Report No. 70

51.71. Section 55(5)(c).-

Under clause (c) of section 55(5), the liability to bear any loss arising from the destruction, injury or decrease in value of property, not caused by the seller, is borne by the buyer where the ownership of the property has passed to the buyer. The crucial date is thus the transfer of ownership. For all accidental destruction or deterioration after the conveyance, the loss falls on the buyer, but as regards destruction or deterioration before conveyance, the loss falls on the seller.

As has been pointed out by Mulla,1 this is different from the English law, under which the contract for sale transfers an equitable estate and, with it, the liability for loss or destruction. In other words, if English law of property were to be codified, clause (c) would read that "where the property has been contracted to be sold".

There is, of course, no need to substitute delivery of possession in this clause, because after the passing of ownership, it is just and fair that the seller should not be saddled with an obligation to take care of the property. Of course, until payment of price, the seller would also be interested in the property, inasmuch as he has a charge for unpaid price.2 It may be expected that until full payment of the price, the seller will in his own interests take care of the property so as to prevent any loss arising from destruction, injury or decrease in value. That, however, is not a legal obligation but a course which the seller may be expected to undertake in his own interest.

1. Mulla, (1973), Commentary on section 55(5)(c).

2. Section 55(4)(b) .

51.72. Section 55(5)(d).-

Next is the provision in clause (d) relating to payment of-(i) public charges, (ii) rent, (iii) principal moneys due on outstanding incumbrances, and (iv) the interest thereon which may later become due. Here again, the crucial date is the passing of the ownership of the property. After the date of the sale, it is the buyer who bears the public charges and rent under section 55(1)(g).

It is to be noted that this clause applies only where the property is sold subject to the incumbrances. Where it is sold free from incumbrances, the seller is not only bound to pay the interest etc. but is, in fact, bound to discharge the incumbrances themselves, because that is the obligation that he has undertaken by the contract.

51.73. Invalid incumbrances.-

Interesting questions arise when the incumbrances subject to which the property is sold are found to be invalid or less burden some than anticipated or are discharged by some unexpected event. It is well-established that if incumbrances are later found to be invalid, the benefit will go to the purchaser, because the theory is that the seller gets the price of his interest-whatever it may be-together with an indemnity against the incumbrances affecting the property.

The contract of indemnity may be express or implied. If the purchaser covenants with the vendor to pay the incumbrances, it is still nothing more than a contract of indemnity. If these incumbrances turn out to be invalid, the vendor has nothing to complain of. His indemnity is complete and, in that sense, he has bought that he had bargained for. The notion that after completion of the purchase, the purchaser is in some way a trustee for the vendor of the amount by which the existence or supposed existence of incumbrances led to a diminution of the price, has not been favoured.1

Occasions for the application of similar principles have arisen more than once before the High Courts in India. Thus, in a Punjab case,2 there was a sale of Property, and part of the purchase money was left with the purchaser for payment to a previous mortgagee. That mortgage, however, was extinguished as a result of the operation of the Punjab Restitution of Mortgaged Lands Act. It was held that the seller had no right to participate in the benefits which the purchaser might get by non-payment.

A similar situation arose in a Madras case,3 where immovable property was sold subject to a mortgage, and the mortgage debt was scaled down at the instance of the mortgagor agriculturist under the Madras Agriculturists Relief Act, 1928. It was held that the purchasers, although non-agriculturists themselves, were entitled to the benefit of the reduction and were liable on the mortgage only to the extent of the amount scaled down.

In a Kerala case,4 there was a fidelity bond the amount whereof was charged on immovable property, which was sold. On retirement of the employee concerned, the bond was discharged. It was held that the buyer and not the seller was entitled to the benefit. These judicial decisions all follow well established principles which were laid down in England as early as the eighteenth century.5

Finally, it would appear that if a mortgage becomes barred by time or the mortgagee gives up a right to a portion of the property, the benefit thereof will go only to the purchaser and not to the seller.6

It is not inconceivable that the buyer purchasing the property subject to incumbrance may have to pay more than what he estimated. Thus the buyer gets the benefit and bears the burden.

1. Izzat-un-nissa, 1909 ILR 31 All 683 (PC).

2. Varain Singh v. Bachan Singh, AIR 1953 Punj 110 (113).

3. Vinai Kertha v. Krishnatha, AIR 1954 Mad 506.

4. Amma v. Janaki Ammo, AIR 1957 Karn 98 (99).

5. Aweedle v. Tweedle, (1787) 29 ER 87 (88).

6. Vinayteetha v. Vishvanath, AIR 1954 Mad 508 (511, 512), paras. 9 to 12.

51.74. Implications as to the aspect of unpaid price.-

The fact that where the property is sold subject to encumbrances, it is the purchaser who gets the benefit and also bears the burden, has an important implication in regard to the vendor's statutory charge for unpaid price under section 55(4)(b). Sometimes, it is sought to be argued that where the vendor has left, with the purchaser money for redeeming the mortgage, the vendor has a charge for that amount until the money is realised.

