Rules Regarding Transfer of Ownership

You learnt the importance of knowing the time of transfer of ownership from seller to buyer. Now the next important thing is to determine the time of transfer of ownership. The rules regarding the transfer of ownership are contained in Sections 18 to 24 of the Sale of Goods Act, 1930. The general rule is that the ‘property in goods is transferred to the buyer at such time as the parties intend it to be transferred’ [Section 19(i)]. 




Thus, the whole question of transfer of ownership is left to the intention of the parties. The parties are free to fix any time for the transfer of ownership from seller to the buyer. But sometimes the intention of the parties may not be clear from the contract itself. In such cases, the intention could be ascertained according to the rules laid down in Section 20 to 24 of the Sale of Good Acts.

For the purposes of knowing the time of passing of ownership from seller to the buyer, the goods have been classified into three classes, viz.,

i) Specific or ascertained goods,

ii) Generic or unascertained goods; and

iii) Goods send ‘on approval’ or ‘on sale or return’ basis,

Let us now discuss the rules for each of the class separately.

 

In Case of Specific or Ascertained Goods

Specific goods mean goods identified and agreed upon at the time a contract of sale is made. According to Section 19(2) of the Act where there is a contract for the sale of specific or ascertained good the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.  It further provides that for the purpose of ascertaining the intention of the parties’ regard shall be had to the terms of contract, the conduct of the parties and the circumstances of the case.

For knowing the intention of the parties with respect to the time when the properly in the goods is to pass to the buyer, the following rules are applicable:

1. Specific goods in a deliverable state: Where there is an unconditional contract for the sale of specific goods and the goods are in a deliverable state, the property in the goods passes to the buyer when the contract is made. You should note that it is immaterial whether the time of payment of the price or the time of delivery of goods or both, is postponed (Section 20). On analysing this section, you find that the ownership shall pass at the time of making the contract if the goods are specific, the contract is an unconditional one and the goods are in a deliverable state. By an unconditional contract we mean that there is no condition regarding the transfer of ownership of goods. For example, A sells some specific goods in a deliverable state to B on the condition that the property in the goods shall pass only when B accepts the bills of exchange. This is a conditional contract and the property in goods shall be transferred only when the condition is fulfilled.

Another important point in this section is that the goods must be in a deliverable state. Now the question arises as to when goods can be said to be in a deliverable state, According to Section 2(3) of the Act, goods are said to be in a deliverable state when they are in such state that the buyer would, under the contract, be bound to take delivery of them. In simple words it means that the goods are in such a condition that the buyer can take away the goods then and there. It is possible when the goods are ready and the seller is not required to do anything with the goods.

Examples

i) A offer to sell his car to B for Rs. 60,000 the price to be paid after 20 days. B accepts the offer and a contract is made. The property in the car passes to B immediately when the contract is made, the payment of the price is immaterial.

ii) A selects some books from B’s book shop and agrees to pay the price on the first day of the next month and the books are to be delivered at A’s house on the following day. As a result of an accidental fire in the shop, the books selected by A were destroyed. A shall be liable to pay the price, as the property in the books has passed from B to A on making the contract. You should note that in this case neither the price has been paid nor the goods have been delivered, even then the ownership has passed from seller to the buyer.

You should further note that if any of the conditions stated in Section 20 is not fulfilled, the property in the goods shall not pass to the buyer at the time of making the contract.

 

2. Specific goods not in a deliverable state: Another situation may be where goods are not in a deliverable state at the time of making the contract. In simple words, the seller has to do something to the goods to put them in a deliverable state. For example, cutting the goods, or packing or sealing, or loading or filling them in containers etc. In such a case as per Section 21 of the Sale of Goods Act, where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. According to this rule the property in goods will not pass to the buyer unless “something” is done in order to put them in a deliverable state.

In Rugg v. Minett, the whole of contents of a cistern of oil were sold, and the seller had to put the oil in casks to deliver it to the buyer. The seller filled some casks in the presence of the buyer, but, before the remainder could be filled a fire broke out and the entire quantity of oil was destroyed. It was held that the buyer must bear the loss of the oil which was put into casks and the seller will bear the loss of the remainder, the reason being that the oil that was put in a deliverable state became the property of the buyer. You should note that here the ownership did not pass to the buyer at the time of the contract but it passed only when the goods were put into a deliverable state and the buyer has notice thereof.

 

3. Specific goods in a deliverable state, when the seller has to do something to ascertain the price: Sometimes the goods may be in a deliverable state, but the seller is bound to do something for the purpose of ascertaining the price. In such a case the property in goods shall not pass to the buyer unless the seller has done that thing for ascertaining the price. In this regard Section 22 of the Act provides, “where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof”. For example, A sells to B a heap of wheat at the rate of Rs 250 per quintal. A had to weigh the wheat in order to ascertain the price of the entire wheat sold to B. The property in the goods will pass when A has weighed the wheat and a notice of it is given to the buyer.

In Zagury v. Furmell, 289 specified bales of goat skins, containing 60 pieces in each sale were sold. It was the duty of the seller to count them before sale. Before counting was completed, the bales were destroyed by fire. It was held that since the seller has not done that thing (counting of bales) for ascertaining the price, the ownership had not passed to the buyer, so this loss had to be borne by the seller.

You should notice that this rule is only an extension of the rule given in Section 21. However, it should be noted that if the buyer does something (weighing, measuring or counting etc.) for his own satisfaction, this Section will not apply.

 

In Case of Unascertained Goods and Future Goods

The general rule is that no property is goods is transferred to the buyer unless and until the goods are ascertained (Section 18). For example, A agreed to sell to B 100 bags of wheat out of 1,000 bags of wheat lying in his godown. The property in goods shall not pass to B until and unless 100 bags of wheat are separated from the rest. Thus, for transferring the property of unascertained goods the first step is to identify or ascertain the goods. Ascertainment is the process of identifying the goods to be sold to the buyer. After the goods have been ascertained, the next step is their unconditional appropriation to the buyer.

