by Asok Nadhani
Transfer of Property
3.1 Property
According to sec.
2(11) of the Act, Property means
general property in goods. Any special or limited property or interest acquired
by the bailee or the pledge is excluded from the definition of property within
the meaning of this section.
3.2 Passing of Property
According to
sec. 19, 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. If the parties do not fix any time for transfer of ownership, following
provisions apply:
-
Transfer of ownership in case of sale of specific
goods (Sections 20 to 22).
-
Transfer of ownership in case of sale of
unascertained goods (Section 18 and 23).
-
Transfer of ownership in case of sale on approval
(Section 24).
3.2.1 Importance of Passing of Property
Passing of
property determines the event when the risk and reward associated with the
ownership of goods will pass on to the buyer. The parties to the contract can
exercise the following rights and duties to transfer the ownership of property:
(a)
Risk prima facie
passes with ownership: Risk is associated with the ownership, whether the
payment or delivery has been effected or not. According to sec.26, the goods
belong to the seller until the ownership in goods is transferred to the buyer.
But, when the ownership is transferred to the buyer, the goods are at the risk
of buyer whether the delivery has been made or not. If the delivery of goods is
delayed at the fault of any party, risk lies with the party who was at default.
(b)
Seller’s right
to sue: The right of seller to sue
for price arises only when the property in goods has been passed on to the
buyer.
(c)
Rights over the
goods: When the property in goods has been already passed on to the buyer, he
can exercise all the proprietary rights over the goods, which includes right to
sue the seller for delivery and to recover the goods from the mala fide buyer, in case of resale.
(d)
Insolvency of
the seller or buyer: On insolvency of buyer or seller, the rights of
official receiver to take over the possession of the goods depends on whether
the property in goods have been transferred or not. 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.
Similarly, 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.
(e)
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.
3.2.2 Passing of Risk
If the goods are
destroyed, damaged or deteriorated, the liability to bear the loss is called as
‘Risk”. However, 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.
1.
General Rule
During loss of goods, the
party who is the owner of such goods, shall bear the loss of goods. Hence, it
can be said that, risk passes with ownership. Therefore, following conclusions
may be drawn:
(a)
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.
(b)
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.
2.
Exceptions
(a)
Express
exclusion of the general rule
According to the Sale of
Goods Act, 1930, the risk of the owner, may be modified by the parties by
making an express provision in the contract of sale that the goods shall be at
the risk of the seller for sometime in future, even though the ownership of
goods has been passed to the buyer.
(b)
Goods are at the
risk of defaulting party (Sec. 44)
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.
Where the buyer wrongfully
refuses to accept the delivery of goods, the buyer shall be responsible for any
loss of such goods, even through the ownership of goods has not been passed to
him.
Example:
X agrees to sell Y 150
litres of cold drinks packed in bottles to be supplied by Z. The bottles were
to be supplied by 10 A.M. and cold drinks was to be supplied in packed bottles
by 11 A.M. Y neglects to supply the bottles and takes delivery of cold drinks
because of which 150 litres of cold drinks delivered by X becomes inconsumable.
Here, Y shall be liable for loss even though ownership would have passed to Z
only when the juice was filled in the bottles supplied by Z.
Similarly, if the seller wrongfully
neglects or refuses to deliver the goods to the buyer, the goods shall be at
the risk of the seller even through the ownership has been passed to the buyer.
Example:
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 and the buyer can claim the price paid by him.
(c)
Risk imposed on
a party by a custom
If there is a custom or
usage imposing risk on any party to the contract, such party shall be liable
for any loss of goods, even though he is not the owner of such goods.
3.2.3 Passing of Property in Sale
3.2.3.1 Conditions of Transfer of Ownership (Sec.
20)
The ownership of
specific goods shall be transferred from the seller to buyer immediately at the
time of formation of contract of sale on the fulfillment of following
conditions:
(a)
The contract is made for sale of specific goods.
(b)
The specific goods are in a deliverable state.
(c)
The goods are not required to be weighted or
measured for determination of price.
(d)
The contract of sale is unconditional, i.e., the
contract does not provide any other time for transfer of ownership.
Example:
A purchased a computer from B for Rs.10,000. As per the agreement,
transfer of property in the machine would be effected only when the machine
will be installed in A’s house after testing it. While delivering the machine
to A’s house, the machine got damaged. B being the owner of the machine would
have to suffer the loss or damage to the machine and will have to deliver
another machine to A.
Example:
P purchased a scooter from Q for Rs.45,000. P selected a particular
scooter in his showroom and paid an advance of Rs.5,000 and asked Q to deliver
that scooter to him next day. Meanwhile the shop of Q 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.
