The concept of sale in Transfer of property Act 1882 is very well mentioned along with the rights and duties of Seller and Buyer. It is usually suggested that transactions with regard to sale, purchase and mortgage should be carried out diligently and after looking into all kinds of background, as it involves a lot of legalities as well as money. These transactions should be dealt with utmost caution, openness and honesty, if it goes wrong then lot of investment and funds might go down the drain for that particular seller or buyer.
Section 55 of the Transfer of Property Act 1882 deals with sale of immovable property and all kinds of provisions with respect to the rights and liabilities of seller and purchaser while making a sale or purchase of an immovable property. These provisions should be definitely taken into account when one is entering into sale deed. It helps the person know their rights as well as the rights and liabilities of the other party.
Sale is one of the most commonly practiced mode of transfer of property, it has been followed since the modern era of India, when India was a colony of British rule and thus to have one common statute for transfer of property of immovable properties, this Act of 1882 was enacted. All the rights and liabilities mentioned under Section 55 are applicable to both Seller and Buyer, except in case where there is contract specifically signed to the contrary.
Meaning of Sale
The concept of sale in the Transfer of Property Act hails its origin from the Black’s Law Dictionary defines Sale as “a contract made between 2 parties who are subsequently called as the Seller and Buyer, by which the former in consideration of payment or on the promise of payment of a certain price in money transfers to the latter the title of the and possession of the property.”
So, sale is basically a transfer of ownership of the immovable property in exchange for a fixed or negotiated price which is paid or part paid or promised to be paid by the buyer. The main element of a sale is consideration, that there is a price being paid for transferring the title of property in the name of buyer from seller. As per the Indian Contract Act 1872, both the Buyer and Seller should be competent to contract and person who transfers the ownership is “Seller” and person in whose favour the ownership is transferred is “Buyer”. As it is legally binding contract, both the parties have rights and duties to adhere to. The rights and liabilities of Seller and Buyer are explained below.
Rights and Duties Of Seller
Rights of Seller
- Before Sale
When the sale is not complete, the seller shall have all rights and authority over the property, as he is still the owner of the property. Until the sale is complete and the title of the property has been changed in the name of Buyer, the seller has the right to collect rents, profits and other benefits from the property. But post the transfer of ownership this right shall be transferred to the Buyer and seller’s right will get terminated.
- After Sale
- Seller’s Lien or charge– once the sale is completed, but some amount of consideration is unpaid or remaining, then the Seller shall acquire a lien or charge on the property, and the completion of sale is not contingent to the payment of consideration but on the delivery of possession. Thus, to receive the remaining price a charge or lien has to be created over the property.
- Interest on unpaid price– Seller has the right to get an interest on the remaining amount of consideration. For instance, if the buyer is already in possession of the property, then the seller can claim an interest over the unpaid price from the buyer starting from the date of possession of property was given and not from the date of transfer of ownership.
- Transfer of Seller’s charge– in cases where the charge is already there in favour of seller in form of unsecured debt and hence it is an actionable claim. Then, such actionable claims are transferable in nature just like a charge. The charge created in favour of seller can be transferred to a third party via any registered instrument.
Duties of Seller
- Before Sale
- Disclosure of material defects in property– It is mandatory that seller should disclose and state all the material defects existing over the property. Seller is bound to disclose every bit of material defects even if they are not readily visible. The hidden defects which cannot be discovered while doing a reasonable search should be disclosed by the seller. in case of latent defects, the principle of caveat emptor (let the buyer beware) applies as it is right of the buyer to know the status quo and current condition of the property. If the seller fails to inform the buyer about the hidden defects of the property, then it shall either lead to misrepresentation or fraud (if done intentionally) and the buyer shall have the right to retract the contract of sale.
- Production of Title deeds– the seller needs to produce the Title deeds of the property on the demand of the buyer for a nominal check, of whether it is appropriate or not. Seller shall produce all the documents as requested by the buyer for reasonable reviewing which are available with the seller or are in his possession. In case, there is any default in the documents or seller fails to produce the document, then the buyer has the right to get back his consideration which was paid in advance to the seller as token money and even repudiate the sale contract.
- Answer queries with respect to Title– the seller should be able to answer all the questions regarding the title and the buyer should be satisfied with the answers. Usually, in certain cases the title deeds are not produced in the initial part of negotiation, so the buyer has certain questions from seller regarding the title of property which shall be duly answered. Under certain cases, the buyer often doesn’t question but it is the duty of Seller to inform the buyer about the Title.
- Duty to perform conveyance– it is the primary duty of the seller, to perform the conveyance of the property, i.e. transfer the ownership. Once the sale deed is signed and stamped, and the consideration amount is paid, the seller should convey the property in given time.
- Reasonable care of property and Title deeds– post the execution of sale deed, the seller needs to take reasonable care of the property and title documents until the property is delivered to the buyer. Basically, the seller acts as a trustee of the buyer for the time duration between execution of conveyance and property’s delivery.
