Transfer of Property

Topic 9.Sale of immovable property

We are here …

1. Movable and immovable property2. Attestation and notice3. Actionable claim4. Transfer of property5. Restraints on transfer6. Rule against perpetuities7. Vested and contingent interest8. Doctrine of election9. Sale of immovable property

Overview

• Sec. 54 to Sec. 57• Definition of Sale• How sale is effected• Difference between sale and contract for sale.• Difference between sale and lease, mortgage• Rights and liabilities of a buyer (Sec. 55)• Rights and liabilities of a seller• Marshalling (Sec. 56)• Discharge of encumbrances on sale (S. 57)

Definition of sale (S. 54)

• Sale is a transfer of ownership in exchange for a – 1. price paid– 2. Or promised– 3. Or part paid and part promised

• (quid pro quo – this for that / exchange) • Eg-1. Raj transfers the ownership of his land to Simran.

Raj is paid Rs. 1 lakh by Simran in exchange. (1. price paid)

• Eg-2. Sumeet transfers the ownership of his house to Harry Potter. Harry Potter promises to pay Sumeet a sum of Rs. 5 lakhs within 30 days (2. promised)

• Eg-3. Kumar wants to sell his building to Vishwas for Rs. 4 lakhs. Vishwas pays Rs. 2 lakhs and promises to pay the rest (Rs. 2 lakhs) later. Kumar transfers the ownership to Vishwas (3. part paid and part promised)

Essentials of valid sale

• The seller should be the owner of the property or should have the authority to dispose the property.

• Owner for example: I cannot sell Taj Mahal to some persons. To sell a property, first I should be the owner.

• Authority for example: The chief minister is not the owner of Government property. But he has the authority to sell certain properties.

• Buyer must be competent to be a transferee. Not be disqualified under S. 6.

• Subject-matter should be transferable immovable property (tangible or intangible)

• There must be a transfer of ownership• Transfer must be in exchange for a price

Price – sine qua non

• Case: Ranjana Nagpal v. Devi Ram• The price may be paid later, but a price

should be fixed (certainty) (recall the Contract Law principle of ‘consideration’)

• Price can be paid at the time of execution • Or a part can be paid immediately and a

part can be paid later.• Or the buyer may promise to pay the

whole amount later.

Sale how effected

• Sale must be registered if– Tangible immovable property of value Rs. 100 and

above– A reversion or other intangible thing of any value

• If it is a tangible immovable property of value less than Rs. 100, there must be either– A registered conveyance or– Delivery of property

• Delivery takes place when the seller places the buyer in possession of the property

Sale how effected

• Generally, sale takes place through a valid executed sale deed – In writing– Properly attested– Registered

• In case of property of nominal value, sale is completed by a simple delivery of possession or by a registered document

• If there is no registration of the sale deed, no property transfer happens

Contract for sale

• Same as agreement to sell / agreement for sale that was studied during previous semester in Law of Contract.

• As explained several times, in a “contract for sale”, actual transfer of property never happens.

• For the convenience of understanding, “contract for sale” is similar to engagement and “sale” is like marriage. Please do not write this explanation in exams.

• Though the title of the property is never transferred in “contract for sale”, a few rights are accrued by the buyer. The buyer can file for specific performance of contract. However, the seller need not comply. The buyer will have rights to get back his advance amount and any losses if he has suffered due to the “contract for sale”.

Difference

Contract for sale • Absolute interest in the

property is NOT transferred from the seller to buyer

• Property is not transferred from the seller to buyer

• Creates a right in personam

• Title is not transferred

Sale

1. Absolute interest in the property is transferred from the seller to buyer

2. Property is transferred from the seller to buyer

3. Creates a right in rem

4. Title is transferred

Distinction between sale and lease / mortgage / exchange

• In sale, the title of the property is transferred to the buyer for an agreed price

• In ‘exchange’, there is a transfer of property in exchange for something that is not money. For example: Arvind transfers the ownership of his land to Somnath. In exchange, Somnath transfers the ownership of his house to Arvind.

• In, a mortgage, only the “right to sell the property” in event of non payment of loan is given to the mortgagee.

• In a lease, the lessee gets the right “only” to enjoy the property for a certain period. The lessee in no circumstance gets the right to alienate (dispose) the property.

