Report No. 70
51.41. Section 55(3)-Importance.-
How the obligation under section 55(3) may become of practical importance is illustrated by a case which went up to the Privy Council.1 A vendor agreed to give a marketable title free from all reasonable doubt. There had been a mortgage by registered deed more than twenty years ago. The vendor produced a registered release executed by only one of the joint mortgagees, in which it was recited that the other mortgagee was dead and the executant of the release was also the heir of the other mortgagee and that the mortgage had been redeemed.
However, the vendor did not produce one of the title deeds deposited with the mortgages. It was held that the covenant as to title had not been satisfied and the purchaser was entitled to a refund of the deposit with interest thereon. The recitals in the release deed were not evidence against the joint mortgagee or his heir. The court noticed the existence of a practice of conveyancers to provide in contracts for sale that recitals in deeds of a certain sale shall be sufficient to satisfy a purchaser of the facts recited. In this case, however, the deed was not very old. The deed of release was hardly ten years old, and the practice in question did not save the situation.
1. ILR 31 Born 300 (PC).
51.42. Title deeds in England.-
In England, the vendor must deliver to the purchaser all title deeds which relate solely to the property sold, though he may retain such documents where he retains any part of the land to which they relate, or where the document consists of a trust instrument creating a trust that is still subsisting.1-2
Where the documents which are necessary to show a good title remain in the vendor's possession, or where their custody belongs to some person other than the vendor, it is the vendor's duty to give a written acknowledgment of the purchaser's right to their production and to delivery of copies and a written undertaking for their safe custody. The effect of such acknowledgment is that the purchaser, or persons claiming under him, can, at their own expense, demand to see the documents, or claim to be furnished with copies.3-4
1. Cheshire Real Property, (1972), p. 740.
2. Law of Property Act, 1925, section 45(9).
3. Section 64, Law of Property Act, 1925.
4. Megarry & Wade Real Property, (1966), p. 606.
51.43. Sale to different buyers.-
The buyer of the lot of the greatest value is, under the proviso, entitled to the possession of the title deeds, and the seller has no right as against him to retain them even though he had covenated with the earlier buyers of other portions of the property that he would produce the title deeds when required. But, in such a case, according to the English practice, the purchaser of the greatest value must give a covenant to the seller that he will produce the deeds and indemnify the seller against his liability under the covenants in the prior sale deeds.1
A purchased the largest lot in value and extent. But B purchased several lots whose aggregate value and extent exceeded those of A's lot. It was held that A was entitled to the custody of title deeds.2 It is the purchaser of the lost greatest in value who is entitled to the custody of the title deeds. But if there is a condition that the purchaser of the "largest lot" shall have them, that must mean largest in superficial area.3
1. AIR 1941 Born 48 (49) (DB).
2. Scott v. Jackman, (1855) 52 ER 800 (801): 111 RR 39.
3. Griffiths v. Hatchard, (1854) 69 ER 350 (351): 23 LJ Ch 957.
51.44. No change.- The above discussion discloses no need to amend section 55(3).
51.45. Section 55(4).-
Two economic factors-that property brings profit and money brings income-make it necessary that a provision should exist as to the right to the income of the property transferred and the price to be paid, for the period during which actual transfer and actual payment respectively do not take place. By actual transfer in this context should really be meant delivery, and not the mere transfer of ownership.
Until the transfer of ownership takes place, the question of rights to income has no importance. If the principal has not been transferred, income remains with the person with whom the principal remains Problems, however arise either where the ownership has been transferred but not the delivery, or where both have been transferred, but the price remains unpaid. These problems have, in part, been attended to by section 55(4).
Section 55(4) provides-"(4) The seller is entitled-
(a) to the rents and profits of the property till the ownership thereof passes to the buyer;
(b) where the ownership of the property has passed to the buyer before payment of the whole of the purchase-money, to a charge upon the property in the hands of the buyer, any transferee without consideration or any transferee with notice of the non-payment, for the amount of the purchase-money, or any part thereof remaining unpaid, and for interest on such amount or part from date on which possession has been delivered."
51.46. Charge and lien.-
Before we proceed to discuss this provision in detail, let us state that though the expression used in clause (b) is "charge", we shall occasionally also refer to it as "lien", particularly when dealing with the comparable position in England.
