Commerce

Sale of Goods Act – Transfer of Property in Goods

Posted by Asok K Nadhani on

Passing of Property under Sale of Goods Act

Property means general property (complete ownership) in goods (s.2(11)).

Any special or limited property or interest acquired by bailment or the pledge is excluded from the definition of property within the meaning of this section.

Passing of ownership under Sale of Goods Act

On Sale, the Property passes from one Party (Seller) to another Party (Buyer).

The Parties of the Contract to Sale can freely determine the time as to when the ownership or property in goods shall pass from the seller to the buyer (s.19).

In absence of any specific provision in the contract regarding passing of property, property would pass according to type of goods, as per provision of law as follows :

  • Sale of specific goods (s. 20 to 22).
  • Sale of unascertained goods (s.18 and 23).
  • Sale on approval (s.24).

Rights & Duties of Parties on Passing of Property under Sale of Goods Act

The risk and reward associated with the ownership of goods, is associated with passing of Property

The parties can exercise the following rights and duties to transfer the ownership of property:

  • Seller’s Right to sue: The right ofseller to sue for price arises only when the property in goods has been passed on to the buyer.
  • Rights over goods: When the property in goods has been already passed on to the buyer, the buyer can exercise all the proprietary rights over the goods. Such rights include right to sue the seller for delivery and to recover the goods from the mala fide buyer, in case of resale.
  • Insolvency: On insolvency of buyer or seller, the rights of official receiver  rights to take over the possession of the goods depends on whether the property in goods have been transferred or not.
  • Seller Insolvent  : If the seller becomes insolvent and the property in goods has been transferred to the buyer, the official receiver cannot take over the possession of the goods from the buyer.
  • Buyer Insolvent  :  If the buyer is declared insolvent and the ownership in goods is not transferred to buyer, the official receiver cannot take over the possession of the goods from the buyer.
  • Suit against third party: The buyer applying his proprietary rights, can file a suit against the third party for damages and compensation, if goods are damaged or destroyed due to fault of such person.
  • Bailee : The duties and liabilities of the seller or the buyer as bailee of goods will remain same whether the risk has passed to the buyer or not.

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Passing of Risk of Property under Sale of Goods Act

Risk means the liability to bear the loss in case of damage or loss. Risk is associated with the ownership. During loss of goods, the owner shall bear the loss of goods, whether the payment or delivery has been effected or not. Risk passes with ownership (and not with possession). 

Transfer of Ownership of Goods

The goods belong to the seller until the ownership in goods is transferred to the buyer (s.26).

  • Where the ownership has not been transferred to the buyer, any loss of goods shall be borne by the seller, even though the goods are in the possession of the buyer.
  • Where the ownership has been transferred to the buyer, any loss of goods shall be borne by the buyer, even though the goods are in the possession of the seller.
  • If the delivery of goods is delayed at the fault of any party, risk lies with the party who was at default.

Transfer of Ownership of Goods – Exception Rules

 However, in certain cases, the risk may lie to other party, as follows:

  • Express exclusion : The risk of the owner, may be modified by the parties by making an express provision in the contract . The parties may agree that  in certain specified cases, the goods shall be at the risk seller even though the ownership of goods has been passed to the buyer.
  • Party  in default :Where delivery has been delayed because of the fault of either buyer or seller, the goods are at the risk of the party responsible for delay in delivery of goods and he should bear all the losses arising due to delay in delivery of goods, even though the ownership of goods has not been passed to him (s.44).

Example: X agrees to sell Y 150 litres of cold drinks in chilled condition packed in bottles, which are to be supplied by Y. Y is to come with bottles by 10 A.M to take delivery, from X’s place.  X kept the drink ready in chilled condition, but Y does not come with bottles to take to pack the drink in time. Consequently,drinks lying with X becomes inconsumable. Here, Y shall be liable for loss though the ownership of goods did not pass to Y (as the drink was not yet packed in bottles and was not in deliverable condition).

Ex. : After cash sales, the buyer of the goods agrees to take the delivery after two days. On third day the buyer wants to take the delivery, but the seller wrongfully refuses to deliver the goods. On fourth day, the whole stock of seller including the goods sold to the buyer were destroyed by fire. Held, the seller has to bear the loss related to such goods though the property in the goods passed to the buyer at the time of making cash sales.The buyer can claim the price paid by him.

