RIGHTS AND LIABILITIES OF PARTIES TO AN

EXCHANGE

Dr.RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY, LUCKNOW

Subject –Property Law- I

FINAL DRAFT

“RIGHTS AND LIABILITIES OF PARTIES IN EXCHANGE”

SUBMITTED BY:
Vinay Sheel
5th Semester
Roll No-150101161, Section-B

UNDER THE GUIDANCE OF

Dr. Manish Singh

Asstt. Prof. in Law

Dr. RMLNLU, Lucknow

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

CONTENTS

 ACKNOWLEGEMENT
 INTRODUCTION
 EXCHANGES
 WOULD A PARTITION AMOUNT TO AN EXCHANGE?
 RIGHTS OF PARTY DEPRIVED OF THING RECIEVD IN
EXCHANGE
 LIABILTY OF LOSS DUE TO DEFECT IN TITLE
 RIGHTS AND LIABLITIES OF PARTIES
 EXCHANGE OF MONEY
 WARRANTY OF GENIUNENESS OF MONEY
 CONCLUSION
 BIBLIOGRAPHY & WEB REFERENCES

ACKNOWLEDGEMENT

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

I would like to sincerely thank Dr. Manish Singh for giving me this project on the “Rights
and Liabilities of Parties to an Exchange” which has widened my knowledge on the Law
related to the exchange under the Transfer of Property Act 1882. His guidance and support
has been instrumental in the completion of this project.

I’d also like to thank all the authors, writers and columnists whose ideas and works have been
made use of in the completion of this project.

My sincere gratitude also goes out to the staff and administration (RMLNLU) for the
infrastructure in the form of our library and IT lab that was a source of great help in the
completion of this project.

I would also like to thank my friends who have lent me constant support through guidance
and inputs which have led to the completion of this project.

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

INTRODUCTION

Before the advent of the Britishers, each community in India was governed by its
respective customary law in matters relating to transfer of property. With the establishment of
the formal litigative system and in absence of any legislation in this area, to begin with, the
English judges applied the common law of England and the rules of equity, justice and good
conscience with respect to disputes relating to transfer of property. The unsuitability of these
provisions to the Indian conditions; the resulting conflict and the need for clarity of rules
relating to this important branch of law necessitated the enactment of a legislation. Drafted in
1870, the Transfer of Property Act saw the light of the day in 1882 and provided the basic
principles for transfer of both movable and immovable properties. Based primarily on the
English law of ‘Real Property’, it attempted to mould these principles to suit the Indian
conditions; but certain provisions of the Act remained inapplicable to Hindus and Muslims, to
start with. In order to put at rest the confusion created by the conflicting decisions and extend
the application of the Act in totality to Hindus, the Transfer of Property Act, 1882 was
amended in 1929. However, till date, the provisions of Chapter II of the Act that are
inconsistent with the Quranic laws are inapplicable to Muslims. Moreover, a separate
enactment titled the ‘Sale of Goods Act, 1930’ was passed to deal with transfer of movable
property by sale.

The Transfer of Property Act, 1882 contains the general principles of transfer of property
and detailed rules with respect to specific transfer of immovable property by sale, exchange,
mortgage, lease and gift.
The rules relating to exchanges are found in Chapter VI of the TOPA in Sections 118 to 121.
The concept of an ‘exchange’ is defined under Section 118 of the TOPA as a situation where
two persons transfer ownership of one thing in exchange for ownership of another mutually,
neither of which is money only.
This project will cover a study of rights and liabilities of parties to an exchange under the
Transfer of Property Act 1882.

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

EXCHANGES

The rules relating to exchanges are found in Chapter VI of the TOPA in Sections 118 to 121.
Fortunately, these rules are relatively simple compared to other forms of transfers of
property.

"EXCHANGE" DEFINED

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".

A transfer of property in completion of an exchange can be made only in manner provided for
the transfer of such property by sale.

The concept of an ‘exchange’ is defined under Section 118 of the TOPA as a situation where
two persons transfer ownership of one thing in exchange for ownership of another mutually,
neither of which is money only. For a transfer to be considered as an exchange, the following
requirements must be fulfilled:
• One person must transfer the ownership of a property in favour of another;
• That other person must transfer the ownership of another property in favour of the first;
• The transfer should be mutual;
• Neither of the things should be money alone.

