ICAI Notes- Unit 3: Transfer of Ownership and Delivery of Goods | Business Laws for CA Foundation PDF Download

 Page 1


 
 
    
 
3.47 
THE SALE OF GOODS ACT, 1930 
LEARNING OUTCOMES 
UNIT – 3: TRANSFER OF OWNERSHIP AND 
DELIVERY OF GOODS 
 
 
 
After studying this unit, you would be able to understand- 
? How and at what point of time the ownership in goods which are the 
subject matter of a contract of sale passes to the buyer from the 
seller. 
? About what appropriation of goods is and how it affects the passing 
of property in goods. 
? Distinction between passing of property and passing of title. 
? The rule of ‘nemo dat quod non habet’ (no one can give what he has 
not got) and exceptions thereof. 
? The rules relating to delivery of goods and acceptance of goods. 
 
 
 
 
 
 
 
 
 
 
 
A contract of sale of goods involves transfer 
of ownership in three stages: 
Passing 
of 
property 
Delivery 
of goods 
Passing 
of Risk 
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
Page 2


 
 
    
 
3.47 
THE SALE OF GOODS ACT, 1930 
LEARNING OUTCOMES 
UNIT – 3: TRANSFER OF OWNERSHIP AND 
DELIVERY OF GOODS 
 
 
 
After studying this unit, you would be able to understand- 
? How and at what point of time the ownership in goods which are the 
subject matter of a contract of sale passes to the buyer from the 
seller. 
? About what appropriation of goods is and how it affects the passing 
of property in goods. 
? Distinction between passing of property and passing of title. 
? The rule of ‘nemo dat quod non habet’ (no one can give what he has 
not got) and exceptions thereof. 
? The rules relating to delivery of goods and acceptance of goods. 
 
 
 
 
 
 
 
 
 
 
 
A contract of sale of goods involves transfer 
of ownership in three stages: 
Passing 
of 
property 
Delivery 
of goods 
Passing 
of Risk 
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
 
BUSINESS LAWS 
 
 3.48 
INTRODUCTION 
Sale of goods involves transfer of ownership of property from seller to buyer. It is essential to 
determine the time at which the ownership passes from the seller to the buyer. 
Importance of the time of transfer  
The general rule is that risk prima facie passes with the property. In case where goods are lost 
or damaged, the burden of loss will be borne by the person who is the owner at the time when 
the goods are lost or damaged. Where the goods are damaged by the act of the third party, 
it is the owner who can take action. Suit for price by the seller can be filed only when the 
property has passed to the buyer. 
3.1  PASSING OF PROPERTY (SECTIONS 18 – 26)  
Passing or transfer of property constitutes the most important element and factor to decide 
legal rights and liabilities of sellers and buyers. Passing of property implies passing of 
ownership. If the property has passed to the buyer, the risk in the goods sold is that of buyer 
and not of seller, though the goods may still be in the seller’s possession. 
The rules regarding transfer of property in goods from the seller to the buyer depend on two 
basic factors: 
(a) Identification of Goods: Section 18 provides that where there is a contract of safe for 
unascertained goods, the property in goods cannot pass to the buyer unless and until 
the goods are ascertained. The buyer can get the ownership right on the goods only 
when the goods are specific and ascertained. 
(b) Intentions of parties: The property in goods is transferred to the buyer at such time 
as the parties to the contract intend it to be transferred. [section 19(1)] 
Section 19(2) further provides that for the purpose of ascertaining the intention of the 
parties regard shall be: 
(i) To the terms of the contract 
(ii) To the conduct of the parties and  
(iii) To the circumstances of the case 
  
© The Institute of Chartered Accountants of India
Page 3


 
 
    
 
3.47 
THE SALE OF GOODS ACT, 1930 
LEARNING OUTCOMES 
UNIT – 3: TRANSFER OF OWNERSHIP AND 
DELIVERY OF GOODS 
 
 
 
After studying this unit, you would be able to understand- 
? How and at what point of time the ownership in goods which are the 
subject matter of a contract of sale passes to the buyer from the 
seller. 
? About what appropriation of goods is and how it affects the passing 
of property in goods. 
? Distinction between passing of property and passing of title. 
? The rule of ‘nemo dat quod non habet’ (no one can give what he has 
not got) and exceptions thereof. 
? The rules relating to delivery of goods and acceptance of goods. 
 
