Exchange under Transfer of Property Act, 1882: Sections 118–121
Exchange under the Transfer of Property Act, 1882 is the mutual transfer by two persons of the ownership of one thing for the ownership of another. It differs from a sale principally because, in a sale, ownership is transferred for a price, whereas an exchange involves a reciprocal transfer of ownership. Chapter VI of the Transfer of Property Act deals specifically with exchange through Sections 118 to 121.
Exchange of property under Sections 118–121 of the Transfer of Property Act, 1882.
Section 118 defines exchange and prescribes the manner in which it is to be completed. Section 119 protects a party who is deprived of the thing received because of a defect in the other party's title. Section 120 gives each exchanger the rights and liabilities of a seller regarding what he gives and of a buyer regarding what he receives. Section 121 separately deals with an exchange of money.
Sections 118–121 at a Glance
The law of exchange is contained in Chapter VI of the Transfer of Property Act, 1882. Its four provisions perform different functions.
Section 118 defines exchange and provides that the transfer completing an exchange must be made in the manner prescribed for a sale of the property concerned.
Section 119 provides remedies where a party is deprived of the thing received in exchange because of a defect in the title of the other party.
Section 120 determines the respective rights and liabilities of the exchangers by treating each, subject to Chapter VI, as a seller of what he gives and a buyer of what he takes.
Section 121 provides a specific warranty where money is exchanged: each party warrants the genuineness of the money given by him.
Meaning of Exchange under Section 118
Section 118 of the Transfer of Property Act defines exchange in the following terms:
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 section therefore concentrates upon ownership. There must be something owned by one party, something owned by the other, and a reciprocal transfer by which each obtains ownership of what previously belonged to the other.
The second paragraph of Section 118 is equally important. It requires the transfer completing the exchange to be made in the manner prescribed for the transfer of that property by sale. Exchange is therefore not an informal method of avoiding legal formalities applicable to the transfer of the property concerned.
A Simple Example
A owns House X and B owns Agricultural Land Y. They agree that A will transfer House X to B and B will transfer Land Y to A. If the ownership of both properties is validly transferred in accordance with the law governing their transfer, the transaction is an exchange under Section 118.
Essential Ingredients of a Valid Exchange
The statutory definition and Pakistani case law reveal three fundamental requirements.
1. There Must Be Two Reciprocal Transfers
One party must transfer something to the other, and the other must make a corresponding transfer in return. A unilateral transfer is not an exchange.
2. The Transaction Must Transfer Ownership
Section 118 does not merely require an exchange of use or physical possession. It speaks expressly of the transfer of ownership of one thing for the ownership of another.
A person who has no transferable ownership or interest cannot create a valid exchange merely by handing over possession of property belonging to somebody else.
3. The Transfer Must Follow the Legally Required Mode
The second paragraph of Section 118 directs the parties to the law applicable to sale of the relevant property. If that property can be transferred by sale only through a particular legal form, the exchange must follow that form as well.
Mutual Transfer of Ownership Is the Foundation of Exchange
The words "mutually transfer the ownership" are the heart of Section 118. If only A transfers ownership to B while B transfers nothing capable of constituting the reciprocal ownership interest contemplated by the section, the transaction is not an exchange.
This also explains why the legal character of a transaction must be determined from what the parties actually transfer, rather than merely from the title placed on a document. Calling an instrument an "exchange deed" cannot convert a sale, gift or some other transaction into an exchange if the legal ingredients of Section 118 are absent.
Conversely, a transaction that satisfies the statutory requirements does not cease to be an exchange merely because the properties differ in area, quality or market value.
Is Transfer of Possession Necessary for a Valid Exchange?
Transfer of ownership and delivery of possession are not the same thing. Section 118 defines exchange by reference to ownership. It does not make actual delivery of possession an independent universal ingredient of every exchange.
