Exchange, Actionable Claims & Gifts — Transfer of Property Notes

Exchange

Two farmers each own a field on the wrong side of the village. They simply swap. No money changes hands — yet the law needs a name and a set of rules for the deal. That is exchange.

What is an Exchange? (Section 118)

Section 118 defines an exchange as a transaction where two persons mutually transfer the ownership of one thing for the ownership of another, neither thing (or both things) being money only. So it is like a double sale, except the price is another property rather than money. If only one side is money, it is a sale; if both sides are money, it is not an exchange at all.

Key points:

Each party is at once a seller of what he gives and a buyer of what he gets.
Mode (s.118 read with s.108/54): a completed exchange of tangible immovable property worth Rs. 100 or more is made like a sale — by a registered instrument.
Rights and liabilities (s.120): each party has the rights and is subject to the liabilities of a seller as to what he gives, and of a buyer as to what he takes.
Money added to equalise value is allowed — a small sum paid to make the two properties’ values equal (owelty) does not convert the exchange into a sale, so long as the main consideration is property for property.

Section 118, TPA: “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.”

In Simple Terms: An exchange is a swap of ownership — property for property, not money for property. A little cash to even up the values is fine. Each swapper is treated as both a seller and a buyer of what he hands over and takes.

🧩 WORKED EXAMPLE — house for land plus cash

Facts. A transfers his house worth Rs. 1,50,000 to B; in return B transfers land worth Rs. 1,00,000 and Rs. 50,000 in cash to equalise the values.

Rule. Section 118 — a mutual transfer of ownership of one property for another is an exchange, and money added merely to equalise value does not make it a sale.

Apply. The core of the deal is property-for-property (house for land); the Rs. 50,000 is owelty to balance the values, not the price of the house.

Conclusion. It is a valid exchange (not a sale), effected like a sale by a registered instrument.

flowchart LR
    A["Party A gives Property X"] --> B["Exchange (s.118)"]
    C["Party B gives Property Y (+ cash to equalise)"] --> B
    B --> D["Each is seller of what he gives, buyer of what he takes (s.120); made like a sale"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D box;

Case Laws

The rule of s.120 — in an exchange each party has the rights and is subject to the liabilities of a seller as to what he gives, and of a buyer as to what he takes.

Actionable Claims

You cannot hold a debt in your hand, yet the law lets you sell it. The book debts a business is owed, an unsecured loan, a claim under a contract — all can be bought and sold as property. That is the world of actionable claims.

What is an Actionable Claim? (Sections 3 and 130)

Section 3 defines an actionable claim as a claim to (a) any debt (other than a debt secured by mortgage of immovable property or by hypothecation/pledge of movable property), or (b) any beneficial interest in movable property not in the possession of the claimant, which the civil courts recognise as affording grounds for relief — whether the debt/interest is existent, accruing, conditional or contingent.

In short, an actionable claim is a claim to something you can only get by suing — an unsecured debt, or a beneficial interest in movable property you do not yet possess (e.g. money due under a contract, arrears of rent, a claim under an insurance policy).

Transfer of an actionable claim (Section 130). An actionable claim can be transferred — only by the execution of an instrument in writing signed by the transferor (or his agent). On such transfer, all the transferor’s rights and remedies pass to the transferee (assignee), who may sue in his own name. But the transfer is subject to the equities: the debtor may set up against the assignee any defence he had against the assignor.

Notice to the debtor (Sections 131–132). The assignment binds the debtor only when he has notice of it. Until the debtor receives notice, a payment he makes in good faith to the assignor (original creditor) is a valid discharge (s.132 protects the honest debtor). After notice, the debtor must pay the assignee.

Actionable claim versus a mere right to sue. A mere right to sue (e.g. a claim for unliquidated damages for a tort or breach) is not an actionable claim and cannot be transferred — s.6(e) forbids it. The difference: an actionable claim is a claim to an ascertained/ascertainable debt or beneficial interest; a mere right to sue is a bare, personal right to a remedy with no definite money value, kept non-transferable to prevent trafficking in litigation.

Section 130, TPA (part): “The transfer of an actionable claim … shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent … and shall be complete and effectual upon the execution of such instrument, and thereupon all the rights and remedies of the transferor … shall vest in the transferee…”

In Simple Terms: An actionable claim is a debt or a beneficial interest in movable property you can only realise by suing — and it can be sold, by a signed writing, so the buyer can sue in his own name. But a bare “right to sue” (like a damages claim) cannot be sold at all. And until the debtor is told of the sale, he can safely pay the original creditor.

🧩 WORKED EXAMPLE — paying the old creditor without notice

Facts. A owes B money. B assigns the debt to C. Later B demands the money from A, and A — not having received notice of the assignment to C — pays B.

Rule. Sections 130–132 — an assignment binds the debtor only on notice; until then a payment made in good faith to the assignor (B) is a valid discharge (s.132).

Apply. A had no notice of the transfer to C and paid B honestly. His payment discharges the debt.