In general, however, where what is sold is the equity of redemption, then if the amount of encumbrance remains in the hands of the purchaser to be paid to the person entitled thereto, no part of the 'purchase money' remains unpaid for the purpose of section 55(4)(b), and no charge for it can, therefore, arise in favour of the seller.1

The position would, of course, be different if the property is sold free from all encumbrances. In such a case, until the money is utilised in discharge of the encumbrances, it retains its character of unpaid price.2

1. Ganga Ram v. Raghubans, 1948 ILR 27 Pat 898.

2. Rameshwar Dayal v. Hare Krishan, AIR 1940 All 351 (352).

51.75. Section 55(6)(a).-

Under section 55(6)(a), the buyer is entitled, where the ownership of the property has passed to him, to the benefit of any improvement in, or increase in value of the property and to the rents and profits thereon. This clause really deals with two different rights, viz (i) right to the benefit of improvement or increase, and (ii) right to the rents and profits. So far as the first right is concerned, the date of commencement mentioned in the clause, viz passing of ownership raises no questions, since this provisions is the converse of section 55(5)(c), under which, after the passing of ownership to the buyer, he is bound to bear any loss arising from the destruction, injury or decrease in the value of the property not caused by the seller. The principle is that risk passes on the passing of ownership; and the two provisions are in harmony with this principle.

51.76. Right to rents and profits.-

When, however, one comes to the second right mentioned in section 55(6)(a)-right to rents and profits of the property-one must turn back to section 55(4)(a), under which the seller is entitled to the rents and profits of the property till ownership thereof passes to the buyer. Here notice must be taken of the amendment which we are recommending in that clause,1 so as to postpone the point of termination to the date of delivery of possession.

The reasons for the change recommended by us need not be restated. If that amendment is accepted, then, in section 55(6)(a), latter half also, the crucial date should be delivery of possession. The theory is that the seller is entitled either to the rents and profits, or, in substitution therefore, a charge for the unpaid purchase money. The two alternative rights are in succession to each other, and the chronological dividing line between the two is, according to our recommendation the date of delivery of possession.

1. See discussion as to section 55(4)(a), supra.

51.77. Recommendation as to section 55(6)(a).-

On this reasoning, we recommend that section 55(6)(a) should be revised so as to read as follows:

"(6)-The buyer is entitled-

(a) where the ownership of the property has passed to him,

(i) to the benefit of any improvement in, or increase in value of, the property, and

(ii) after delivery of possession to him, to the rents and profits of the property."

51.78. Section 55(7)(b)-structural change recommended.-

Under clause (b) of section 55(6), the buyer is given a charge for two amounts, viz (i) first, the purchase money paid by the buyer in anticipation of delivery and interest thereon, and secondly (ii) the earnest paid by him and the costs awarded to him in a suit to compel specific performance of the contract or to obtain a decree for rescission of the contract. This is not the exact wording of the section. But we have tried to express it in a simple manner, so as to facilitate a discussion of the questions which we are going to deal with hereafter.

The first thing that strikes one on the reading of this clause is its cumbersome structure. It deals with two rights, as we have already stated, and in the interest of neatness, we think that the two rights should be dealt with distinctly. Apart from this structural change, there will be a few points of substance to be considered. Before that, it will be desirable to consider the English Law.

51.79. English law.-

In English law, a purchaser has a lien for the money paid by him when the contract goes off. In one of the English cases,1 Kindersley, V.C., put the lien of the purchaser, (where the vendor is unable to make a title, or where, for any other reason, the vendor does not complete the contract) on the basis of natural justice and on the basis of principle.

In regard to natural justice, he observed that if a purchaser has advanced money on the faith of the contract being completed, he has advanced it under circumstances which entitle him to say-"if you cannot complete, not only are you bound to give me back my money, but I have a right to a lien on the estate". With reference to the principle, he put it on the ground that such a lien is analogous to the lien of the vendor for unpaid purchase money.

1. Levy v. Stongdon, (1898) 1 Ch 478 (485).

51.80. Nature of lien.-

Snell1 has described it as a "lien which is somewhat analogous to the vendor's lien". This is a lien upon the property in the hands of the vendor for any deposit for instalment of his purchaser-money which the purchaser has paid to the vendor (and not merely to a stake-holder)2 without obtaining a conveyance. The purchaser has this lien not only when the contract goes off for want of title, but also where he rescinds the contract under a condition enabling him to do so,3 though, if the contract goes off through the purchaser's default, the lien is gone.4

The lien extends not only to the purchase-money actually paid, but also to interest thereon, and to money paid as interest on the unpaid purchase-money, and to the costs properly incurred by the purchaser.5 The lien will prevail against all persons, against whom a vendor's lien would prevail.6

1. Snell Equity, (1966), pp. 492-493.

2. Comic v. Swavthing, 1947 Ch 625.

3. Whitebread v. Watt, (1901) 1 Ch 911 (915), affd (1902) 1 Ch 835.

4. Dinn v. Grant, (1852) 5 De G&Sm 451; Ridout v. Powler, (1904) 2 Ch 93.

5. Rose v. Watson, (1864) 10 HLC 672.

6. Snell Equity, (1966), pp. 492-493.

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