 
 
 
 
 
 
 
 
 
 
A contract of sale of goods involves transfer 
of ownership in three stages: 
Passing 
of 
property 
Delivery 
of goods 
Passing 
of Risk 
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
 
BUSINESS LAWS 
 
 3.48 
INTRODUCTION 
Sale of goods involves transfer of ownership of property from seller to buyer. It is essential to 
determine the time at which the ownership passes from the seller to the buyer. 
Importance of the time of transfer  
The general rule is that risk prima facie passes with the property. In case where goods are lost 
or damaged, the burden of loss will be borne by the person who is the owner at the time when 
the goods are lost or damaged. Where the goods are damaged by the act of the third party, 
it is the owner who can take action. Suit for price by the seller can be filed only when the 
property has passed to the buyer. 
3.1  PASSING OF PROPERTY (SECTIONS 18 – 26)  
Passing or transfer of property constitutes the most important element and factor to decide 
legal rights and liabilities of sellers and buyers. Passing of property implies passing of 
ownership. If the property has passed to the buyer, the risk in the goods sold is that of buyer 
and not of seller, though the goods may still be in the seller’s possession. 
The rules regarding transfer of property in goods from the seller to the buyer depend on two 
basic factors: 
(a) Identification of Goods: Section 18 provides that where there is a contract of safe for 
unascertained goods, the property in goods cannot pass to the buyer unless and until 
the goods are ascertained. The buyer can get the ownership right on the goods only 
when the goods are specific and ascertained. 
(b) Intentions of parties: The property in goods is transferred to the buyer at such time 
as the parties to the contract intend it to be transferred. [section 19(1)] 
Section 19(2) further provides that for the purpose of ascertaining the intention of the 
parties regard shall be: 
(i) To the terms of the contract 
(ii) To the conduct of the parties and  
(iii) To the circumstances of the case 
  
© The Institute of Chartered Accountants of India
 
 
    
 
3.49 
THE SALE OF GOODS ACT, 1930 
The primary rules determining the passing of property from seller to buyer are as 
follows:  
 
 
 
 
 
 
A. Property (Specific or ascertained goods) passes when intended to pass (Section 19): 
 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 
be transferred. [sub-section (1)] 
 For the purpose of ascertaining the intention of the parties, regard shall be had to the 
terms of the contract, the conduct of the parties and the circumstances of the case. 
[sub-section (2)] 
 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. [sub-section (3)] 
Stages of goods while passing of property 
 
1. Specific goods in a deliverable state (Section 20): 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. Here, the condition is goods must be ready 
for delivery. 
Specific goods in a deliverable state
Specific goods to be put into a deliverable state
Specific goods in a deliverable state when seller has to 
ascertain price.
Passing of 
property 
? Specific or Ascertained Goods 
? Passing of Unascertained Goods 
? Goods sent on approval or ”on sale or return” 
? Transfer of property in case of reservation of 
right to disposal. 
© The Institute of Chartered Accountants of India
Page 4


 
 
    
 
3.47 
THE SALE OF GOODS ACT, 1930 
LEARNING OUTCOMES 
UNIT – 3: TRANSFER OF OWNERSHIP AND 
DELIVERY OF GOODS 
 
 
 
After studying this unit, you would be able to understand- 
? How and at what point of time the ownership in goods which are the 
subject matter of a contract of sale passes to the buyer from the 
seller. 
? About what appropriation of goods is and how it affects the passing 
of property in goods. 
? Distinction between passing of property and passing of title. 
? The rule of ‘nemo dat quod non habet’ (no one can give what he has 
not got) and exceptions thereof. 
? The rules relating to delivery of goods and acceptance of goods. 
 
 
 
 
 
 
 
 
 
 
 
A contract of sale of goods involves transfer 
of ownership in three stages: 
Passing 
of 
property 
Delivery 
of goods 
Passing 
of Risk 
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
 
BUSINESS LAWS 
 
 3.48 
INTRODUCTION 
Sale of goods involves transfer of ownership of property from seller to buyer. It is essential to 
determine the time at which the ownership passes from the seller to the buyer. 
Importance of the time of transfer  
The general rule is that risk prima facie passes with the property. In case where goods are lost 
or damaged, the burden of loss will be borne by the person who is the owner at the time when 
the goods are lost or damaged. Where the goods are damaged by the act of the third party, 
it is the owner who can take action. Suit for price by the seller can be filed only when the 
property has passed to the buyer. 
3.1  PASSING OF PROPERTY (SECTIONS 18 – 26)  
Passing or transfer of property constitutes the most important element and factor to decide 
legal rights and liabilities of sellers and buyers. Passing of property implies passing of 
ownership. If the property has passed to the buyer, the risk in the goods sold is that of buyer 
and not of seller, though the goods may still be in the seller’s possession. 
The rules regarding transfer of property in goods from the seller to the buyer depend on two 
basic factors: 
(a) Identification of Goods: Section 18 provides that where there is a contract of safe for 
unascertained goods, the property in goods cannot pass to the buyer unless and until 
the goods are ascertained. The buyer can get the ownership right on the goods only 
when the goods are specific and ascertained. 
(b) Intentions of parties: The property in goods is transferred to the buyer at such time 
as the parties to the contract intend it to be transferred. [section 19(1)] 
Section 19(2) further provides that for the purpose of ascertaining the intention of the 
parties regard shall be: 
(i) To the terms of the contract 
(ii) To the conduct of the parties and  
(iii) To the circumstances of the case 
  
