contractual obligations | Granted as original vendees were ready and willing |
A contract where seller agrees to transfer property to buyer for consideration, creating equitable interest in favor of buyer.
Equitable remedy where court orders party to perform their contractual obligations, typically used when monetary compensation is inadequate.
A purchaser who buys property for value without notice of any prior claims or agreements affecting the property.
A contract that contains provisions allowing either party to terminate it under specified conditions.
Security deposit paid by buyer to seller to demonstrate serious intention to perform the contract.
"Unilateral termination of the agreement to sell by one party is impermissible in law except in cases where the agreement itself is determinable in nature in terms of Section 14 of the Specific Relief Act, 1963. If such unilateral termination of a non-determinable agreement to sell is permitted as a defence, then virtually every suit for specific performance can be frustrated by the defendant."
This judgment establishes crucial protection for buyers in property transactions by preventing sellers from arbitrarily terminating agreements without valid contractual grounds. It also clarifies that subsequent purchasers cannot claim bona fide status when they had constructive notice of prior agreements through documents like termination notices.
This content is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for specific legal guidance. The information provided is based on judicial interpretation and may be subject to changes in law.
Making Supreme Court judgments accessible and actionable for every Indian citizen navigating legal challenges.
This analysis decodes a complex property law judgment to help citizens understand their rights in property sale agreements and protection against arbitrary termination.