Difference between Sale and Mortgage | Law Explained

Many students get confused in the sale and mortgage part of the transfer of property law, keeping same in mind i am writing to clear the doubts regarding the Difference between Sale and Mortgage

When one is looking into buy property, there are two main ways that they can pay for it. One is a direct sale, where the buyer would pay the seller the whole amount of the property outright and take possession of the property. Another is a mortgage, where essentially the mortgage lender will pay the seller, and the buyer would come to a sort of agreement to pay back the lender over a number of years.

(Difference between Sale and Mortgage)

Difference between Sale and Mortgage

Investopedia defines mortgage as “A debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large purchases of real estate without paying the entire value of the purchase up front.”

Difference between Sale and Mortgage

(Difference between Sale and Mortgage)


Or rather in simpler terms as “In a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s tenants and sell the house, using the income from the sale to clear the mortgage debt.”

 

The nuances between the above two terms were clearly pointed out by the Hon’ble Supreme Court in Manjabai Krishna Patil (D) by L.Rs. vs. Raghunath Revaji Patil and Anr.[1] with several precedents. Some of the earlier judgments of Supreme Court which distinguished the above two terms were-

 

Bishwanath Prasad Singh v. Rajendra Prasad and Anr.[2]

(Difference between Sale and Mortgage)

“A mortgage by conditional sale must be evidenced by one document whereas a sale with a condition of retransfer may be evidenced by more than one document. A sale with a condition of retransfer is not the mortgage. It is not a partial transfer.”

Difference between Sale and Mortgage

Shri Bhaskar Waman Joshi v. Shri Narayan Rambilas Agarwal[3]

“A transaction shall not be deemed to be a mortgage unless the condition referred to in the clause is embodied in the document which effects or purports to affect the sale. But it does not follow that if the condition is incorporated in the deed effecting or purporting to effect a sale a mortgage transaction must of necessity have been 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 definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and 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 form in which the deed is clothed is not decisive. The definition of a mortgage by conditional sale itself contemplates an ostensible sale of the property….”

Difference between Sale and Mortgage

Tulsi v. Chandrika Prasad[4]

“A distinction exists between a mortgage by way of conditional sale and a sale with condition of purchase. In the former the debt subsists and a right to redeem remains with the debtor but in case of the latter the transaction does not evidence an arrangement of lending and borrowing and, thus, right to redeem is not reserved thereby.”

source – Indian Case Law &  DifferenceBetween.info


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