Next

• Buyer’s rights and liabilities– Rights

• Before sale• After sale

– Liabilities• Before sale• After sale

Buyer’s rights - Sec. 55(6)

• Before completion of sale– A charge on the property for the purchase money properly paid

by him in anticipation of the delivery– Interest on such purchase money– Earnest and costs awarded to him in a suit to compel specific

performance of the contract• Eg: Madhuri pays Rs. 1 lakh to Huma as advance for

buying a land from Huma. The sale deed is not yet executed. Huma decides to sell the land to Arshad. Madhuri has a charge over the property to the tune of Rs. 1 lakh + interests and costs if any.

• These are the rights before the execution of sale deed. Usually, a “contract for sale” is executed before the sale deed.

Buyer’s rights – Sec. 55(6)(a)

• After completion of sale• Buyer is entitled to

– Benefits of any improvement in, or, of increase in value of, the property and

– The rents and profits therof.

• Eg: Shahid decides to buy a land from Sonakshi for Rs. 50,000. Overnight, there is an increase in real estate rates and the land is now valued at Rs. 75,000. Now, in the change market rates, Sonakshi cannot demand a higher price for her land. The benefit of the price rise goes to the buyer.

• Leading case: Rani Kaniz v. Murtaza AIR 1937 Oudh 159

Buyer’s liabilities – Sec. 55(5)

Duties of a buyer:• Before sale

– Disclose material fact, increasing the value of the property

– To pay purchase money or promise to

• After sale– Bear loss or destruction of property if any after

ownership passes to him– To pay charges and rent due on the property after

ownership passes to him

Seller’s liabilities / duties – S. 55(1)-(3)

1. Disclosure of material defects relating to property2. Allowing the buyer to examine documents relating to the

property on request3. To answer the related queries or questions of buyer4. Execute a proper conveyance in favour of buyer5. To take care of property and related documents in

between the date of ‘contract to sell’ and actual execution of sale deed.

6. To give possession to the buyer7. To pay rent or public charges due on the property till the

date of the sale(these points need to be expanded)

Cases

• Meghi v. Tyeballi – Mistake with respect to a fact material to the property makes an agreement void

• Shaikh Buddan Sah v. Nigamma

• Ahmedabad Municipality v. Haji Abdul Gafur Haji Hussenbhai

• Rogers v. Hosegood

• Mumtazunnissa v. Bhagirath

Marshalling (S. 56)• Eg: Sunny mortgages his

properties at Jayanagar and Cox town to Bobby and borrows Rs. 50,000. Sunny sells away the property in Jayanagar to Abhay. Now Abhay is the owner of Jayanagar property. Bobby brings an action to recover the money from Abhay’s Jayanagar property. Now, Abhay has the right whereby he need not pay the amount. As per Sec. 56, Sunny’s property in Cox town has to be sold and the proceeds should be used to pay back that loan of Rs. 50,000.

Marshalling

• The concept of marshalling can be best understood by way of examples. The more a teacher tries to explain marshalling in writing, the more a student may get confused. The concept should be explained orally / live where a student can clarify his/her doubts then and there.

• You are advised to read the examples / illustrations given in the text books and understand the concept by making illustrations

• Marshalling is also a principle that was born out of equity. Now some of you may be able to understand why the rule is this way. It is only in the interest of equity, the buyer is given this kind of advantage.

When marshalling rule applies

• Two or more properties should be mortgaged to a single person.

• At least one of the property must have been sold to a third person.

• There should be no contract to the contrary of this rule.

Discharge of encumbrances on sale S. 57

• Black’s Law Dictionary: A claim or liability that is attached to property or some other right and that may lessen its value, such as a lien or mortgage; any property right that is not an ownership interest. An encumbrance cannot defeat the transfer of possession, but it remains after the property or right is transferred.

Encumbrances

• There are various fees / taxes to be paid by the owners of land to authorities or to persons. For example: municipal tax / land revenue.

• Sometimes the property is mortgaged and certain interest has to be paid by the owner of the land.

• Such ‘liabilities’ over the land are called as ‘encumbrances’. More details are here: http://www.thehindu.com/features/homes-and-gardens/q-and-a/understanding-the-encumbrance-certificate/article4298465.ece

Encumbrances

• Encumbrances affect the calculation of fair value for a property.

• To avoid this, either the buyer or seller can apply to the court and deposit certain amount of money or government securities that would discharge the property from encumbrance.

There may be some errors in the slides. Cross check with the standard text books in case of doubts / confusion.

- Gagan