  • Risk imposed by custom  : If there is a custom or usage imposing risk on any party (Buyer or Seller), such party shall be liable for any loss of goods, even though he is not the owner of such goods.

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Transfer of Ownership in Sale of Specific Goods under Sale of Goods Act

Transfer of ownership in specific goods passes according to the state of the specific goods under sale, at the time of formation of contract of sale.

Transfer of Ownership for Specific goods in deliverable state under Sale o

The ownership of specific goods shall be transferred from the seller to buyer immediately, if the specific goods are not required to be weighted or measured for determination of price, and goods are in a deliverable state, at the time of formation of contract of sale (s.20).

Ex: X purchased a computer from B for Rs.10,000 on terms that the machine is to be installed by B at  X’s house and checked that it functions properly after installation. While delivering the machine to A’s house, the machine got damaged

In this case, transfer of property in the machine would be effected only when the machine will be installed and tested for proper functioning.

B being the owner of the machine would have to suffer the loss or damage to the machine and will have to deliver and install another machine to X.

Ex: P purchased a scooter from Q for Rs.45,000. P selected a particular scooter in Q’s showroom and paid an advance of Rs.5,000. P then informed that he would take delivery of the scooter next day. Meanwhile the shop of Q was destroyed by fire and the scooter also got destroyed. In this case, as the property in goods has transferred to P immediately on making contract, the loss will be borne by P. P has to pay Rs 40000 to Q for the balance amount of the scooter, though the scooter is destroyed.

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  • Transfer of ownership for Deliverable Specific Goods under Sale of Goods Act

The ownership of specific goods to be brought in deliverable state, shall be transferred from the seller to buyer, when the goods are put in a deliverable state, and the buyer has the knowledge of the fact that the goods have been put in a deliverable state (s.21).

Ex: M agrees to sell his old computer to N for Rs.10000. N made the full payment immediately. As per the contract, M has to get the battery replaced before delivering it to N. Held, the property in computer will pass to N only after battery replacement and N is informed of it. If the computer is damaged before N is informed that the computer is ready for delivery having battery replaced, the entire loss will be borne by M as he still remains the owner of the computer.

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  • Transfer of ownership for Measurable Specific Goods under Sale of Goods Act

The ownership for specific goods in deliverable state, to be weighed & measured, shall be transferred from the seller to buyer, when the goods are weighed or measured for determination of price, and the buyer has the knowledge of the fact that the goods have been weighed or measured to determine the price (s.22).

Ex: X approached Y for purchase of a specific bag of rice for Rs.30 per k.g.  The ownership of the bag of rice remain with Y, until the Bag is weighed and X is informed of the weighment . If the bag of Rice gets damaged before it is weighed,  the loss is to be borne by the seller (Y)

If, after the bag has been weighed and X has been informed of it, any loss happening to the bag is to be borne by the buyer (X) as the ownership is transferred as soon as the weighment of the goods has been done.

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Transfer of Ownership in Sale of Unascertained Goods under Sale of Goods Act

Contract of Sale of unascertained goods are treated like ‘Agreement to Sell’ and not ‘Sale’.

At the time of formation of contract of sale, if the goods are unascertained, the ownership of goods shall not pass to the buyer immediately.

Transfer of ownership of Unascertained Existing Goods under Sale of Goods Act

The property in goods shall be transferred from the seller to the buyer (i.e., the ‘agreement to sell’ shall become a ‘sale’), when goods (of the description as per contract)  to be delivered are:

  • Identified & separated  : Identified and set apart the goods from the general stock lying with the seller (s.18).
  • Unconditionally Appropriated : Identified and set apart with the intention of using them in performance of the contract and with the mutual consent of both the parties (s.23(1)).

The appropriation of goods must be done in the manner specified in the contract of sale, or as per usage of trade between the parties, or as per some conventional method known and acceptable in the trade (e.g., packing, marking, separation, delivery etc).

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Unconditional Appropriation of Unascertained Goods under Sale of Goods Act

  • Right of Disposal : Where the seller delivers the goods to the buyer without reserving right of disposal, it amounts to unconditional appropriation of goods.
  • Delivery to goods carrier :  Where the seller delivers the goods to a carrier for transmission to the buyer, without reserving right of disposal, it amounts to unconditional appropriation of goods.

