Question

A executes a document in favour of B stating, “I hereby sell my house to B for ₹ 5,00,000. If I repay the amount within 3 years, B shall retransfer the property to me; otherwise, the sale shall become absolute.” The condition is included in the same document. A fails to repay within 3 years. B claims absolute ownership. Examine the correct legal position under the Transfer of Property Act, 1882.

• A. It is a mortgage by conditional sale; B must seek foreclosure through court.
• B. The transaction is void for uncertainty.
• C. It is an outright sale; B becomes absolute owner automatically.
• D. It is a lease with an option to repurchase.

Hint:

"Same document" rule: If the condition to retransfer is in the same document as the sale, the law treats it as a mortgage by conditional sale, protecting the mortgagor from automatic loss of property!

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
This transaction is a classic example of a "Mortgage by Conditional Sale" as defined under Section 58(c) of the Transfer of Property Act, 1882.

Step 2: Key Formula or Approach:
Identify that when the condition for reconveyance is included in the same document as the sale, it is legally treated as a mortgage, not an absolute sale.

Step 3: Detailed Explanation:
- Section 58(c) states that where the mortgagor ostensibly sells the mortgaged property on condition that on default of payment the sale shall become absolute, it constitutes a mortgage by conditional sale.
- Because it is a mortgage, the mortgagee (B) does not automatically become the absolute owner upon the expiry of the time limit.
- To obtain absolute ownership, the mortgagee must institute a suit for "foreclosure" as per the procedure laid down in the Act.

Step 4: Final Answer:
The legal position is that it is a mortgage by conditional sale, and B must seek foreclosure through the court. Option (A) is correct.

Answer 2

The question asks how to characterise a document where A sells his house to B for a stated price, with a clause in the same document letting A recover the house by repaying within three years, failing which the sale becomes absolute. Testing each option against Section 58(c) of the Transfer of Property Act, 1882 resolves this.

1. Mortgage by conditional sale, requiring B to seek foreclosure through court: Section 58(c) defines exactly this arrangement, an ostensible sale with a condition, contained in the same document, that the sale becomes absolute on default and is to be reconveyed on repayment. Because the condition is in the same document as the sale, the law treats this as a mortgage rather than an outright sale, meaning B cannot claim absolute ownership without a foreclosure suit.
2. Void for uncertainty: The terms here are clear and specific: a sale price, a repayment period, and the consequence of default are all stated. There is nothing genuinely uncertain about the arrangement that would render it void, so this option mischaracterises a well-recognised transaction as legally indeterminate.
3. An outright sale, with B becoming absolute owner automatically: If the document were a plain sale with no reconveyance condition, this might be correct, but the very presence of the repayment and reconveyance clause in the same instrument is what Section 58(c) treats as converting the transaction into a mortgage rather than a completed sale.
4. A lease with an option to repurchase: There is no rent, no tenancy, and no possession-for-a-term structure described here; the transaction is framed entirely as a sale with a defeasance condition, not as a lease of any kind, so this mischaracterises the nature of the document.

Because the reconveyance condition sits in the same document as the sale, Section 58(c) governs, and the transaction is a mortgage by conditional sale requiring foreclosure, not a void, absolute, or leasehold arrangement.

Therefore, the correct answer is It is a mortgage by conditional sale; B must seek foreclosure through court.