Definition of Exchange (Section 118)

Exchange is one of the specific modes of transfer of property recognised by the Transfer of Property Act, 1882. It is a transfer where two parties mutually transfer the ownership of one thing for the ownership of another, neither thing nor both things being money only. Section 118 of the Act defines 'exchange'.

Section 118. "Exchange" defined:

Explanation of the Definition:

Based on Section 118, the essential elements of an exchange are:

1. Mutual Transfer of Ownership: Two different persons must mutually transfer the ownership of property between themselves. Each party is a transferor regarding the property they give and a transferee regarding the property they receive.
2. Transfer of Ownership of One Thing for Another: The consideration for the transfer is the ownership of another property, not money. This is the key distinction from a sale. The properties exchanged can be movable, immovable, or a combination of both. For example, exchanging a piece of land for another piece of land, or exchanging a car for a painting, or exchanging a house for shares in a company (if shares are treated as 'property' in this context).
3. Consideration is NOT Solely Money: The definition explicitly states "neither thing or both things being money only." This means that if property is transferred for money, it is a sale. If money is exchanged for money, it is something else (like a barter of currency), not an exchange under TPA. However, if property is exchanged for property, and some amount of money is also paid by one party to make up for the difference in value (this money is called 'boot' or 'equality money'), the transaction is still considered an exchange under TPA. The presence of some money along with property as consideration does not convert an exchange into a sale.

Transfer of property in lieu of property

The core characteristic of an exchange is the reciprocal transfer of ownership of one property for the ownership of another property. The consideration for parting with ownership of one's property is the acquisition of ownership of the other party's property. This is the fundamental concept behind Section 118. It is a kind of barter involving ownership titles to property rather than just goods.

Distinction between Sale and Exchange:

Although Exchange is a distinct transaction, the Act provides that many of the rules applicable to sale also apply to exchange, adapted as necessary. This is clarified in Section 120.

Rights and Liabilities of Parties (Section 119-121)

Sections 119, 120, and 121 of the Transfer of Property Act, 1882, lay down the rights and liabilities of parties involved in an exchange transaction. These sections essentially adapt the principles of sale to the context of exchange.

Section 119. Right of party deprived of thing received in exchange:

Explanation of Section 119 (Right of a Deprived Party):

This section provides a crucial protection to parties in an exchange, similar to the implied covenant for title in a sale. It states that if a party (say, A) gives property to another (B) in exchange for property from B, and A is later deprived of the property received from B (or a part of it) because B's title to that property was defective, then A has certain rights against B. The 'defect in title' means that B did not have valid ownership or the right to transfer the property to A, and consequently, the true owner or a person with a superior title recovers it from A.

Unless the exchange agreement specifies otherwise, the deprived party (A) has the right to:

1. Compensation: Be compensated for the loss suffered due to the deprivation, OR
2. Repayment of Consideration: At their option, demand repayment of the consideration given (which is the value of the property they transferred to B), OR
3. Return of the Thing Transferred: At their option, demand the return of the property they originally transferred to B.

This right essentially gives the deprived party a remedy against the other party if the title to the property received in exchange turns out to be bad. It implies a warranty of title in every exchange.

Example:

Answer:

Section 120. Rights and liabilities of parties:

Explanation of Section 120 (Application of Rules of Sale):

This section is crucial as it incorporates most of the rules related to sale (covered in Chapter III, Sections 54-57 of TPA) into the transaction of exchange. It means that, with the exception of what is specifically provided in the chapter on Exchange (Sections 118-121), the parties to an exchange have the same rights and liabilities as if they were engaging in a sale.

• As to the thing given: Each party, in relation to the property they transfer, has the rights and liabilities of a seller. For instance, they have an implied duty to disclose material latent defects in the property they give (similar to Section 55(1)(a)). If the property is immovable, they have a duty to execute the transfer deed and deliver possession upon request (similar to Section 55(1)(d) & (g)).
• As to the thing taken: Each party, in relation to the property they receive, has the rights and liabilities of a buyer. For instance, they have an implied duty to pay or render the agreed consideration (the other property) (similar to Section 55(5)(b)). If the property is immovable, they have a right to the title deeds (similar to Section 55(6)(a)).

Essentially, the rules regarding the formalities of transfer (registered instrument, delivery of possession), implied covenants regarding the property (except for Section 119, which is specific to exchange), and other general principles of sale apply mutatis mutandis (with necessary changes) to an exchange.

For example, if immovable property worth ₹ 5 Lakhs is exchanged for other immovable property worth ₹ 5 Lakhs, the transaction requires a registered instrument just like a sale of immovable property exceeding ₹ 100 would (applying Section 54 via Section 120).

Section 121. Rights and liabilities of parties to exchange:

Explanation of Section 121:

This section largely reiterates and expands upon Section 120. It confirms that Section 55 (which details rights and liabilities of buyer and seller) applies to an exchange. It also adds that provisions of Chapter IV (on Mortgages and Charges) related to rights and obligations of a mortgagor and mortgagee will apply to a mortgage created as part of an exchange transaction (though mortgages created as part of exchange are less common than simple exchanges of property titles).