3.2.3.2 Transfer of Ownership after formation of
Contract of Sale
The ownership of
specific goods shall be transferred after the formation of contract as per
following rule:
3.2.3.2.1 Transfer of Ownership of Goods in a Deliverable State
The ownership
shall be transferred from the seller to buyer when the goods are put in a
deliverable state by the seller on satisfying the following conditions:
i.
The contract is made for sale of specific goods.
ii.
At the time of formation of contract of sale, the
specific goods are not in a deliverable state.
iii.
The goods are put in a deliverable state by the
seller.
iv.
The buyer has the knowledge of the fact that the
goods have been put in a deliverable state.
Example:
M agrees to sell his old car to N for Rs.1,00,000. N made the full
payment immediately. As per the contract, M has to get the car serviced before
delivering it to N. Held, the property in car will be transferred to N only
after servicing the car and N takes a note of it. If something happens to the
car before the car is being serviced, the entire loss will be borne by M as he
remains the owner of the goods.
3.2.3.2.2 Transfer of Ownership of Weighted or Measured
Goods (Sec. 22)
The ownership
shall be transferred from the seller to buyer when the goods are weighted or
measured, if the following conditions are satisfied:
i.
The contract is for sale of specific goods which
are in a deliverable state.
ii.
Specific goods the price of which has not been
determined at the time of formation of contract, are required to be weighted,
measured, tested or do some other act for the purpose of ascertaining the
price.
iii.
The buyer has the knowledge of the fact that the
goods have been weighted or measured in order to determine the price.
Example:
X approached Y for purchase of a specific bag of rice for Rs.30 per k.g.
Unless and until the Bag is not weighted, the property in goods remain with Y
and if something happens to the bag, the loss is to be borne by the seller (Y)
whether he has been paid for the price or not. If after the bag has been
weighted and X has taken a notice of it, if any loss happens to the bag, such
loss is to be borne by the buyer as the ownership is transferred as soon as the
weighment of the goods has been done.
3.2.4 Passing of Property in Sale
If at the time
of formation of contract of sale, the goods are unascertained the ownership of
goods shall not pass to the buyer immediately. Hence, it can be considered only
as an ‘agreement to sell’ and not ‘sale’. Consequently, at the time of
formation of contract of sale of unascertained goods, no party knows exactly
about the particular goods to be delivered to the buyer. But, when both the
parties come to know about the particular goods that shall be delivered, the
ownership shall also be transferred.
Conditions for Transfer of Ownership
In case of sale
of unascertained goods, the property in goods shall be transferred from the
seller to the buyer (i.e., the ‘agreement to sell’ shall become a ‘sale’) when
the following two conditions are satisfied:
1.
Ascertainment of
Goods
Ascertainment of goods is
the pre-condition in transfer of property. It is the process of identification
and setting apart the goods from the stock lying with the seller which are to
be delivered to the buyer. It is a unilateral act of the seller. The
ascertainment must be made of the goods of same description specified in the
contract of sale.
2.
Unconditional Appropriation
of Goods
According to sec. 23(1), in
case of contract for sale of unascertained goods, the property in goods passes
to the buyer when the goods are unconditionally appropriated to the
contract. Unconditional appropriation
means identifying and setting apart the goods with the intention of using them
in performance of the contract and with the mutual consent of both the parties.
In the following cases, the
transfer of ownership of goods amounts to unconditional appropriation of goods:
·
where the seller delivers the goods to the buyer
without reserving right of disposal, it amounts to unconditional appropriation
of goods.
·
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. Whereas, if the seller delivers the
goods to carrier reserving the right of disposal, it does not amount to
unconditional appropriation of goods.
The procedure for transfer
of property in case of unascertained goods applies in case of transfer of
property of future goods also.
3.
Essentials of a
valid Appropriation
The essentials of a valid
appropriation of goods are as follows:
(a)
The goods must be of the same description and quality
as stated in the contract of sale.
(b)
The goods have to be in deliverable state.
(c)
The goods must be unconditionally appropriated to
the contract.
(d)
The appropriation must be made with the mutual
consent of seller and buyer (express or implied). The assent may be given by
the parties either before or after ascertainment of goods.
(e)
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., by packing the goods, by marking the goods, by separating the goods or
by delivering the goods to the buyer or his agent or the carrier).
3.2.5 Passing of Property in Sale
1.
Where there is a fixed time for return of goods in
the contract, the ownership shall pass to the buyer on the expiry of such
specified time if the goods are not returned by the buyer before the expiry of
such time.
2.
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.
3.
The ownership shall pass to the buyer on giving the
intimation to the seller that he has accepted the goods even though the
specified time in the contract or reasonable time for return of goods, as the case
may be, has not expired.
4.
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).
