1. Facts of the Case
A purchases a residential house from B for valuable consideration. At the time of purchase, A does not make proper enquiries regarding the title of the property, nor does A verify whether the house is free from encumbrances. B executes the sale deed in favour of A. Subsequently, it is discovered that before selling the house, B had already created a mortgage over the same property in favour of C as security for a loan. The mortgage was still subsisting at the time of sale. C now claims his mortgage rights over the property, affecting A’s ownership and possession.
2. Issues in the Case
- Whether the sale of the mortgaged property by B in favour of A is valid under the Transfer of Property Act, 1882.
- Whether A can claim protection as a bona fide purchaser without notice.
- What remedy is available to B after selling a mortgaged property.
- Whether the mortgagee C’s rights override the rights of purchaser A.
3. Legal Principles Covered to Support Case Proceedings and Judgments
Under Section 58 of the Transfer of Property Act, 1882, a mortgage is a transfer of an interest in immovable property as security for a debt. A mortgagor does not lose ownership but cannot convey better title than he possesses.
As per Section 55(1)(a), the seller is bound to disclose any material defect in the property or title. Non-disclosure of an existing mortgage amounts to breach of duty.
Section 3 (Doctrine of Notice) provides that constructive notice applies where reasonable enquiries would have revealed the mortgage. Since A failed to make proper enquiries, A cannot claim to be a bona fide purchaser without notice.
The mortgagee’s rights are protected under Section 48 (Priority of Rights), meaning earlier interests prevail over later transfers.
Remedy Available to B:
B’s remedy lies in redeeming the mortgage under Section 60 by repaying the mortgage debt to C. After redemption, B may indemnify A or settle liabilities arising from breach of contract. B may also be liable to compensate A for loss caused due to non-disclosure.
4. Possible Judgment
The court is likely to hold that the mortgage in favour of C is valid and enforceable against the property, even after the sale to A. A will not be treated as a bona fide purchaser without notice due to lack of due diligence. C can enforce mortgage rights, including foreclosure or sale. B will be held liable for breach of statutory duty and contractual obligation, and his remedy would be to redeem the mortgage and indemnify A for losses suffered.
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