PURCHASER’S LIABILITIES OF OUTGOINGS AFTER COMPLETION AND PURCHASER’S CHARGE FOR PRICE PREPAID

PURCHASER’S LIABILITIES OF OUTGOINGS AFTER COMPLETION AND PURCHASER’S CHARGE FOR PRICE PREPAID: AN ANALYSIS

Author: Abhinav Viswanath,
3rd Year, BA. LLB (Hons),
 School of Law CHRIST.
ABSTRACT:

The Transfer of Property Act, 1882 was enacted to define concepts regarding Law of transfer of property and regulate transfer of all and any property in India. Sale is considered main mode of transfer of property. Through this mode of transfer of property, both seller and buyer of immovable property get some rights and both are subject to some liabilities. However, such rights and liabilities emerge in absence of contract to contrary. Thus, Transfer of property act among other things also deal with duties, liabilities and rights of buyers and sellers to ensure that there is a fair transfer of property and that principles of justice and equity are upheld in such trades. Section 55 of the act deals with rights and liabilities of buyer and seller. This research deals specifically with one right and one liability of the buyer which are given under Section 55 Clause (5) Sub-clause (d) and Clause (6) Subclause (b) of the Transfer of Property Act, 1882. Through this paper, a critical analysis shall be done on the liabilities of a buyer with respect to outgoings after completion and the right of charge of price prepaid. An extensive analysis shall be done on Section 55(5)(d) dealing with the scope, the general aspect of the section, encumbrances, minor’s purchase and completion of outgoing purchase. The scope of the purchaser’s charge of price prepaid shall also be examined along with a general outlook, declines of payment, non-disclosures, earnest and contract to the contrary shall be critically analyzed.


SCOPE AND OBJECTIVE OF TRANSFER OF PROPERTY ACT:

The Transfer of Property Act was enacted in 1882. Before that. Any transfer of immovable property was governed by principles laid down by law and equity. The purpose of this act is to define concepts regarding Law of transfer of property and regulate transfer of all and any property in India. Scope of this Act is limited as it is applicable only to transfer by the act of parties not by operation of law. Also, this Act deals with a transfer of property inter vivos, i.e., a transfer between living persons therefore it holds transfer by dead persons or in favor of unborn persons as invalid. It contains transfer of both movable and immovable property but a major portion of the enactment is applicable to the transfers of immovable properties only.
As its preamble suggests, the objective of the act is to make, regulate and amend laws related to any kind of transfer of property.

INTRODUCTION OF THE TOPIC:

Sale is considered main mode of transfer of property. Through this mode of transfer of property, both seller and buyer of immovable property get some rights and both are subject to some liabilities. However, such rights and liabilities emerge in absence of contract to contrary. Thus, Transfer of prope
rty act among other things also deal with duties, liabilities and rights of buyers and sellers to ensure that there is a fair transfer of property and that principles of justice and equity are upheld in such trades. Section 55 of the act deals with rights and liabilities of buyer and seller. This research deals specifically with one right and one liability of the buyer which are given under Section 55 Clause (5) Sub-clause (d) and Clause (6) Subclause (b) of the Transfer of Property Act, 1882
[1] which are as follows:

S.55(5)(d)-
The buyer is bound-
“where the ownership of the property has passed to the buyer, as between himself and the seller, to pay all public charges and rent which may become payable in respect of the property, the principal moneys due on any incumbrances subject to which the property is sold, and the interest thereon afterwards accruing due.”

S.55(6)(b)-
The buyer is entitled-
“Unless he has improperly declined to accept delivery of the property, to a charge on the property, as against the seller and all persons claiming under him, to the extent of the seller’s interest in the property for the amount of any purchase-money properly paid by the buyer in anticipation of the delivery and for interest on such amount; and, when he properly declines to accept the delivery, also for the earnest (if any) and for the costs (if any) awarded to him of a suit to compel specific performance of the contract or to obtain a decree for its rescission.”

CLAUSE (5), SUB-CLAUSE (d): PURHASER’S LIABLITIES OF OUTGOINGS AFTER COMPLETION:


Scope-
The Buyer’s liability of Outgoings after completion under Section 55(5)(d) is applicable to all states in India except those that have already been exempted as per the scope of the Transfer of Property Act, 1882.

