Marketability of Title is the condition precedent for sale of any immovable property. Under Section 55(1) (a) of the Transfer of Property Act, the seller is bound to disclose any material defect in the property or title and to produce all the documents of title to answer the requisitions on title made by the purchaser. Under Section 55(2) of the aforesaid Act, the Vendor is deemed to warranty the title or the right to sell.
The statutory covenant of title is implied in every contract for sale of an immovable property, even if there is no express clause embodying such a warranty. The term “Marketable Title” refers to absolute right, title, interest and ownership of the Vendor to convey the property without any hindrance.
In other words, the title is considered to be marketable if the same is free from encumbrances, claims and beyond reasonable doubts. Thus, if there is any encumbrance or claims and the vendor does not discharge it, the title cannot be said to be marketable.
In fact, Section 55 (1) of the Transfer of Property Act envisages that if the property is sold subject to any encumbrances or claims, it should be so clearly stated and the Vendor will be under obligation to discharge any such encumbrances existing at the time of sale on the property.
On the other hand, if any encumbrance is found to exist and the same is not revealed before completion of sale, then the Vendor is bound to pay for the same or indemnify the purchaser in that behalf.
The primary duty lies on the person intending to sell the property to prove that title of the property is free from any defects and any subsequent transfer will not make such transaction either void or voidable.
For example, if the vendor owns a property as Kartha of the Joint Hindu Family in which minor’s rights and interests are involved, the Kartha is bound to prove the legal necessity for sale or to obtain an order from the competent Court seeking permission to the property on behalf of the minors.
Restrictions on title:
Implied warranty of title on the part of the Vendor, although absolute, will not however apply to cases where there is a clear contract between the parties to the contrary.
Such a contract can be either express or implied, but the contract must be such as would clearly negate the warranty of title.
Thus, certain restrictions are imposed on the purchaser’s right to examine the title in full, which is done when the Vendor is not sure of making out a marketable title, particularly when the Vendor is not in possession of the property.
Though, the restrictions may be contrary to the provisions under Section 55 of the Transfer of Property Act, the same will be binding on both the parties by virtue of mutual agreement and understandings and even if defect in the title is found subsequently, objections in this regard cannot be raised due to such restrictions.
Where the Vendor stipulated that the property would be conveyed as he has received the same from his predecessor or that the title of the Vendor has to be accepted without dispute or that it should not be enquired into and the Purchaser is bound to accept the title of the Vendor as it appears to be, such a stipulation would be contrary to the contract and Section 55(1) (c) and (2) of the Transfer of property Act will not apply. Further, such a condition will not relieve the Vendor from the obligation of making out the best title though the purchaser would be bound by such condition even if the title is proved to be defective.
However, in absence of such a contract to the contrary, the Vendor is bound to remove all the defects even if the purchaser was aware of the same. Again an express covenant does not, in clear and unambiguous terms supersede the implied covenant.
Thus, by virtue of Section 55(2) of the Transfer of Property Act, the purchaser can rest his claim on the implied covenant of title contained therein.
Conditions restricting the title or proof of title to which the purchaser is entitled must neither state nor suggest things which, to the Vendor’s knowledge, are incorrect. The condition will not be binding if it requires the purchaser to assume that what the vendor knows to be false or it affirms that the state of title is not accurately known to the vendor when, in fact, it is known.
Production and Scrutiny :
In order to examine the title of the Vendor, the purchaser has to examine all the relevant title deeds in the possession or power of the Vendor. Under Section 55(1) (b) of Transfer of Property Act, the Vendor is under an obligation to produce not only those documents in his possession but also in his power to produce.
Thus, if the Vendor has deposited the title deeds with a mortgagee, the Vendor has to produce such documents for inspection of the purchaser through mortgagee. However the Vendor is not under an obligation to produce irrelevant documents not in his possession or power but it is the discretion of the purchaser to inspect the same at his own cost.
It is only after production of all the relevant title deeds, assistance of advocates having sufficient experience in the scrutiny of the title documents will help the purchaser to conclude whether the Vendor has got marketable title or not.
When the property market is favorable to the Vendor, the Vendor, many times, dictates the terms and tries to foist a title on the purchaser.
Adhere to the norms
Under any contract of transfer, fundamental principles of Transfer of Property Act must be strictly adhered by the parties, without letting out either of the parties to escape from their respective obligations, which will reduce litigations and ensure transfer of marketable title from the vendor to the purchaser, free from encumbrances, liens, claims, etc. When a faulty title is passed on to the purchaser, it is bound to result in the spate of claims and litigations.
Purchasing the property involves various steps such as scrutiny of title deeds, verification of documents, executing the deed of Agreement to sell, making payment as agreed between the Vendor and the Purchaser and transfer of ownership and title deeds in the name of the Purchaser by executing Sale Deed.
It is not advisable to purchase a property hastily by approaching the brokers and subsequently entangling oneself into litigations in case of any defective title.
Ownership and right over the property has to be passed on in compliance of the provisions as envisaged under law for which services of Advocates having sufficient experience and knowledge in property transactions is necessary to avoid litigations that are likely to arise in future.