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Report No. 70

105.8. Test of substantial part.-

The Lahore cases, on the other hand,1-2 show that if the value of the non-pecuniary consideration forms only a negligible portion of the total consideration, the transaction would be a sale.

According to the Lahore view, if the parties, in substance, intended to make an exchange of properties, the mere fact that a small sum of money was paid by one to the other by way of adjusting the values, would not aver the nature of the transaction as an exchange. For example, where a house worth really Rs. 1,500 was transferred for land worth Rs. 500 and cash Rs. 500, the transaction was held to be an exchange.3

1. Nihalu v. Shagwana, AIR 1936 Lah 234.

2. Allah Ditta v. Kaji, AIR 1934 Lah 823.

3. Gul Mohammad v. Tota Rani, AIR 1915 Lah 218.

105.9. Recommendation.-

We agree, with respect with the view that the fact that part of the consideration was in kind does not necessarily make the transaction an exchange, if the monetary consideration is substantial. To make the section reflect more accurately the true position, our recommendation is that "Exchange" should be defined as follows:-

"118. When two persons mutually transfer the ownership of one thing for the ownership of another and neither thing is money or both the things are money only, the transaction is called an exchange.1

(Second paragraph as at present)

Explanation.-Where ownership of a thing other than money is transferred for a consideration which consists only in part of money, the transaction is an exchange if that part is not substantial in proportion to the rest of the consideration."

1. Ismail Shah v. Saleh Mohammad, AIR 1925 Lah 236 (237).

105.10. Section 119 deals with one of the rights arising on exchange. It provides as follows:-

"119. 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 3ption 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."

In terms, the section contemplates a case of one of the parties to the exchange being, by reason of any defective title of the other party, deprived of the thing received by him in exchange. The principle underlying the section applies also to the case where instead of a subsequent deprivation of the property transferred, there is no transfer at all.

It has been held1 that it would impliedly follow from section 119 that when a party to an exchange has failed to obtain possession of the property which he was entitled at his option for the return of the property transferred by him, if this property is still in possession of the other party or his legal representative or a transferee from him without consideration the principle applies.

We do not, of course, suggest any change in this regard.

1. Ch. Seetaramaswamy v. Narasingha Panda, (1974) 1 CWR 234 (B.K. Patra and K.B. Panda, B.) (cited in the Yearly Digest).

105.11. Section 120-Recommendation for verbal change.-

Section 120 equates exchange to sale in other respects, as regards rights and liabilities. It needs no change of substance, but a minor verbal lacuna should be rectified. The section should read-"Save as otherwise provided in this Chapter, each party to an exchange has the rights."

We recommend accordingly.

105.12. Section 121.-

Section 121 reads-

"On an exchange of money, each party thereby warrants the genuineness of the money given by him".

It will be recalled that where both the things are money, the transaction is an exchange, as defined in section 118. Since the transfer of money for money is not a sale,1 the provisions of the law relating to the sale of goods do not apply, so that conditions and warranties implied by that law have no relevance to an "exchange" of money.

There was, therefore, need for a specific provision on the subject. This need arises from the nature of money that is legal tender. Legal tender money is that which the creditor must accept-also he has to forgo his claim to payment. This renders it all the more necessary2 that the recipient must have a legal protection in regard to genuineness of the money.

1. Emperor v. Jogessur, 1878 ILA 3 Cal 379 (382).

2. Cf. Jones v. Ryde, (1814) 15 RR 561 (564, 566).

105.13. Title.-

As to title to money, the clearest exception to the rule nemo dat is to be found in current coin of the realm and negotiable instruments, which are, for this purpose, treated as the same. Currency or the circulation of money concerns the idea that directly any individual coins pass into circulation, the very act of circulation destroys the title of the former owner and creates a title de novo in the person acquiring the coins in discharge of a monetary obligation.

Circulations is the "stream of Lethe", and it is the fact of circulation which gives us the exception to the rule, and not that "money had no earmark" as is commonly said.1 This statement of the law is true as to the position in India also.2

But this exception applies only if the transferee of the coin or negotiable instrument takes it in good faith for value and without notice of a defect in the title of the transferor.

1. Vaines Personal Property, (1973), p. 161.

2. (a) 1878 Punj Rec. No. 73, pp. 235, 237; (b) 1890 Punj Rec. No. 83, pp. 259, 261.

105.14. No change.-

We have no further comments on this section-except that because of its being in an obscure corner in the Transfer of Property Act, many laymen-and even lawyers-are unaware of this important provision.

The Transfer of Property Act, 1882 Back

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