Generally-
This section imposes liability on the buyer corresponding to that imposed on the seller in Section 55(1)(g). As soon as the ownership of property has passed to the buyer, as between himself and the seller the former is bound to pay-
  1. All public charges
  2. Rent which may become payable when the property is leasehold
  3. The principal moneys due on any encumbrances subject to which the property is sold
  4. Interest on any encumbrances subject to which the property is sold afterwards accruing due.
    The liabilities do not arise until a registered instrument is executed. They are independent of possession. Where the equity redemption is sold, the purchaser is liable to pay amount of encumbrance together with interest which becomes due after the ownership has passed to him. The liability under this clause attaches as an incident of the transfer, and where adjustment of matters which form part but are not the essence and substance of the contract, cannot be carried out in the mode contemplated, the Court will adjust the same.[2] The liability of the vendee is only as between himself and the seller, where a third person cannot avail himself. The rule is that of Equity and it applies to both private sales as well as Court sales.[3]

    Illustration-
    A sells property to B for Rs. 5,000. The sale is subject to a mortgage encumbrance which was believed to be Rs. 2,000. After he sale it was discovered that the mortgage is invalid; so that B has got complete ownership for Rs. 5,000. A then sues to recover Rs. 2,000 as part of his purchase money. A’s suit falls for after conveyance. The seller cannot participate in any benefit deemed by the buyer from his purchase.

    It is pertinent to note that this illustration is the converse of the illustration in the note “free from encumbrances” under Section 55(5)(b)

    Interest on Encumbrances-


    The section casts an obligation on the purchaser to pay interest accruing due after sale, so that the vendor is liable for interest in arrears at the date of the sale and this is so in the absence of a contract to the contrary under this clause. But interest being a charge on the mortgaged property, and under the contract perhaps liable to be capitalized, the mortgagee would be entitled to recover it from the property and the purchaser would to that extent be liable, unless he takes care to ascertain that there are no arrears and, if there be any, provides against the property becoming liable for it. The liability, therefore, under this clause is inter se the vendor and the purchaser, and a third party like the mortgagee, not being a party to their contract, would not be bound.

    Encumbrances on sale-


    According to Section 55(1)(g), the seller is liable to discharge all encumbrances on the property existing at the date of sale “except where the property is sold subject to encumbrances.” According to Section 55(5)(b) the buyer is given a right to retain out of the purchase-money the number of encumbrances on the property existing at the date if the sale, “where the property is sold free from encumbrances.” According to Section 55(5)(d) the buyer is liable to pay “the principal moneys due on any encumbrances subject to which the property is sold and interest on any encumbrances subject to which the property is sold afterwards accruing due.” Reading Sections 55(1)(g) and Section 55(1)(d), where there is no stipulation whatsoever as to what is to happen in case a previous encumbrance not contemplated by the parties is discovered, the vendor is liable to make good to the purchaser the amount which he has had to pay for saving the property at the sale held by the encumbrancer,[4] unless the parties had stipulated for the express case in which the prior encumbrance might turn out to exist.[5] 

    Sale of property subject to encumbrances-


    On a sale of property subject to a mortgage, the payment of such mortgage under ordinary circumstances forms no part of the consideration for the purchase. The vendor sells and the purchaser buys an encumbered property. It is not essential to the validity of the sale that the mortgage should be paid off.[6] A purchaser of the equity of redemption is entitled to establish that the contract of the mortgagee has been such that the Court should not assist him. Hence, he can raise the question of the legality of the mortgage deed.[7] Whether the price be settled by a private party or a public auction together with indemnity against such encumbrances affecting the land, the vendor gets his price. The contract of indemnity maybe expressed or implied. The purchaser takes the property subject to the burden attached. He may question the validity of the encumbrance. If the encumbrance turns out to be invalid, the vendor has nothing to complain of. The notion that after the completion of the purchase, the purchaser is in someway a trustee for the vendor of the amount by which the existence, or supposed existence, of encumbrances has led to a diminution of the price, is without foundation.[8]

