Rule
When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is an exchange (S.118).
- A transfer to complete an exchange must be made in the way the law requires for a sale of that property (S.118).
- Each party is a seller of what he gives and a buyer of what he takes (S.120).
- If a party loses what he received because of a defect in the other's title, S.119 gives him a remedy.
An exchange is like two sales in one deal, with property in place of price. So the law borrows the rules of sale for its form and for the parties' rights.
| Provision | What it says |
|---|---|
| S.118 | Definition, and form same as sale |
| S.119 | Right of a party deprived of the thing received |
| S.120 | Each party has the rights and liabilities of a seller and a buyer |
| S.121 | Exchange of money: each party warrants that what he gives is genuine |
Requirements
| # | Requirement | What to check |
|---|---|---|
| 1 | Two persons | Each both transferor and transferee |
| 2 | Mutual transfer of ownership | Ownership passes both ways, not a lesser interest |
| 3 | One thing for another | Neither, or both, being money only. Money on one side only is a sale |
| 4 | Form of a sale | For tangible immovable property worth Rs.100 or more, a registered instrument (S.54, S.118) |
If a party gives a plot and some money, it is still an exchange as long as he does not give money only. Some courts and books ask which part of the consideration is dominant, so state that test if the money part is large.
Right of a party deprived (S.119)
If a party, or a person claiming under him, is deprived of the thing or part of it because of a defect in the other party's title, then, unless the exchange says otherwise, the other party is liable:
- for the loss caused, or
- at the option of the person deprived, to return the thing he received, if it is still with that other party, his legal representative or a transferee without consideration.
Illustrations
1. Simple exchange
- Facts: A owns Plot X and B owns Plot Y, each worth Rs.20 lakhs. They swap.
- Result: An exchange (S.118). It needs a registered instrument.
- Why: Ownership passes both ways and neither side gives money only.
2. Exchange with equalisation money
- Facts: A's plot is worth Rs.20 lakhs and B's Rs.15 lakhs. They swap, and B also pays A Rs.5 lakhs.
- Result: Still an exchange.
- Why: B gives a plot as well as money, so his side is not money only.
3. Mostly money
- Facts: A gives B his car worth Rs.5 lakhs and Rs.45 lakhs in cash for B's flat.
- Result: Likely treated as a sale of the flat, with the car as part of the price.
- Why: On the dominant-consideration view, money is the real price here.
4. Loss of the thing received
- Facts: A exchanges his house for B's farm. C proves that B had no title and evicts A.
- Result: A can claim his loss from B, or choose to take back his house if B still has it (S.119).
- Why: B, as seller of the farm, answers for the defect in his title.
Key Cases
S.118 to S.121 are mostly applied on their own words. The cases in the earlier version could not be verified and have been removed (see the review report).
Distinctions
| Basis | Exchange (S.118) | Sale (S.54) |
|---|---|---|
| Consideration | Property for property | Price in money |
| Roles | Each party is buyer and seller | One seller, one buyer |
| Form | Same as sale | Registered deed for Rs.100 or more |
| Rights | S.120 applies S.55 both ways | S.55 |
| Remedy on loss of title | S.119: loss or return of the thing given | Damages under the covenant for title |
Exam Scenario
Arjun and Bharat exchange adjacent plots by a registered deed. Arjun's plot is worth Rs.30 lakhs and Bharat's Rs.25 lakhs, so Bharat also pays Rs.5 lakhs. Chander then proves that he, not Bharat, owned Bharat's plot, and evicts Arjun. Advise Arjun.
Approach
- Met: A valid exchange. Plot for plot plus money, so Bharat's side is not money only (S.118).
- Met: Registered instrument.
- Met: Arjun was deprived of the thing he received.
- Met: The cause was a defect in Bharat's title.
- Issue: Nothing in the deed is said to exclude S.119.
Conclusion: Bharat is liable to Arjun under S.119.
Remedy: Arjun may claim compensation for his loss, or choose to take back his own plot, since Bharat still holds it. If he takes back his plot, he must account for the Rs.5 lakhs he received.
Recall Check
- How does S.118 define exchange?
- What form must an exchange of land take?
- What two remedies does S.119 give?
- When does an exchange with money become a sale?
Flashcards
How does S.118 define exchange?
Mutual transfer of the ownership of one thing for the ownership of another, neither thing or both things being money only.
What provisions govern the rights and liabilities in exchange?
S.120: each party has the rights and liabilities of a seller as to what he gives and of a buyer as to what he takes.
What is the mode for exchange of immoveable property?
The mode for a sale of that property (S.118): a registered instrument for tangible immovable property worth Rs.100 or more.
What is S.119's remedy?
If a party is deprived of the thing received because of a defect in the other's title, the other party is liable for the loss or, at the option of the person deprived, must return the thing he received if still with him.
What stamp duty applies to exchange?
Under Art. 31, Schedule I, Indian Stamp Act, duty is charged as on a conveyance on the market value of the property of greatest value. State Acts may differ.
Define "exchange" under S.118.
A mutual transfer of ownership of one thing for the ownership of another, neither thing or both things being money only.
What provisions govern the rights and liabilities of parties to an exchange?
S.120: each party is treated as seller of what he gives and buyer of what he takes, so S.55 applies both ways.
What is the unique remedy under S.119?
A party deprived of the thing received, by a defect in the other's title, can claim the loss or, at his option, the return of the thing he gave, if still with the other party.
If A exchanges a plot with B and B also pays Rs.2 lakhs to equalize values, is this a sale or exchange?
Exchange. B's side is a plot plus money, not money only.
Is registration required for exchange of immovable property?
Yes, for tangible immovable property worth Rs.100 or more, as for a sale (S.118, S.54).