Conclusion. A’s payment to B is valid; C’s remedy is against B (who collected money that belonged to C), not against A.

flowchart TD
    A["Actionable claim (s.3): debt / beneficial interest in movable property not in possession"]
    A --> B["Transferable by WRITING (s.130); assignee sues in own name"]
    A --> C["Debtor bound only on NOTICE (s.131); payment to assignor before notice valid (s.132)"]
    A --> D["Contrast: mere right to sue = NOT transferable (s.6(e))"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D box;

Case Laws

Union of India v Sri Sarada Mills (1972) — a claim for unliquidated damages is a mere right to sue, not an actionable claim, and is not transferable.
The transfer rule (s.130) — a debt (an actionable claim) is transferable only by a written instrument, on which all the transferor’s rights and remedies vest in the assignee.

Gifts

A gift is the one transfer where the giver gets nothing back — so the law is careful. It insists on writing, witnesses, and above all acceptance while the donor still lives. In K. Balakrishnan v K. Kamalam (2004) the Supreme Court confirmed the crucial point: once a gift is validly made and accepted, the donor cannot simply change his mind.

What is a Gift? (Section 122)

A gift is the transfer of certain existing movable or immovable property, made voluntarily and without consideration, by one person (the donor) to another (the donee), and accepted by or on behalf of the donee. Acceptance must be made during the lifetime of the donor and while he is still capable of giving; if the donee dies before acceptance, the gift is void.

Essentials of a valid gift:

Transfer of ownership — the whole interest, of existing property (not future property).
Voluntarily — the donor’s free will, no coercion or undue influence.
Without consideration — nothing of value in return (this distinguishes it from a sale/exchange).
A donor competent to contract and owning the property.
Acceptance by the donee during the donor’s lifetime.

Mode of transfer (Section 123). A gift of immovable property must be effected by a registered instrument signed by the donor and attested by at least two witnesses. A gift of movable property may be by a registered instrument or by delivery of possession.

Onerous gift (Section 127). Where a single gift of several things is made, one of which is burdened with an obligation and the others are beneficial, the donee who accepts must accept it wholly — he cannot take the beneficial part and reject the burdened part. But where the gift is by two or more separate transfers, the donee is free to accept some and reject others. (A minor donee of an onerous gift may repudiate it on attaining majority.)

Universal donee (Section 128). Where a gift consists of the donor’s whole property, the donee (the “universal donee”) is personally liable for all the debts and liabilities of the donor due at the time of the gift, to the extent of the property comprised in the gift. This prevents a debtor from escaping his creditors by gifting everything away.

Revocation of a gift (Section 126). A gift may be revoked only on limited grounds:

where the donor and donee agreed that on the happening of a specified event not depending on the donor’s will, the gift shall be revoked; or
in any case in which, if it were a contract, it might be rescinded (e.g. for fraud, coercion, undue influence, misrepresentation).

A gift cannot be revoked at the mere will of the donor. Once it is validly made and accepted, it is complete and irrevocable except on these grounds.

Acceptance and registration — the completion point. A gift of immovable property is complete when it is executed, attested, accepted and registered. Where the donee has accepted and the deed is delivered, registration is a ministerial act that may even be completed later; the donor cannot revoke the gift merely because registration is pending — the essential is a completed acceptance.

Section 122, TPA: “‘Gift’ is the 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. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving.”

In Simple Terms: A gift gives property away for nothing; it needs free will, no return, and the donee’s acceptance while the donor lives. Land must be gifted by a registered, witnessed deed. If a gift carries a burden, you must take it whole or not at all (onerous gift); a person gifted everything also inherits the donor’s debts (universal donee); and a completed, accepted gift cannot be taken back on a whim — only on an agreed event or the grounds that would rescind a contract.

🧩 WORKED EXAMPLE — revoking after acceptance and delivery

Facts. A gift deed is executed, attested and delivered to the donee, who accepts the gift. Before the deed is registered, the donor seeks to revoke it.

Rule. Sections 122–123 and 126 — a gift is complete on acceptance; once accepted, it is irrevocable except on an agreed contingency or grounds that would rescind a contract; a donor cannot revoke at will. Registration is ministerial where the gift is otherwise complete (K. Balakrishnan, 2004).

Apply. The donee accepted and took delivery; the gift is complete. The donor’s wish to revoke is a mere change of mind, not an agreed event or a vitiating factor.

Conclusion. The donor cannot revoke the gift; it stands, and registration may be compelled/completed.

Variant. If several donees are given a gift and one refuses, only the refusing donee’s share fails; the gift is valid as to those who accept (s.122 acceptance is personal to each donee).

flowchart TD
    A["Gift (s.122): voluntary, no consideration, accepted in donor's lifetime"]
    A --> B["Mode (s.123): immovable = registered + 2 witnesses; movable = deed or delivery"]
    A --> C["Onerous (s.127): take the whole or nothing"]
    A --> D["Universal donee (s.128): liable for donor's debts to extent of gift"]
    A --> E["Revocation (s.126): only agreed event or contract-rescission grounds — not at will"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,E box;

Case Laws

K. Balakrishnan v K. Kamalam (2004) — acceptance completes a gift; registration is ministerial, and a completed accepted gift cannot be revoked at the donor’s will.
Naramadaben Maganlal Thakker v Pranjivandas (1997) — a gift is complete only on acceptance by the donee; without acceptance it does not take effect.
K. Balakrishnan (2004) and s.126 — a gift is revocable only on an agreed contingency not depending on the donor’s will, or on grounds that would rescind a contract.

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