Example:
A delivered his
jewellery to B on ‘sale for cash only or return’ basis. It was expressly
provided in the contract that the jewellery shall remain A’s property until the
price is paid by B. Before the payment was made, B pledged the jewellery with
C. But, the pledge was not valid as the ownership was not transferred to A at
the time of pledge and A could recover the jewellery from C.
Example:
A dog was delivered to
Kamal on the condition of sale or return within 10 days. The dog died within 10
days. Held, the loss would fall on the seller as the property in dog had not
yet passed to Kamal.
3.3 Reservation of Right of Disposal
‘Reservation of
right of disposal’ means that the property in goods does not pass from the
seller to the buyer where the seller retains the ownership of the goods by
reserving his right of disposal.
3.3.1 Reservation of Right of Disposal by the Seller
(Sec.25)
The seller may
reserve the right of disposal of goods irrespective of the nature of goods. The
seller can exercise this right in the following cases:
(a)
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.
But, 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 weighted or measured to determine the price.
(b)
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 and are unconditionally appropriated to the contract.
If in such a
situation, 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.
3.3.2 Modes of Reservation of Right of Disposal
The modes of
reserving the right of disposal of goods are-
(a)
by booking the goods in the name of ‘self’ or
‘seller’s order’ or ‘agent of the seller’, or
(b)
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.).
3.3.3 Effect of Right of Disposal
When the seller
reserves the right of disposal of goods, the property in goods does not pass to
the buyer even if the goods can be delivered by the seller to the buyer, or a
carrier or any other bailee.
3.3.4 Passing of Property in goods to the Buyer
The property in
goods passes to the buyer as follows:
(a)
Where the right to dispose the goods was reserved
by the seller by booking the goods in the name of ‘self’ or ‘seller’s order’ or
‘agent of the seller’, the property in goods shall pass to the buyer only if
the ‘document of title to goods’ is unconditionally delivered by the seller to
the buyer.
(b)
Where the right of disposal of goods was reserved
by the seller by directing the carrier to deliver the goods to the buyer only
on fulfillment of certain condition, the property in goods shall pass to the
buyer when such condition is fulfilled by him (buyer).
3.4 Delivery by Carrier
When the seller
does not directly hand-over the goods to the buyer, but employs some other
person to deliver such goods to the buyer, the person so employed is called as
Carrier.
According to
sec. 23(2), when the seller delivers the goods to the buyer or the carrier or
other bailee without reserving the right to disposal, he is deemed to have
unconditionally appropriated the goods to the contract.
3.4.1 Essential requirements for Delivery by
Carrier
The following
are the essential requirements for delivery to the carrier:
i.
Delivery must be in a pursuance of the contract.
ii.
Seller should deliver the goods to the buyer,
carrier or any other bailee in pursuance of the contract.
iii.
The delivery of goods must be made by the seller
without reserving the right to dispose of the goods.
iv.
Delivery of goods to the carrier may be absolute
for the buyer or absolute to the seller must show the particular buyer to whom
the goods are appropriated.
3.4.2 Effect of Delivery of Goods to Carrier
During delivery
of goods to a carrier, the following situations may arise:
(a)
The delivery of goods to the carrier shall amount
to delivery of goods to the buyer if the following conditions are satisfied:
i.
The seller delivers to the carrier exactly the same
goods as described in the contract of sale to the buyer.
ii.
The seller makes known to the carrier the name,
address of the buyer and the goods which are to be delivered to the buyer.
iii.
The seller delivers the goods to the carrier to
deliver them to the buyer.
iv.
The seller delivers the goods without reserving the
right of disposal of goods.
(b)
If the aforesaid conditions are not fulfilled, the
delivery of goods to the carrier shall not amount to delivery of goods to the
buyer.
Example:
A 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 Bihar . If the Railway
receipt is made in the name of A, then property in goods will not be deemed to
have transferred and if anything happens to the goods the loss will be borne by
A. 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.
3.5 Transfer of Title by Non-owners (Secs. 27, 28,
30 and 54)
The general rule
of transfer called “Nemo dat quod non habet”
means that ‘no one can give that what he himself does not have’. According to
this rule, a non-owner with no title or defective title to the goods cannot
sell or convey a better title to the buyer although he may be a bona fide innocent buyer. Consequently,
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. This rule is applied to protect the interest of true owner.
Example:
A picked 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, he (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.
3.5.1 Exception to the rule ‘Nemo dat quod non
habet’
3.5.1.1 Sale
If the 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.
Consequently, the buyer gets ownership if he has acted on good faith,
believing the representation to be true, inspite of the fact that seller is not
the owner. Estoppel cannot be created by mere carelessness. This rule is called
as rule of estoppel.
