Comprehension
Whether an agreement is a mortgage by conditional sale or sale with an option to repurchase is a vexed question to be considered in the facts of each case. The essentials of an agreement, to qualify as a mortgage by conditional sale, can succinctly be summarized. An ostensible sale with transfer of possession and ownership, but containing a clause for reconveyance in accordance with Section 58(c) of the Act, will clothe the agreement as a mortgage by conditional sale. Referring to Section 58(c) of the Transfer of Property Act the observed, “A deeming fiction was added in the negative that a transaction shall not be deemed to be a mortgage unless the condition for reconveyance is contained in the document which purports to effect the sale.” The issue under adjudication was whether the transaction between the parties was an absolute sale of the property or it was a mortgage. The court relied upon the case Bishwanath Prasad Singh v. Rajendra Prasad and Anr, 2006 SC and held that A bare perusal of the said provision clearly shows that a mortgage by conditional sale must be evidenced by one document whereas a sale with condition of retransfer may be evidenced by more than one document. A sale with a condition of retransfer is not a mortgage. It is not a partial transfer. By reason of such a transfer all rights have been transferred reserving only a personal right to the purchaser and such a personal right would be lost unless the same is exercised within the stipulated time. The execution of separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgaged by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transaction value, along with the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will have to be a cumulative consideration of these factors, along with the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner. The language used in the agreement may not always be conclusive. (Extract from Prakash (Dead) By LR. V. G. Aradhya & Ors, 2023 SC)
Question: 1
The proper remedy for the mortgagee in a mortgage by conditional sale is:
The proper remedy for the mortgagee in a mortgage by conditional sale is:
Updated On: Sep 10, 2025
- To institute a suit for sale
- To suit for recovery of money
- To institute a suit for foreclosure
- Both (A) and (B)
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The Correct Option is C
Solution and Explanation
In the context of legal studies, particularly regarding mortgages by conditional sale, the correct remedy for a mortgagee is important to determine based on the nature of the agreement. According to Section 58(c) of the Transfer of Property Act, an agreement qualifies as a mortgage by conditional sale if it involves an ostensible sale with possession and ownership transfer, but includes a clause for reconveyance. A mortgage by conditional sale differs from a sale with a retransfer option, the latter being evidenced by more than one document and not classified as a mortgage.
A mortgage by conditional sale must establish a debtor-creditor relationship, with the property's valuation, transaction value, and reconveyance duration being key considerations. These factors, together with the agreement's recitals, the parties' intentions, and other circumstances, must be holistically evaluated. The language of the agreement alone doesn't determine its nature.
Given these considerations, the proper legal remedy available to a mortgagee in a mortgage by conditional sale is to institute a suit for foreclosure. This action aligns with the nature and framework of a mortgage by conditional sale where reconveyance conditions are stipulated within the mortgage document itself, thereby making foreclosure the suitable legal course of action.
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Question: 2
One of the conditions of mortgage by conditional sale is that:
One of the conditions of mortgage by conditional sale is that:
Updated On: Sep 10, 2025
- On payment of mortgage money, the sale shall be voidable
- On payment of mortgage money, the sale shall become void
- The mortgagee shall receive the rent and profits and will appropriate the same towards the dues
- All of the above
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The Correct Option is B
Solution and Explanation
The condition described as a mortgage by conditional sale refers to a situation where the sale of property is conducted with an ostensible transfer of ownership but includes a clause for reconveyance. This is provided in Section 58(c) of the Transfer of Property Act.
According to this section, if the mortgage money is paid, the sale will become void. This is a defining characteristic of a mortgage by conditional sale, as it establishes a debtor and creditor relationship. It ensures that after fulfilling the financial obligation (by paying the mortgage money), the mortgagor can reclaim the property, thus rendering the sale void.
This contrasts with a sale with a condition of retransfer, which may involve more than one document and does not create a mortgage.
Based on the definitions and legal context, the correct answer to the question regarding the condition of a mortgage by conditional sale is:
On payment of mortgage money, the sale shall become void.
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Question: 3
What is the common clause between mortgage by conditional sale and English mortgage?
What is the common clause between mortgage by conditional sale and English mortgage?