However, if the seller delivers the goods to carrier reserving the right of disposal, it does not amount to unconditional appropriation of goods.

Transfer of Ownership of Future Goods under Sale of Goods Act

The procedure for transfer of property in case of unascertained goods applies in case of transfer of property of future goods also.

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Transfer of ownership in Sale on Approval

In Sale on approval, goods are delivered to Buyer with condition that the buyer is free to return the goods in future as per terms of the contract. So, though the possession of goods pass to the buyer, the ownership of goods is not transferred to the buyer immediately at the time of formation of contract of Sale on transfer of possession.

Sale on Approval Basis under Sale of Goods Act

‘Sale on Approval’ basis is also called as ‘Sale or Return’ basis.

In contract of ‘Sale on Approval’, the ownership is transferred to the buyer when the Buyer accepts the goods, or does not return the goods within specified time (s.24).

  • Specified Time : The ownership shall pass to the buyer on expiry of the time specified for  return of goods in the contract, if the goods are not returned (or refused to Accept) by the buyer within such time.
  • Express Acceptance : The ownership shall pass to the buyer on giving the intimation by buyer to the seller that the buyer has accepted the goods.
  • Non-Return: Where no specific time has been fixed in the contract for return of goods, the ownership shall pass to the buyer if the buyer does not return the goods to the seller within a reasonable time.
  • Implied Acceptance : Where the buyer does anything which shows that he has accepted the goods, it shall be deemed to be an implied acceptance of goods (e.g., where the buyer pledges, lends or uses the goods).

Ex: J sold a dog toK on Sale or Return basis, to be returned within 10 days, if not accepted. The dog died within 10 days (without any fault on part of K), before K confirmed the Purchase. Held, the loss would fall on  J (the seller) as the property in dog had not yet passed to K (the Buyer).

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Reservation of Right of Disposal under Sale of Goods Act

‘Reservation of right of disposal’ means retention of rights of ownership of the goods by the seller, by reserving his rights of disposal. Where the seller retains ‘Rights of Disposal’, the property in goods does not pass from the seller to the buyer.

Transfer of Property on Reservation of Right of Disposal under Sale of Goods Act

  • Specific goods : In contract of sale of specific goods, the property in goods passes to the buyer immediately on formation of contract of sale, only if the contract of sale is unconditional (s.25).

On reserving the right of disposal of goods by the seller, the contract of sale becomes conditional, and consequently, the property in goods does not pass to the buyer, even if the specific goods are in a deliverable state and are not required to be weighed or measured to determine the price.

  • Unascertained goods : In a contract of sale of unascertained goods or future goods, the property in goods passes to the buyer only when the goods are ascertained or are unconditionally appropriated to the contract.

In case of unascertained goods or future goods, if the seller reserves the right of disposal of goods, it does not amount to unconditional appropriation of goods, and consequently, the property in goods does not pass to the buyer even though the goods may have been ascertained.

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Modes of Reservation of Right of Disposal under Sale of Goods Act

In case of delivery of goods to carrier, the rights of disposal may be reserved in following ways:

  • by booking the goods in the name of ‘self’ or ‘seller’s order’ or ‘agent of the seller’, or
  • by directing the carrier to deliver the goods to the buyer only when certain conditions are fulfilled (e.g., acceptance of a bill of exchange, payment of the price etc.).

When the seller reserves the right of disposal of goods, the property in goods does not pass to the buyer (s.25(3)).

In case of delivery of goods by carrier, where the seller draws a document (like Bill of Exchange) and negotiates with the Document of Title of goods (like Transport Receipt), to secure acceptance / payment (e.g through a bank), if the buyer does not honour  the  document drawn (Accept / pay the Bill of Exchange), the buyer must return the  document of title to goods (like the Transport Receipt).

If he wrongfully retains the document of title to goods (like Transport Receipt), the property in the goods (ownership) does not pass to the buyer.

Ex: X agrees to sell 200 boxes of mangoes to B for Rs.20,000 and delivers them to Railway at Kolkata to be delivered to B at Patna. If the Railway receipt is made in the name of X, then property in goods will not be deemed to have transferred and if anything happens to the goods, the loss will be borne by X. On the other hand, if Railway receipt is made in the name of B, it will be treated as transfer of property in the name of B, and any loss to the goods will be to B’s account.