- Payment of expenditures– the seller should pay all the expenses over the property, before the sale is made the seller should pay all the government taxes, revenues and rent with respect to the property. Before the sale, the buyer is not bound to pay any of the outgoings of the property and only seller should pay them up till the date of sale.
- After Sale
- Give the possession of property– once the sale deed is signed and execution of Title deeds, the seller is responsible for handing over the possession of the property to the buyer or any other person assigned by the buyer.
- Delivery of Title Deeds– after the sale is completed, seller has to deliver the title deeds to the buyer who shall now become the owner of those Title deeds, and seller will have no use of these deeds. It is the chief duty of seller to transfer all the property related documents to the buyer.
Rights and Duties of Buyer
Rights of Buyer
- Before Sale
Buyer’s Charge or Lien- this right comes into picture when the sale has not been executed and the seller refuses to sell due to some default on his part, but the buyer has already paid some amount in advance. So, in such a case the buyer shall create a charge over the property and is enabled to get his money back from the property along with the interest from the date of transfer and not from date of delivery of possession. But if the sale was not executed due to the fault of Buyer, then the buyer will neither have any charge over the property nor can he claim his advance some of money.
- After Sale
As per Section 55 (6)(a) of the Act, 1882 the buyer is entitled to get all the rights over property including the profits, rents and other benefits after the execution of the sale deed. After the completion of sale the buyer becomes the legitimate owner of the property and thus has a right to collect all these revenues over the property from the date of transfer of ownership.
Duties of Buyer
- Before Sale
- Duty of disclosure– even the buyer has the duty to reveal all the relevant facts to the seller before executing the sale deed especially if something may increase the value of the property, of which seller might not be mindful. When the buyer knows certain facts about the property which might increase the price of the property substantially, he or she is bound to inform the seller regarding the same and in case he fails to do so, then same shall amount to fraud on part of the buyer.
- Payment of price– once the sale is completed, then the buyer is bound to pay the entire amount of property but the buyer is not bound to pay the entire amount before the execution of sale, some advance token amount can be paid but not the whole sum and promise to pay the entire amount while executing the sale deed.
- After Sale
- To endure the loss of property– once the sale is completed, it is the responsibility of buyer to bear the loss of property as post the sale, the buyer is the new owner of the property and seller is not liable for any loss incurred after the sale is executed. The buyer will not be able to accuse the seller for any losses unless, it can be proved that the loss was caused due to seller’s fault and before the sale execution.
- To pay outgoings– after the title is transferred in favour of buyer, the buyer needs to take care of all expenses entitled to the property such as government taxes, rents and other taxes. Seller shall not be liable to pay those once the property is transferred to buyer.
Marshalling By Subsequent Purchaser (Sec 56)
This section showcases a combination of sale along with prior mortgage. It has been explained under Section 56 and 81 of the Act. Section 56 of the Act 1882 states that, “When a person who owns one or more properties and mortgages them to a mortgagee/ person and later sells one or more of such mortgaged properties to any third party, the buyer is entitled to have his mortgaged debt satisfied out of the property or properties which are not sold to him as far as the same shall extend but not prejudice the rights of the mortgagees or person who are claiming under him or any of the person who has for a consideration obtained an interest in any of those properties.”
Section 56 applies to those mortgages wherein the mortgagees have one common debtor (mortgagor). In this case, the first mortgagee might have one or more properties as mortgage and the second mortgagee might also have some of the earlier mortgaged properties and advanced the loan without the notice of prior liability. In such situations, it is usually done that the mortgagee is entitled to marshal some securities to recover the loan amount and first mortgagee shall move ahead against the remaining properties which have not been encumbered in favour of the 2nd mortgagee.
But the mortgagee marshalling the securities shall satisfy his debt out of the mortgaged properties and not prejudice the rights of the purchaser of one of the other remaining properties. The main aim of these two sections; Section 56 and 81 is based on the principle of equity and serve justice to the mortgagees. The precedent and subsequent mortgagees are secured under these 2 sections and it further aims to be fair for both the mortgagor as well mortgagee. It should be noted that first mortgagee shouldn’t do anything to prejudice the rights of second mortgagee.
For example- Rajesh is the owner of property X, Y and Z. Rajesh mortgages all these 3 properties to Suresh (1st mortgagee). Further, Rajesh mortgages his property X and Y to Kamlesh (2nd mortgagee). Now, if the debt of Suresh can be satisfied out of property X alone, then the remaining property Y and Z should be left untouched, but in case the debt cannot be satisfied with one property then he can proceed further to sell the remaining properties.
Thus, from the article is can concluded that sale is the most common mode of transfer of property practiced by everyone in some or the other form in their lifetime. Sale is transfer of title in exchange of reasonable consideration. It is necessary to have a consideration in return for the transfer of ownership, or else it won’t be considered as a “Sale” but a “Gift”. One of the essential features of Sale is consideration. Apart from that, the Act also specifies the basic rights and liabilities of seller and buyer while executing a sale deed. In case there is failure or ignorance in part of fulfillment of such liabilities, then the contract can be repudiated by the aggrieved party.
The article is authored by Rhea Banerjee.