RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

HIDAYATULLAH NATIONAL LAW UNIVERSITY

TRANSFER OF PROPERTY LAW PROJECT

ON

RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

SUBMITTED TO

DR. KIRAN KORI

SHASHWAT DUBEY

SEMESTER IV

ROLL NO. 139

SUBMITTED ON 24TH FEBRAUARY 2014

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

CONTENTS

ACKNOWLEGEMENT

INTRODUCTION

RESEARCH METHODOLOGY

OBJECTIVES OF STUDY

EXCHANGES

WOULD A PARTITION AMOUNT TO AN EXCHANGE?

RIGHTS OF PARTY DEPRIVED OF THING RECIEVD IN

EXCHANGE

LIABILTY OF LOSS DUE TO DEFECT IN TITLE

RIGHTS AND LIABLITIES OF PARTIES

EXCHANGE OF MONEY

WARRANTY OF GENIUNENESS OF MONEY

CONCLUSION

BIBLIOGRAPHY & WEB REFERENCES

ACKNOWLEDGEMENT

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

I would like to sincerely thank the Transfer of Property Act Teacher Dr. Kiran Kori for

giving me this project on the “Rights and Liabilities Of Parties to an Exchange” which has

widened my knowledge on the Law related to the exchange under the Transfer of Property

Act 1882. Her guidance and support has been instrumental in the completion of this project .

Thank you Maám for your consistent support.

I’d also like to thank all the authors, writers and columnists whose ideas and works have been

made use of in the completion of this project.

My sincere gratitude also goes out to the staff and administration (HNLU) for the

infrastructure in the form of our library and IT lab that was a source of great help in the

completion of this project.

I would also like to thank my friends who have lended me constant support through guidance and inputs which has led to the completion of this project.

SHASHWAT DUBEY

SEMESTER IV

INTRODUCTION

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

Before the advent of the Britishers, each community in India was governed by its

respective customary law in matters relating to transfer of property. With the establishment of

the formal litigative system and in absence of any legislation in this area, to begin with, the

English judges applied the common law of England and the rules of equity, justice and good

conscience with respect to disputes relating to transfer of property. The unsuitability of these

provisions to the Indian conditions; the resulting conflict and the need for clarity of rules

relating to this important branch of law necessitated the enactment of a legislation. Drafted in

1870, the Transfer of Property Act saw the light of the day in 1882 and provided the basic

principles for transfer of both movable and immovable properties. Based primarily on the

English law of ‘Real Property’, it attempted to mould these principles to suit the Indian

conditions; but certain provisions of the Act remained inapplicable to Hindus and Muslims, to

start with. In order to put at rest the confusion created by the conflicting decisions and extend

the application of the Act in totality to Hindus, the Transfer of Property Act, 1882 was

amended in 1929. However, till date, the provisions of Chapter II of the Act that are

inconsistent with the Quranic laws are inapplicable to Muslims. Moreover, a separate

enactment titled the ‘Sale of Goods Act, 1930’ was passed to deal with transfer of movable

property by sale.

The Transfer of Property Act, 1882 contains the general principles of transfer of property

and detailed rules with respect to specific transfer of immovable property by sale, exchange,

mortgage, lease and gift.

The rules relating to exchanges are found in Chapter VI of the TOPA in Sections 118 to 121.

The concept of an ‘exchange’ is defined under Section 118 of the TOPA as a situation where

two persons transfer ownership of one thing in exchange for ownership of another mutually,

neither of which is money only.

This project will cover a study of rights and liabilities of parties to an exchange under the

Transfer of Property Act 1882.

OBJECTIVES OF STUDY:

Understand the laws relating to ‘exchange’ and enumerate the conditions that must be satisfied as well

as the rights and liabilities of the parties concerned.

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

RESEARCH METHODOLOGY:

This project work is both descriptive & analytical in approach and is based on the researches

carried out to study the laws relating to exchange under the Transfer Of Property Act 1882.

Books & other references as guided by faculty of Transfer of Property Act have immensely

helped in the completion of the project.

EXCHANGES

The rules relating to exchanges are found in Chapter VI of the TOPA in Sections 118 to 121.

Fortunately, these rules are relatively simple compared to other forms of transfers of

property.

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

 

"EXCHANGE" DEFINED

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 completion of an exchange can be made only in manner provided for

the transfer of such property by sale.