Muhammad Amjad Khan v. Province of Punjab — 2004 SCMR 1389
In Muhammad Amjad Khan v. Province of Punjab and others, 2004 SCMR 1389, the Supreme Court of Pakistan dealt with an exchange of land reflected through mutations. The case supports the proposition that absence of delivery of possession does not, by itself, destroy an exchange where the requisite exchange of ownership has otherwise been established.
Muhammad Bibi v. Province of Punjab — 2000 CLC 769
The same distinction appears in Muhammad Bibi and others v. Province of Punjab through Collector, 2000 CLC 769 (Lahore). The transaction could not be invalidated merely on the basis that possession of the land obtained under the exchange had not been delivered.
How Is an Exchange Completed?
The second paragraph of Section 118 provides the answer: a transfer made in completion of an exchange can be effected only in the manner prescribed for transfer of that property by sale.
The required form therefore depends upon the property being transferred. The parties cannot avoid the legal requirements applicable to a particular property simply by describing their transaction as an exchange rather than a sale.
This requirement is particularly important in transactions involving immovable property, where registration and other statutory formalities may determine whether title has legally passed.
Exchange of Immovable Property and Registration
Where immovable property is exchanged, Section 118 must be read with the provisions governing sale of that type of property, particularly Section 54 of the Transfer of Property Act and the applicable registration law.
The practical rule is straightforward: where a sale of the property requires transfer through a registered instrument, an exchange of that property must comply with the corresponding requirement.
Registration requirements should also be checked under the Registration Act, 1908 and any applicable provincial amendments. For a fuller explanation, see our guide to documents requiring compulsory registration .
The consequences of relying upon an instrument that was legally required to be registered but was not registered are discussed separately in Effect of Non-Registration of a Document .
Because registration, stamp and land-record rules may be affected by provincial legislation and by the nature of the property, the old statutory monetary thresholds should not be treated as a substitute for checking the law currently applicable to the particular transaction.
Exchange of Movable Property
Section 118 is not confined in its wording to land. Where the subject of exchange is movable property, the transfer must likewise comply with the manner prescribed for a sale of that kind of property.
In the case of goods, the relevant law governing sale of goods may therefore become important in determining formation, transfer, delivery, rights and remedies.
The Lahore High Court's decision in Pakistan v. Messrs A. Ismail Jee & Sons Ltd., 1980 CLC 1522, concerned a contractual exchange of goods. The Court referred to the civil-law maxim permutatio vicina est emptioni and treated contracts of exchange or barter as analogous to contracts of sale where the applicable principles justified that analogy.
Must the Properties Exchanged Have Equal Value?
No rule in Section 118 requires the properties exchanged to have precisely equal market values.
This point was considered in Ghulam Hussain v. Jam Allah Dad through Legal Heirs, PLD 1989 Lahore 73. The Lahore High Court held that a disparity in the value of the properties was not, by itself, sufficient to destroy the transaction of exchange. The Court observed that Section 118 does not prescribe a strict equation between the values of the properties as a condition for a valid exchange.
Difference in value may, of course, become relevant as evidence where the genuineness of an alleged exchange is disputed. It may form part of the surrounding circumstances considered by the Court. But inequality alone does not automatically transform an exchange into a sale.
Difference Between Sale and Exchange
Sale and exchange both transfer ownership, but the nature of the consideration separates them.
Sale
Under Section 54 of the Transfer of Property Act, sale involves transfer of ownership for a price paid, promised, or partly paid and partly promised. The concept of price is therefore central to sale.
Exchange
Under Section 118, one ownership is mutually transferred for another. The thing received is not merely the monetary price of the thing transferred.
Dost Muhammad v. Ghulam Noor — 2006 YLR 824
The distinction was examined directly by the Lahore High Court in Dost Muhammad and others v. Ghulam Noor (deceased) through legal representatives, 2006 YLR 824.
The dispute concerned a registered transaction described as an exchange which the plaintiffs alleged was really a sale for purposes of pre-emption. The Court compared Sections 54 and 118 and treated the existence of monetary price or sale consideration as central to determining the true character of the transaction.