    Public Charges and rent-


    The purchaser is liable from the date the ownership of the property passes to him. In case of execution sale, the purchaser is liable for Government revenue which became due between the date of sale and its confirmation.[9] In a Madras case where the liability arose of a purchaser at a Court sale for rent, the contrary was decided.[10] A purchaser is not liable for outgoings due to a municipal corporation, nevertheless they must be deducted out of the purchase-moneys.[11] But a public body like a municipality cannot be compelled to apportion the tax between the buyer and seller and the former is liable for the whole assessment.[12] 

    Minor Purchaser-


    There is no exemption from this statutory liability on the ground of the purchaser being a minor and is therefore a statutory liability and not a contractual liability.[13]

    CLAUSE (6), SUB-CLAUSE (b): PURCHASER’S CHARGE FOR PRICE PREPAID:


    Scope-
    Though the provisions of the Transfer of Property Act are not applicable to the State of Punjab, the principle enunciated in Section 55(6)(b) has been held applicable to Punjab on grounds of justice, equity and good conscience.[14]

    Generally-
    Analogous to the charge of the vendor a purchaser is given a charge for purchase money paid in advance against the interest of the vendor and those claiming under him. The clause presupposes that the purchaser is entitled to a return of the money claimed by him. It does not apply when the purchaser claims performance of his contract.[15] A contract of sale accompanied by del
    ivery of possession, that is, by part performance, does not give purchaser a lien on the property. There are observations to the contrary in a Privy Council case.
    [16] The fact that no lien is given by the Act in such a case, while a charge is expressly conferred by this clause, leads to the inference that the Legislature did not intend that delivery of possession should, like payment, create a lien.[17] In a contract for sale, after the execution of a contract, the possession of the vendor over the property is not unlawful, the vendee is not entitled to claim mesne profits from the date of execution of agreement for sale, till the date of delivery of possession overt the property.[18] A provided by Section 55(6)(b), unless the buyer improperly declines to accept the delivery of the property, the amount of the purchase money paid to the buyer in anticipation of delivery and for interest on such amount shall remain as a charge on the property as against the seller and all persons claiming under him.[19] There is no question of creating any special charge on the property, as the provision of the Transfer of Property Act would automatically apply in the case.[20]
    Where property cannot be transferred without the sanction of the competent authority, if the vendor does not obtain the requisite sanction, he would be bound to return the sum paid by the vendee whether as part of the payment of sale consideration or as earnest money.[21]

    Section 55(6)(b) creates a statutory charge and not a charge or interest which can be said to have been created by the act of the parties. A charge under Section 55(6)(b) depends upon certain contingencies. It does not create an absolute charge. That charge arises provided it is shown that the buyer has not improperly declined to accept delivery of property.[22]

    The provisions of Section 55(6)(b) are applicable to the case of executory contract, that is, where the sale deed has not been executed, would not apply after the sale deed has been executed.[23] 

    Buyer’s charge on the property for price prepaid-


    Under Section 55(6)(b) of the Transfer of Property Act, the buyer has got a charge for the price prepaid, in anticipation of the completion of the agreement.[24] This charge attaches from the moment the buyer pays any part of purchase money and is only lost in case of his own subsequent default.[25] This charge on the property is enforceable not only against the seller but all persons claiming under him. A transferee for value with or without notice would be liable to under Section 55(60(b) of the Act.[26] The buyer’s charge under this section is a statutory charge and the buyer is entitled to enforce against property and the plea of want of notice by third party purchaser is of no avail.[27]

    Improperly Declines to Accept delivery-


    The buyer has a charge for all sums that he pays towards the purchase money, and for interest thereon. This charge attaches from the moment the buyer pays any part of the purchase money, and is lost in case of his own subsequent default.[28] If the buyer improperly refuses to accept delivery, he loses his charge. However, when the property is compulsorily purchased by the Central Government under Chapter XX-C of the Income tax Act, 1961, there is no occasion for the buyer to have improperly declined to accept delivery of the property. Where the amount of the purchase money was properly paid by the buyer, in anticipation of the fulfilment of the contract which would include delivery of the property, the order of compulsory purchase, having intervened, the transferees were excluded from accepting delivery of the property.[29] 

    Although the buyer loses his charge the seller has no right to retain any installations of the price that has been paid, unless they have been paid as deposit or earnest. In a suit against the buyer, whether for specific performance or for damages, the seller would have to give credit for moneys prepaid not as earnest, but as instalments of price.[30]

    Properly Declines to Accept Delivery-


    This may occur when the sale goes off by default of the seller, or without default of either party. If the seller is in default, he is not entitled to forfeit the earnest.[31] When the buyer by reason of such default properly declines to take delivery, his charge extends not only to prepaid price including earnest and interest thereon, but also to costs of the suit for specific performance or for rescission.

