Saturday, March 29, 2014

EXCHANGE OF YOUR PROPERTY

EXCHANGE OF YOUR PROPERTY

There are various modes for transfer of property like sale, gift, and mortgage; similarly one of the modes is exchange of properties, which is a species of transfer of property akin to the barter system which use to be a common mode of carrying out day to day commercial transactions.

In barter system movable and immovable properties are exchanged based on the requirements of both the transacting individual.  For example a cow was exchange for food grains, spices was traded for gold and so on and so forth.

Section 118 of Transfer of Property Act deals with Exchange, which is defined as a transaction where two persons mutually transfer the ownership of one thing, for the ownership of another.  The definition encompasses the exchange of both movable and immovable and the only condition being that one of the two properties to be exchanged should not be for money.

To simply define, it is a mutual grant of equal interest, the one in consideration of the other.  Exchange is different from sale.  Section 54 of the of property deals with sale, which is defined as transfer of ownership in exchange for a price paid, part paid or part promised.  The word “price” is defined in sale of goods act as money consideration.  As for as exchange; the money cannot be transferred, for any other property.  Thus the distinguishing factor is the mode of payment of consideration, i.e., money in the case of sale where as in case of exchange, it is paid in kind.  Out concern at present is exchange of one immovable property with another immovable property.  If the values of both properties are not equal, then the difference in the value has to be paid by money.

Section 119 of the Transfer of property provides for remedy for defective titles of the properties in exchange.  For example A and B exchange properties later on ‘A’ finds that the title of the property received from B is defective.  The ‘B’ is bound to make good the loss suffered by ‘A’, even if ‘A’ so desires to return the property received from ‘A’ canceling the exchange transaction.  This liability extends to the legal heirs of B and also to the transferees, who have received the property exchanged without monetary consideration like Gift.  However, the liability does not bind the bonafide purchaser.  The procedure is similar to that of sale, where first an agreement of exchange is drawn.  Section 120 of the Transfer of property provides that each party to the deal has rights and liabilities as that of seller as to what he give and that of purchaser as to what he takes.  Thus the rights and liabilities of the seller and purchaser as dealt in section 54 and 55 of transfer of property act will apply subject to the terms of agreement of exchange.

The transaction is complete only, when mutual delivery of possession of respective properties is completed as evidenced by deed of exchange.  When a party to an exchange has not been put in possession of the property, which he is entitled; then he is entitled for a return of the property transferred by him provided the property is still in possession of the other party or his legal representatives or a transferee without consideration.

Registration of Exchange Deed is compulsory and the stamp duty and registration changes are as per the respective State laws.  In Karnataka exchange of property attracts stamp duty as that of conveyance based on the market value of the property with the greater value amongst the two properties, which are the subject matter of exchange.


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