On the evidence before it, the Court accepted the transaction as an exchange rather than a sale.
Exchange and Barter
The expressions "exchange" and "barter" are often used together, especially where goods are traded for other goods rather than sold for money.
The Transfer of Property Act, however, uses the statutory concept of exchange. Whether a transaction commonly described as barter falls within Section 118 depends upon whether it involves the reciprocal transfer of ownership contemplated by the section and whether the applicable legal requirements for transfer have been satisfied.
Section 119: Right of a Party Deprived of the Thing Received in Exchange
Section 119 provides an important protection against defective title.
Its basic situation can be illustrated easily. A transfers Property X to B and receives Property Y from B. Later, A is deprived of Property Y because B did not have a valid title to it. Subject to the terms of the exchange, Section 119 may then provide A with a remedy against B.
The Defect in Title Must Cause the Deprivation
The leading Pakistani authority is Mubarak Ali v. Khushi Muhammad, PLD 2011 Supreme Court 155.
The Supreme Court explained that Section 119 contains a substantive condition governing the availability of its remedies. The party invoking the section must have been deprived of the thing received in exchange because of a defect in the title of the other exchanger.
Deprivation for some independent reason is therefore insufficient. The causal connection between the defect of title and the deprivation is an essential condition for the application of Section 119.
What Remedies Are Available?
Unless a contrary intention appears from the terms of the exchange, the section gives the deprived party a choice within its statutory conditions.
The deprived party may claim the loss caused by the defective title. Alternatively, the party may seek return of the thing that he himself transferred in the exchange, provided that the property remains in the possession contemplated by Section 119.
The statutory restitutionary option extends to the situation where the property originally transferred remains with the other exchanger, his legal representative, or a transferee from him without consideration.
Salehoon v. Sardara — 2000 YLR 1240
In Salehoon and others v. Sardara, 2000 YLR 1240 (Lahore), the transferees had not received the land to which they were entitled under the exchange. Where the land transferred by them remained available with the other side, the case recognized the remedial choice available in the circumstances.
What If the Property Has Been Transferred to a Third Person?
Muhammad Shah v. Sher Muhammad, PLD 1969 Peshawar 103, illustrates the difficulty that can arise once the property originally given in exchange has passed into other hands.
The judgment should, however, be read together with the actual language of Section 119. The section expressly permits the restitutionary remedy where the relevant property remains with the other party, his legal representative, or a transferee without consideration. Accordingly, it would be too broad to say that every transfer to every third party automatically defeats Section 119.
Where the property has passed to a transferee for consideration, the specific restitutionary option under Section 119 may no longer be available, although the facts may give rise to some other remedy.
Section 119 Is Founded on Equity
Mubarak Ali v. Khushi Muhammad also emphasizes the equitable foundation of Section 119. The Supreme Court declined to allow the provision to be used for the benefit of a party found to have participated in fraud.
The case is therefore important not only for defining defective title, but also for demonstrating that the equitable remedy cannot be separated from the conduct and pleadings of the party seeking relief.
Section 120: Rights and Liabilities of Parties to an Exchange
Section 120 reflects the close relationship between sale and exchange. Subject to anything otherwise provided in Chapter VI, each exchanger occupies two legal positions at the same time.
Regarding the property that he gives, he has the rights and liabilities of a seller. Regarding the property that he takes, he has the rights and liabilities of a buyer.
Example
A exchanges House X with B for Land Y. In relation to House X, A is treated for the purposes of Section 120 as occupying the position of seller and B as buyer. In relation to Land Y, the positions are reversed: B occupies the seller's position and A the buyer's position.
Khurshid Bibi v. Custodian, Evacuee Property — 1985 CLC 395
In Mst. Khurshid Bibi v. Custodian, Evacuee Property, Sindh, 1985 CLC 395, the Sindh High Court discussed Sections 118, 119 and 120 and recognized the statutory principle that each party to an exchange carries the rights and liabilities of seller regarding the property given and of buyer regarding the property taken.