Ex: X agrees to sell 200 boxes of mangoes to B for Rs.20,000 and delivers the Railway Receipt to Bank, to be delivered to B, on making full payment to Bank. In this case, the property passes to B, when B makes payment to the Bank and takes the Railway receipt from Bank, duly released by Bank. After getting the Railway Receipt from Bank, goods will be at B’s risk. If B does not release the document from Bank, Bank will return the Railway Receipt to X and the property of the goods remain with X.

Passing of Property in goods to Buyer on Disposal Rights Reservation under Sale of Goods Act

  • Delivery of Documents of Title : Where the right to dispose the goods was reserved by the seller, the property in goods shall pass to the buyer if the ‘document of title to goods’ is unconditionally delivered by the seller to the buyer.
  • Fulfillment of Seller’s Conditions : Where the right of disposal of goods was reserved by the seller for fulfillment of certain condition, the property in goods shall pass to the buyer when such condition is fulfilled by the  buyer.

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Transfer of Property in Goods by Non-owners under Sale of Goods Act

The Rule “Nemo dat quod non habet”, means that ‘no one can give that what he himself does not have’ (or ‘No one can give better title than he has’)

According to this rule, a non-owner (with no title or defective title to the goods) cannot sell or convey a good title to the buyer, although the Buyer may be a bona fide innocent buyer. This rule is intended to protect the interest of true owner

If a person not being the owner, or not acting under the authority of the owner, sells the goods, the buyer cannot acquire a better title to them than the seller had.

Ex: A stole B’s mobile and sold it to C in a public auction. But, C does not become the owner of the mobile, because, A has no property in the goods. So, C cannot transfer good title to these goods even if he has purchased it without knowing the fact that the mobile was a stolen property.

Transfer of Title of Goods by Non-owner under Sale of Goods Act

Instances of Exception to the rule ‘Nemo dat quod non habet’.In following cases, even a non owner may confer good title to Buyer, under Sale of Goods Act 1930

  • Non-owner, under Rule of Estoppel (s. 27)
  • Mercantile Agent (s.27)
  • Joint Owner (s. 28)
  • Possessor of goods (s. 29)
  • seller in possession of goods after sale [S. 30(1)]
  • buyer in possession of goods before acquiring title of goods [S. 30(2)]
  • Unpaid Seller [s. 54(3)]

Under Other Acts

  • Finder of Goods
  • Pawnee
  • Official Receiver or Assignee
  • Holder of Negotiable Instrument
  • Officer appointed by Court

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Sale of Goods by Non-owner under Sale of Goods Act

Rule of Estoppel Non Owner under sale of Goods Act

If the non-owner of the goods by his own act or omission, leads the buyer to believe that he has the right to sell goods and the representation (either expressed or implied) is innocently acted upon by the buyer, the buyer shall be estopped from denying the seller’s authority to sell. 

By rule of estoppel, the buyer gets ownership if he has acted on good faith, believing the representation of seller to be true, in spite of the fact that seller is not the owner (s. 27).

Ex: In the presence of C, A sells to B a bike for Rs.30,000 saying that the bike belongs to A. Actually the bike belongs to C. B, being a bonafide buyer, becomes the owner of the bike  even though A had no right to sell the bike belonging to C. In this case, C is estopped from denying the implied representation made by him that C is not the owner of the bike.

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Sale of Goods by Mercantile Agent under Sale of Goods Act

A mercantile agent, is an agent of the seller, normally having authority to sell  & buy goods, to consign goods, andto raise money on the security of goods, in the ordinary course of business.

Transfer of Title of Goods by Mercantile Agent under Sale of Goods Act

A Mercantile Agent, may convey better title to a buyer acting in good faith. The buyer gets good title even when the Mercantile Agent, while acting in the ordinary course of business of a mercantile agent, sells goods even without having any authority to do so, if the agent is in possession of the goods or documents of title to the goods with the consent of the owner, and the buyer has, at the time of the contract of sale, no notice that the agent has no authority to sell.

Ex: F, the owner of a car, delivered it to H, a mercantile agent for sale at not less than Rs.4,00,000. H sold the car for Rs.3,50,000 to K, who bought it in good faith and without notice of any fraud. H misappropriated the money. F sued to recover the car from K. Held, as H was in possession of the car with F’s consent for the purpose of sale, K obtained a good title to the car. So, F cannot recover the car from K.

