Report No. 70
Rights and Liabilities Of Seller and Purchaser
The rights and liabilities of the seller and the buyer of immovable property are dealt with in a very elaborately worded section-section 55-which we now proceed to consider. These rights and liabilities vary according as the stage with which one is concerned is the stage before completion-that is, before the passing of title, or whether the stage is one after completion-that is, the stage after the title passes. This is not to say that conduct which took place before completion has no repercussions on the legal position after completion. The answer to that question depends on the nature of the right claimed or liability sought to be enforced.
51.2. "Open contract".-
Much of the substance of the law enacted in the Act on the subject has been suggested by practical experience of the difficulties and problems that arose in England in conveyancing practice. English conveyancing practice makes a distinction between an open contract for sale and a formal contract. If a contract for sale specifies merely the names of the parties, a description of the property and a statement of the price, it is called an open contract. Such a contract contains no other specific clauses dealing with the obligations of either partly in relation to completion or in relation to the stage after completion.
When this form of contract is made, the parties are bound by certain obligations imposed by the law. Since these implied obligations impose in certain respects a burdensome duty of proof of title upon the vendor, and since the vendor, in addition to modifying this burden, is anxious to procure the insertion in the written agreement of special stipulations, the parties often incorporate into that contract such terms as they think fit-of course, subject to those rules of law which prohibit certain stipulations.
It would appear that in England, in practice, contracts for the sale of land are generally in standard form. There are available at least two sets of precedents, namely, (a) the Law Society's Contract and Conditions of Sale,1 and (b) the National Conditions of Sale.2
1. See 121 New 1.,J pp. 4, 28, 52, 87, 98, 122, 165.
2. Emmet on Title, 15 Edn., pp. 971-992;
Gibson Conveyancing, 20th Edn., pp. 125 to 148.
51.3. Special conditions.-
Matters which, in England, are commonly the subject of special conditions are
(i) the root of title and the length of title;
(ii) date on which possession is to be given and the consequences if the possession is not given on the stipulated date;
(iii) interest to be payable by the purchaser on the purchase price, if the sale is not completed on the stipulated date;
(iv) restrictions as regards the purchaser's remedies for minor misdescriptions;
(v) matters appurtenant thereto.1
It is apparent that the statutory provisions in section 55 are also to be elastic in this regard, inasmuch as they do not prohibit the parties from entering into their own stipulations, provided the terms are otherwise lawful. This is amply clear from the opening words of section 55.
1. Cheshire Real Property, (1972), p. 741.
51.4. Contracts by correspondence.-
At this stage, mention should be made of an interesting provision in England in relation to "contracts by correspondence" in regard to which statute1 provides that Statutory Forms of Conditions of Sale, 1925 made by the Lord Chancellor, shall govern the contract, subject to any modification or contrary intention expressed in the correspondence.
1. Section 46, Law of Property Act, 1925.
51.5. Broad propositions in section 55.-
In order that the complexity of section 55 and its numerous provisions may not constitute a hindrance to a grasping of the gist of the provisions, it appear to be desirable to draw attention to certain basic propositions which constitute either the background in which section 55 operates or the basis of some of its very important propositions:-
(1) Nature-A contract for the sale of immovable property of itself creates no interest in the property. This proposition enacted in section 54 needs to be emphasised again because, it is only when what is commonly known as a conveyance takes place that ownership passes, leaving aside the infrequent case of delivery. Since the passing of ownership is of the essence of the transaction of sale1 the point of time at which ownership passes is of theoretical as well as practical importance. In England, the purchaser at once becomes an owner in equity.2 In India, neither the ownership nor the risk passes until sale is effected by the mode of transfer legally provided. In this sense, a completed sale derives its law both from section 54 and from section 55.
(2) Title.-The vendor must show a good title. Proof of title is made by exhibiting to the purchaser the records of past transactions in the land and by proving other relevant events such as death.3 Incidentally, such proof not only persuades the purchaser that the vendor owns the property, but also gives the purchaser an opportunity to enquire about the existence of equitable interests. In this sense, this step has its significance in regard to those other provisions of the Act which confer equities.
(3) Vacant possession.-The vendor must give vacant possession on completion. This has an important consequence on third parties.4 In the absence of a contract to the contrary, a person who sells land must evict other occupiers of the property and remove his own movables thereon5.
(4) Time.-Stipulations as to time have theoretical and practical importance. Where time is of the essence, the contract can be avoided, even where time is not of the essence damages they be claimed. In an English case6, the property was needed for professional purposes by a woman whose practice of her profession was injured by the vendor's delay in completion. She recovered damages and other expenses.
(5) Discharge.-Discharge of the contract takes place in regard to the principal obligations at completion, that is to say, when the title has been accepted, the conveyance executed and delivery (where necessary) made and the purchase money paid. Thereafter, regarding any defect of title which may appear though the obligation still subsists, it is now not in the realm of mere contract. The covenants can still be enforced, but the contract in general, and in the absence of fraud, cannot be avoided.
(6) Remedies.-Remedies about the effect of the contract will be available according to the nature of the dispute. These may be, a suit for damages, recession and consequential return of deposit, or specific performance or injunction or rectification.