Pakistan v. A. Ismail Jee & Sons Ltd. — 1980 CLC 1522
In Pakistan v. Messrs A. Ismail Jee & Sons Ltd., 1980 CLC 1522 (Lahore), the High Court dealt with an exchange of goods and referred to the principle that exchange or barter contracts may be treated analogously to contracts of sale in determining the parties' rights and remedies.
Section 120 does not turn an exchange into a sale. Rather, it imports relevant seller-and-buyer incidents into an exchange so that the parties' reciprocal rights and obligations can be determined coherently.
Section 121: Exchange of Money
The definition in Section 118 expressly accommodates a situation in which both things exchanged consist of money. Section 121 then supplies a specific rule for such transactions.
On an exchange of money, each party warrants the genuineness of the money given by him.
Example
A gives B currency in one form or denomination and receives other money from B in return. Each warrants that the money supplied by him is genuine. If one party supplies counterfeit money, the warranty contemplated by Section 121 is not satisfied.
This should be distinguished from the ordinary purchase of property for a monetary price. Property transferred for money as its price is ordinarily governed by the law of sale rather than being treated merely as an exchange of money.
Completed and Incomplete Exchanges: Which Remedy Applies?
It is important to distinguish three different problems because they do not necessarily produce the same remedy.
1. Exchange Not Yet Completed on Both Sides
Suppose A has agreed to transfer Property X to B and B has agreed to transfer Property Y to A, but the reciprocal transfers have not both been completed in the legally required manner.
The dispute at that stage may remain contractual. Depending upon the agreement, the applicable law and the facts, remedies such as specific performance or damages may arise.
2. Ownership Has Passed but Possession Has Not Been Delivered
A different situation arises where ownership has already validly passed but one party has not obtained possession of the property belonging to him under the completed exchange.
In such a case the question is no longer necessarily whether the contract should be specifically performed; the party may already hold title and may need to seek the appropriate remedy for possession.
3. Party Is Deprived Because the Other Party Had Defective Title
This is the particular situation governed by Section 119. The defect in the other exchanger's title must be the reason for the deprivation before the special remedies of that section are attracted.
Exchange and the Right of Pre-emption
Pakistani litigation concerning exchange has frequently arisen where a transaction described as an exchange was challenged as an actual sale disguised as an exchange in order to avoid a claim of pre-emption.
Whether pre-emption applies must always be determined under the law applicable in the relevant province and to the particular transaction. It would therefore be unsafe to state that every exchange is universally immune from every form of pre-emption.
The case law does, however, demonstrate an important evidentiary principle: a Court is entitled to examine the true nature of the transaction rather than relying only upon the label selected by the parties.
Nazar Hussain Shah v. Shah Muhammad — 1998 SCMR 2755
In Nazar Hussain Shah v. Shah Muhammad, 1998 SCMR 2755, the Supreme Court dealt with exchange in the context of a pre-emption dispute and improvement of the vendee's status. The Court considered the revenue entries and the time at which the exchange had in fact been effected rather than treating later formal attestation as necessarily determining the date of the transaction.
The decision is important in its revenue and pre-emption context, but it should not be generalized into a rule that statutory registration requirements applicable to other immovable-property exchanges can be ignored.
Dost Muhammad v. Ghulam Noor — 2006 YLR 824
This Lahore High Court decision provides another useful illustration. The Court examined whether a registered deed described as an exchange was actually a sale. Evidence concerning alleged cash consideration, the properties transferred, their nature and their approximate value was examined before the Court accepted the transaction as an exchange.
Leading Pakistani Case Law on Exchange
PLD 2011 Supreme Court 155 — Mubarak Ali v. Khushi Muhammad
Section 119 is attracted where deprivation of the property received in exchange results from a defect in the other exchanger's title. The case also emphasizes the equitable character of the provision and the effect of fraud and pleadings upon relief.
