Muthuveerappa Thevar v. Mayandi Thevar
Rule established
If price is grossly below market value and possession remains with seller, the transaction is a mortgage disguised as a sale, not a genuine sale
Facts
- Property worth Rs.10,000 was "sold" for Rs.3,000 with a reconveyance clause
- Possession remained with the "seller" throughout
- The "buyer" claimed absolute ownership on the seller's failure to reconvey within the stipulated period
Issue
- How to determine whether a conditional sale transaction is genuinely a sale with option to repurchase, or a mortgage disguised as a sale.
Held
- The transaction is a mortgage by conditional sale. Key indicators: (1) grossly inadequate price (30% of market value); (2) possession remaining with the ostensible seller; (3) the relationship being debtor-creditor in substance. The "buyer" cannot claim absolute ownership; they must seek foreclosure through court.
Ratio Decidendi
Three factors distinguish mortgage by conditional sale from genuine sale with reconveyance: (a) disparity between the price and market value; (b) who retains possession; (c) the true relationship between the parties. When all three point to a security transaction, the court treats it as a mortgage regardless of its label.
How to use it in an exam
Use alongside Balkishen Das v. Legge for the three-factor test. Key line: "Price below market + possession with seller + debtor-creditor relationship = mortgage, not sale."
Source
Source: Mulla TPA 13th ed.
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.