National Law Institute University Property Law-II Project

Comparison between Mortgage by Conditional Sale and English Mortgage

Submitted by: Varun Raj Nair 2010BALLB-20

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Table of Contents
Mortgage: .............................................................................................................. 3 Section 58 in The Transfer Of Property Act, 1882: .............................................. 3 Simple mortgage ................................................................................................ 3 Mortgage by conditional sale............................................................................. 3 Usufructuary mortgage ...................................................................................... 4 English mortgage ............................................................................................... 4 Anomalous mortgage ......................................................................................... 4 Essentials: .......................................................................................................... 6 Amendment of Sec.58(c) : ................................................................................. 6 Mushir Mohammed Khan (Dead) By Lrs vs Smt. Sajeda Bano & Ors: ........... 7 Conclusion: ........................................................................................................... 8 Bibliography: ..................................................................................................... 9

Introduction:
Mortgage:
A mortgage is a way to use one's real property, like land, a house, or a building, as a guarantee for a loan to get money. Many people do this to buy the home they use for mortgage: the loan provides them the money to buy the house and the loan is guaranteed by the house. In a mortgage, there is a debtor and a creditor. The debtor is the owner of the property, while the creditor is the owner of the loan. When the mortgage transaction is made, the debtor gets the money with the loan, and promises to pay the loan. The creditor will receive money back with interest over time (usually in payments made each month by the debtor). If the debtor does not pay the loan, the creditor may take the mortgaged property in place of the loan. This is called foreclosure.

Section 58 in The Transfer Of Property Act, 1882:

" Mortgage"," mortgagor"," mortgagee"," mortgage- money" and" mortgage- deed" defined.(a) A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage- money, and the instrument (if any) by which the transfer is effected is called a mortgage- deed.

Simple mortgage- (b) Where, without delivering possession of the mortgaged property,
the mortgagor binds himself personally to pay the mortgage- money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage- money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.

Mortgage by conditional sale- (c) Where the mortgagor ostensibly sells the mortgaged
property-- on condition that on default of payment of the mortgage- money on a certain date
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the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale. Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.

Usufructuary mortgage- (d) Where the mortgagor delivers possession or expressly or by

implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorizes him to retain such possession until payment of the mortgage- money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest, or in payment of the mortgage- money, or partly in lieu of interest partly in payment of the mortgage- money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee.

English mortgage- (e) Where the mortgagor binds himself to re- pay the mortgagemoney on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will retransfer it to the mortgagor upon payment of the mortgage- money as agreed, the transaction is called an English mortgage.

Anomalous mortgage- (g) A mortgage which is not a simple mortgage, a mortgage by

conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title- deeds within the meaning of this section is called an anomalous mortgage.

ENGLISH MORTGAGE:
As defined under Sec. 58(e) of Transfer Of Property Act, English Mortgage may be defined as Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.

It is a kind of a mortgage, where the possession of the property from the mortgagor is transferred absolutely to the mortgagee i.e the mortgagee now has the actual possession of the property till a CERTAIN SPECIFIED DATE and can retain the possession till the time the mortgagor pays back all his dues. The mortgagee can also make improvements on the land as a prudent man would have on his own discretion and any additional increments or costs shall be borne by the mortgagor. Thus, the mortgagor is liable to clear his dues and along with it, has to also pay off additional costs to the mortgagee.

One of the major differences between the English and simple mortgage is that in English mortgage there is absolute transfer of the property & in the simple mortgage there is created only a right to sell in favour of the mortgagee.

