Exchange Explained As Under Transfer Of Property Act, 1882

This article explains the provision of exchange as contained in the Transfer of Property Act 1882. The article elaborates on characteristic features of exchange, the distinction between sale and exchange, the difference between exchange and partition, right of party deprived of the thing received in exchange, rights and liabilities of parties and exchange of money.

1. Meaning

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 exchange, there is a transfer of ownership of one thing for the ownership of some other thing. Transfer of ownership for consideration of money is called a sale, whereas, without consideration, it is called a gift. Therefore, where a property is changed for another property, it is called an exchange.

Exchange includes the barter of goods for movable property. Their provisions apply to exchanges of both movable and immovable properties. Where the ownership of a thing is transferred for money only, it is not considered an exchange but a sale.

An oral exchange is not permissible in view of the amendment of section 49 of the Registration Act, 1929 by inserting the words – ‘or by any provision of the Transfer of Property Act, 1882’ has made it clear that the documents of which registration is necessary under TPA but not under the Registration Act falls within the scope of section 49 of the Registration Act.

If not registered, they are not admissible as evidence of any transaction affecting any immovable property comprised therein and do not affect any such immovable property. Transaction by an exchange is required to be effected through a registered instrument if it is to affect any immovable property worth Rs. 100 or more.[1]

Characteristic Features

1. Transfer of ownership – exchange involves the transfer of ownership in some existing property. In the 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 exchange, the properties may be both movable and immovable. Immovable property may be exchanged for movable property.
3. Exchange includes barter – the exchange of one movable property with another movable property is known as barter. Transfer of ownership in some movable property in consideration of the 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 the properties are movable, an exchange may be effected only by delivery of possession without registration. Where the properties are immovable and of a value 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.[2]

The deed of exchange must be a valid contract.

II. Distinction between Sale and Exchange

Sections 118, 119 and 120 show that the legislature has put the exchange on the same footing as a sale in almost every aspect. The difference lies in the nature of consideration only. In both, there is a transfer of ownership, the only difference being that in the sale, the transfer of ownership is for money, whereas, in the case of an exchange, the 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 the sale. Each party has similar rights and liabilities as of that if 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 s exchanged to equalise the values of properties in exchange.

III. Difference between Exchange and Partition

1. An exchange is a mutual transfer of ownership of two persons in two different properties. Whereas, A partition is a mere agreement 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. Whereas the right of partition is a natural incident of property, there is no need to enter into a contract for that purpose.
3. In exchange, the parties exchanging their properties had no interest in each other’s property before the exchange. Whereas, 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.

IV. Right of party deprived of the thing received in exchange (S. 119)

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

1. If any party to an exchange (or any person claiming under him/her).
2. Is deprived of the thing received by him/her in exchange by reason of any defect in the title of the other party.
3. Such other party is liable to him/her (or any person claiming under him/her) – a. For the loss caused by such defect; or b. For the return of the thing transferred at the option of the person so deprived, if the thing is still in possession of such other party (or his/her legal representative or a transferee from him/her without consideration).
4. However, this remedy is subject to the contrary intention appearing in 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 other-party to the exchange has been given two remedies under this section –

• He/she can recover for compensation the loss suffered by him/her;
• He/she can take back the thing transferred by him/her.

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

• Where the property is still in possession of the other party, or
• In possession of his/her legal representative; or
• A transferee from him/her without consideration.

The sine qua non of the applicability of section 119 is a party to the exchange losing possession by virtue of the defect in the title of the property or thing in exchange. If somebody forcibly dispossesses a person who has taken the property or thing in exchange by him/her, he/she cannot, by invoking section 199 of the Act, seek recovery of the property or thing, which he/she gave in exchange to the other party.

In the case of sale also, if the purchaser is deprived of his/her possession of the property purchased by him/her by a trespasser, his/her remedy would be to proceed against the trespasser but not his/her vendor for recovery of the sale price on the ground of trespass.[3]

V. Rights and liabilities of Parties (S. 120)

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

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

VI. Exchange of money (Section 121)

Exchange is a mutual transfer of ownership. Where money is transferred in consideration of money, it is also an exchange. Section 121 provides that on an exchange of money, each party thereby warrants the genuineness of the money given by him/her.

The money transferred must be genuine. The money given must not be counterfeit or fake money. The party who does not get genuine money in return would be entitled to recover genuine money paid by him/her.

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[1] Satyavan v. Raghubir, AIR 2002 P&H 290

[2] Nivrutti Kushaba Binnar v. Sakhibai, AIR 2009 Bom 93

[3] T Bhaskara Rao v. Tangellamudi Gabriel, AIR 2004 AP 106

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1. Concept and Kinds of Gift | Transfer Of Property Act, 1882
2. Universal Donee | Section 128 of Transfer of Property Act, 1882