Rights and Liabilities of Buyer and Seller

The article seeks to explain the rights and liabilities of the parties involved in a sale – the buyer and seller. Their explanation is twofold – before the completion of the sale – rights and liabilities of the seller and rights of liabilities of the seller, and after the completion of the sale – rights and liabilities of the seller and rights of liabilities of the seller.

Rights and liabilities of buyer and seller

In a sale, at least two parties are involved: the buyer and seller. The obligations imposed by section 55 are covenants and are in the nature of statutory obligations. The rights and liabilities of the buyer and seller can be categorised into two –

1. Before the completion of the sale
2. After completion of the sale

I. Before completion of sale

A. Seller liabilities

To disclose material defects [S. 55(1)(a)]

The seller is bound to disclose to the buyer any material defect which is present either in the property or in the title of the seller to the property. Such a defect only the seller is aware of but not the buyer, and the buyer could not discover that defect with ordinary care. The defect must be a material defect about which, if the buyer had known, he would not have purchased that property.

The material defect must be of such a nature that it might be reasonably supposed that if the buyer had been aware of it he might not have entered into the contract at all, for he could be getting something different from what he contract to buy. [i]

To produce title deeds [Section 55 (1)(b)]

The seller is bound to bring all the documents of title relating to the property in his possession or power for the inspection of the buyer. The seller is bound to produce all the documents demanded by the buyer for his examination. The buyer should examine all the documents relating to the property for his own protection.

To answer questions as to Title [Section 55 (1)(c)]

The seller is bound to answer to the best of his information all the relevant questions put to him by the buyer in respect of the property or its title. Since the buyer is getting the ownership of the property, it is in his interest that he must be fully satisfied with the ownership rights of the seller and his authority to make the transfer.

To execute a proper conveyance [Section 55(1)(d)]

Conveyance means the transfer of ownership. This is done by signing the sale deed or putting a thumb impression on the sale deed by the seller. The duties of both the seller and the buyer under this clause are reciprocal. When the buyer makes the payment, the seller has to execute the conveyance. It must be in proper place and proper time. But what is proper place and time, it has not been specified in the Act.

In case there is no stipulation fixing the time of execution and the seller makes unreasonable delay in executing conveyance, the proper course is to give notice making time the essence of the contract.[ii]

To take care of property and title deeds [Section 55(1)(e)]

This clause lays down the duty of the seller between the contract of sale and delivery of property. Within this time, the property remains with the seller but only in trust for the buyer. He holds the property as a trustee of the buyer because he has already executed the conveyance, only the delivery of the property is to be made. The seller has to preserve the property as well as title deeds.

The extent of care required by this clause is such care as an owner of ordinary prudence would take of his own property. This duty continues till the possession of the property is given to the buyer. If the seller fails to perform his duty, he will have to compensate the buyer for the loss occasioned to him.

To pay outgoings [Section 55 (1)(g)]

This clause says that the seller is bound to pay all public charges and rent accrued due in respect of that property up to the date of sale, the interest on all encumbrances, to discharge all encumbrances on the property then existing.

The buyer has a right to require the seller to produce evidence that the property is free from encumbrances. The liability exists before the completion of sale and continues thereafter whether the existence of such charges is discovered before or after the completion of sale.[iii]

B. Seller’s Right before sale

Right to take rents and profits [Section 55(4)(a)]

The seller is entitled to the rents and profits of the property till the ownership of it passes to the buyer. The sale is completed when the ownership is transferred to the buyer. Until the ownership is transferred, the seller continues to be the property owner, and in that capacity, he becomes entitled to the rents and profits of the property. Till that time the seller has every right to enjoy the profits of the property.

C. Buyer’s liabilities before completion of sale

To disclose facts materially increasing value of property [Section 55(5)(a)]

The buyer is bound to disclose to the seller any fact as to the nature or extent of the seller’s interest in the property of which the buyer is aware but of which he has reason to believe that the seller is not aware, and which materially increases the value of such interest.

In Summers v. Griffiths[iv], an old lady, contracted to sell a property at much less price believing that her rights in the property were not absolute. The buyer ha d knowledge of the fact that the lady’s interest in the property was perfect and absolute but he did not disclose it to the lady. He was held liable for fraud and sale was set aside.

