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Sale and Contract for Sale in Transfer Of Property Act

Sale and Contract for Sale
Sale and Contract for Sale


Definition of "Sale’ (Sec. 54), TPA

“Sale” is a transfer of ownership in exchange for a price paid or promised, or part-paid and part-promised. 

The essentials of a valid sale are as follows:

  1. The seller must be a person competent to transfer. Thus, he must be a major and of sound mind, and should not be legally disqualified to transfer the property. For instance, a judgement debtor is not capable of selling his property that is to be sold in execution under the court’s order.  The seller should either be the owner of the property or should have the authority to dispose of it.  Thus, the Karta of a joint family property, the guardian of the property of a minor (with the' court’s permission), an agent having a power of attorney to sell the property, etc

  1. The buyer must be a person competent to be a transferee. He may be any person who is not disqualified to be transferee under Sec. 6. Thus, an officer performing an official duty in connection with the sale of the property cannot purchase the same.

  2. The subject-matter must be transferable immovable property, which can be tangible (that can be touched viz. land, house) or intangible (that cannot be touched viz. a right of fishery).

  3. There must be a transfer of ownership.

  4. The transfer must be in exchange for a price (which might be ascertained at the time of sale; but it should be fixed later on otherwise no title would pass despite registration of the sale deed). ‘Price’ in the ordinary sense connotes money consideration for the sale of property. Thus, an agreement to maintain the transferor cannot be called money consideration.

  5. The price must be paid or promised, or partly paid and party promised. It is not mandatory that payment of the price should be at the time of the execution of the sale. Price can be paid even before, at the time or even subsequent to the completion of the sale. Price is the essence of the contract of sale but the time for payment of it is not the essence of the sale, unless the contract stipulates so (Ranjana Nagpal v Devi Ram AIR 2002 H.P. 166). Similarly, adequacy of price is not mandatory; it can be lower or higher than the market value.

The term ‘paid or promised’ shows that a sale is complete on registration even though price has not been paid but is promised to be paid. Thus, payment of price is not a sine qua non to the completion of the sale.

For example, A promises to B that price will be paid within a year but he does not do so. B cannot set aside the sale or sue for getting the possession back. B’s only remedy would be to sue A for the price.

However, if the buyer tries to evade payment by dubious means, no title would pass from the seller to the buyer. Thus, if the buyer pays money through a cheque which is dishonoured, the sale would not take effect.

Sale how Effected

There must be a registered conveyance in the case of- 

(i) tangible immovable property of the value of Rs. 100 and upwards; or 

(ii) a reversion or other intangible thing of any value  

In the case of tangible immovable property of a value less than Rs. 100, there must either be- 

(i) a registered conveyance, or 

(ii) delivery of property. Delivery of tangible immovable property takes place when the seller places the buyer (or some other person as the buyer directs) in possession of the property. 

Generally, a sale takes place via a validly executed sale deed which is in writing, properly attested and registered. In case of property of nominal value, the sale of property could be completed by a simple delivery of possession of such property or by a registered instrument.

If there is no registration of the sale deed, no property passes as there is no transfer. An admission that the land has been sold will not operate as an estoppel so as to do away with the necessity for a registered conveyance (Maung Po Yin v Mating Tel Tu AIR 1925 Rang 68). 

Contract for Sale (Sec. 54), Transfer of Property Act

In the context of immovable property, an agreement of sale precedes the execution of a sale deed. This agreement stipulates the terms under which the sale will occur but does not confer any interest or charge on the property itself.

In India, unlike in English law, the purchaser under such an agreement does not acquire ownership of the property until possession is delivered or the document is registered.

Consequently, if the property is lost before ownership is transferred, the buyer is not adversely affected.

In contrast, under English law, the buyer becomes the equitable owner upon entering into the contract, assuming liability for the consideration even if the property is later destroyed.

Despite not conferring ownership, an agreement of sale does afford certain equities to the transferee.

For instance, if the property is transferred to another party despite the prior agreement, the subsequent transferee with knowledge of the earlier transaction holds the property in trust for the initial agreement holder.

Additionally, a suit for specific performance can be pursued based on the agreement. Moreover, while an agreement of sale does not establish title, if possession is delivered to the transferee in line with the agreement and other conditions of Section 53A are met, the transferee is entitled to defend their possession and can seek to prevent trespassers from disturbing their peaceful enjoyment of the property.

Distinction between Sale and Contract for Sale

  1. A ‘sale’ of immovable property is a transfer of ownership. A sale passes an absolute interest in the property to the purchaser ie. it conveys a legal title to the purchaser. A ‘contract for the sale of immovable property’ is a mere agreement that a sale of property is to take place in the future on terms settled between the parties. It does not, of itself, create any interest in or change on such property. Even after the contract for sale, the ownership remains in the vendor. All that a person gets is a right of litigation on this basis.

  2. A ‘sale’ creates a right in rem. A sale must be evidenced by a registered instrument in case of (i) tangible immovable property of the value of Rs. 100 or more; or a reversion or other intangible thing of any value. A ‘contract for sale’ does not convey any tide to the purchaser. A contract for sale creates a right in personam i.e. only the promisee can compel the promisor (as well as a subsequent purchaser with notice) to execute the promised conveyance. A contract for sale need not be registered at all. 

Distinction between Sale and a Lease/ Mortgage/Exchange

  • An owner holds three fundamental rights over their property: title, exclusive possession and enjoyment, and the exclusive right to transfer ownership. In a sale of immovable property, the owner conveys all these rights to the transferee, leaving no rights with the seller. This transfer of the entirety of rights is termed an absolute transfer. 

  • Contrastingly, a lease and a mortgage involve transfers of rights in the property but not absolute transfers. In a lease, the right to possess and enjoy the property is transferred, while title and the right of transfer remain with the owner. Similarly, in a mortgage, the transfer involves the right to sell the property in case of non-payment of a loan by the mortgagor in favor of the mortgagee.

  • If a transaction, described as a sale with consideration, is actually intended as security for money, it is construed as a mortgage rather than a sale. This principle was established in Shankerlal Ganulal v B.S. Bharuka (AIR 1999 SC 260). 

  • In a sale, ownership of a property is transferred in exchange for a price, typically money. On the other hand, in an exchange, ownership is transferred in exchange for something other than money, such as land for a house or work done. Additionally, while a right of pre-emption may exist in a sale, it does not apply in an exchange.

  • A sale can be made to a minor, and similarly, a mortgage or gift can be executed in favor of a minor. However, a minor cannot enter into a lease agreement, as it requires consent from both parties. Consequently, a lease in favor of a minor is considered void.

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