The concept of an ‘exchange’ is defined under Section 118 of the TOPA as a situation where

two persons transfer ownership of one thing in exchange for ownership of another mutually,

neither of which is money only. For a transfer to be considered as an exchange, the following

requirements must be fulfilled:

• One person must transfer the ownership of a property in favour of another;

• That other person must transfer the ownership of another property in favour of the first;

• The transfer should be mutual;

• Neither of the things should be money alone.

Therefore, when the shares of one company are transferred under a document in

consideration of the shares of another, the transfer is an exchange. Also, in a case where a

property is transferred in consideration of another property and a sum of money, it would

still be regarded as an exchange falling within the ambit of Section 118 of the TOPA. This is

because the section only requires that the either of the things that are exchanged should not

be money only. Therefore, if money is a part of the consideration paid along with another

thing, it will not amount to a sale and will remain an exchange under Section 118 of the

TOPA.

ILLUSTRATION:

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

Rohit transfers his house in favour of Ramesh. Ramesh gives all the jewellery he has and

additional Rupees Ten lakhs to Rohit. This is an exchange. Although Ramesh pays

money for the house, it is not money only. It is paid along with the jewellery, and hence, it is

an exchange.

WOULD A PARTITION AMOUNT TO AN EXCHANGE?

Further, an issue that arises in this context is: would a partition amount to an exchange? The

answer is no. We know that for a transfer to be an exchange the two ownerships must be

mutually exclusive and that is not the case in a partition. Each party owns a

share in the undivided properties, which is separated by a partition

by metes and bounds to create exclusive ownership over theproperty. Therefore, it is not an

exchange as the two ownerships here are not mutually exclusive.

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

ILLUSTRATION :

Rohit, Raj, and Ramesh are three brothers who seek partition of the joint family property.

Rohit takes the entire house, Raj takes the family jewellery, and Ramesh takes over the

family business as per the terms of the partition deed. This is not an exchange. The ownership

of these properties was not mutually exclusive. Each brother owned a portion of all of the

properties.

Partition merely converted joint enjoyment of property to enjoyment in severalty.

After understanding what an exchange is, the next major aspect ofthe transaction is the nature

of the rights of the parties to an exchange. This is made clear by Section 120 of the TOPA,

which states that each party has the same rights and liabilities as a seller does in respect of the

property, which they give. Further, each party has the same rights and liabilities as the buyer

does in respect of the property that he takes. Therefore, the rights and liabilities of

the parties to an exchange are the same as those of a buyer and

seller in case of a sale. The only difference here is that each party has rights and liabilities

relating to both buyer and seller —the former with respect to the property it takes, and the

latter in respect of the property that it gives. Therefore, in order to understand their rights and

obligations, one may look to the commentaries relating to the rights of a buyer and seller

under Section 55 of the TOPA .

Another key issue in case of an exchange is: what happens if either transfer of ownership is

bad? What if one of the parties to the exchange does not have a good title to the property he

purports to transfer in the exchange? In such cases, Section 119 of the TOPA becomes

relevant, which provides that if such a thing happens to the original party or any other party

claiming through or under him, the other party or his legal representatives are obligated to

make good the loss caused thereby, unless a contrary intention appears in the terms of the

exchange. Otherwise, at the option of the wronged party, the other party may also be

obligated to return the thing transferred to him, if he is still in possession of

the property. Therefore, Section 119 of the TOPA protects the parties to an exchange from a

bad transfer of ownership. However, it is subject to the terms of the exchange and if they

provide otherwise, the effect of Section 119 of the TOPA may be nullified.

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

ILLUSTRATION :

Rohit exchanges his house with Ramesh in exchange for Ramesh’s jewellery and cash. Later,

he discovers that the jewellery was joint family property and Ramesh had no power to

transfer them. If Ramesh is still in possession of the house, Rohit can demand that he return

the house back to him. Alternately, he could also ask Ramesh to make good the value of the

house over and above the cash he received. Under Section 119 of the TOPA, the remedy is

now available to anybody claiming through the original party including a transferee. So, the

wronged party can claim return only from the original party, his legal representatives or from

a transferee who has received the property without consideration. He cannot claim return,

however, from a bona fide purchaser or a trespasser.

ILLUSTRATION :

In the above illustration, if Ramesh had sold the property to a third party who did not know of

the exchange, then Rohit could not have claimed the house from such a third

party. His only option in such a case would be to proceed against Ramesh or his legal

representatives to make good the loss he has suffered on account of the exchange.

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

  RIGHT OF PARTY DEPRIVED OF THING RECEIVED IN

EXCHANGE

Section 119 of the Transfer of Property Act reads thus:

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.

