EXCHANGE:

Exchange (Section 118):

Section 118 defines "exchange" as—

1. When two persons mutually transfer the ownership of one thing for the ownership of
another.
2. Neither thing nor both things being money only, the transaction is called an exchange.

In an exchange, there is a transfer of ownership of one thing for the ownership of another
thing. A transfer of ownership for consideration of money is called a sale, whereas without
consideration, it is called a gift. Therefore, when a property is exchanged for another
property, it is called an exchange.

An exchange includes a barter of goods for movable property. These provisions apply to
exchanges of both movable and immovable properties. However, if, along with the ownership
of a property, some money is also given in addition, it is included in exchange.

For example, when one of the two properties to be exchanged exceeds the other in value, the
transaction would be an exchange even if some money is paid by the owner of the property in
addition to the property. Another example: if a person exchanges a house worth Rs 2000 with
a field worth Rs 1500 and the owner of the field agrees to pay Rs 500 in cash, the transaction
will be considered a sale.

An oral exchange of property isn’t allowed because of changes made to Section 49 of the
Registration Act in 1929. This amendment clarified that if a document is required to be
registered under the Transfer of Property Act (TP Act) but not necessarily under the
Registration Act, it still falls under the Registration Act’s rules.

So, if a property transaction (like an exchange) affects any immovable property worth ₹100
or more, it needs to be in a registered document. If it's not registered, the document can’t be
used as evidence in court, nor can it legally impact the property involved.

Characteristic Features of Exchange

1. Transfer of Ownership — Exchange involves the transfer of ownership in some

existing property. In transfer of ownership, the absolute interest of the owner is
transferred. Partition of property is not a transfer of ownership.
2. Properties Need not be Immovable — In exchanges, the properties may be both
movable and immovable. Immovable property may be exchanged with movable
property or vice versa.
3. Exchange Includes Barter — Exchange of one movable property with another
movable property is known as barter. Transfer of ownership in some movable
property in consideration of transfer of ownership in another movable property is
known as barter.
4. Mode of Transfer — Section 118 provides that a transfer of property in completion
of an exchange can be made only in a manner prescribed for the transfer of such
property by sale. Therefore, the formalities of section 54 are to be complied with.
Where both properties are movable, exchange may be affected only by delivery of
possession without registration. Where the properties are immovable and of value is
 less than Rs 100, registration is optional; but in case the value of immovable
properties is more than Rs 100, registration of the document is compulsory.

It is necessary that the deed of exchange must be a valid contract. Where the deed was
executed to compromise criminal proceedings between the parties, it was held that
since the object of the contract of exchange was unlawful, the contract, and therefore,
the exchange was void.

When in an exchange of properties one party did not get possession of the property he
was entitled to receive in the exchange, he was held entitled to return of property
transferred by him.

In the case of partition of joint family property, the court held that once partition is
effected, whether by way of family arrangement or deed of partition, there is
severance of jointness of properties. Two brothers thereafter exchanged properties
which were held by them separately. The properties being worth more than Rs 100 in
value, they could have exchanged them only by a registered instrument.

Distinction between Sale and Exchange

Sections 118, 119, and 120 show that the Legislature has put exchange on the same footing as
a sale in almost every respect. The difference lies in the nature of consideration only. In both,
there is a transfer of ownership; the only difference being that in sale, transfer of ownership is
for money, whereas in the case of exchange, transfer of ownership of property is for
ownership of any other property. A transfer of property by exchange can be made in the same
manner as is applicable to sale. Each party has similar rights and liabilities as that of a seller
and a buyer.

In a sale, there is always a price, but in exchange, there is no price. However, money may be
added to anything which is exchanged to equalize the values of properties in exchange.

Difference between Exchange and Partition

1. An exchange is a mutual transfer of ownership of two persons in two different

properties.
A partition is a mere arrangement by which the several co-owners hold the property
separately which they held in common previously.

2. Exchange is brought about by a contract between the parties.

The right of partition is a natural incident of property; there is no need to enter into a
contract for that purpose.

3. In an exchange, the parties exchanging their properties had no interest in each other's
property before exchange.
In a partition, each party has as much interest in the entire property as the other. There
is no exclusive ownership in the case of partition.

Punjab — The provisions of section 118 of the Transfer of Property Act do not apply to the
State of Punjab, making oral exchange permissible there.
Right of Party Deprived of Thing Received in Exchange (Section 119)

Section 119 provides for a contingency in which one of the parties to the exchange is
deprived of the property received by him due to some defect in the title of the other party.

1. If any party to an exchange (or any person claiming under him),

2. is deprived of the thing received by him in exchange by reason of any defect in the
title of the other party,
3. such other party is liable to him (or any person claiming under him)—
o (a) for the loss caused by such defect; or
o (b) for the return of the thing transferred at the option of the person so
deprived, if the thing is still in the possession of such other party (or his legal
representative or a transferee from him without consideration).
4. However, this remedy is subject to the contrary intention appearing in the terms of
exchange. The parties may have agreed to the contrary; in such a case, this covenant
cannot be implied.

The party suffering loss due to the defective title of the other party to the exchange has been
given two remedies under this section:
(i) he can recover for compensation the loss suffered by him;
(ii) he can take back the thing transferred by him.

However, the second remedy is available only in three situations:

 (a) where the property is still in the possession of the other party, or
 (b) in the possession of his legal representative; or
 (c) a transferee from him without consideration.

If somebody forcibly dispossesses a person who has taken a property or thing in exchange by
him, he cannot, by invoking Section 119 of the Act, seek recovery of the property or thing,
which he gave in exchange to the other party.

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Rights and Liabilities of Parties (Section 120)

Section 120 has not specifically mentioned the rights and liabilities of the parties to an
exchange. It provides only that each party has the rights and is subject to the liabilities of a
seller as to what he gives, and has the rights and is subject to the liabilities of a buyer as to
what he takes. Therefore, the rights and liabilities of the parties to the exchange are the same
as those of a seller and buyer in the case of a sale.

In an exchange, one thing is given and another is taken or received. So, each party has the
rights and liabilities of both the seller as well as the buyer. Where the exchanged properties
are movables, the provisions of the Sale of Goods Act, 1930 may also apply.