Example:
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 he (C) is not the owner of the bike.
3.5.1.2 Sale
A mercantile
agent, an agent of the seller, has the authority to sell goods or to consign
goods for the purposes of sale or to buy goods or to raise money on the security of goods in the ordinary course of
his business [sec. 2(9)]. He can convey better title to the buyer even though
he sells goods without having any authority from the owner to do so on
fulfilling the following conditions:
(a)
the agent is in possession of the goods or
documents of title to the goods with the consent of the owner;
(b)
the agent sell the goods, while acting in the
ordinary course of business of a mercantile agent;
(c)
the buyer buys the goods in good faith; and
(d)
the buyer has, at the time of the contract of sale,
no notice that the agent has no authority to sell.
Example:
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.
3.5.1.3 Sale
If one of
several joint owners of goods, who is in sole possession of the goods, sells
the goods by the permission of the co-owners to any person who buys them from
such joint owner in good faith does not have any notice of the fact that the
seller has no authority to sell at the time of the contract of sale gets a
valid title to the goods.
3.5.1.4 Sale
When the seller
of goods has obtained the possession of goods under a contract voidable at the
option of the owner on the ground of fraud, misrepresentation or coercion or on
the ground of undue influence under sec. 19 or 19A of the Indian Contract Act,
but contract has not been rescinded at the time of the sale, the buyers acquire
a good title to the goods provided he buys them in good faith without notice of
the seller’s defect of title.
However, if the
original contract is void and not voidable, the buyer, from a person having
goods under a void contract, gets no valid title.
Example:
A purchases a
cycle from B by fraud. A has a voidable title to the goods. Before B rescinds
contract, A sells the cycle to C, who buys in good faith and in ignorance of
the fraud. C gets a good title.
3.5.1.5 Sale
Sometimes the seller, after selling the goods, continues to be in
possession of goods or documents of title to goods and delivers or transfers
them under any sale or pledge by himself or his agent to some other person. In
this case, the bonafide purchaser should be entitled to a valid title provided
that he should act in good faith and should not have any notice of the previous
sale.
Possession as a
hirer or bailee of the goods from the buyer after delivery of goods to him will
not entitle him to such a right and a mere agreement for sale, pledge or other
disposition will not be sufficient.
Example:
A sells certain
goods to B and promises to deliver the goods the next day. Before delivery, A
sells and delivers the goods to C who buys them in good faith and without
notice of the prior sale to B. C gets a good title to the goods notwithstanding
that the property had, before he purchased, passed to B. B’s only remedy in
this case is against A.
3.5.1.6 Sale
If the buyer of
the goods obtains possession of goods before the property in goods is passed on
to him with the consent of the seller and he subsequently sell, pledge or
otherwise dispose of them either himself or through an agent 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 he will get a good title
to them.
Example:
A bought some
furniture on hire-purchase, the ownership to pass to him on the payment of the
last instalment. A sold the furniture to B before paying the last instalment. B
purchased the furniture bonafide. Held, B, having bought in good faith, had
obtained a good title to the furniture.
A person,
obtaining goods under a hire-purchase agreement, may not necessarily bought or
agreed to buy goods. If he has merely an option to buy, he cannot sell the
goods to the transferee, giving a valid title to him. Whereas, if he is obliged
to buy, he can give a better title to the transferee.
Example:
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 as Jaya had only an option to purchase and as such could
not give a good title to Kiran.
3.5.1.7 Sale
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 though the re-sale may not be justified under the circumstances.
3.5.1.8 Sale
According to
sec. 169 of the Indian Contract Act, 1872, 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 thing is perishable or when his lawful charges for
finding the owner amounts to 2/3 of the value of the goods. This exception is
not provided in Sale of Goods Act.
3.5.1.9 Sale
According to
sec. 176 of the Contract Act, the pawnee can sell the goods pledged to him in
certain circumstances after giving reasonable notice of sale to the pawnor.
3.5.1.10 Sale
In case of insolvency of an individual, his official receiver or
assignee can convey better title to the property. But, this exception is not provided in the Sale of Goods Act though it
is provided in the Code of Criminal Procedure.
3.5.1.11 Negotiable Instrument
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”.
3.5.1.12 Sale
In case of
insolvency of an individual, the Court appoints an official receiver or
official assignee to sell the goods of the insolvent person and pay-off his
creditors. Similarly, in case of winding up of company, a liquidator can be
appointed by Court for realising the assets and paying off the debts of the
company. In these cases, the official receiver shall transfer a valid title to
the buyer even if he is not the true owner of goods.
For more details, refer to Mercantile law, by Asok Nadhani,
BPB Publications,www.bpbonline.com, bpbpublications@gmail.com
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