Section 55(4)(a) deals with the question of rents and profits and section 55(4)(b) deals with the question of interest. The inter-connection between the two is now obscured by certain aspects to which we shall refer later. But the intention of the legislature is fairly clear, namely, that rents and profits of the property and interest on unpaid price both stand on the same footing and are substitutes for each other. That possession and interest are mutually exclusive, is a proposition which, as has been pointed out by Mulla,1 was applied by the Privy Council in Ratanlal's case.2 This is known as the rule in Fleudyer v. Cocker,, (1805) 12 Ves 25 (27), namely, the act of taking possession by the buyer gives rise to an obligation to pay the price and until it is paid, to pay interest thereon.
1. Mulla, (1973), p. 333.
2. Ratanlal v. Municipal Commissioner, ILR 43 Born 181 (PC).
51.48. Section 55(4)(a)-Rents and profits.-
The right to rents and profits of a property is an incident of the right of ownership and passes with the transfer of ownership. Until, therefore, the ownership passes to the buyer, the seller will be entitled to the rents and profits. But this provision has no application to a case where, in anticipation of the transfer of ownership, the prospective buyer is put in possession of the property. After the ownership passes to the buyer, the latter is the person entitled to such rents and profits. If, by neglect of the seller, no rents and profits are received he win be liable for what he might with reasonable care have received.
Section 55(4)(b) brings us to the interesting topic of "liens". At common law, a lien was a right to possess and retain property1 until some charge attaching to it is paid or discharged; in equity, however, there are liens recognised whose existence is not known to common law. They are wholly independent of the possession of the thing to which they are attached.
It is in this context that there evolved the well-known doctrine of the courts of equity,2 that the vendor of land has a lien on the land for the amount of the purchase money, not only against the vendee himself and his heirs, but also against all subsequent purchasers having notice that the purchase money remains unpaid. This lien is independent of possession and attaches to the estate as a trust, equally whether it be actually conveyed or only be contracted to be conveyed.3
1. Story Equity Jurisprudence, (1919), p. 214, para. 506.
2. Story Equity Jurisprudence, (1919), p. 514, para. 1217.
3. Story Equity Jurisprudence, (1919), p. 514, para. 1218.
51.50. Story has thus stated the principle1 underlying the unpaid vendor's lien:-
"The principle upon which courts of equity have proceeded in establishing this lien, in the nature of a trust, is, that a person who has gotten the estate of another, ought not, in conscience, as between them, to be allowed to keep it, and not to pay the full consideration money. A third person, having full knowledge that the estate had been so obtained, ought not to be permitted to keep it without making such payment; for it attaches to him also, as a matter of conscience and duty. It would otherwise happen that the vendee might put another person into a position better than his own, with full notice of all the facts."2
Section 55(4)(b) thus ultimately owes its origin to the English Law of Equitable Liens.
In fact, the word "lien" is not accurate, because the vendor's equitable lien in England and also the charge under section 55(4)(b) are both non-possessory. They do not empower the seller to take or retain the possession of the property for non-payment. This aspect has been considered more often than once in Indian case law.3
Whatever right the vendor may have to refuse to give delivery until consideration is paid, he cannot take it back after once having given delivery.
Lien-Earlier case-The earliest English case, which clearly laid down the rule of equity, is found in Fludyer v. Cocker., (1805) 33 Er 10, There, in 1792, the defendant entered into contracts for the purchase of the estates of the Duke of Newcastle in three lots. Two of the lots were purchased by private contracts on the 7th of May and the 18th of July, the Duke of Newcastle covenanting to convey respectively on or before the 25th of June and the 18th of February following, the defendant covenanting to pay the purchase money at the time of executing the conveyance.
The defendant was let into possession of the premises comprised in those lots at midsummer and Christmas 1792 respectively. The 3rd lot was purchased by the defendant in July. In 1798, in answer to an application for the residue of the purchase money with interest, the defendant offered to pay the residue of the purchase money but refused to pay interest. On those facts, the Master of the Rolls made the following observations:-
"At law the purchaser could not have the right to the estate, nor the vendor to the money, until the conveyance was executed. But that has nothing to do with the mode in which this Court executes the agreement. The purchaser might have said, he would not have anything to do with the estate, until he got a conveyance. But that is not the course he took. He enters into possession: an act, that generally amounts to a waiver even of objection to title. He proceeds upon the supposition that the contract will be executed and therefore agrees, that from that day he will treat it as if it was executed."
1. Story Equity Jurisprudence, (1919), p. 515, para. 1219.
2. See Mackreth v. Symmons, 15 Ves 339.
3. AIR 1952 Mad 821.