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

Section 119 of the TOPA provides that if one of the parties to the exchange does not have a

good title to the property he wants to transfer,and if such a thing happens to the original

party or any other party claiming through or under him, the other party or his legal

representatives are obligated to make good the loss caused thereby, unless a contrary

intention appears in the terms of the exchange. Otherwise, at the option of the wronged party,

the other party may also be obligated to return the thing transferred to him, if he is still in

possession of

the property. Therefore, Section 119 of the TOPA protects the parties to an exchange from a

bad transfer of ownership. However, it is subject to the terms of the exchange and if they

provide otherwise, the effect of Section 119 of the TOPA may be nullified.

LIABILITY OF LOSS DUE TO DEFECT IN TITLE

This section deals with rights of party who is deprived of lawful title in property received by him in exchange.

Exchange is mutual ransfer of ownership between two persons. Accordingly, both covenant impliedely to

exchange ownership and perfect title in property to each other. Section 119 gives certain rights to a party who

does not get pefect title in the property received by him. Where a party to exchange (or, any person claiming

underhim) is deprived of the property due to defect in its title, he has following two remedies:

(a) He may claim return of the property transferred by him to other party provided the property is still in

the possession that party, or

(b) He may claim compensation from the other party for the loss incurred due to such defective title.

This section affirms the rule that each party warrants his title to the things which he had transferred by way of

exchange. It contains an implied covenants of title just as section 14 of Sale of Goods Act, 1930 provides in

respect of sale of goods. The Rights available to the aggrieved party are either return of the property or if such

return is not possible, to claim compensation. Thus, of the property which he is entitled to receive in

exchange, he has right to claim the return of his own property transferred by him..

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

In Jattu Ram vs Hakim Singh1

There was a defect in the title of a land received by one party to exchange due to land as per

stipulation. The Supreme Court held that entries made by patwari in the official record do not

create title and the opposite party was liable to return the land to that extent.

RIGHTS AND LIABILITIES OF PARTIES

Section 120 of TOPA reads thus:

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 120 provides for the rights and liabilities of the parties to exchange. But it does not

specifically mention them. Under tis section the rights and duties of the parties to an

exchange of immovable property are the same as that of seller and buyer given in section 55 .

Sinceexchage also includes barter, i.e, exchange of movables, the rules of the Sale of Goods

Act, 1930 in this regard may apply where the properties are movable. However, since there is

no price or money consideration, therefore, there is no charge for unpaid price even where

some money is paid to equate the value of property.

1 AIR 1994 SC 1653

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

 

EXCHANGE OF MONEY

Section 121 deals with Exhange of Money.

It reads thus:

On an exchange of money, each party thereby warrants the genuineness of the money given

by him.

WARRANTY OF GENUINENESS OF MONEY

Exchange is mutual transfer of ownership in movable or immovable property. Where money

is transferred in consideration of money, the transfer is exchange. For instance where a

person gives a hundred rupee currency note to another and takes from him ten currency nots

of ten rupees, the transaction between them is called exchange.Section 121 provided that

where money is exchanged mutually between two persons there is impliedcovenant that each

party warrants the other genuineness of the money. Therefore, when money of one party is

counterfeit or a fake currency note, there is no valid consideration in the transaction and the

exchange is void. Accordingly,the other party who is deprived of his right to get genuine

money in return of his own genuine money, would be entitled to recover the money paid by

him. Thus, if A givesa fake hundred rupee currency note to Bin consideration of ten genuine

currency notes of ten rupees, B is entitled to recover the ten currency notes of ten which he

has paid to A.

CONCLUSION

Thus, we have seen that the Rights and Liabilities of Parties to an exchange are dealt in Chapter VI of the TOPA.These are contained within section 118 to 121. To summarise them, they are:

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

Sec 118. "Exchange" definedSec 119. Right of party deprived of thing received in exchangeSec 120. Rights and liabilities of partiesSec 121. Exchange of money

All of the above sections together define the Rights and Liabilities of parties to an exchange under the Transfer of property Act, 1882 as were discussed in the project.

BIBLIOGRAPHY

RK Sinha, Transfer of Property Act 1882, 2012, Central Law Agency, Fourteenth

edition

Sir Dinshaw Mulla, The Transfer of Property Act ,2013,11th Edition

WEB REFERENCES

http://www.vuhelp.net/law-transfer-property/

http://www.advocatekhoj.com/library/bareacts/transferofproperty

www.indiakanoon.org

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RIGHTS AND LIABILITIES OF PARTIES TO AN EXCHANGE

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