Sale of immovable property

1. Definition: section 54

Sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. The elements are:

• Parties competent to transfer and to receive (s.7 and the Contract Act);
• transfer of ownership, the whole bundle of rights, not a limited interest (which separates sale from mortgage, lease and charge);
• price in money; if the consideration is another thing, the transaction is an exchange (s.118), and if there is none, it is a gift (s.122);
• the price may be paid, promised or part-paid and part-promised; non-payment does not undo a completed sale, it gives the seller a charge for the price (s.55(4)(b));
• the mode required by law.

2. How a sale is made

• Tangible immovable property of the value of one hundred rupees or more, and any reversion or other intangible thing: only by a registered instrument.
• Tangible immovable property below one hundred rupees: by registered instrument or by delivery of the property. Delivery takes place when the seller places the buyer, or a person he directs, in possession.

In practice almost every sale needs a registered conveyance, and stamp duty under the State's Stamp Act. An unregistered sale deed does not pass title (s.49, Registration Act, 1908), though it may be received as evidence of a contract in a suit for specific performance or of part performance under s.53A.

3. Contract for sale

The last paragraph of s.54 says a contract for the sale of immovable property is a contract that a sale shall take place on terms settled between the parties, and that it does not, of itself, create any interest in or charge on the property. The buyer under an agreement has only a personal right to sue for specific performance under the Specific Relief Act, 1963. His protection against a later purchaser comes from s.91 of the Trusts Act (a later buyer with notice holds for him) and from s.53A where he has taken possession in part performance.

In Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana, 2011 INSC 739, (2012) 1 SCC 656, the Supreme Court dealt with the practice of “selling” property through a sale agreement, a general power of attorney and a will (SA/GPA/Will transactions), used to avoid stamp duty and registration. It held that such transactions are not transfers or sales and do not convey title or create any interest in immovable property; title passes only by a registered deed of conveyance. A power of attorney is only an authority to act for the principal, and a will speaks only on death. The documents may be relied on for limited purposes, such as a suit for specific performance or a plea under s.53A, and the Court said genuine transactions where a power of attorney is given to a relative or agent to sell are not affected.

4. Sale and contract for sale distinguished

• Effect. A sale passes ownership; a contract for sale creates only a right to obtain a sale.
• Nature of right. The buyer's right after sale is a right in rem; under a contract for sale, a right in personam against the promisor.
• Form. A sale above Rs 100 needs a registered instrument; a contract for sale may be oral or written, and need not be registered unless it is used for s.53A (since 2001, an agreement relied on for part performance must be registered).
• Remedy. On a sale, the seller sues for the price or enforces his charge; on a contract, the parties sue for specific performance or damages.
• Risk. After a sale the loss falls on the buyer (s.55(5)(c)); under a mere contract the seller remains owner.

5. Rights and liabilities under section 55

All of these apply in the absence of a contract to the contrary.

Liabilities of the seller before completion, s.55(1). He is bound:

• (a) to disclose any material defect in the property or his title of which he is aware and which the buyer could not discover with ordinary care;
• (b) to produce for inspection, on request, all documents of title in his possession or power;
• (c) to answer, to the best of his information, all relevant questions put by the buyer on the property or title;
• (d) on payment or tender of the price, to execute a proper conveyance when the buyer tenders it for execution at a proper time and place;
• (e) between contract and delivery, to take as much care of the property and documents as an owner of ordinary prudence would;
• (f) to give the buyer, on request, such possession as the nature of the property admits;
• (g) to pay all public charges and rent accrued up to the date of sale, and to discharge all encumbrances on the property then existing.

After completion. Under s.55(2) the seller is deemed to contract that the interest he professes to transfer subsists and that he has power to transfer it. This covenant for title runs with the land, so a later owner can sue on it. Under s.55(3), once the whole price is paid, he must deliver all documents of title in his possession or power.

Rights of the seller, s.55(4). (a) The rents and profits until ownership passes to the buyer; (b) where ownership has passed before the whole price is paid, a charge on the property in the hands of the buyer, or any transferee without consideration or with notice of non-payment, for the unpaid price and interest.

Liabilities of the buyer, s.55(5). (a) To disclose any fact as to the nature or extent of the seller's interest which he knows and the seller does not, and which materially increases its value; (b) to pay or tender the price at the time and place of completion; (c) where ownership has passed, to bear any loss from destruction or injury not caused by the seller; (d) where ownership has passed, to pay public charges and rent falling due thereafter, and interest on encumbrances subject to which the property is sold.

Rights of the buyer, s.55(6). (a) Where ownership has passed, the benefit of any improvement or increase in value and the rents and profits; (b) unless he has improperly declined to accept delivery, a charge on the property against the seller and all claiming under him for the purchase money properly paid in anticipation of delivery, with interest; and where he properly declines to accept delivery, also for the earnest and for costs awarded to him in a suit for specific performance or for rescission.

Omission to make the disclosures required of the seller under (1)(a) and of the buyer under (5)(a) is fraudulent.

6. Problem

S agrees to sell his house to B and takes an advance. Before the conveyance, the house is damaged by a fire caused by S's careless storage of fuel. B refuses to complete and demands his advance back. S says B must complete.

Issue. Who bears loss to the property between contract and conveyance, and what B can recover.

Law. Section 55(1)(e): the seller must take care of the property until delivery; s.55(5)(c): the buyer bears loss only after ownership passes and only if not caused by the seller; s.55(6)(b): the buyer's charge for the price paid in advance.

Application. Ownership had not passed, and the damage resulted from S's own want of care. B therefore does not bear the loss.

Conclusion. B may decline to complete and recover the advance with interest, and has a charge on the house for it. Alternatively he may complete and claim compensation for the damage.

How this is examined

The 10-mark question is section 55 in the order above, opening with s.54 and the definition. Short notes: contract for sale; sale and contract for sale distinguished; the SA/GPA/Will transactions in Suraj Lamp; the seller's charge for unpaid price. A problem on fire or damage between agreement and conveyance is common.