Sale of Goods Act-Transfer of Ownership in goods including Sale by non-owners

  • ► Transfer of Ownership in goods including Sale by non-owners
  • An essential part of the Sale of Goods Act is the Transfer of Property, which passes from the seller to the buyer.  Possession is different from ownership, and these must be distinguished.
    Whereas a person may be the righteous owner of goods, he may not have the goods in his/her possession.  An agent, for example, is not the owner of the goods, he is in possession of, on behalf of the seller.  When there is a passing or transfer of property in the form of goods, the element of risk also passes. The essential aspect is the ‘ownership’ of the goods.  This is because several rights and liabilities of the transacting parties are directly connected with the issue of ownership. Usually, a contract of Sale takes place over a period of a few hours, a few days, or even a few months. During such time, there can be events which result in the entire contract of sale being affected.  The goods may be damaged, or destroyed, or lost in transit, or confiscated etc. It is in such circumstances, that the questions relating to the passing of property arises. These questions are discussed below:
  • Importance of Transfer of Ownership
    The questions of what is the exact time when the property is stated to have passed from the seller to the buyer; when the risk in the goods is stated to be passed; and who is capable of transferring property in goods, will be answered in this lesson. The following factors make it necessary to decide the actual time when the property in the goods passes from the seller to the buyer. These factors are:
    1. Risk passes with property
    2. Action against third parties
    3. Seller’s right for price
    4. Effect of insolvency of the seller or the buyer
    Risk passes with the property
    The usual rule is that in the absence of specialized terms, the risk follows the property. Till goods are the property of the seller, the risk remains with him. When goods become property of the buyer, he must bear any loss arising from their destruction or injury.
    Section 26 of the Act provides that, “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.”
    Illustration 1: Amar bids Rs.4000 for a wall clock at a sale by auction. After the bid, the wall clock is broken by an accident. If the accident happens before the hammer falls, the loss falls on the seller. If afterwards, it falls on Amar. Here, property in the picture passes to Amar when the sale is complete, i.e., when Amar’s offer is accepted, the acceptance being communicated by the fall of hammer.

    Illustration 2: Bhanu offers, and Anil accepts Rs.50,000 for 10 sheds of wood standing on Anil’s premises. The wood is allowed to remain at Anil’s place till a certain date and not to be taken away till paid for. Before payment, and while the firewood is at Anil’s premises, it is accidentally destroyed by fire.  Here, Bhanu must bear the loss because the property in the goods has already been passed to him with the acceptance of Bhanu’s offer by Anil. It does not make any difference that the payment and delivery have been both postponed.

    Illustration 3: Sunil contracts with Bindu to sell a van for Rs.2,00,000. Bindu is to collect the van from Sunil’s premises within a month, on making full payment for the same. They also agree that any loss arising to the van, till it is in possession of Sunil will be borne by Sunil. After 5 days of the contract, van gets burnt. Here, irrespective of the fact that the property in the goods has already passed to Bindu, Sunil shall bear the loss.

