Transfer or passing of property implies transfer of ownership and not the physical possession of goods. For example, where a principal sends goods to his agent, he merely transfers the physical possession and not the ownership of goods. Here, the principal is the owner of the goods but is not having possession of goods and the agent is having possession of goods but us not the owner. Transfer of ownership or property in goods is in fact the object of making a contract of sale. In this article, we shall discuss rules related to passing of property under Sale of Goods Act, 1930.
Significance of Passing of Property:
The time of transfer of ownership of goods decides various rights and liabilities of the seller and the buyer. Thus, it becomes very important to know the exact time of transfer of ownership of goods from seller to buyer for the following reasons:
- Who shall bear the risk?
- Who can take action against third party?
- Whether a seller can sue for price?
- In case of insolvency of a buyer whether the official receiver or assignee can take possession of goods from seller?
- In case of insolvency of a seller whether the official receiver or assignee can take the possession of goods from buyer?
- Who has right of resale?
Who shall bear the risk?
Risk follows the ownership or risk passes with property, whether the delivery has been made or not. Thus, in a sale, the buyer immediately becomes the owner of the goods and the risk as a rule passes to the buyer; under an agreement to sell, the seller remains the owner and the risk is with him. If the goods are lost or damaged by accident, then the loss falls on the owner of the goods at the time they are lost or damaged. Thus, it is the owner who has to bear the risk and not the person who merely has the possession. Thus, under a sale, if the goods are destroyed the loss falls on the buyer, even though the goods are in the possession of the seller. But, under an agreement to sell, the loss will fall on the seller in the case of destruction of goods even though they are in the possession of the buyer.
According to Section 26 of the Sale of Goods Act, 1930 unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not:
Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault:
Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party.
Who can take action against third party?
When there is a danger of the goods being damaged by the action of third parties, it is generally the owner who can take action. Thus, it is the owner who can take action and not the person who merely has the possession.
Whether a seller can sue for price?
In case of sale, if the buyer wrongfully neglects or refuses to pay the price of the goods, the seller can sue for the price, even though the goods are still in his possession. In case of an agreement to sell, if the buyer fails to accept and pay for the goods, the seller can only sue for damages and not for the price, even though the goods are in the possession of buyer.
What happens on the insolvency of buyer?
In a sale, if the buyer is adjudged an insolvent, the seller in the absence of a lien over the goods is bound to deliver the goods to the official Receiver or Assignee. The seller, will, however, be entitled to a rateable dividend for the price of the goods. On the other hand, in an agreement to sell, when the buyer becomes insolvent before he pays for the goods, the seller may not part with the goods.
What happens on the insolvency of Seller:
In a sale, if the seller becomes insolvent, the buyer being the owner is entitled to recover the goods from the Official Receiver or Assignee. In an agreement to sell, if the buyer, who has paid the price, finds that the seller has become insolvent, he can only claim a rateable dividend and not the goods because property in them has not yet passed to him.
Who has the right of resale:
According to Section 30 of the Sale of Goods Act, 1930, in a sale, the property is with the buyer and as such the seller (in possession of goods after sale) cannot resell the goods. If he does so, the subsequent buyer having knowledge of the previous sale does not acquire a title to the gods. The original buyer can sue and recover the goods from the third person on owner, and can also sue the seller for the breach of contract as well as for the tort conversion. The right to recover the goods from the third person is, however, lost if the subsequent buyer had bought them bonfire without notice of the previous sale. On the other hand, in an agreement to sell, the property in the goods remains with the seller and as such he can dispose of the goods as he likes and the original buyer can sue him for the breach of contract only.
Rules Relating to Passing of Property/Transfer of Ownership From Seller to Buyer:
For the purposes of ascertaining the time at which the ownership is transferred from seller to the buyer, the goods have been classified into the following three categories:
- Specific or ascertained goods
- Unascertained goods
- Goods sent ‘on approval’ or ‘on sale on return’ basis.
Passing of Property in Specific / Ascertained Goods (Ss. 19 to 22):
According to Section 19(1) of the Sale of Goods Act, 1930, where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to he transferred and according to Section 19(3) of the Act, unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.
According to Section 20 of the Sale of Goods Act, 1930, where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.
The ownership is transferred immediately at the time of making the contract if all the following conditions are satisfied:
- The contract is for the specific goods.
- The goods are in deliverable state.
- The contract is unconditional
- The goods are not required to be weight or measured for determining price.
According to Section 21 of the Sale of Goods Act, 1930, 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 Section 22 of the Sale of Goods Act, 1930, 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 the 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.
Passing of Property in Unascertained Goods (Ss. 18 and 23):
According to Section 18 of the Sale of Goods Act, 1930 where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.
According to Section 23(1) of the Sale of Goods Act, 1930 where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may by given either before or after the appropriation is made.
According to Section 23(2) of the Sale of Goods Act, 1930 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.
Passing of Property in Goods Sent ‘On Approval’ or ‘On Sale or Return’ Basis (S. 24):
According to Section 24 of the Sale of Goods Act, 1930 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 does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.
Reservation of Right of Disposal
According to Section 25 of the Sale of Goods Act, 1930
(1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.
(2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal.
(3) Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as the case may be, the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange; and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him.
Conclusion:
The Sale of Goods Act, 1930 gives provision regarding the passing of property during a contract pertaining to the sale of goods. Section 18 to 25 of the Sale of Goods Act, 1930 provides the contracting parties several principles, through which rights and liabilities of the buyer and seller are determined. Passing of the property in goods from the seller to the buyer portrays the transfer of ownership from one party to another, which is without an exception a different concept from that of the possession of goods as possession only involves custody of goods.