Exchange

In one line

An exchange is a swap of ownership where at least one side is not money, and each party is treated as a seller of what he gives and a buyer of what he takes.

In exam wording: section 118 provides that 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 called an exchange.

The definition, broken down

"Mutually transfer the ownership." Ownership must pass both ways. An arrangement in which one side gets only possession or a right to enjoy is not an exchange.

"Neither thing or both things being money only." This is the phrase to read slowly, and it does two jobs.

If one side is money only and the other is property, it is a sale, not an exchange, because section 54 requires a price and price means money.

If both sides are money only, it is still an exchange. That is why section 121 exists: a transaction of money for money, such as swapping notes for coin or one currency for another, falls inside this Chapter.

The property need not be immovable. Section 118 says "one thing", so an exchange may be of movables, of immovables, or of one for the other.

How it is made. The section provides that a transfer of property in completion of an exchange can be made only in the manner provided for the transfer of such property by sale. So the formalities are section 54's: an exchange of immovable property worth a hundred rupees or more requires a registered instrument, and each party must convey to the other in that way.

Section 119: the party deprived by a defect in title

If any party to an exchange, or a person claiming through or under him, is by reason of any defect in the title of the other party deprived of the thing or any part of the thing he received, then, unless a contrary intention appears from the terms of the exchange, the other party is liable:

• to him or to any person claiming through or under him, for the loss caused; or
• at the option of the person so deprived, for the return of the thing transferred, if it is still in the possession of that other party, his legal representative, or a transferee from him without consideration.

Two features are worth marking.

The choice is the deprived party's. He may take damages or ask for his own property back.

The right to get the property back is limited. It works only while the thing is still with the other party, his legal representative, or a gratuitous transferee. A purchaser for value is protected, which is the same policy as sections 39, 40, 41 and 100.