The mortgagor who executes an English mortgage knows what he is bargaining for. It is for this reason, as pointed out by Dr Gour in his Law of Transfer in British India, Volume II, page 1194, that the Courts and Legislature have limited the execution of such mortgages to only persons belonging to certain races and restricted them to a few places of commercial importance where the summary realisation of the security free from the elaborate procedure of the Court is essential for the prosecution of trade.1 In an English Mortgage 1. The mortgagor binds himself to repay the borrowed money on a certain date. 2. The mortgagor transfers the property absolutely to the mortgagee. 3. But such transfer is subject to the condition that the mortgagee will retransfer the property on repayment before the agreed date.
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P. Saraswathi Bai vs P.T. Varadarajulu Naicker, Equivalent citations: (1956) 1 MLJ 223

Mortgage by conditional sale:

In case of a mortgage by conditional sale, a mortgagor ostensibly sells the mortgaged property on the condition that on default of repayment of the mortgage money by a certain date the sale will become absolute. It is that mortgage where the mortgager sells the property to the mortgagee on the condition that on repayment of the loan, the property will be restored to him by the mortgagee (creditor).In case the mortgager fails to pay off the loan; the mortgagee obtains the absolute proprietorship of the property. Mortgage by conditional sale is not a favourite security with the bankers as it is a risky and cumbersome. Section 58(c) of the Transfer of the Property Act defines the "Mortgage by Conditional Sale". It may be defined as an ostensible sale on condition that upon repayment, the buyer shall transfer the property to the seller. During the Muslim rule, this kind of mortgage came in to vogue, as taking of interest is forbidden under the Mohammedan law.

Essentials:
The essential features of mortgage by conditional sale: 1. If the mortgagor fails to repay the mortgage on a certain date, the sale becomes absolute. 2. If the mortgagor pays the mortgage debt on a certain date, the sale becomes void and the mortgagor becomes the owner. 3. If the mortgagor pays the mortgage debt, the buyer must retransfer the property to the seller. This transaction is mortgage by conditional sale. 4. The transaction resembles that of sale, though it is only a mortgage. 5. The ostensible sale becomes absolute sale, if the mortgagor fails to make payment on the specified date. This can be enforced by taking proceedings for foreclosure of the mortgage. The order of foreclosure by the court converts the mortgage by Conditional Sale into an absolute sale.

Amendment of Sec.58(c) :
If the condition of retransfer is embodied in the document effecting the Ostensible sale, then such transaction is not regarded as a mortgage by Conditional Sale.

Mushir Mohammed Khan (Dead) By Lrs vs Smt. Sajeda Bano & Ors:

Where the mortgagor ostensibly sells the mortgaged property - on condition that on default of payment of the mortgage money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale. Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale." Proviso to this Clause was added by Act XX of 1929 so as to set at rest the conflict of decisions on the question whether the conditions, specially the condition relating to re-conveyance contained in a separate document could be taken into consideration in finding out whether a mortgage was intended to be created by the principal deed. The Legislature enacted that a transaction shall intended. The question whether by the incorporation of such a condition a transaction ostensibly of sale may be regarded as a mortgage is one of intention of the parties to be gathered from the language of the deed interpreted in the light of the surrounding circumstances. The circumstance that the condition is incorporated in the sale deed must undoubtedly be taken into account, but the value to be attached thereto must vary with the degree of formality attending upon the transaction." The Court further considered the distinction between "mortgage by conditional sale" and a "sale with a condition of repurchase" and observed as under: "The definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and the mortgagee, the price being charged on the property conveyed. In a sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor is the price charged upon the property conveyed, but the sale is subject to an obligation to retransfer the property within the period specified. What distinguishes the two transactions is the relationship of debtor and creditor and the transfer being a security for the debt. The intention of the parties is reflected in the contents of the document which is described as a mortgage by conditional sale. In the body of the document, the mortgage money has been specified. also

Conclusion:
Where the mortgagor ostensibly sells the mortgaged property-- on condition that on default of payment of the mortgage- money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale. Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.

Where the mortgagor binds himself to re- pay the mortgage- money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will retransfer it to the mortgagor upon payment of the mortgage- money as agreed, the transaction is called an English mortgage.

Bibliography:
1. 2. 3. 4. Dr R.K. Sinha, The transfer of property act, 12th ed., Central Law Agency, 2011 www.indiakanoon.com www.manupatra.com Alison Clarke, Paul Kohler, Property Law, Commentary and Materials, 2005