1. Per section 54.
2. William's Real Property, (1966), p. 582.
3. William's Real Property, (1966), p. 585.
4. The Leading English case is Cook v. Taylor, 1942 Chancery 349: (1942) 2 All ER 85.
5. This will be further discussed under section 55(1)(f).
6. Phillips v. L., (1949) 2 KB 33.
51.6. Section 54 does not exhaust the relations which flow from a contract1 for the sale of immovable property. Section 55 imposes many obligations on the vendor and gives corresponding rights to the purchaser with reference to the property contracted to be sold. Relief by way of specific relief, may in certain events be available. Thus, T, a purchaser who has entered into a contract for sale can resist a suit for ejectment by the vendor so long as specific performance could have been enforced by him2.
1. Bapu Apaji v. Kashinath, AIR 1916 Bom 1 (2).
2. Bapu Apaji v. Kashinath, AIR 1916 Born 1 (2).
51.7. Covenants-nature and effect.-
The obligations imposed by section 55 are in the nature of statutory obligations and are not implied "convenants".1 They are not contractual. But they are duties imposed by law on the parties in the performance of the contract. Failure to perform them may entitle the other party to repudiate the contract in some cases or to claim damages in other.
Of course, every sale deed is necessarily based on contract. If such contract is void or voidable on the ground of an illegality, fraud, misrepresentation, coercion, undue influence, mutual mistake or want of consideration, the sale which is itself based upon such contract will also be vitiated to the same extent. Moreover, property which is not transferrable2 cannot be sold.
1. Gange v. Govinda, AIR 1924 Mad 544 (546).
2. Section 6.
51.8. Section 55(1).-
So much by way of introduction, we begin our discussion of section 55 by quoting sub-section (1)1-
"55. In the absence of a contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following or such of them as are applicable to the property sold:
(1) The seller is bound-
(a) to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover;
(b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power;
(c) to answer to the best of his information all relevant questions put to him by the buyer in respect to the property or the title thereto;
(d) on payment or tender of the amount due in respect of the price, to execute proper conveyance of the property when the buyer tenders it to him for execution at a proper time and place;
(e) between the date of the contract of sale and the delivery of the property, to take as much care of the property and all documents of title relating thereto which are in his possession as an owner of ordinary prudence would take of such property and documents;
(f) to give, on being so required, the buyer, or such person as he directs, such possession of the property as its nature admits;
(g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all incumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all incumbrances on the property then existing."
1. For convenience, we call it a sub-section.
51.9. Section 55(1)(a)-defect.-
First, we take up clause (a). As to defect in property or title, the most important question to be considered is whether the defect is in the properly or is in the title1, and whether it is a material defect.2 The next important question to be considered is whether the defect was known to the purchaser.3 If not, the last question to be considered is whether it was one which the purchaser could have discovered with ordinary care.4
1. Para. 51.9 and para. 51.10, infra.
2. Para. 51.10A, infra.
3. Para. 51.11, infra.
4. Para. 51.12, infra.
The scope of the expression "defect in title" may be explained by illustrative cases. The existence of an incumbrance not known to the buyer, which he could not discover by the exercise of reasonable care, is a defect in title.1 So also is the existence of a permanent lease2 or the existence of a liability of the land being taken over by a company under a local Act3 the existence of a restrictive covenant attached to the property sold,4 the existence of nontransferable permission to build to a buyer of agricultural land for construction purposes5 or the existence of a public right of way over the property not discoverable with ordinary care.6
The existence of a nuisance in the neighbourhood of the property sold is a defect in the property,7 so also is the existence of an underground culvert running through the middle of the property, where the property is sold for residential purposes8 or the existence of an easement over the property.9 But, on the purchase of an under-lease, it is not a valid objection to the title that the under-lease may be forfeited by the non-performance of the covenants in the original lease.10
1. AIR 1960 AP 405 (406); AIR 1950 EP 278 (280, 281); AIR 1925 Mad 968 (969).
2. 1913 ILR 40 Cal 140 (149).
3. Ballard v. Way, (1836) 150 ER 540 (544).
4. Pemsal v. Tucker, (1907) 2 Ch 191 (199).
5. Molyneux v. Hawtrey, (1903) 72 LJKB 873 (975): (1903) 2 KB 487 (491).
6. Yandle & Sons v. Sutton, 1922 2 Ch 199 (203).
7. Lucas v. James, (1849) 68 FR 173.
8. Puckett & Smith's Contract (in re:), (1902) 2 Ch 258.
9. AIR 1956 Born 175 (179, 180): AIR 1935 Born 16 (19, 20).
10. Hayford v. Griddle, (1855) 52 ER 1192 (1193).
Where, at the time of the contract, the seller is himself not aware of the defect, he cannot obviously disclose it and is, therefore, not bound to disclose it.1 But this is subject to a contract to the contrary. For instance, where the seller expressly undertakes to indemnify the buyer if any defect is discovered, he is liable in damages on the discovery of incumbrance, even though he (the seller) was not aware of it.2
1. Lucas v. James, (1849) 68 ER 170 (173).
2. AIR 1957 Tray-Co 59 (60) (DB).
The test of materiality is that the defect must be of such a nature that it might be reasonably supposed that if the buyer had been aware of it, he might have entered into the contract at all. On this basis, a restrictive covenant by way of easement is a material defect. On the other hand, trifling errors in the description are not material defect.