2004 SCMR 1389 — Muhammad Amjad Khan v. Province of Punjab
An important authority on exchange of land and the distinction between transfer of ownership and actual delivery of possession.
1998 SCMR 2755 — Nazar Hussain Shah v. Shah Muhammad
Important in the pre-emption and revenue context concerning the effect and timing of a transaction of exchange.
PLD 1989 Lahore 73 — Ghulam Hussain v. Jam Allah Dad
Difference in the value of the properties, standing alone, is not enough to invalidate an exchange. Section 118 does not require exact equality of value.
2006 YLR 824 — Dost Muhammad v. Ghulam Noor
A useful authority on the distinction between sale and exchange, particularly the character of the consideration and alleged payment of price.
2000 CLC 769 — Muhammad Bibi v. Province of Punjab
Supports the principle that absence of delivery of possession does not, by itself, destroy a validly established exchange of ownership.
2000 YLR 1240 — Salehoon v. Sardara
Relevant to the remedies available where a party does not receive the land due to him under an exchange and the property transferred by that party remains available with the other side.
PLD 1969 Peshawar 103 — Muhammad Shah v. Sher Muhammad
Relevant to Section 119 and the effect of the property originally transferred in exchange subsequently passing into the hands of another person.
1985 CLC 395 — Khurshid Bibi v. Custodian, Evacuee Property, Sindh
Discusses exchange as a legally recognized form of transfer and the seller-and-buyer rights and liabilities imported by Section 120.
1980 CLC 1522 — Pakistan v. A. Ismail Jee & Sons Ltd.
Relevant to exchange or barter of goods and the analogy between contracts of exchange and contracts of sale.
Practical Examples of Exchange
Example 1: House for Agricultural Land
A transfers ownership of his house to B and B transfers ownership of his agricultural land to A. If both transfers comply with the legally required mode, the transaction is an exchange.
Example 2: Property for Money as Price
A transfers his house to B for Rs.10 million as the agreed price. This is a sale, not an exchange of property under Section 118.
Example 3: Possession Not Immediately Delivered
A and B validly exchange ownership of two properties, but B does not immediately hand physical possession to A. Failure of possession does not, by itself, necessarily prove that the transfer of ownership never occurred. The validity and remedy depend upon the legal mode of transfer and the facts.
Example 4: Defective Title
A gives Property X to B and receives Property Y. A is later deprived of Y because B had no valid title to it. Section 119 may allow A to recover the loss or, subject to its conditions, reclaim X if it remains in the hands specified by the section.
Example 5: Exchange of Money
A and B exchange money with each other. Under Section 121, each warrants the genuineness of the money supplied by him.
Exam-Ready Answer: Exchange under the Transfer of Property Act
Exchange is governed by Sections 118 to 121 of the Transfer of Property Act, 1882. Section 118 provides that where 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 essential requirements are a reciprocal transaction between two parties, mutual transfer of ownership, and compliance with the legal mode prescribed for transfer of the property. The second paragraph of Section 118 provides that a transfer in completion of an exchange can be made only in the manner prescribed for transfer of such property by sale. Thus, the formalities applicable to sale of the property concerned must also be observed when it is exchanged.
The fundamental distinction between sale and exchange lies in the nature of consideration. Sale under Section 54 transfers ownership for a price, whereas exchange under Section 118 involves a mutual transfer of ownership. Pakistani courts have accordingly examined the real nature of the consideration where an alleged exchange was challenged as a disguised sale. Dost Muhammad v. Ghulam Noor, 2006 YLR 824, is an important authority on this distinction.
Delivery of possession is conceptually different from transfer of ownership. In Muhammad Amjad Khan v. Province of Punjab, 2004 SCMR 1389, and 2000 CLC 769, the courts dealt with the proposition that absence of possession does not, by itself, invalidate an otherwise valid exchange of ownership.