To pay the price [Section 55(5)(b)]

The buyer is bound to pay or tender, at the time and place of completing the sale, the purchase money to the seller or to such person as he directs; provided that where the property is sold for free from encumbrances, the buyer may retain out of the purchase-money the amount of any encumbrances, the buyer may retain out of the purchase money the amount of any encumbrances on the property existing at the date of the sale, and shall pay the amount so retained to the persons entitled thereto.

D. Buyer’s rights before completion of sale

To charge for price prepaid [Section 55(6)(b)]

When the buyer properly declines to accept delivery, he becomes entitled to refund of earnest (if any) and for the costs (if any) also awarded to him in a suit to compel specific performance of the contract or to obtain a decree for its recession.

The principle underlying this section is a trite principle of justice, equity and good conscience. The charge would last until the conveyance is executed by the seller and possession is also given to the purchaser and ceases only thereafter.

If immovable property is charged and converted into another property or money then the charge will fasten on that converted property or money. The charge is available not only against the seller but also against all persons claiming under him.[v]

II. After Completion of Sale

A. Duties of seller

I. To give possession [Section 55(1)(f)]

The seller is bound to give, on being so required, the buyer or such person as he directs such possession of the property as its nature admits. The seller is to give possession of property either to the buyer or his authorised person whenever the buyer so requires.

In the case of tangible immovable property, physical control is to be given over property. In the case of intangible immovable property, the possession is symbolic.

ii. Implied covenant for title [Section 55(2)]

The seller shall be deemed to contract with a buyer that the interest which the seller professes to transfer to the buyer subsists and that he has the power to transfer the same. Such a covenant is implied in every sale of immovable property and it is not required to be expressly mentioned in a sale deed.

iii. To deliver title deeds on receipt of price [Section 55(3)]

Where the whole of the purchaser's money has been paid to the seller, he is bound to deliver to the buyer all documents of title relating to the property which are in the seller’s possession or power.

After the completion of the sale when the ownership of the property passes on to the buyer, and he pays the price of the property, the seller becomes bound to deliver all the title deeds relating to that property to the buyer which are in his possession or power.

The proviso to this clause lays down that –

• Where the seller retains any part of the property comprised in such documents, he is entitled to retain them all, and
• Where the whole of such property is sold to different buyers, the buyer of a lot of greatest value is entitled to such documents.

B. Seller’s rights after-sale

Charge upon the property for unpaid price [Section 55(4)(b)] – This clause says that where the ownership of the property has passed to the buyer before payment of the whole of the purchase money, the seller becomes entitled to a charge upon the property –

• In the hands of the buyer,
• Any transferee without consideration, or
• Any transferee with notice of non-payment,
• For the amount of the purchase money or if any part of the purchase money remaining unpaid, and
• For interest on such amount of purchase money or any part unpaid from the date on which the possession has been delivered

C. Buyer’s liability after completion of sale

i. To bear loss to the property [Section 55(5)(c)]

Where the ownership of the property has passed to the buyer, the buyer is bound to bear any loss arising from the destruction, injury or decrease in value of the property not caused by the seller. Therefore, if any loss occurs to the property either by way of accidental destruction or deterioration after the ownership has vested in the buyer, the buyer will bear the loss.

ii. To pay outgoings [Section 55(5)(d)]

Where the ownership of the property has passed to the buyer, as between himself and the seller, the buyer is bound to pay all the public charges and rent which may become payable in respect of the property, the principal money due on any encumbrances subject to which the property is sold and interest thereon afterwards accruing due.

After the completion of the sale, the buyer becomes the owner of the property and he becomes liable to pay the outgoings, for example, Government dues, taxes, rents and revenue etc. This liability is in between the seller the buyer.

D. Buyer’s Right after completion of sale

Benefit of increment [Section 55(6)(a)]

Where the ownership of the property has passed to the buyer, the buyer is entitled to the benefit of any improvement in the property or increase in the value of the property and to the rents and profits thereof. The buyer is not only entitled to the rents and profits of the property but also the increase in the value of the property and any improvement in the property.

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[i] Flight v. Booth, (1834) 131 ER 160

[ii] Jamshed v. Burjorji, AIR 1934 Bom 1

[iii] Abdul Hameed v. Shahajahm Gegum, AIR 2008 (NOC) 640 (MP)

[iv] (1866) 35 Beav 27

[v] DDA v Skipper Construction Pvt. Ltd. AIR 2000 SC 573

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1. Sale of Immovable Property: Explained As Under TPA, 1882
2. Properties of Firm | Indian Partnership Act, 1932