© The Institute of Chartered Accountants of India
 
 
    
 
3.49 
THE SALE OF GOODS ACT, 1930 
The primary rules determining the passing of property from seller to buyer are as 
follows:  
 
 
 
 
 
 
A. Property (Specific or ascertained goods) passes when intended to pass (Section 19): 
 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 
be transferred. [sub-section (1)] 
 For the purpose of ascertaining the intention of the parties, regard shall be had to the 
terms of the contract, the conduct of the parties and the circumstances of the case. 
[sub-section (2)] 
 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. [sub-section (3)] 
Stages of goods while passing of property 
 
1. Specific goods in a deliverable state (Section 20): 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. Here, the condition is goods must be ready 
for delivery. 
Specific goods in a deliverable state
Specific goods to be put into a deliverable state
Specific goods in a deliverable state when seller has to 
ascertain price.
Passing of 
property 
? Specific or Ascertained Goods 
? Passing of Unascertained Goods 
? Goods sent on approval or ”on sale or return” 
? Transfer of property in case of reservation of 
right to disposal. 
© The Institute of Chartered Accountants of India
  
 
 
BUSINESS LAWS 
 
 3.50 
Example 1: X goes into a shop and buys a television and asks the shopkeeper 
for its home delivery. The shopkeeper agrees to do it. The television 
immediately becomes the property of X. 
2. Specific goods to be put into a deliverable state (Section 21): 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.  
Example 2: Peter buys a laptop from an electronics store and asks for a home 
delivery. The shopkeeper agrees to it. However, the laptop does not have a 
Windows operating system installed. The shopkeeper promises to install it and 
call Peter before making the delivery. In this case, the property transfers to Peter 
only after the shopkeeper has installed the OS making the laptop ready for 
delivery and intimated the buyer about it.  
3. Specific goods in a deliverable state, when the seller has to do anything 
thereto in order to ascertain price (Section 22): 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.  
Example 3: A sold carpets to the Company which were required to be laid. The 
carpet was delivered to the company’s premises but was stolen before it could 
be laid. It was held that the carpet was not in deliverable state as it was not laid, 
which was part of the contract and hence, the property had not passed to the 
buyer company. 
B. Unascertained goods  
 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. [Section 18] 
 
Delivery to the 
carrier for 
transmission
Goods of the 
description in 
deliverable 
state
© The Institute of Chartered Accountants of India
Page 5


 
 
    
 
3.47 
THE SALE OF GOODS ACT, 1930 
LEARNING OUTCOMES 
UNIT – 3: TRANSFER OF OWNERSHIP AND 
DELIVERY OF GOODS 
 
 
 
After studying this unit, you would be able to understand- 
? How and at what point of time the ownership in goods which are the 
subject matter of a contract of sale passes to the buyer from the 
seller. 
? About what appropriation of goods is and how it affects the passing 
of property in goods. 
? Distinction between passing of property and passing of title. 
? The rule of ‘nemo dat quod non habet’ (no one can give what he has 
not got) and exceptions thereof. 
? The rules relating to delivery of goods and acceptance of goods. 
 
 
 
 
 
 
 
 
 
 
 
A contract of sale of goods involves transfer 
of ownership in three stages: 
Passing 
of 
property 
Delivery 
of goods 
Passing 
of Risk 
UNIT OVERVIEW 
© The Institute of Chartered Accountants of India
  
 
 
