THE TRANSFER OF PROPERTY ACT 495
- A mortgage by conditional sale and a sale with a condition of repurchase have a very close resemblance. In both cases, there is a right of reconveyance :—
(1) But they arc different in the nature of the terms on which the right to reconvey can be exercised vary.
(2) If it is a sale with a condition of repurchase then :—
(i) The right is personal and cannot be transferred.
(ii) The right can be enforced on strict compliance with the terms laid down by the condition of repurchase.
Cases. 10 Cal. 30 ; 6 All. 37 ; 21 Bom. 528.
(3) If it is a mortgage by conditional sale, then—
(i) The right to reconveyance is not personal but is a right in term and can be exercised by the transferee.
(ii) Time will not be treated as of the essence.
- What is it that distinguishes sale with a condition of repurchase and mortgage by conditional sale ?
(1) In a mortgage by conditional sale, the transaction notwithstanding the form, remains a lending and borrowing transaction. The transfer of land, although it is in the form of a sale, in fact it is a transfer by way of security.
(2) In a sale with a condition of repurchase, the transaction is not a lending and borrowing arrangement. It is not a transfer of an interest. It is a transfer of all rights. It is not a trnasfer by way of security. It is an absolute transfer reserving only a personal right of repurchase.
What is the test for determining whether a transaction is a mortgage ?
(1) No particular words or form of conveyance are necessary to constitute a mortgage. As a general rule, subject to very few exceptions, where a transfer of an estate is originally intended as a security for money, it is a mortgage and where it is not so originally intended, it is not a mortgage.
(2) It is not the name given to a contract by the parties that determines the nature of the transaction. A document may be held to be a sale although it is called a mortgage by the parties.
2 Bom. 113.