SALE

Question 1

DEFINITION OF A SALE

Answer 1

Sale is defined under the Act as a transfer of ownership in exchange for a price paid or promised or part paid and part promised. As said earlier, an owner has three basic rights over his property, a right of title, an exclusive right to possess and enjoy the
property and an exclusive right to alienate it. In a sale of property, all these rights are conveyed by the owner with his free consent in favour of the transferee who is called a buyer.

No rights remain with the seller, and the transfer of this totality of rights is called an absolute transfer. A conveyance to be a sale involves intention of the parties to transfer the property for a consideration, and vesting of all rights in the properties so in the buyer and divesting of all rights as far as the transferor is concerned.

In contrast, a lease and a mortgage are transfer of a right in the property, but not absolute transfers. For instance, in a lease, there is a transfer of a right to possess and enjoy the
property, but the title and a right of alienation remain with the owner. Similarly, in a mortgage, what is transferred is a right to cause the property to be sold in the event of
non-payment of loan by the mortgagor in favour of the mortgagee.

Question 2

Sale and a Hire-purchase Agreement

Answer 2

A transaction of a sale is different from a hire-purchase agreement. A hire purchase agreement may culminate in a sale, but till it does so, there exists a right in favour of the transferor to rescind the agreement and take back the possession of his property.

Secondly, while payment through instalment is an accepted feature of a hire purchase agreement, the terms of payment of consideration in a sale are purely dependent upon the agreement between the parties.

Question 3

Sale and Exchange

Answer 3

Sale is the transfer of ownership in a property in exchange for a price that is generally understood as money, but in an exchange there is a transfer of ownership in exchange for something that is not money.

For instance, A, sells a house to B for Rs 90,000. This would be a sale. But, if A exchanges his house for the land of B, this would be an exchange. Therefore, a transfer of a land in return for work done or for a person’s maintenance or a claim for betel expenses would be an exchange, as the consideration
here cannot be termed as money. The distinguishing feature between a sale and an exchange is that in a sale a right of pre-emption may exist, but it cannot exist in case of an exchange.

Question 4

Sale and Lease

Answer 4

In case of a lease, there is a partial transfer and the right of reversion remains with the lessor, whereas in case of a sale, there must be an absolute transfer of ownership and not some rights only as in the case of a lease.

Therefore, where a document was presented for registration and the issue was whether the document in question was a partial transfer and accordingly, a lease, or whether it involved any outright sale therein, it was held that it was a lease deed was executed by the lessor in favour of the co-operative societies and its members.

Question 5

Essentials of a Valid Sale

Answer 5

The essential elements of a sale are:
(i) Parties to a sale;
(ii) Subject matter of sale;
(iii) Price;
(iv) Mode of executing a sale.

Question 6

Parties to a Sale

Answer 6

The parties to a sale are—the transferor who is called a seller, and the transferee who is referred to as the buyer. A contract of sale must be based on a mutual agreement
between the seller and the buyer.

The transferor or the seller must be a person competent to contract, i.e., he must be major and of sound mind, and should not be legally disqualified to transfer the property. A minor or a person of unsound mind is incompetent to transfer his own property despite being its owner, but a transfer by a mentally challenged person during lucid intervals is valid.

Question 7

Subject Matter of a Sale

Answer 7

Section 54 only governs the sale of immovable property. Immovable property can be tangible or intangible. Tangible property is one that can be touched, such as a land, house, a tree etc., while intangible property refers to property that cannot be touched such as a right of fishery, a right of way etc.

Question 8

Price

Answer 8

Price, that is fixed by the contract antecedent to the conveyance is the essence of a contract of sale, and in the ordinary sense connotes money consideration for the sale of property.

Where, instead of price, some other valuable consideration is kept, the transaction is not a sale but can be an exchange or a barter.

Where the consideration is money but is not specific, the transaction would still be a sale. If the transaction on the face of it is complete, it cannot be regarded as a mere agreement only on the ground that the price is unascertained at that time.

Question 9

Section 54 has provided two modes of transfer of immovable property:—

Answer 9

(i) Delivery of possession, and
(ii) Registration of sale deed.

Question 10

Delivery of Possession.
—

Answer 10

Where the property is tangible immovable property of the value of one hundred rupees
and upwards or in the case of a reversion or other intangible thing, transfer can be made only by a registered instrument.

Where the property is tangible immovable property of a value less than one hundred rupees, its transfer may be made either by a registered instrument or by delivery of the property.

Delivery of tangible immovable property takes place when the seller puts the buyer or such person as he directs in possession of the property.