The phrase "Save as otherwise provided in this Chapter" gives primacy to the specific rules of exchange (like Section 119). So, while Section 55's implied covenants apply, the specific right to reclaim property or value due to title defect is governed by Section 119.

In essence, Section 120 and 121 ensure that exchanges, while being distinct from sales, are governed by a similar set of rules regarding the mechanics of transfer, implied obligations, and consequences of non-performance, providing a comprehensive framework for such transactions.

Definition of Gift (Section 122)

A Gift is a transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee. Section 122 of the Transfer of Property Act, 1882, provides this definition.

Section 122. "Gift" defined:

Explanation of the Definition:

Based on Section 122, the definition introduces the parties and the core nature of a gift.

Donor and Donee

• Donor: The person who gives the property. The donor must be competent to contract (of majority, sound mind, and not disqualified by law) and must have ownership of the property being gifted.
• Donee: The person who accepts the gift. Any living person, including a minor or a person of unsound mind, can be a donee (as accepting a gift is generally considered beneficial). However, acceptance by or on behalf of the donee is necessary. If the donee is a minor or of unsound mind, the gift must be accepted by a competent person on their behalf (like a legal guardian).

Essential Elements of Gift

Based on the definition in Section 122, a valid gift under the Transfer of Property Act requires the following essential elements:

1. Transfer of Ownership: A gift involves the complete transfer of ownership of the property from the donor to the donee. It is not merely a transfer of possession or some limited interest. The donor divests themselves of ownership, and the donee acquires it.
2. Of Certain Existing Property: The subject matter of the gift must be a property that exists at the time of the gift and is capable of being transferred. It can be movable or immovable property. Future property or a mere chance of succession cannot be gifted. The property must also be 'certain', meaning it is identifiable.
3. Made Voluntarily: The transfer must be made by the donor's free will, without any coercion, undue influence, fraud, or misrepresentation. The transfer must be a result of the donor's independent decision.
4. Without Consideration: This is the defining characteristic of a gift, distinguishing it from a sale or exchange. A gift is a gratuitous transfer. There is no monetary payment or other valuable return expected or received by the donor from the donee in exchange for the property. If there is any consideration, however small, it is not a gift under the TPA. A gift is based on the donor's love, affection, or benevolence.
5. Accepted by or on behalf of the Donee: The donee must accept the gift. Acceptance is mandatory. Without acceptance, the gift is incomplete and void. Acceptance can be express or implied by the conduct of the donee or someone acting on their behalf (like taking possession, dealing with the property as owner). The acceptance must occur during the lifetime of the donor and while the donor is still capable of giving. If the donee dies before acceptance, the gift fails.

Note on Hiba:

The heading mentions "Gift (Hiba)". Hiba is the term for a gift under Muslim Personal Law. While both TPA and Muslim Law deal with gifts, there are key differences, particularly regarding formalities. Under Muslim Law, the essential requirements for a valid Hiba are generally: (1) declaration of gift by the donor, (2) acceptance of the gift by the donee, and (3) delivery of possession of the gifted property by the donor to the donee. Delivery of possession is often considered crucial for completing a Hiba, even for immovable property, and a registered deed is not necessarily required for validity under Muslim Law, unlike gifts of immovable property under TPA. Section 129 of the TPA expressly saves the rule of Muslim Law relating to gifts.

Transfer of Property by Gift

Section 123 of the Transfer of Property Act, 1882, prescribes the formalities required for completing a gift, distinguishing between movable and immovable property.

Section 123. Transfer how effected:

Explanation of Formalities:

Section 123 lays down different requirements based on the nature of the property being gifted:

Registration of Gift Deed

• Immovable Property: A gift of immovable property can only be made by a registered instrument (a gift deed). This registered instrument must be signed by or on behalf of the donor and attested by at least two witnesses. Registration under the Indian Registration Act, 1908, is compulsory for all gifts of immovable property, irrespective of their value (Section 17, Registration Act read with Section 123 TPA). Failure to register a gift deed of immovable property renders the gift invalid in the eyes of the law. The transfer of ownership occurs upon the proper execution, attestation, and registration of the gift deed, provided the gift is accepted by the donee during the donor's lifetime and capacity.
• Movable Property: A gift of movable property may be made either:
  • By a registered instrument signed by or on behalf of the donor and attested by at least two witnesses, OR
  • By delivery of possession of the movable property.

For movable property, registration is optional. A gift of movable property can be completed simply by the donor handing over possession of the property to the donee with the intention to gift, and the donee accepting it. This mirrors the less formal requirements for transferring movable property in general (like sale of goods).

Delivery of Possession

• Immovable Property: For gifts of immovable property, registration of the gift deed is the mandatory mode of transfer. While possession may be handed over to the donee after the gift is completed, mere delivery of possession alone, without a registered gift deed, is not sufficient to transfer ownership by way of gift under the Transfer of Property Act. This is a key difference from the requirements of Hiba under Muslim Law, where delivery of possession is essential and often sufficient.
• Movable Property: For gifts of movable property, delivery of possession is an alternative mode of transfer (along with a registered instrument). Section 123 states that delivery of movable property may be made in the same way as goods sold may be delivered (referencing principles from the Sale of Goods Act, 1930), which includes actual delivery, symbolic delivery, or constructive delivery depending on the nature of the goods.