Therefore, when the shares of one company are transferred under a document in
consideration of the shares of another, the transfer is an exchange. Also, in a case where a
property is transferred in consideration of another property and a sum of money, it would
still be regarded as an exchange falling within the ambit of Section 118 of the TOPA. This is
because the section only requires that the either of the things that are exchanged should not
be money only. Therefore, if money is a part of the consideration paid along with another
thing, it will not amount to a sale and will remain an exchange under Section 118 of the
TOPA.

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

ILLUSTRATION:

Rohit transfers his house in favour of Ramesh. Ramesh gives all the jewellery he has and
additional Rupees Ten lakhs to Rohit. This is an exchange. Although Ramesh pays
money for the house, it is not money only. It is paid along with the jewellery, and hence, it is
an exchange.

WOULD A PARTITION AMOUNT TO AN EXCHANGE?

Further, an issue that arises in this context is: would a partition amount to an exchange? The
answer is no. We know that for a transfer to be an exchange the two ownerships must be
mutually exclusive and that is not the case in a partition. Each party owns a
share in the undivided properties, which is separated by a partition
by metes and bounds to create exclusive ownership over theproperty. Therefore, it is not an
exchange as the two ownerships here are not mutually exclusive.

ILLUSTRATION:

Rohit, Raj, and Ramesh are three brothers who seek partition of the joint family property.
Rohit takes the entire house, Raj takes the family jewellery, and Ramesh takes over the
family business as per the terms of the partition deed. This is not an exchange. The ownership
of these properties was not mutually exclusive. Each brother owned a portion of all of the
properties.

Partition merely converted joint enjoyment of property to enjoyment in severalty.

After understanding what an exchange is, the next major aspect ofthe transaction is the nature
of the rights of the parties to an exchange. This is made clear by Section 120 of the TOPA,
which states that each party has the same rights and liabilities as a seller does in respect of the
property, which they give. Further, each party has the same rights and liabilities as the buyer
does in respect of the property that he takes. Therefore, the rights and liabilities of the parties
to an exchange are the same as those of a buyer and seller in case of a sale. The only

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

difference here is that each party has rights and liabilities relating to both buyer and seller —
the former with respect to the property it takes, and the latter in respect of the property that it
gives. Therefore, in order to understand their rights and obligations, one may look to the
commentaries relating to the rights of a buyer and seller under Section 55 of the TOPA.

Another key issue in case of an exchange is: what happens if either transfer of ownership is
bad? What if one of the parties to the exchange does not have a good title to the property he
purports to transfer in the exchange? In such cases, Section 119 of the TOPA becomes
relevant, which provides that if such a thing happens to the original party or any other party
claiming through or under him, the other party or his legal representatives are obligated to
make good the loss caused thereby, unless a contrary intention appears in the terms of the
exchange. Otherwise, at the option of the wronged party, the other party may also be
obligated to return the thing transferred to him, if he is still in possession of
the property. Therefore, Section 119 of the TOPA protects the parties to an exchange from a
bad transfer of ownership. However, it is subject to the terms of the exchange and if they
provide otherwise, the effect of Section 119 of the TOPA may be nullified.

ILLUSTRATION:

Rohit exchanges his house with Ramesh in exchange for Ramesh’s jewellery and cash. Later,
he discovers that the jewellery was joint family property and Ramesh had no power to
transfer them. If Ramesh is still in possession of the house, Rohit can demand that he return
the house back to him. Alternately, he could also ask Ramesh to make good the value of the
house over and above the cash he received. Under Section 119 of the TOPA, the remedy is
now available to anybody claiming through the original party including a transferee. So, the
wronged party can claim return only from the original party, his legal representatives or from
a transferee who has received the property without consideration. He cannot claim return,
however, from a bona fide purchaser or a trespasser.

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
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ILLUSTRATION:

In the above illustration, if Ramesh had sold the property to a third party who did not know of
the exchange, then Rohit could not have claimed the house from such a third
party. His only option in such a case would be to proceed against Ramesh or his legal
representatives to make good the loss he has suffered on account of the exchange.

RIGHT OF PARTY DEPRIVED OF THING RECEIVED IN

EXCHANGE

Section 119 of the Transfer of Property Act reads thus:

If any party to an exchange or any person claiming through or under such party is by reason
of any defect in the title of the other party deprived of the thing or any part of the thing
received by him in exchange, then, unless a contrary intention appears from the terms of the
exchange, such other party is liable to him or any person claiming through or under him for
loss caused thereby, or at the option of the person so deprived, for the return of the thing
transferred, if still in the possession of such other party or his legal representative or a
transferee from him without consideration.

