Agreement to Sell versus a Contract Creating a Present Interest

Not every contract about property is a mere promise. Some contracts, a sale, a gift, a mortgage, a lease, an exchange, create an interest in the property at once. An agreement to sell does not: it only promises a future transfer, and by Section 54 of the Transfer of Property Act it creates no interest in the land. The question in each case is whether the transaction passes an interest now or merely promises one for the future. This note explains each in its own right, compares them, and works through an example.

Figure: Agreement to sell and a contract creating a present interest compared, and the dividing line of present against future

1. The Agreement to Sell in Its Own Right

An agreement to sell only promises a future conveyance. It is a contract that a sale shall take place on settled terms, and Section 54 of the Transfer of Property Act declares expressly that it creates no interest in or charge on the property. The buyer's right is therefore a right in personam, a right against the seller to have the sale performed, enforceable by specific performance. If possession is given under the agreement, it is referable to the contract and protected by the doctrine of part performance under Section 53A, but no proprietary interest passes.

2. A Contract Creating a Present Interest in Its Own Right

A contract that creates a present interest transfers or charges an interest in the property immediately. A sale deed passes ownership; a gift transfers it without consideration; a mortgage creates a security interest; a lease creates a right to enjoy the property for a term; an exchange transfers interests both ways. In each the transferee acquires a right in rem, an interest good against others, from the moment the transaction takes effect, and where the interest is of the kind the law requires to be registered, the instrument is compulsorily registrable.

3. The Two Compared

4. The Dividing Line: Present against Future

5. A Worked Example

Compare two documents A signs in B's favour. The first is an agreement to sell A's plot to B next month; it promises a future conveyance, and until the sale deed is executed B has no interest in the plot, only the right to sue A for specific performance. The second is a mortgage of the same plot to B to secure a loan; it creates a present interest, a charge on the plot, the moment it takes effect, and B holds a real security good against others, not a mere promise. If A defaults, B under the agreement must sue for performance to get any interest at all, while B under the mortgage already has his security and may enforce it. The one promised an interest; the other created one.

6. Frequently Asked Questions

Q. What is the difference between an agreement to sell and a contract creating a present interest?
A. An agreement to sell only promises a future transfer and creates no interest in the property; a contract such as a sale, gift, mortgage, lease or exchange creates an interest at once.

Q. Why does an agreement to sell create no interest?
A. Because Section 54 of the Transfer of Property Act says so: it is a contract that a sale shall take place, and it does not, of itself, create any interest in or charge on the property.

Q. What kind of right does each give?
A. An agreement to sell gives a right in personam, to have the sale performed; a present-interest contract gives a right in rem, an interest good against others.

Q. How does this affect registration?
A. A present-interest contract is compulsorily registrable where it creates such an interest; an agreement to sell need not be registered to found a suit.