In summary, a gift of immovable property is a formal process requiring a registered and attested deed. A gift of movable property can be completed more informally by delivery of possession, though a registered deed is also an option.

Revocation of Gifts (Section 126)

Once a gift is validly completed (i.e., the property is transferred and accepted), it generally cannot be revoked by the donor. However, Section 126 of the Transfer of Property Act, 1882, specifies the limited circumstances under which a gift may be revoked.

Section 126. When gift may be suspended or revoked:

Explanation of Revocation:

Section 126 permits revocation of a gift only under two circumstances:

Conditions for Revocation

1. Revocation based on Agreement upon a Specified Event (Independent of Donor's Will):
   • The donor and donee must have expressly agreed at the time of the gift that the gift shall be suspended or revoked upon the happening of a specified event.
   • Crucially, this specified event must not depend on the mere will of the donor. The donor cannot reserve the right to revoke the gift simply because they change their mind. If a gift deed includes a clause stating that the donor can revoke the gift whenever they wish, that clause is void, and the gift remains absolute.
   • The event must be one that may or may not happen, but its occurrence is not controlled solely by the donor.

   Example:

   Example. A gifts his house in Agra to his daughter B, with a condition in the gift deed that "if B pre-deceases A, the gift shall stand revoked".

   Answer:

   The event (B pre-deceasing A) is a specified event that does not depend on A's will. This is a valid condition for revocation. If B dies before A, the gift will be revoked, and the property will revert to A.

2. Revocation based on Grounds for Rescission of Contract (Except Failure of Consideration):
   • A gift can be revoked in cases where a contract, if it were one, could be rescinded.
   • This refers to grounds under the Indian Contract Act, 1872, such as:
     • Fraud: If the donee obtained the gift by defrauding the donor.
     • Misrepresentation: If the donee induced the gift through misrepresentation.
     • Undue Influence: If the donee exerted undue influence over the donor to obtain the gift.
     • Coercion: If the gift was made under coercion.
     • Mistake: If there was a fundamental mistake of fact rendering the transaction voidable (though mistake is less common ground for rescinding a gift).
   • The exclusion "save failure of consideration" emphasizes that a gift, being without consideration, cannot be revoked merely because the donor did not receive anything in return or because the donee did not fulfil some moral obligation (unless that obligation was an agreed condition of the gift, independent of the donor's will).

   Example:

   Example. An elderly person A, under constant pressure and emotional manipulation from his nephew B, gifts his property to B. Later, A realises he was unduly influenced and seeks to revoke the gift.

   Answer:

   If A can prove that the gift was made under undue influence by B, the gift is voidable at A's option (similar to a contract induced by undue influence being voidable). A can file a suit for revocation of the gift on this ground.

Protection of Transferee without Notice: The last paragraph of Section 126 protects a person who has subsequently purchased the property from the donee for consideration and without notice of the condition for revocation or the grounds for rescission. Their title is not affected by the revocation.

Except for these limited grounds, a completed gift cannot be revoked. This ensures certainty of title for the donee once the gift is perfected.

Onerous Gifts (Section 127)

Section 127 of the Transfer of Property Act, 1882, deals with 'onerous gifts'. An onerous gift is one where the gift property is burdened with an obligation or liability. This section lays down the consequences if a donee accepts such a gift.

Section 127. Onerous gifts:

Explanation of Onerous Gifts:

An onerous gift involves accepting not just the gifted property but also a corresponding liability or obligation attached to it. Section 127 addresses situations where a donor gifts multiple properties to the same donee in the same transaction, and some of these properties are burdened with obligations while others are not.

Rule for Single Transfer:

If the gift is made through a single transfer document or transaction, covering multiple properties, and some are burdened while others are not, the donee must either accept the entire gift with all its burdens and benefits, or refuse the entire gift. The donee cannot pick and choose – they cannot accept the beneficial properties and reject the onerous ones if they are part of a single transfer.

Example (Single Transfer):

Answer:

Rule for Separate Transfers:

If the gifts of different properties are made through two or more separate transfers or transactions, even to the same donee, and one gift is burdened while another is not, the donee has the option to accept the beneficial gift(s) and refuse the onerous gift(s). The donee is not compelled to take the burden if the gifts are distinct.

Example (Separate Transfers):

Answer:

Universal Donee:

Section 128 deals with 'Universal Donee'. It states that a donee who accepts an onerous gift of the whole of the donor's property is personally liable for all the debts and liabilities of the donor at the time of the gift, to the extent of the property gifted. Such a donee is called a Universal Donee. This applies when a person gifts all their assets to a single donee. The donee becomes responsible for the donor's liabilities up to the value of the gifted assets.

Section 127 prevents a donee from selectively accepting only the favourable parts of a composite gift made in a single transaction, while Section 128 imposes liability on a donee who receives all of the donor's property.