Where the market value of the property is less than hundred rupees, the oral sale of
immovable property is completed merely by possession. The court, however, satisfied
itself that the entire consideration has been paid.

Delivery of possession means transferring of physical control of the property to the buyer.

Question 11

Registration of sale-deed.
—

Answer 11

Where the value of tangible immovable property is Rs 100 or more, the sale of such property requires registration of the deed. Where the property is intangible immovable property of any valuation, it will require registration for completion of sale.

The transfer of an immovable property can only be effected by executing a registered document, mere making of agreement of sale or executing of power of attorney would not transfer the right, title or interest in an immovable property

Question 12

Difference between Sale and Contract of Sale

Answer 12

A sale of an immovable property is the transfer of ownership whereas a contract for sale is merely an agreement for the sale of property in future on terms agreed between the parties. After sale, all the rights and liabilities of the owner transfer
into the vendee but in contract of sale no interest of the vendee is as such created in the property. The ownership of the property remains in the vendor.

A sale conveys a legal title to the purchaser because absolute interest of the vendor passes to the vendee (purchaser). A contract of sale does not convey a legal title to the purchaser. It does not create any right in the property or charge
upon the property in favour of the party to the contract.

A sale creates a right in rem whereas a contract of sale creates a right in personam, where only the promisee (purchaser) can compel the seller-promisor or a subsequent purchaser with notice to execute the promised conveyance.

A sale requires a compulsory registration where the sale is of tangible immovable property of Rs 100 or more, a reversion and any intangible thing whereas a contract of sale does not require any registration.

Question 13

DUTIES OF SELLER (Before Completion of Sale)

Answer 13

1) To disclose material defects – section 55(1)(a)
2) To produce title-deeds for inspection – section 55(1)(b)
3) To answer questions as to title – section 55(1)(c)
4) To execute a proper conveyance – section 55(1)(d)
5) To take care of property and title deed – section 55(1)(e)
6) To pay public charges and rent accrued – section 55(1)(g)

Question 14

Duty of Disclosure (Section 55(1)(a)].

Answer 14

The seller is bound to disclose to the buyer any material defects (in the property or in the seller’s title thereto), of which the seller is aware and the buyer is not; and which the buyer could not, with ordinary care, discover. If the buyer either knows about these defects or could have known about it if he had acted as a reasonable prudent man, then there is no such duty on the seller. A failure to do that would be treated as fraudulent or a deliberate omission.

For instance, A has a house that he professes to sell to B. The house has an underground drain, which makes the foundations weak. It would be a material defect, and if the seller fails to disclose it to the buyer, the buyer has a right to rescind the contract

Question 15

Material Defect Section 55(1)(a)].

Answer 15

The defect must be such that if it was known to the buyer, his decision to purchase the property would have been fundamentally affected. Such defect may also hamper the enjoyment of the property. Non disclosure of a street alignment, a defect in title, or non-existence of independent passage to the property, or a right of way of public on
the property that is not visible from a mere inspection is a material defect. The fact that rooms and flats constructed were not authorized and were illegal is a material fact, a nondisclosure of which would attract the application of this section.

Question 16

Productions of Documents of Title [Section 55(1)(b)].

Answer 16

Generally, the law imposes a duty on the buyer to satisfy himself with respect to the competency of the transferor, and also whether there is a charge due over the property or not. In order to get good value for his money, he has to be vigilant, and the facility of inspection of all documents relating to the property is mandatory. Law recognises this and the seller is therefore, in law bound to produce to the buyer, on his request for examination all documents of title relating to the properties, which are in the seller’s possession or power.

The documents may be examined either at the seller’s
place or buyer’s place. If the buyer does not demand any such document, the seller is under no duty to produce them. Where the buyer does not examine the title deeds, the court will presume that he is satisfied with the authority and title of the sell etc. If a
buyer does not inspect the title-deeds, he would be fixed with the constructive notice of any defect in the seller’s power of transfer if it is found later on.

Question 17

Seller Bound to Answer all Relevant Questions [Section 55(1)(c)].

Answer 17

The seller is bound to answer to the best of his information all the relevant questions put to him by the buyer in respect of the property or its title. Since the buyer is getting the ownership of the property it is
in his interest that he must be fully satisfied about the ownership rights of the seller and his authority to make the transfer. That is why, mere inspection of the title-deed is not sufficient. If there are some doubts, the buyer must ask them and the seller must
answer them to the satisfaction of the buyer.

Question 18

Seller to Execute Conveyance [Section 55(1)(d)].

Answer 18

If is the duty of the buyer to execute a proper conveyance on the payment or tender of the amount due in respect of the price.

