Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.
~ Frederic Bastiat
By its very existence, society mandates interaction, exchange or transfer. A property, movable or immovable, is transferred from one person to another under various different situations and circumstances and for different values. The transfer may be a gift, an inheritance or an asset acquired by paying full value.
When a movable property is transferred inter-vivos (between two living persons), Sales of Goods Act, 1930 comes into play. When an immovable property is transferred from living person to living person(s), the Transfer of Property Act, 1882 comes into play. In case, the property is transferred from a dead person to a living person(s), the law applied will be the Law of succession. Should a person die without leaving a will (intestate), the law of intestate succession is applicable and in cases where a person dies leaving a will, the law of testamentary succession is applicable.
A Bill finally presented to the Legislative Council, became a law on the 17th of February 1882 and came into force on 1st July of the same year. The Transfer of Property Act, 1882 mainly deals with the transfer of immovable property. It does not apply to transfers by the operation of law such as transfer of immovable property necessitated by Order of Court for insolvency or forfeiture among others. The 137 sections contained within have been divided into 8 chapters.
Interestingly, nowhere does the Act define ‘What is a transfer of property’. But it does define ‘transfer’ as a standalone in Section 5.
Exchange under the Transfer Property Act, 1882
It is given under ‘CHAPTER VI: OF EXCHANGES’ and “Exchange” is defined under section 118 as-
When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an “exchange”.
A transfer of property in the completion of an exchange can be made only in the manner provided for the transfer of such property by sale.
Section 119: Right of party deprived of thing received in exchange-
If any party to an exchange or any person claiming through or under such party is by reason of any defect in the title of the other party deprived of the thing or any part of the thing received by him in exchange, then, unless a contrary intention appears from the terms of the exchange, such other party is liable to him or any person claiming through or under him for loss caused thereby, or at the option of the person so deprived, for the return of the thing transferred, if still in the possession of such other party or his legal representative or a transferee from him without consideration.
Section 120: Rights and liabilities of parties
Save as otherwise provided in this Chapter, each party has the rights and is subject to the liabilities of a seller as to that which he gives, and has the rights and is subject to the liabilities of a buyer as to that which he takes.
Section 121: Exchange of money
On an exchange of money, each party thereby warrants the genuineness of the money given by him.
Since the Transfer of Property Act, 1882 is not a complete code of transfer of property; we can say its scope is limited. The Act does not apply to all the transfers taking place in India. So, we can say that the scope of Exchange under the Transfer of Property Act is also limited and the definition of exchange is not limited to immovable property. An exchange is, therefore, not only the exchange of lands but also the barter of goods. If one of the items that are transferred is money, the transaction is not an exchange but a sale because the price is money, only.
However, money, in one form, may be exchanged for money in another form. So, also, an exchange of one stamp for another is not a sale. A sale should, always, be for a price. On the other hand, in the case of an exchange, the transfer of ownership of one thing is not completed by paying a price or a promise thereof, but, only by a transfer of another thing, in return. So, a transaction, where the consideration for the transfer of certain properties is shared in a limited company, is considered to be an exchange. [Commissioner of I-Tax vs. Motor and General Stores (P) Ltd AIR 1968 SC 200 supra]
The ownership of one party must be exclusive of the ownership of the other. Therefore, a partition is not an exchange. A transfer by a husband to a wife, in a discharge of her claim to maintenance, is not an exchange, as the wife transfers no ownership in anything.
If the lessee surrenders a lease and, the landlord grants him the lease of another property, the transaction is not an exchange. If both parties are not the same there cannot be an exchange.
Illustration: ”A” transfers to ”B”, a house worth Rs.1, 500, and ”B” transfers to ”A”, a field worth Rs. 1,000, and Rs. 500, cash. The transaction is an exchange.
Exchange of Property
A transaction wherein parties trade goods, or commodities, for other goods, in contrast with a sale or trading of goods for money.
An exchange of property is a type of barter contract, applicable only to agreements relating to goods and services, not to agreements involving land.
Exchange of property is one of the various modes to transfer ownership rights in a property (both movable and immovable). Other popular and widely used modes for transfer of immovable property are Sale, Gift, Will etc.
“Sale of immovable property” is defined under section 54 of “Transfer of Property Act, 1882” as “transfer of ownership in exchange for a price paid or promised or partly paid and part promised”. The essential features for a transfer to be termed as “Sale” are:-
- The subject matter of such transaction must be immovable property.
- The property must be transferred absolutely.
- There must be at least two parties – the seller and the buyer.
- There must be a consideration in terms of money only.
- Stamp duty must be paid on such transaction.
- The transaction must be registered if the consideration amount is Rs.100/- or more
However, under the provisions of “Transfer of Property Act, 1882” transactions in an immovable property can be carried on by exchange of one property for another. After due completion of the process of exchange, as required under law, the transactions acquire the sanctity of “transaction under sale”.
Section 118 of the said Act defines “Exchange” as “When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an exchange.”
All the formalities associated with “transfer by sale” have to be complied with, for transfer of ownership rights in exchange for another property. If the value of the property is Rs.100/- or more then a conveyance deed is required to be executed and that must be registered with the office of Registrar / Sub-registrar. Further section 119 of the said act provides relief to a party who suffers in “transfer by exchange” due to defect in the title of the transferor. A person with the defective title is liable to return the original property of the other person and is also liable for the losses incurred due to such exchange.
Each party, to such transfer by exchange, enjoys the rights and is subject to liabilities of a seller, pertaining to the thing which he gives and enjoys the rights and is subject to liabilities of a buyer, pertaining to the thing which he takes. This provision is there in section 120 of the said act (Transfer of Property Act, 1882) for protection of both the parties involved in the process of transfer of ownership rights in immovable property by the exchange.
Difference between “exchange of movable property” and “exchange of immovable property “ is that the former is known as “barter” and is subject to the Indian Contract Act, 1872, whereas the latter is known as “exchange” and is subject to the “Transfer of Property Act, 1882.”
Explain the mode of transfer by exchange?
Section 118 provides that an exchange can be made only in the manner provided for the transfer of such property by sale.
Since a sale of immovable property can only be effected by a registered conveyance, an exchange of tangible, immovable property of the value of Rs. 100 and more must be made by the registered instrument. In the case of immovable property, an exchange is, usually, made by mutual conveyances. However, it is not necessary that there should be two separate deeds.
A party receives a thing in exchange. However, he is deprived of such thing due to the defective title of the other party. What are the remedies available to the deprived party?
In case a party, receiving a thing in exchange, is deprived of such thing due to a defective title of the other party to the exchange transaction, such deprived party can avail of the remedy that is stated in section 119 of the Act. The deprived party in such a case is entitled to get back the thing that has been given to the other party during the transaction, provided it still lies in the possession of the other party.
However, if any contrary expression appears, the party is not entitled to such remedy.
Difference between Exchange and sale:
The difference between a sale and an exchange is that in a sale the price is paid in money while in an exchange it is paid in another property by way of barter. The sale is always for a price, which means money or the current coin of the realm while no price is paid in an exchange, there is only a transfer of one specific property for another. And although payment of price may be made in addition to the transfer of property, by way of equality of exchange, such payment does not make the exchange lose its character as such.
- The Transfer of Property Act- G.P. Tripathi
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