    Illustrations-

    • A agrees to sell property to B and undertakes that a part owner C will join in the conveyance. But in breach of the agreements A and C convey the property to D. B sues for specific performance and D offers to convey A’s half share if B will pay the full price. B refuses this offer, as he was entitled to do under Section 12(3) of the Specific Relief Act, 1963. B has properly declined to accept delivery and has a charge for part of the price that he had prepared.[32]
    • A agrees to sell a house to B and puts B in possession. A sale deed is executed, but is not registered. B sues for specific performance but his suit is dismissed. A sues to evict B. Property has been passed under the unregistered deed, and the case being before the enactment of Section 53A, the agreement is no defence to the ejectment. B is only entitled to a charge for the price prepaid.[33]

      Earnest-

      The characteristics of earnest is that it serves two purposes. It goes in part payment of the purchase money for which it is deposited, but primarily it is a security for the performance of the contract. Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee.[34]

      This was further explained and adopted in the case of Maula Bux v. Union of India.[35] It has also been held that the charge created under Section 55(6)(b) would extend to earnest money paid before the title passes.[36] Where the contract goes off by default of the buyer, the seller is entitled to retain the earnest money as forfeited.[37] However, if the seller is at default, the buyer refusing to complete is entitled to a refund of the earnest money.[38] The fact that after a judicial investigation, the title of the vendor is ultimately found to be clear does not disentitle the vendee to a claim a refund of the earnest money.[39]

      The provisions of Section 55(6) relating to the purchaser’s charge are subject to a contract to the contrary, but mere use of the word ‘earnest’ is not enough to constitute a contract to the contrary.[40] It has been held, relying on the language of the clause, and on the decision in Ibrahim Bhai v. Fletcher[41] that in such a case, the purchaser is not entitled to any interest on the earnest amount till he files the suit.[42] 

      It is necessary, however, to distinguish between earnest and advances; there is no right to forfeit in advance.[43] Whether it is an advance or an earnest, has to be ascertained from all the facts; a part payment described as advance is earnest, and would be forfeited if it is paid on the date of the agreement raises a presumption that it was paid as a security.[44] Again, the right to forfeit earnest does not apply to a quantum of earnest agreed to, but not in fact paid by the buyer; the seller cannot claim to recover such amount.[45] The justification of the forfeiture of advance money being a part of ‘earnest money’ should be clear and explicit in the contract as the forfeiture of money paid as part payment of the purchase price and not as earnest money is impermissible in law.[46]

      Non-Disclosure Amounting to Fraud-


      The last paragraph of the section enacts that the omission of disclosure, whether by the seller under Section 55(1)(a) or by the buyer under Section 55(5)(a), is fraudulent. In the absence of this provision such non-disclosure would be a misrepresentation under Section 18(2) of the Indian Contract Act, 1872,[47] and render the contract voidable. It is well settled that where a purchaser finds defects in the property before conveyance, he can either rescind the contract, or successfully resist a suit for specific performance.[48] However, the effect of this provision is that the party who suffers by the non-disclosure has the right not only to rescind the contract, but to set aside the conveyance. This is necessary as the non-disclosure may be discovered after the conveyance.

      Contract to the Contrary-

      General principles of buyer and seller applies only when there is no contract to the contrary. Such contract must be strictly construed when it is in restraint of rights. However, time is not of the essence of the contract unless specifically provided so, which should be reasonable.[49] Direction for payment to a simple creditor of seller by the buyer is not a contract to the contrary.[50]

      CONCLUSION:
      Concluding, we can say that the transactions involving sale or purchase of immovable properties need to be handled with utmost care, transparency, honesty and dignity. Section 55 and its sub-sections of the Transfer of Property Act, 1882 confer certain Duties, Rights and Liabilities on the seller as well as the buyer to ensure that a common citizen is aware of the legal stipulations or obligations while transacting in immovable property. The duties and the rights of the buyer are stated and explained in this article which must be mandatorily followed to avoid any kind of confusion or chaos while transferring the property. In a situation where the buyer does not oblige with these aforementioned duties, he will, as per this act face legal sanctions. Under this section are all the responsibilities that a buyer needs to fulfill as well as all the rights he/she gets so that the transfer is not unjust for the buyer.