Conveyance means the transfer of ownership. This is done by the signing of the sale deed or putting thumb impression on the sale deed by the seller. The duties of both the seller and the buyer under this clause are reciprocal. When the buyer makes the payment the seller has to execute the conveyance. It must be on proper place and proper time.

But what is proper place and time, it has not been specified in the Act. The proper place and time may be decided by the parties by their mutual agreement.
However, the conveyance must be within reasonable time after tender of price. In case there is no stipulation fixing the time of execution and the seller makes unreasonable delay in executing conveyance, the proper course is to give notice making time the
essence of the contract.

Question 19

Seller to Take Care of the Property and Title-deeds [Section 55(1)(e)].

Answer 19

This clause says that between the date of contract of sale and the delivery of property, the seller is bound to take as much care of the property and all documents of title relating to it which are in
his possession as an owner of ordinary prudence would take of such property and documents.

This clause lays down the duty of the seller between the contract of sale and delivery of property. Within this time, the property remains with the seller but only in a trust for the buyer. He holds the property as a trustee of the buyer because he has already executed the conveyance, only the delivery of the property is to be made.

The seller has to preserve the property as well as title-deeds. The extent of care required by this clause
is such care as an owner of ordinary prudence would take of his own property.

This duty continues till the possession of property is given to the buyer. If the seller fails in performing his duty, he will have to compensate the buyer for the loss occasioned to
him.

Question 20

To Pay Outgoings [Section 55(1)(g)].

Answer 20

This clause says that the seller is bound to
pay all public charges and rent accrued due in respect of that property up to the date of sale, the interest on all encumbrances on such property due on such date and except where the property is sold subject to encumbrances, to discharge all encumbrances on
the property then existing.

Before the completion of the sale, the seller has to pay all the outgoings on the property i.e., all the public charges like rent, revenue, taxes etc. Unless there is any contrary intention, the seller must discharge all the encumbrances, if there are any, on the property. He is not liable to discharge the encumbrances where the property is sold subject to encumbrances. Where the seller does not pay the outgoings and the buyer
subsequently pays them, the buyer becomes entitled to be reimbursed by the seller.

Question 21

Implied Covenant to Title [Section 55(2)].

Answer 21

Sub-section (2) says that the seller shall be deemed to contract with the buyer that the interest which the seller professes to transfer to the buyer subsists and that he has the power to transfer the same. Such a
covenant is implied in every sale of immovable property and it is not required to be expressly mentioned in a sale deed. The legal effects of such covenants are given
below:—

1) The covenant implies absolute warranty of title.
2) This liability is limited to which the seller professes to transfer
3) If a defect is found in the seller’s title after completion of sale, the buyer would become entitled to sue for damages and to claim return of the purchase-money if he is dispossessed in consequence of his seller’s defective title.
4) The covenant runs with the land and it is enforceable by subsequent purchasers of land.

Question 22

RIGHTS OF SELLER (Before Completion of Sale)

Answer 22

The corresponding rights of the seller are as follows:
(i) To rents and profits till passing of ownership; and
(Section 55(4)(a) )

Question 23

Duties of the Buyer

Answer 23

The corresponding duties imposed on the buyer are as follows:
(i) Disclose material facts, increasing the value of property; [Section 55(5)(a)]
(ii) To pay purchase money; [Section 55(5)(b)].
(iii) Bear loss or destruction of property if any after ownership passes to him [Section 55(5)(c)]. and;
(iv) To pay charges and rent due on the property after ownership passes to him [Section 55(5)(d)].

Question 24

Rights of Buyer ( Before Completion of Sale)

Answer 24

The buyer is entitled to:
(i) Charge for pre-paid purchase money- section 55(6)(b)

According to sub-section (6)(b), the buyer is entitled to a charge on the property unless he has improperly declined to accept delivery of the property, as against the seller and all persons claiming under him, to the extent of the seller’s interest in the property for the amount of any purchase- money properly paid by the buyer in anticipation of the delivery and for interest on such amount.

When the buyer properly declines to accept delivery, he becomes entitled to refund of earnest (if any) and for the costs (if any ) also awarded to him in a suit to compel specific performance of the contract or to obtain a decree for its rescission.

The principle underlying this section is a trite principle of justice, equity and good conscience. The charge would last until the conveyance is executed by the seller and possession is also given to the purchaser and ceases only thereafter. The charge will not be lost by merely accepting delivery of possession. This charge is a statutory charge in favour of the buyer and is different from contractual charge to which the
buyer may become entitled under the terms of the contract and in substance a converse to the charge created in favour of the seller under section 55(4)(b).

