Rights and Liabilities of Buyer and Seller

(e) To take care in the meanwhile. Between the date of the contract of sale and the delivery of the property, to take as much care of the property and the title documents in his possession as an owner of ordinary prudence would take.

(f) To give possession. To give the buyer, or such person as he directs, such possession of the property as its nature admits, on being required to do so.

(g) To clear the outgoings. To pay all public charges and rent accrued due up to the date of the sale, the interest on all incumbrances due on that date, and, except where the property is sold subject to incumbrances, to discharge all incumbrances then existing.

An incumbrance is a burden on the property such as a mortgage or a charge. The exception matters: property is often sold expressly subject to a mortgage, and then the buyer takes it with the burden and the price reflects that.

Rule (2): the covenant for title

The seller is deemed to contract with the buyer that the interest which he professes to transfer subsists, and that he has power to transfer it.

This is the statutory covenant for title, and it is implied whether or not the deed says anything. If the seller had no title, or a smaller one than he professed, he is in breach and the buyer may sue for damages.

The fiduciary proviso. Where the sale is made by a person in a fiduciary character, meaning one who holds the property for someone else, such as a trustee, an executor or a guardian, the covenant is narrowed: he is deemed to contract only that he has done no act whereby the property is incumbered or whereby he is hindered from transferring it.

That narrower covenant is fair. A trustee did not choose the property and may know nothing of its earlier history; all he can honestly promise is that he has done nothing to spoil it.

The benefit runs with the land. The section provides that the benefit of this contract is annexed to, and goes with, the interest of the transferee, and may be enforced by every person in whom that interest is from time to time vested. So a later buyer, several transfers down the line, can sue the original seller on it.

Rule (3): delivery of the title deeds

Where the whole of the purchase money has been paid, the seller is bound to deliver to the buyer all documents of title in his possession or power. Two provisos qualify it:

(a) Where the seller retains part of the property comprised in those documents, he is entitled to retain them all.

(b) Where the whole property is sold to different buyers, the buyer of the lot of greatest value is entitled to the documents.

In case (a) the seller, and in case (b) the buyer of the greatest lot, must on every reasonable request, and at the cost of the person requesting, produce the documents and furnish true copies or extracts, and must in the meantime keep them safe, uncancelled and undefaced, unless prevented by fire or other inevitable accident.

Rule (4): what the seller is entitled to

(a) The rents and profits of the property till the ownership passes to the buyer.

(b) The charge for unpaid purchase money. Where the ownership has passed to the buyer before payment of the whole of the price, the seller has a charge upon the property in the hands of the buyer, and in the hands of any transferee without consideration or any transferee with notice of the non-payment, for the unpaid purchase money and interest on it from the date on which possession has been delivered.

This is the vendor's lien, and it is one of the most examined things in the section. It is a statutory charge, so the seller does not need a mortgage: if the buyer does not pay, the seller can enforce the charge against the property itself. Note carefully who it binds: the buyer, a gratuitous transferee, and a transferee with notice. A purchaser for value without notice takes free.

Rule (5): what the buyer is bound to do

(a) To disclose a fact increasing the value. To disclose to the seller any fact as to the nature or extent of the seller's interest of which the buyer is aware but which he has reason to believe the seller is not, and which materially increases the value of that interest.

This is the mirror of rule (1)(a) and it surprises students. A buyer who has discovered that the land holds a mineral deposit the seller does not know about must say so. The duty is confined to facts about the seller's interest, not about the buyer's own plans or the state of the market.

(b) To pay the price at the time and place of completing the sale. Proviso: where the property is sold free from incumbrances, the buyer may retain out of the purchase money the amount of any incumbrances existing at the date of the sale, and must pay that amount to the persons entitled.

(c) To bear loss after ownership passes. Where the ownership has passed, to bear any loss from destruction, injury or decrease in value not caused by the seller. Risk follows ownership, not possession.

(d) To pay the outgoings after ownership passes. As between himself and the seller, the public charges and rent becoming payable afterwards, the principal moneys due on incumbrances subject to which the property was sold, and the interest afterwards accruing.

Rule (6): what the buyer is entitled to

(a) The benefit of improvement. Where the ownership has passed to him, to the benefit of any improvement in, or increase in value of, the property, and to the rents and profits. This is the counterpart of rule (5)(c): the buyer takes the gains because he bears the losses.

(b) The charge for prepaid purchase money. Unless he has improperly declined to accept delivery, a charge on the property, as against the seller and all persons claiming under him, to the extent of the seller's interest, for any purchase money properly paid in anticipation of delivery and interest on it; and where he properly declines delivery, also for the earnest and for the costs of a suit to compel specific performance or to obtain rescission.

This is the buyer's lien, the exact mirror of the seller's charge in rule (4)(b). A buyer who has paid an advance and cannot get the property is not left chasing an empty seller; he holds a charge on the land itself.

The closing sentence

The section ends: an omission to make the disclosures mentioned in paragraph (1) clause (a) and paragraph (5) clause (a) is fraudulent.

This is not a flourish. Labelling those two omissions fraudulent means the transaction can be attacked for fraud under the Contract Act 1872, with all that follows, rather than merely giving rise to damages for breach of a statutory duty.

A worked example

Suresh sells his godown at Kalamboli to Tanuja for Rs. 90 lakh by registered deed. The deed says nothing beyond the parties, the property and the price. These facts are true.