Section 119 protects an exchanger who is deprived of the thing received because of a defect in the title of the other party. The Supreme Court in Mubarak Ali v. Khushi Muhammad, PLD 2011 SC 155, emphasized that deprivation must result from the defect in title before the section is attracted. Subject to the terms of the exchange and the statutory conditions, the deprived party may claim the loss caused or may elect to seek return of what he transferred where that property remains in the possession contemplated by Section 119.
Under Section 120, each party has the rights and liabilities of a seller regarding what he gives and of a buyer regarding what he receives. Section 121 further provides that on an exchange of money each party warrants the genuineness of the money given by him.
Exchange is therefore a distinct and legally recognized mode of transfer. It resembles sale in the formal manner of transfer and in many reciprocal rights and liabilities, but differs fundamentally because the consideration consists in the reciprocal transfer of ownership rather than payment of a price.
Frequently Asked Questions
What is exchange under Section 118 of the Transfer of Property Act?
Exchange is a mutual transfer by two persons of ownership of one thing for ownership of another, subject to the qualifications contained in Section 118.
Which sections of the Transfer of Property Act deal with exchange?
Sections 118 to 121 in Chapter VI deal with exchange. Section 118 defines exchange, Section 119 deals with defective title, Section 120 provides the rights and liabilities of the parties, and Section 121 concerns exchange of money.
What is the main difference between sale and exchange?
A sale transfers ownership for a monetary price. An exchange involves a reciprocal transfer of ownership of one thing for another.
Is possession necessary for an exchange?
Section 118 is principally concerned with transfer of ownership. Pakistani case law recognizes that absence of delivery of possession does not, by itself, necessarily invalidate an exchange where ownership has been validly transferred. The legally required mode of transfer must nevertheless be satisfied.
Does an exchange of immovable property require registration?
Section 118 requires the transfer completing an exchange to be made in the manner prescribed for sale of that property. Therefore, where applicable law requires a registered instrument for sale of the immovable property, the exchange must comply with the corresponding requirement. Provincial amendments and registration law should also be checked.
Must the two properties have equal value?
No. Section 118 does not require exact equality in value. In Ghulam Hussain v. Jam Allah Dad, PLD 1989 Lahore 73, inequality of value alone was held insufficient to destroy an exchange.
What happens if the other party has no valid title?
Section 119 may apply where a party is deprived of what he received because of a defect in the other exchanger's title. Subject to the statutory conditions and terms of the exchange, the deprived party may claim the resulting loss or elect to seek return of the thing that he transferred.
What does Section 120 provide?
Section 120 provides that, subject to Chapter VI, each party has the rights and liabilities of a seller regarding the property he gives and those of a buyer regarding the property he receives.
Can money itself be exchanged under the Transfer of Property Act?
Yes. Section 121 expressly deals with exchange of money and provides that each party warrants the genuineness of the money given by him.
Can an exchange be challenged as a disguised sale?
Yes. Where the true nature of the transaction is disputed, a Court may examine the consideration and surrounding evidence to determine whether it is genuinely an exchange or actually a sale. The issue has frequently arisen in Pakistani pre-emption litigation.
Conclusion
Exchange under the Transfer of Property Act is more than an informal swap of one asset for another. Section 118 requires a genuine mutual transfer of ownership and also subjects completion of the transaction to the legal mode applicable to a sale of the property concerned.
Sections 119 to 121 complete the statutory scheme. Section 119 protects a party deprived because of defective title; Section 120 places each exchanger in the corresponding position of seller and buyer; and Section 121 provides a warranty of genuineness where money itself is exchanged.
Pakistani case law has further clarified several practical issues. The courts distinguish ownership from possession, examine the actual consideration when deciding whether a transaction is sale or exchange, recognize that unequal property values do not by themselves invalidate an exchange, and apply Section 119 only where deprivation is caused by a defect in title.
For students and practitioners, the safest approach is therefore to read Sections 118 to 121 together rather than treating Section 118 as a complete code in isolation.
Last reviewed: 11 August 2026.