This case is a landmark English law case Tulk v. Moxhay [1] where it was established that there are several instances and occasions where the equitable covenants can be binding on the future purchasers or buyers of the property that is to say that this runs with the land. The case primarily focuses on Section 11 and Section 40 of the Transfer of Property Act, 1882. Before the facts of the case it is necessary to understand what these sections talk about. Section 11 talks about both the positive and the negative covenants which are enforceable against the transferee only whereas Section 40 refers to only negative covenant and that these covenants which are negative are attached to the land and that they run with the land where as a transferee or the person who is subsequent to it who does not have the notice to it and the subsequent transfers that are being made are of value then he can be saved.
Factual Matrix
The brief facts of the present case are as follows:
The plaintiff Charles Augustus Tulk owned several parcels of land and properties in Leicester Square which is situated in London and sold a piece of this land to Elms in the year 1808 conveying this to him in fee but with a covenant stipulating that this square piece of land must be maintained and that no houses or such sort of construction is to be done on the land and the garden on the land was to be kept intact as it was ornamental and was a pleasure garden. This was an equitable covenant that was made to keep the square garden “ uncovered with buildings.” Elms sold the garden to another person and he sold it to another person and then finally after 40 years it was sold to Moxhay, the defendant, whose deed that he got did not contain the same covenant as it was passed by diverse intermediary conveyances but the defendant took the land with the knowledge of this. But still the defendant attempted to build a house on the square land which was a garden which he had bought. Therefore the plaintiff filed a suit for injunction to restrain the defendant from constructing the house by enforcing the covenant.
Now the main issue that the court had to look into was whether an equitable covenant which limits the use of the property could “ run with the land “ and could be binding upon subsequent purchasers at law. The argument of the plaintiff was that since he had sold the land with an equitable covenant which restricted construction on the piece of land and that it should run with the land and whoever owns the property should not be allowed to construct anything as was restricted due to the covenant and therefore sought for injunction. The defendant on the other hand claimed that even though he was aware of the covenant but since the contract to which he was binding to did not explicitly contain this clause of altering the character of the square garden and therefore he was not privy to the contract and was so he was not bound by the covenant.
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Issue
Whether an equitable covenant limiting the use of a property could ‘run with the land’ and bind a future owner of the property?
Decision of the Court
The trial court had granted the injunction and therefore Moxhay the defendant had appealed. The High Court consisting of Lord Cottenham and Lord Chancellor held that in equity the subsequent transferees in the series were bound by the covenant and therefore Moxhay should not have constructed on that square garden. The court even observed that the plaintiff had legitimate interest in preserving the garden from the construction and also that covenant is a contract between the vendor and the vendee it is enforceable against a purchaser for some considerable value either by actual or constructive notice and as the defendant had actual notice of the covenant and that he could not stand in a different situation than that of the owner from whom the property was purchased. Therefore the covenant was enforceable and the injunction was granted to refrain the defendant from violating the covenant.
Analysis
This is the most cited and renowned case with reference to the legal position on negative and positive covenants on trade. Primarily, the law laid down by the Court in this case was premised upon the notion of preventing a party having knowledge of the rights of another arising from a restrictive covenant from violating the same even if the person didn’t enter into the covenant himself. While adopting this rationale, the court has noted that such a rule is based upon the principle of ‘equity’ and is in the just interest of the owner of the covenant. This rule has even been adopted in several cases in India such as Hukmi Chand v. Jaipur Ice & Oil Mills, wherein the Court has prescribed that in the absence of this rule, the purpose of justified restrictive covenant shall stand defeated.
However, subsequently, the decision in this case has been subject to certain criticism with respect to the rationale adopted by the Court. The extension of the covenants to the land and not to the one covenantor may be problematic. Firstly, it may violate the public policy considerations of free circulation and impose critical obstruction on the diverse uses of the land. The same shall also drastically affect the prices of the land as subsequent purchasers shall be vary of buying a property with such encumbrances. Secondly, in the absence of any law, any amount of successive purchasers shall be subject to the covenants and the same may also be in contradiction to public interest and principles supporting free use of land. Thirdly, subsequent buyers must possess actual notice or constructive notice of such covenants attached to the land. This is however difficult as often such facts are not easily accessible by buyers and the same leads to ambiguity.
However, though criticised, the rule laid down in Tulk v. Moxhay has also found support as a reasonable principle from the lens of equity. The principle of equity justifies the requirement to accord actual or contrastive notice to ensuing buyers of the land and that such covenant must be intrinsic to the land. Essentially, the principle propagates that a restrictive covenant attached to a land has a direct correlation to the price of the land and violation of the covenants would be completely against the interests of the holder of the covenant.
In any event, it must be understood that such a rule is premised not on law but on equity and therefore, its application must be reasonable in nature. In such cases, it is only a discretionary power that the court may choose to adopt in order to grant injunctions. However, there is no security that the covenants shall be enforceable in court as law. In that respect, only reasonable restrictive restraints must pass over to subsequent buyers and not positive restraints. Moreover, the Court must satisfy itself that any such restrictive covenant is not against public policy or public interest. The rule evidenced under Articles 10 and 11 of the TOPA favours restraints only against the transferee as the same creates a balance between public interest and interest of the seller.
REFERENCES
[1] [1848] EWHC Ch J34.
BY ARNAV GHAI | JINDAL GLOBAL LAW SCHOOL