• The godown has a subsided foundation on one side, hidden under a floor Suresh laid last year. He knows; she cannot see it.
• There is a subsisting mortgage of Rs. 12 lakh in favour of a bank. The deed does not say the sale is subject to it.
• Tanuja has learnt from a friend in the planning office that a metro station is to be built next door, which trebles the value. Suresh does not know.
• Tanuja pays Rs. 70 lakh and takes possession; Rs. 20 lakh remains unpaid.
• Two months later a fire damages the roof, nobody's fault.

Apply the rules in order.

The foundation. A material defect in the property, known to Suresh, not discoverable by Tanuja with ordinary care. Rule (1)(a) required disclosure, and the closing sentence makes the omission fraudulent.

The mortgage. The property was not sold subject to incumbrances, so rule (1)(g) requires Suresh to discharge it. Under rule (5)(b) Tanuja could have retained Rs. 12 lakh out of the price and paid the bank directly.

The metro station. This is a fact about the nature or extent of the seller's interest? No. It is a fact about the neighbourhood and the market, not about what Suresh owns. Rule (5)(a) does not catch it, and Tanuja need not disclose it. Had she instead discovered that Suresh owned an extra strip of land he had forgotten about, that would be within the rule and she would have to tell him.

The Rs. 20 lakh unpaid. Ownership passed on the registered deed before full payment, so under rule (4)(b) Suresh has a charge on the godown for Rs. 20 lakh with interest from the date possession was delivered. It binds Tanuja, and would bind a donee from her or a buyer from her with notice, but not a purchaser for value without notice.

The fire. Ownership had passed, so under rule (5)(c) the loss is Tanuja's, the damage not having been caused by Suresh. Conversely if the metro announcement had doubled the value, rule (6)(a) gives that gain to her.

The title deeds. Suresh sold the whole godown and has been paid only part, so rule (3), which is triggered by payment of the whole of the purchase money, does not yet oblige him to hand them over.

What it does NOT mean

None of it is mandatory. Everything yields to a contract to the contrary.

The seller need not disclose a patent defect. Only one the buyer could not discover with ordinary care.

The seller need not volunteer the title deeds. Rule (1)(b) operates on the buyer's request.

The buyer's duty of disclosure is narrow. It covers facts about the seller's interest that materially increase its value, not market intelligence.

Risk follows ownership, not possession. Rule (5)(c) is keyed to the ownership having passed.

The seller's charge does not bind everyone. It binds the buyer, a gratuitous transferee and a transferee with notice; a purchaser for value without notice takes free.

A fiduciary seller gives a narrower covenant, limited to his own acts.

Distinctions

Quick revision

• Section 55 applies in the absence of a contract to the contrary.
• Seller bound, rule (1): (a) disclose material latent defects in property or title; (b) produce title deeds on request; (c) answer relevant questions; (d) execute a proper conveyance on payment or tender; (e) take an ordinarily prudent owner's care meanwhile; (f) give possession; (g) pay charges, rent and interest to the date of sale and discharge incumbrances unless sold subject to them.
• Rule (2): implied covenant that the interest subsists and he has power to transfer; a fiduciary seller covenants only as to his own acts; the benefit runs with the interest.
• Rule (3): on payment of the whole price, deliver the title deeds; seller retaining part keeps them all; on a sale to several buyers, the lot of greatest value takes them.
• Rule (4): seller keeps rents and profits till ownership passes, and has a charge for unpaid purchase money with interest from delivery of possession.
• Rule (5): buyer must disclose a fact increasing the value of the seller's interest; pay the price, retaining the amount of incumbrances where sold free of them; bear loss and pay outgoings once ownership has passed.
• Rule (6): buyer takes improvements and rents once ownership has passed, and has a charge for prepaid purchase money, plus earnest and costs where he properly declines delivery.
• Omission of the disclosures in (1)(a) and (5)(a) is fraudulent.

Test yourself

1. Is section 55 mandatory? No. It applies only in the absence of a contract to the contrary, so the parties may vary any of its rules.

2. Must a seller disclose a crack in the wall that any visitor can see? No. Rule (1)(a) covers a material defect which the buyer could not with ordinary care discover. A patent defect need not be disclosed.

3. What is the vendor's lien and whom does it bind? Under rule (4)(b), where ownership has passed before the whole price is paid, the seller has a charge on the property for the unpaid purchase money with interest from the date possession was delivered. It binds the buyer, a transferee without consideration, and a transferee with notice of the non-payment.

4. A buyer paid an advance and the seller refuses to complete. What does the buyer hold? A charge on the property under rule (6)(b) for the purchase money properly paid in anticipation of delivery with interest, as against the seller and all claiming under him to the extent of the seller's interest, provided he has not improperly declined delivery.

5. Who bears the loss if the house burns down after the sale deed but before possession? The buyer, under rule (5)(c), if the ownership has passed and the seller did not cause the loss. Risk follows ownership rather than possession.

6. How is the covenant for title different where a trustee sells? An ordinary seller is deemed to contract that the interest subsists and that he has power to transfer it. A seller in a fiduciary character is deemed to contract only that he has done no act whereby the property is incumbered or whereby he is hindered from transferring it.

7. A buyer learns the seller owns an adjoining strip he has forgotten about, which doubles the value. Must he say so? Yes. Rule (5)(a) requires disclosure of a fact as to the nature or extent of the seller's interest, known to the buyer, which he has reason to believe the seller does not know, and which materially increases the value of that interest. Omitting it is fraudulent.

8. Property is sold to three buyers in separate lots. Who keeps the title deeds? The buyer of the lot of greatest value, under the second proviso to rule (3), and he must produce them and furnish copies to the others on reasonable request at their cost.