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Sale of Goods by a Joint Owner under Sale of Goods Act

A buyer buying goods from a Join Owner having possession of the goods, may get a valid title to the goods. The buyer gets good title to the goods even if the seller does not have authority to sell at the time of the contract, if the buyer, buys in good faith, without knowing that the seller has no authority to sell (s.28).

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Sale of Goods by possessor of goods under Sale of Goods Act

When the seller of goods has obtained the possession of goods, under a voidable contract, but the contract has not been rescinded by the time of the sale, the buyer acquires a good title to the goods provided he buys them in good faith without notice of the seller’s defect of title (s. 29).

However, if the original contract is void and not voidable, the buyer, buying from a person having goods under a void contract, gets no valid title.

Ex: X purchases a cycle from B by fraud. X has a voidable title to the goods. Before B rescinds contract, X sells the cycle to C, who buys in good faith and in ignorance of the fraud. C gets a good title.

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Sale of Goods by seller in possession of goods after sale

Sometimes the seller, after selling the goods, may continue to be in possession of goods or documents of title to goods. Where, the seller, still retaining the sold goods, delivers or transfers the sold goods by  further sale or pledge, the bonafide purchaser, acting in good faith without having any notice of the previous sale, gets valid  title ([s. 30(1)])

A hirer or bailee in possession of goods not owned by him, will not be able to pass good title to buyer

Similarly, a mere agreement for sale, pledge or other disposition will not be sufficient to give a valid title.

Ex: X sells certain goods to B and promises to deliver the goods the next day. Before delivery, X sells and delivers the goods to C who buys them in good faith, without notice of the prior sale to B. C gets a good title to the goods, though the ownership had passed to B, before he purchased. B’s only remedy is to sue X, B cannot recover the goods from C.

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Sale of Goods by buyer in possession of goods before acquiring

If the buyer obtains possession of goods, before the property in goods is passed on to him, with the consent of the seller and the buyer subsequently sells, pledges or otherwise disposes of the goods to third person, who takes the delivery in good faith and without notice of any lien or other right of the original seller in respect of the goods, such third party buying the goods, will get a good title to the goods. [s. 30(2)]

Ex: X bought some furniture on hire-purchase. Before he paid the last instalment, X sold the furniture to B (i.e., before acquiring ownership). B gets a good title if B purchased the furniture in good faith without knowledge of defect in X’s title.

Ex: Sital let on hire to Jaya a car at an agreed monthly rental for 12 months. According to one of the terms of the agreement, Jaya could at any time within 12 months, purchase the car by making the amount of the hire paid equal to a certain amount. During the term of the hire, Jaya pledged the car with Kiran without complying with this condition. Sital filed a suit for the recovery of the car. Held, Sital could recover the car from Jaya, as Jaya had only an option to purchase and as such could not give a good title to Kiran.

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Sale of Goods by Unpaid Seller

Where an unpaid seller, exercising his right of lien or stoppage in transit, resells the goods, the buyer acquires a good title to the goods as against the original buyer, even if the re-sale is not justified under the circumstances [s. 54(3)].

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Transfer of Title on Sale of Goods under Other Acts

In following circumstances, non-owners can transfer good title to the buyer, under provisions of Acts other than Sale of Goods Act 1930.

  • Sale by Finder of Goods

If any finder cannot trace the true owner, or if the owner refuses to pay the lawful charges of the finder, the finder can resell when the found thing is perishable or when his lawful charges for finding the owner amounts to 2/3rd of the value of the goods, and the buyer gets a good title though the finder was not owner of the goods, as provided in Indian Contracts Act 1872.

  • Sale by Pawnee

The pawnee can sell the goods pledged to him in certain circumstances after giving reasonable notice of sale, to the pawnor, as provided in Indian Contracts Act 1872.

  • Sale by Official Receiver or Assignee

In case of insolvency of an individual, the official receiver or assignee can convey better title to the property, as provided in the Code of Criminal Procedure.

  • Transfer of Negotiable Instrument by Holder in Due Course

A holder in due course of a negotiable instrument possesses better title and is an exception to the rule of “Nemo dat quod non habet”, as per Negotiable Instruments Act.

  • Sale by Officer appointed by Court

The Official Receiver, official assignee or  liquidator appointed by court may, for realising the assets and paying off the debts, can transfer a valid title to the buyer even if he is not the true owner of goods.

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