Section 23(i) provides that in a contract for the sale of unascertained or future goods by description, the property in goods passes to the buyer when the goods are unconditionally appropriated to the contract. The term ‘appropriation’ has not been defined in the Act. It means an overt act showing an intention to identify and determine the specific goods as those to which the bargain of the parties shall apply. Appropriation is done with the mutual consent of the seller and the buyer. Appropriation may be done either by the seller or by the buyer with the consent of the other, the consent of the seller or the buyer, may be express or implied and may be given before or after the appropriation is made. Once the goods are appropriated with the mutual consent of the parties, they become the property of the buyer.

Here you should note the difference between ascertainment and appropriation. Ascertainment is an unilateral act and is usually done by the seller alone, while in case of appropriation the mutual consent of the parties is required. The goods are appropriated by putting them in suitable receptacles i.e., by putting the goods in bags or boxes or putting the oil in bottles or casks. Sometimes, when the seller delivers the goods to the carrier or other bailee for transmission to the buyer without reserving the right of disposal, the property in goods passes.

Appropriation of goods may be done either by the seller or by the buyer with the consent of the other party.

 

Appropriation by the seller with the buyer’s assent: Goods are generally in the possession of the seller, so he appropriates the goods with the consent of the buyer in such a case the property in goods shall pass to the buyer only when he agrees to such appropriation. For example, A agreed to sell 10 bags of rice to B out of his stock of 500 bags. A separates 10 bags with B’s assent; the ownership of 10 bags would pass to B as soon as this is done.

Section 23(2) of the Act provides that “where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not); for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract”. Whether or not the seller has reserved the right of disposal over the goods even after delivering them to the carrier, is a question of fact depending on the circumstances of the case.

Where the seller takes out the railway receipt or bill of lading in his own name, the presumption is that the seller has reserved the right of disposal and in such a case the ownership of goods shall not pass. Similarly, if the railway receipt or bill of lading is in the name of the buyer but is sent through the bank with the instructions that the same are to be delivered to the buyer on payment of the price or acceptance of the bill, the property in the goods will not pass to the buyer until and unless he makes the payment or accepts the bill of exchange.

Appropriation by the buyer with the seller’s assent: Where the goods are already in the possession of the buyer, as in the case where he is the warehouseman for the seller, the goods can be appropriated by the buyer with the consent of the seller. For example, 500 bags of wheat belonging to Aare stored in B’s warehouse. A sells 100 bags of wheat to B. Since B is in possession of the goods, he may with A’s consent appropriate 100 bags. Here the property in goods will pass from A to B as soon as the appropriation is done.

Now it should be clear to you that property in goods cannot pass in unascertained goods. It is, in fact, an agreement to sell. It becomes sale only when the goods are ascertained and unconditionally appropriated to the contract.

 

In Case when Goods are Sent ‘On Approval’ or ‘On Sale or Return’ Basis

When goods are sent ‘on approval’ or ‘on sale or return’ basis, it means that the buyer has the option to return the goods to the seller, if he is not satisfied with the goods. According to Section 24 of the Act, when goods are delivered to the buyer on approval or ‘on sale or return’ or other similar terms, the property therein passes to the buyer (a) when he signifies his approval or acceptance to the seller or (b) does any other act adopting the transactions or (c) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection. Let us now discuss these points in detail.

i) When he signifies his approval or acceptance: When the buyer accepts the goods and the seller is informed about it, the property in goods passes to the buyer. For example, A delivered a scooter to B on approval for seven days. B informs A that he has accepted to buy the Scooter. The ownership shall pass to B on his approval. This is a case at express approval.

 

ii) When he adopts the transaction: Sometimes the buyer does not send his express approval but does some act in regard to the goods which shows that he has accepted the goods, there the ownership shall pass to the buyer on the act of adoption. This is implied acceptance or approval. For example, A delivered some jewellery to B ‘on sale or return’ basis. B pledged the jewellery with P. It was held that B has adopted the transaction by pledging the jewellery with P, the property has passed to B. A can recover the price from B but has no right against P.

 

iii) When he fails to return the goods: When the buyer does not signify his approval or rejection, but retains the goods without giving notice of rejection, the ownership passes to the buyer. We can take up this point under the following two sub-heads.

 

a) If time is fixed for the return of the goods: In case the goods are sent on approval or ‘sale or return’ basis and a time has been fixed for the return of the goods, the ownership passes to the buyer on the expiry of such fixed time. For example, A delivered a horse to B on ‘sale or return’ basis for seven days. B retains the horse even after the expiry of seven days, B shall be deemed to have become the owner. But if the horse dies on the third day itself without any fault of B, B shall not be liable for the price because the ownership has not yet passed to the buyer.

 

b) If no time is fixed for the return of the goods: When the goods are delivered on approval or ‘sale or return’ basis and no time is fixed for the return of the goods, if the buyer his to return the goods within reasonable time, the ownership passes to the buyer on the expiry of reasonable time. The question as to what is a reasonable time is a question of fact depending on circumstances of each case. For example, A delivered his scooter to B on approval. B kept the scooter with him for three months. B shall be liable to pay the price to A because B has become the owner of the scooter on the expiry of a reasonable time.

However, you must remember that in case the goods are sold on sale or return basis upon the condition that the property in goods will pass only on payment, then the property will not pass until payment has been made. For example, A delivered a scooter to B on approval on the condition that the ownership will not pass until the price of the scooter is paid to the seller. B pledges the scooter with P without making the payment of the price. Here, since B has not yet become the owner of the scooter, A can recover his scooter from P.

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