Section 119 of the TOPA provides that if one of the parties to the exchange does not have a
good title to the property he wants to transfer,and if such a thing happens to the original
party or any other party claiming through or under him, the other party or his legal
representatives are obligated to make good the loss caused thereby, unless a contrary
intention appears in the terms of the exchange. Otherwise, at the option of the wronged party,
the other party may also be obligated to return the thing transferred to him, if he is still in
possession of
the property. Therefore, Section 119 of the TOPA protects the parties to an exchange from a
bad transfer of ownership. However, it is subject to the terms of the exchange and if they
provide otherwise, the effect of Section 119 of the TOPA may be nullified.

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LIABILITY OF LOSS DUE TO DEFECT IN TITLE

This section deals with rights of party who is deprived of lawful title in property received by him in exchange.
Exchange is mutual ransfer of ownership between two persons. Accordingly, both covenant impliedely to
exchange ownership and perfect title in property to each other. Section 119 gives certain rights to a party who
does not get pefect title in the property received by him. Where a party to exchange (or, any person claiming
underhim) is deprived of the property due to defect in its title, he has following two remedies:
(a) He may claim return of the property transferred by him to other party provided the property is still in
the possession that party, or
(b) He may claim compensation from the other party for the loss incurred due to such defective title.

This section affirms the rule that each party warrants his title to the things which he had transferred by way of
exchange. It contains an implied covenants of title just as section 14 of Sale of Goods Act, 1930 provides in
respect of sale of goods. The Rights available to the aggrieved party are either return of the property or if such
return is not possible, to claim compensation. Thus, of the property which he is entitled to receive in
exchange, he has right to claim the return of his own property transferred by him..

In Jattu Ram vs Hakim Singh1-

There was a defect in the title of a land received by one party to exchange due to land as per
stipulation. The Supreme Court held that entries made by patwari in the official record do not
create title and the opposite party was liable to return the land to that extent.

RIGHTS AND LIABILITIES OF PARTIES

Section 120 of TOPA reads thus:

1
AIR 1994 SC 1653

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 RIGHTS AND LIABILITIES OF PARTIES TO AN
EXCHANGE

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

Section 120 provides for the rights and liabilities of the parties to exchange. But it does not
specifically mention them. Under tis section the rights and duties of the parties to an
exchange of immovable property are the same as that of seller and buyer given in section 55 .
Sinceexchage also includes barter, i.e, exchange of movables, the rules of the Sale of Goods
Act, 1930 in this regard may apply where the properties are movable. However, since there is
no price or money consideration, therefore, there is no charge for unpaid price even where
some money is paid to equate the value of property.

EXCHANGE OF MONEY

Section 121 deals with Exhange of Money.

It reads thus:
On an exchange of money, each party thereby warrants the genuineness of the money given
by him.

WARRANTY OF GENUINENESS OF MONEY

Exchange is mutual transfer of ownership in movable or immovable property. Where money

is transferred in consideration of money, the transfer is exchange. For instance where a
person gives a hundred rupee currency note to another and takes from him ten currency notes
of ten rupees, the transaction between them is called exchange. Section 121 provided that
where money is exchanged mutually between two persons there is implied covenant that each
party warrants the other genuineness of the money. Therefore, when money of one party is
counterfeit or a fake currency note, there is no valid consideration in the transaction and the
exchange is void. Accordingly, the other party who is deprived of his right to get genuine
money in return of his own genuine money, would be entitled to recover the money paid by
him. Thus, if A givesa fake hundred rupee currency note to Bin consideration of ten genuine

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EXCHANGE

currency notes of ten rupees, B is entitled to recover the ten currency notes of ten which he
has paid to A.

CONCLUSION

Thus, we have seen that the Rights and Liabilities of Parties to an exchange are dealt in
Chapter VI of the TOPA.
These are contained within section 118 to 121. To summarise them, they are:

Sec 118. "Exchange" defined

Sec 119. Right of party deprived of thing received in exchange
Sec 120. Rights and liabilities of parties
Sec 121. Exchange of money

All of the above sections together define the Rights and Liabilities of parties to an exchange
under the Transfer of property Act, 1882 as were discussed in the project.

BIBLIOGRAPHY

 RK Sinha, Transfer of Property Act 1882, 2012, Central Law Agency, Fourteenth
edition
 Sir Dinshaw Mulla, The Transfer of Property Act ,2013,11th Edition

WEB REFERENCES

 http://www.vuhelp.net/law-transfer-property/
 http://www.advocatekhoj.com/library/bareacts/transferofproperty
 www.indiakanoon.org

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