Consequently, the buyer is entitled to enforce the charge against the property and for that purpose trace the property even in the hands of third parties and even when the property is converted into another form by proceeding against the substituted security,
since none claiming under the seller including a third party purchaser can take advantage of any plea based even on want of notice.

Question 25

Essentials of Marshalling (Section 56)

Answer 25

The section says that if the owner of two or more properties mortgages them to one person and then sells anyone of those properties to another person, the buyer is entitled to claim that the mortgage-debt be satisfied out of the properties not sold to
him.

Therefore, this section protects the interest of the buyer and it applies only between the buyer and the seller and not as between the subsequent purchasers.

The section is based on the principle that when a person purchases some property free from encumbrances, his absolute interest should not be prejudiced. Marshalling by purchaser is exercisable only between the buyer and the seller. It cannot be exercised detrimental against the rights of the mortgages or other person claiming under him or any person having an interest in any of the properties.

The subsequent purchaser can claim the right of marshalling only if the interest of the prior mortgagee or persons claiming under him or any other person who has acquired interest in any of the properties for consideration is not affected thereby.

A mortgages three properties X, Y and Z to B. Subsequently he sells property X to C free from the encumbrance. Under marshalling, C shall be entitled to insist that B should realise his debts first from properties Y and Z which are unsold. If after exhaustion of Y and Z any part of the debt remains unsatisfied, then only B can draw upon X. Here
although C has paid full price for X to A in taking it free from encumbrance, B still has a right to proceed against X unless he has agreed with A and C on payment of a part of the mortgage debt or otherwise that he would have no right to do so. In case there is
no such agreement, if B proceeds against X as the last resource, C will be entitled to claim from A the amount actually realised by B from A.

Question 26

[s 55.1.2] After Completion of Sale

Answer 26

(5) Seller’s Liabilities—
(i) To give possession – section 55(1)(f)
(ii) Implied covenant for title – section 55(2)
(iii)To deliver title deeds on receipt of price – section 55(3)

(6) Seller’s Rights—
(i) Charges for price unpaid – section 55(4)(a)

(7) Buyer’s Liabilities—
(i) To bear loss to the property – section 55(5)(c)
(ii)To pay out goings – public charges and rents – section (5)(d)

(8) Buyer’s Rights
(i) Benefit of increment – section 55(b)(a)

Question 27

Charge upon Property for Unpaid Price [Section 55(4)(b)].

Answer 27

This clause says that where the ownership of the property has passed to the buyer before payment of the whole of the purchase-money, the seller becomes entitled to a charge upon the property—

(a) in the hands of the buyer,
(b) any transferee without consideration, or
(c) any transferee with notice of non-payment,
(d) for the amount of the purchase money or if any part of the purchase money remaining unpaid, and
(e) for interest on such amount of purchase money or any part unpaid from the date on which the possession has been delivered.

The completion of sale of an immovable property does not depend upon the payment of price because the price may be paid or promised to be paid. Therefore, this right has been given for the protection of the seller who has given possession of his property to the buyer but has not received full price.

The seller is given a right to recover the unpaid
purchase-money from the property. This is known as statutory charge of the seller for the unpaid-price. The charge creates a right of payment out of the property specified. It may be created by the act of parties or by operation of law. Under the sub-section, the charge is created by operation of law and the property specified for securing the money is sale-property. Under this right, the seller is not entitled to retain possession, therefore, the charge is said to be non-possessory lien.

The seller may enforce his charge for recovery of purchase-money under section 100 of the Act by a suit against the buyer for sale of the property.

However, such a charge cannot be enforced against any subsequent transferee for value without notice of the charge in favour of the seller.
The seller is entitled to claim not only the unpaid price money but also the interest on such amount.

Where the buyer is already in possession of the property, the seller is entitled to claim interest from the date on which such possession was delivered, not from the date on which the transfer of ownership took place.

Question 28

Marshalling by Purchaser (Section 56)

Answer 28

The section says that if the owner of two or more properties mortgages them to one person and then sells anyone of those properties to another person, the buyer is entitled to claim that the mortgage-debt be satisfied out of the properties not sold to him.

Therefore, this section protects the interest of the buyer and it applies only between the buyer and the seller and not as between the subsequent purchasers.

The section is based on the principle that when a person purchases some property free from encumbrances, his absolute interest should not be prejudiced.

Marshalling by purchaser is exercisable only between the buyer and the seller. It cannot be exercised detrimental against the rights of the mortgages or other person claiming under him or
any person having an interest in any of the properties.

The subsequent purchaser can claim the right of marshalling only if the interest of the prior mortgagee or persons claiming under him or any other person who has acquired interest in any of the properties for consideration is not affected thereby.