Updated On: Sep 10, 2025
- Transfer of ownership of mortgaged property
- Transfer of possession of mortgaged property
- The right of mortgagee to sell the property
- Delivery of documents of title
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The Correct Option is A
Solution and Explanation
In legal terms, both "mortgage by conditional sale" and "English mortgage" involve the concept of transferring ownership of the mortgaged property. Let's explore this commonality in more detail:
Mortgage by Conditional Sale: According to Section 58(c) of the Transfer of Property Act, a mortgage by conditional sale occurs when the mortgagor ostensibly sells the property to the mortgagee with the condition that upon the repayment of the mortgage money, the property will be reconveyed to the mortgagor. The transaction resembles a sale with a condition of repurchase but is fundamentally a mortgage. The critical aspect is that it must be documented as a single transaction with the reconveyance condition explicitly stated.
English Mortgage: In an English mortgage, both the ownership and possession of the property are transferred to the mortgagee. The mortgagor binds himself to repay the borrowed sum on a specific date, and the mortgagee agrees to reconvey the property upon repayment. Here, the transfer of ownership is absolute initially, with an agreement for reconveyance upon payment.
The common clause between both types is the transfer of ownership of the mortgaged property to the mortgagee. In both arrangements, the ownership initially shifts from the mortgagor to the mortgagee, embodying a security measure for the loan provided. However, unlike a simple sale, both types involve conditions that potentially allow the mortgagor to reacquire the property upon meeting specific requirements.
Conclusion: Based on this explanation, the correct answer to the original question is the transfer of ownership of the mortgaged property.
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Question: 4
What is the limitation period in case of mortgage by conditional sale?
What is the limitation period in case of mortgage by conditional sale?
Updated On: Sep 10, 2025
- 3 years
- 12 years
- 30 years
- No time limit
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The Correct Option is B
Solution and Explanation
The limitation period for a mortgage by conditional sale is 12 years in accordance with legal studies on the subject. This is established under the Transfer of Property Act, particularly in Section 58(c), which describes a mortgage by conditional sale as an ostensible sale (with transfer of possession and ownership) that includes a clause for reconveyance. The legal discussion often involves determining if a transaction is a mortgage by conditional sale or an outright sale with an option to repurchase. Key case laws like Bishwanath Prasad Singh v. Rajendra Prasad and Anr, 2006 SC, highlight that a mortgage by conditional sale must be documented in a single document, whereas a sale with retransfer conditions may involve multiple documents. Thus, a mortgage by conditional sale is subject to a limitation period of 12 years.
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Question: 5
Which of the following expresses the distinction between a mortgage by conditional sale and a sale with a condition of repurchase?
Which of the following expresses the distinction between a mortgage by conditional sale and a sale with a condition of repurchase?
Updated On: Sep 10, 2025
- In a mortgage the debt subsists and a right to redeem remains with the debtor, but a sale with a condition of repurchase is not a lending and borrowing arrangement
- In a mortgage by conditional sale, generally the amount of consideration is far below the value of the property in the market, but in a sale with a condition of repurchase, the amount of consideration is generally equal to or close to the value of the property
- Both (A) and (B)
- Neither (A) nor (B)
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The Correct Option is C
Solution and Explanation
In the context of legal agreements, determining whether a transaction constitutes a mortgage by conditional sale or a sale with a condition of repurchase is complex. The two concepts differ markedly in their legal implications and are governed by specific statutes.
A mortgage by conditional sale is defined under Section 58(c) of the Transfer of Property Act. It involves an ostensible sale of property with the inclusion of a clause for reconveyance upon fulfillment of certain conditions. The key elements of this agreement are:
- Transfer of possession and ownership is apparent, but the transaction is intended to secure a debt.
- The original document contains a reconveyance condition, retaining the debtor's right to redeem the property.
- A single document generally evidences the entire agreement.
In contrast, a sale with a condition of repurchase involves:
- Complete transfer of ownership and possession without implying a debtor-creditor relationship.
- The transaction might be documented in more than one document.
- Reacquisition of the property is purely at the discretion of the purchaser and depends on fulfilling specific conditions within a specified period.
Key differences between these transactions include:
| Aspect | Mortgage by Conditional Sale | Sale with Condition of Repurchase |
|---|---|---|
| Nature of Transaction | Debt arrangement; property serves as security | Complete sale; no underlying debt relationship |
| Number of Documents | One document | Possibly multiple documents |
| Valuation | Amount typically less than property value | Amount close to property value |
Therefore, both options (A and B) accurately capture the distinctions between these types of agreements, making the correct answer: Both (A) and (B).
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