      [1] Transfer of Property Act, 1882.

      [2] Arunachella v. Rangaiah, (1906) 29 Mad 519.

      [3] Mangalathammal v. Narayanswami, (1906) ILR 30 Mad 461.

      [4] Kaniz Fatma v. Imamuddin, AIR 1925 All 704.

      [5] Ram Chunder v. Bhagwati, AIR 1924 All 937.

      [6] Reference Board of Revenue, (1883) 10 Cal 92.

      [7] Achhutanand v. Ram Nath, (1913) 18 CLJ 354.

      [8] Butler v. Butler, (1800) 5 Ves. 534.

      [9] Bhyrub Chunder v. Sondamini Dabee, (1875) 2 Cal 141.

      [10] Ramasami Mudaliar v. Annadorai Ayyar, (1902) 25 Mad 454.

      [11] Bibhutibhushan v. Majibhar Rahman, (1934) 61 Cal 956.

      [12] Municipal Council, Nellore v. Dwarpally, (1907) 30 Mad 423.

      [13] Gangai Ammal v. Govinda padayachi, AIR 1924 Mad 545.

      [14] Tara Singh v. Kehar Singh, AIR 1989 SC 1426

      [15] Balvanta v. Bira, (1899) 23 Bom 56.

      [16] Immudipattam Thirugana v. Periya Dorasami, (1902) 29 IA 196.

      [17] Kurri Veerareddi v. Kurri Bapireddi, (1906) 29 Mad 336 FB.

      [18] Ramalingam Pillai v. Jadammal, AIR 1957 AP 960.

      [19] Anchi v. Maida Ram, AIR 1987 Raj 11.

      [20] Ibid.

      [21] Kishanlal v. Suryadatta, AIR 1958 MP 239.

      [22] Abdul Satar v. Manilal, AIR 1970 Guj 12.

      [23] Sunderaramier v. Krishnamachary, AIR 1966 Mad 330.

      [24] Meppalipoyli Ibravi v. Poolakkandiyil Pokkan, AIR 1990 Ker 169.

      [25] Ibid.

      [26] Ibid.

      [27] Ibid.

      [28] Supra Note. 15

      [29] Asgar G Patel v. Union of India, AIR 2000 SC 2222.

      [30] Cornwall v. Hensen, (1900) 2 Ch. 298.

      [31] Ibrahim Bhai v. Fletcher, (1897) ILR Bom 827.

      [32] Sultan Kani Rowthan v. Mahomed, AIR 1929 Mad 189.

      [33] Lalchand v. Lakshman, (1904) ILR 28 Bom 466.

      [34] Kunwar Chiranjit v. Har Swarup, AIR 1926 PC 1

      [35] (1970) 1 SCR 928

      [36] Videocon Properties Ltd. v. Bhalchandra Laboratories, AIR 2004 SC 1787.

      [37] Bishan Chand v. Radha, (1897) ILR 19 ALL 489.

      [38] Id. 31.

      [39] Tulsidas v. Prahlad, AIR 1943 Sau 92.

      [40] Saidun Nessa Hoque v. Calcutta Vyapur Pratishthan Ltd., AIR 1978 Cal 285.

      [41] Id 35.

      [42] Shankarji v. Ratilal, AIR 1956 Bom 443.

      [43] Sardarilal v. Shakuntala Devi, AIR 1961 Punj 378.

      [44] Gowda (KCN) v. Molakram, AIR 1958 Mys 10

      [45] Lowe v. Hope, (1970) Ch 94.

      [46] Satish Batra v. Sudhir Rawal, (2013) 1 SCC 345.

      [47] Indian Contract Act, 1872.

      [48] Jhammaklal v. Mishrilal, AIR 1957 Mad Bh. 23.

      [49] Mahdeo Prasod Agarwala v Narain Chandra Chakrabarti, (1920) 57 Ind Cas 121.

      [50] Janaki v Ambalavasi, AIR 1942 Mad 583.
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