    Case Law 1:
    Demby Hamilton & Co. Ltd. V. Barden[1]:
    S contracts to sell 30 tins of apple juice to B. S accordingly crushes the apples, and put their juice in casks pending delivery. B was late in taking delivery and some juice went bad. The Court held that B bore the risk of deterioration, which was due to his delay in taking the delivery.
  • Action against third parties
    It is only after the passing of property to the buyer that he can exercise proprietary rights over the goods. For example, if after the sale, the seller refuses to deliver the goods, the buyer can bring an action against him for forcing the delivery, and if the seller has already resold those goods to a third person, he can also recover them from such third person in certain circumstances. Moreover, if the goods are damaged or destroyed due to act of a third person, the owner of the goods can take an action against him. Thus, ownership of the goods fixes the rights of a person to have the goods as against the whole world.
  • Seller’s right for price
    The seller becomes entitled to recover the price of the goods from the buyer only after the property of the goods has been transferred to the buyer.
  • Effect of insolvency of the seller or the buyer
    On insolvency of a person, the Receiver or the Official Assignee takes the possession of the property belonging to the insolvent. Here, the decision as to the ownership of the goods is very important. If the seller becomes insolvent, and the property, in the goods has already been passed to the buyer, buyer becomes insolvent and the property in the goods is yet to pass to him, his Official Assignee cannot take over the possession of the goods.
  • Rules Regarding Transfer Of Property
    Sections 18 to 24 of the Sale of Goods Act explain the rules regarding transfer of ownership in goods. These rules are as follows:
    • Goods must be ascertained. Section 18 provides that, where there is a contract for the sale of unascertained goods, no property in goods is transferred to the buyer unless and until the goods are ascertained (Section 18).
    • Intention of the parties. Section 19 provides that, where there is a contract for the sale of specific or ascertained goods, the property in them passes to the buyer at the time when the parties, intend it to pass. For determining intention of the parties, regard shall be had to the terms of the contract, conduct of the parties and the circumstances of the case.
    Case Law 2:
    Appleby vs. Myers:
    S offered to sell to B a certain machine for Rs.5,000. B refused to buy it unless certain work was done on it. S asked B to get the work done himself and deduct the expenses from the cost of the machine. To this B agreed, and took the machine to a repair shop. While being repaired, the machine was destroyed without any fault of the repairman. The property in the machine did not pass to B from S.

    The time when the ownership passes from the seller to the buyer will depend upon the category of goods that are being dealt with. In this context, the goods can be classified as follows:
    1. Specific or Ascertained goods.
    2. Goods that are not ascertained.
    3. Goods sent on approval or on return basis.
    In each of these cases the rules will be different. Discussion on specific goods which means goods that are identified and agreed upon at the time when a contract of sale is entered into are the following:
  • Transfer of ownership in the sale of specific goods
    When the contract for sale of specific goods is entered into there are three main conditions that will apply:
    (a)  The sale must be of specific goods, i.e., the identified goods at the time of sale.
    (b)  The goods must be in a state that they can be delivered; and
    (c) The contract of sale must be unconditional and not be restricted by any conditions.
    Illustration 1: Hardeep sold his old Scooter to Vivek and agreed to deliver the Scooter after getting it painted. Here, the ownership of the Scooter is not transferred to Vivek at the time of contract because the subject matter of the contract is not in deliverable state.

    Illustration 2: Sanjay sold his old Tempo to Amit for Rs.10,000 on the condition that he can take the delivery of the Tempo on making full payment. In this case, the property in the car will not pass to the buyer until he makes the full payment.
  • Passing of property delayed beyond the date of the contract
    (i) When goods are not in a deliverable state
    “If the goods are not in a deliverable state, and contract is for the sale of specific goods, the property does not pass, until the seller brings them in a deliverable state and the buyer has notice thereof. Two conditions are to be fulfilled, if the goods are not in a deliverable state: (1) the seller has done his act of putting the goods that are not in a deliverable state; and (2) the buyer has knowledge thereof “(Section 21).
    The seller might be required to do certain acts to put the goods into a deliverable state like packing, filling in containers etc. No property in goods passes unless such an act is done and the buyer knows about it.
    Case Law 3:
    Rugg Vs. Minett[1]:
    A sold the entire quantity of oil in a cistern to B. As per the terms of the contract, the oil was to be filled in the casks by A, and then the buyer was to take them away. Some of the casks were filled by A in B’s presence, but before they were removed by B and the remainder could be filled up, the entire quantity of oil was destroyed in a fire. It was held that the buyer was to bear the loss of oil, which was filled in casks and the seller was to bear the loss of the remainder.
    (ii) “When the price of goods is to be ascertained by weighing of measuring. 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 act or thing with reference to goods for the purpose of ascertaining the price, the property in goods does not pass to the buyer until that act or thing is done and the buyer has notice thereof”(Section 22).
    Case Law 4:
    Turley vs. Bates[2]:
    T sold to B a heap of fireclay at a certain price per ton. B was to load the clay on his carts and take it away at his own expense. The clay was to be weighed at a certain weighing machine, which the carts were to pass on their way from T’s ground to B’s place. It was held that ownership of clay passed to B on completion of the bargain and nothing remained to be done by T

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