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Onerous Gift and Universal Donee in Property Act

Onerous Gift and Universal Donee in Property Law
Onerous Gift and Universal Donee in Property Law


Onerous Gift

The concept of an onerous gift is grounded in the principle of "qui sentit commodum sentire debet et onus," which means that he who receives the benefit should also bear the burden.

The initial paragraph of Section 127 of the Transfer of Property Act stipulates that when a gift takes the form of a single transfer to the same person comprising several items, with only one item being burdened by an obligation while the others are not, the donee cannot selectively accept the gift.

In such cases, the donee must either accept the entire gift, including the burdened item, or reject it altogether. This provision outlines several essential elements:

1. The gift must be structured as a single transfer.

2. It must be directed to the same recipient.

3. The gift must consist of multiple items or properties.

4. Among these items, only one is encumbered with an obligation, while the others are not.

Under these conditions, the donee is obligated to accept the entire gift; partial acceptance is not permitted. Therefore, the donee cannot cherry-pick the benefits of the gift while disclaiming the burdens or obligations associated with it.

A, the donor, possesses shares in two joint stock companies: X, which is thriving, and Y, facing financial challenges with anticipated heavy calls on its shares. A decides to gift all of his shares in joint stock companies to B, the donee. However, B refuses to accept the shares in company Y.

In this scenario, according to Section 127, since the gift is in the form of a single transfer to B of shares in both companies, X and Y, and only some of these shares are burdened by obligations (those of company Y), B cannot selectively accept only the shares in company X while rejecting those in company Y. Therefore, B is unable to take any of the shares from A's gift.

Second Para of Section 127

The second paragraph elaborates on a different scenario: when a gift consists of two or more separate and distinct transfers to the same recipient. In such cases, the donee has the freedom to accept one transfer while declining the others, even if one is beneficial and the other onerous.

These gifts are considered independent and do not constitute part of the same transaction. The donee is not obligated to accept all the gifts; they have the discretion to choose which ones to accept.

Illustration further clarifies this concept:

A holds a lease for a fixed term of years for a house, with rent obligations higher than the market rate. A gifts both the lease and a sum of money to B. However, B refuses to accept the lease while still accepting the money. In this case, since the lease and the money are separate and independent gifts, B's refusal to accept the lease does not result in the forfeiture of the money gift.

Disqualified Donee

Section 127 clarifies that a donee who is not legally competent to enter into a contract and accepts property burdened by obligations is not obligated by that acceptance. However, if such a donee later becomes legally competent and is aware of the obligations attached to the property, retaining the property then binds them to those obligations.

In cases where an onerous gift is given to an incompetent or disqualified donee, such as a minor, they have the right to reject or disavow the gift upon reaching legal competency, i.e., upon reaching the age of majority.

The incompetent person is not bound by their previous acceptance of the gift after attaining competency. It's imperative for them to promptly exercise this option because if they retain the property after becoming legally competent and aware of the obligations, they become bound by those obligations.

Universal Donee

Section 128 deals with the concept of a Universal Donee, a recipient who acquires the entire property of the donor through a gift, encompassing both movable and immovable assets. This concept is unique to Indian law, as it is not recognized in English law. 

Under Section 128, the Universal Donee assumes personal liability for all the debts and obligations of the donor existing at the time of the gift, up to the extent of the property received. This provision reflects the equitable principle that one who receives benefits from a transaction must also bear its burdens.

The primary objective of this section is to safeguard the interests of the donor's creditors. While similar in intent to Section 53, which pertains solely to immovable properties, Section 128 applies to both movable and immovable assets. Section 53 addresses fraudulent transfers, but Section 128 does not.

A crucial requirement of Section 128 is that the donor must transfer all of their properties to the donee. Even if the donor retains a life interest in a portion of the property, the donee is still considered a Universal Donee. Even a minor retention of property by the donor qualifies the recipient as a Universal Donee.

However, if the donor does not include the equity of redemption in a mortgaged property, the donee cannot be categorized as a Universal Donee.

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