Exchange

Section 120: each is both seller and buyer

Save as otherwise provided in the Chapter, each party has the rights and is subject to the liabilities of a seller as to that which he gives, and the rights and liabilities of a buyer as to that which he takes.

This one sentence imports the whole of section 55 into every exchange, twice over and in both directions. So each party must disclose material defects in what he gives, produce title deeds on request, execute a proper conveyance, discharge incumbrances and give possession; and each has, as to what he takes, the buyer's duties of disclosure and payment and the buyer's charge for anything paid in advance.

It is an economical piece of drafting and it is the reason Chapter VI is only four sections long.

Section 121: exchange of money

On an exchange of money, each party warrants the genuineness of the money given by him.

A short rule with an obvious purpose. In a money-for-money exchange the whole substance of the bargain is that the notes or coins are what they appear to be, so the warranty is implied without needing to be stated.

A worked example

Ismail owns a shop at Jalgaon worth Rs. 40 lakh. Jaya owns a flat at Dhule worth Rs. 40 lakh. They agree to swap.

Is it an exchange? Yes. Ownership passes both ways and neither thing is money.

How must it be done? In the manner provided for a transfer of such property by sale, so by registered instruments, both properties being immovable and worth well over a hundred rupees.

Their obligations. Under section 120, Ismail is a seller as to the shop and a buyer as to the flat, and Jaya the reverse. So Ismail must disclose material defects in the shop, produce its title deeds on request and discharge incumbrances on it; and as to the flat he has a buyer's rights and duties.

A defect appears. Jaya is later evicted from the shop because Ismail had no title to a part of it. Under section 119 she may claim from Ismail the loss caused, or, at her option, the return of the flat if it is still with Ismail, his legal representative, or someone who took it from him without consideration.

Ismail has already sold the flat to a purchaser for value. Jaya cannot have the flat back; her remedy is the loss.

A contrary intention. Had the exchange deed provided that each took the other's property subject to all defects and without recourse, section 119 would yield to it, the section applying "unless a contrary intention appears from the terms of the exchange".

Change the facts. Ismail gives Jaya the shop and Jaya gives him Rs. 40 lakh. That is a sale, not an exchange, because one side is money only.

Change them again. Ismail gives Jaya Rs. 40 lakh in cash and Jaya gives him Rs. 40 lakh worth of a foreign currency. Both sides are money only, so it is an exchange, and under section 121 each warrants the genuineness of the money he gives.

What it does NOT mean

Money on one side makes it a sale, not an exchange.

Money on both sides is still an exchange, and section 121 applies to it.

Exchange is not confined to immovable property.

The formalities are not lighter than a sale's. They are the sale formalities, applied to each transfer.

Section 119 does not always give the property back. It gives loss, or return at the option of the deprived party, and return only while the thing is with the other party, his legal representative or a gratuitous transferee.

Section 119 is not mandatory. It yields to a contrary intention in the terms of the exchange.

Section 120 does not create new rules. It applies section 55 to each side twice.

Distinctions

Quick revision

• Exchange: two persons mutually transfer ownership of one thing for another, neither or both being money only.
• One side money only makes it a sale; both sides money is still an exchange.
• A transfer completing an exchange is made only in the manner provided for a sale of that property.
• s.119: a party deprived by a defect in the other's title may claim the loss, or, at his option, the return of what he gave, if still with the other party, his legal representative, or a transferee without consideration. Subject to a contrary intention in the terms.
• s.120: each party has a seller's rights and liabilities as to what he gives and a buyer's as to what he takes, which imports section 55.
• s.121: on an exchange of money, each party warrants the genuineness of the money he gives.

Test yourself

1. Define exchange, and say what makes a transaction a sale instead. An exchange is where two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only. If one side gives money only and the other gives property, the transaction is a sale.

2. Is money for money an exchange? Yes. The definition excludes only the case where one thing is money and the other is not, so a money-for-money transaction is an exchange, and section 121 implies a warranty of genuineness.

3. How must an exchange of two houses be effected? Only in the manner provided for the transfer of such property by sale, so by registered instruments under section 54, each party conveying to the other.

4. What are a party's rights if he is evicted from what he received because the other had no title? Under section 119, unless a contrary intention appears from the terms of the exchange, he may recover the loss caused, or, at his option, the return of the thing he transferred, if it is still in the possession of the other party, his legal representative, or a transferee from him without consideration.

5. What does section 120 achieve? It makes each party a seller as to what he gives and a buyer as to what he takes, so that the whole of section 55 applies to both sides of the transaction.

6. Can an exchange be of movable property? Yes. Section 118 speaks of "one thing" for "another" and is not confined to immovable property, though the manner of transfer follows what a sale of that kind of property requires.