BUSINESS LAWS 
 
 3.48 
INTRODUCTION 
Sale of goods involves transfer of ownership of property from seller to buyer. It is essential to 
determine the time at which the ownership passes from the seller to the buyer. 
Importance of the time of transfer  
The general rule is that risk prima facie passes with the property. In case where goods are lost 
or damaged, the burden of loss will be borne by the person who is the owner at the time when 
the goods are lost or damaged. Where the goods are damaged by the act of the third party, 
it is the owner who can take action. Suit for price by the seller can be filed only when the 
property has passed to the buyer. 
3.1  PASSING OF PROPERTY (SECTIONS 18 – 26)  
Passing or transfer of property constitutes the most important element and factor to decide 
legal rights and liabilities of sellers and buyers. Passing of property implies passing of 
ownership. If the property has passed to the buyer, the risk in the goods sold is that of buyer 
and not of seller, though the goods may still be in the seller’s possession. 
The rules regarding transfer of property in goods from the seller to the buyer depend on two 
basic factors: 
(a) Identification of Goods: Section 18 provides that where there is a contract of safe for 
unascertained goods, the property in goods cannot pass to the buyer unless and until 
the goods are ascertained. The buyer can get the ownership right on the goods only 
when the goods are specific and ascertained. 
(b) Intentions of parties: The property in goods is transferred to the buyer at such time 
as the parties to the contract intend it to be transferred. [section 19(1)] 
Section 19(2) further provides that for the purpose of ascertaining the intention of the 
parties regard shall be: 
(i) To the terms of the contract 
(ii) To the conduct of the parties and  
(iii) To the circumstances of the case 
  
© The Institute of Chartered Accountants of India
 
 
    
 
3.49 
THE SALE OF GOODS ACT, 1930 
The primary rules determining the passing of property from seller to buyer are as 
follows:  
 
 
 
 
 
 
A. Property (Specific or ascertained goods) passes when intended to pass (Section 19): 
 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 
be transferred. [sub-section (1)] 
 For the purpose of ascertaining the intention of the parties, regard shall be had to the 
terms of the contract, the conduct of the parties and the circumstances of the case. 
[sub-section (2)] 
 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. [sub-section (3)] 
Stages of goods while passing of property 
 
1. Specific goods in a deliverable state (Section 20): 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. Here, the condition is goods must be ready 
for delivery. 
Specific goods in a deliverable state
Specific goods to be put into a deliverable state
Specific goods in a deliverable state when seller has to 
ascertain price.
Passing of 
property 
? Specific or Ascertained Goods 
? Passing of Unascertained Goods 
? Goods sent on approval or ”on sale or return” 
? Transfer of property in case of reservation of 
right to disposal. 
© The Institute of Chartered Accountants of India
  
 
 
BUSINESS LAWS 
 
 3.50 
Example 1: X goes into a shop and buys a television and asks the shopkeeper 
for its home delivery. The shopkeeper agrees to do it. The television 
immediately becomes the property of X. 
2. Specific goods to be put into a deliverable state (Section 21): 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.  
Example 2: Peter buys a laptop from an electronics store and asks for a home 
delivery. The shopkeeper agrees to it. However, the laptop does not have a 
Windows operating system installed. The shopkeeper promises to install it and 
call Peter before making the delivery. In this case, the property transfers to Peter 
only after the shopkeeper has installed the OS making the laptop ready for 
delivery and intimated the buyer about it.  
3. Specific goods in a deliverable state, when the seller has to do anything 
thereto in order to ascertain price (Section 22): 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.  
Example 3: A sold carpets to the Company which were required to be laid. The 
carpet was delivered to the company’s premises but was stolen before it could 
be laid. It was held that the carpet was not in deliverable state as it was not laid, 
which was part of the contract and hence, the property had not passed to the 
buyer company. 
B. Unascertained goods  
 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. [Section 18] 
 
Delivery to the 
carrier for 
transmission
Goods of the 
description in 
deliverable 
state
© The Institute of Chartered Accountants of India
 
 
    
 
3.51 
THE SALE OF GOODS ACT, 1930 
The rules in respect of passing of property of unascertained goods are as follows: 
1. Sale of unascertained goods by description and Appropriation [Section 
23(1)]: Appropriation of goods involves selection of goods with the intention 
of using them in performance of the contract and with the mutual consent of 
the seller and the buyer. 
The essentials are: 
(a) There is a contract for the sale of unascertained or future goods. 
(b) The goods should conform to the description and quality stated in the 
contract.  
(c) The goods must be in a deliverable state. 
(d) The goods must be unconditionally (as distinguished from an intention 
to appropriate) appropriated to the contract either by delivery to the 
buyer or his agent or the carrier. 
(e) The appropriation must be made by: 
(i) the seller with the assent of the buyer; or 
(ii) the buyer with the assent of the seller.  
(f) The assent may be express or implied. 
(g) The assent may be given either before or after appropriation. 
2. Delivery of the goods to the carrier [Section 23(2)]: 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. 
Example 4: A bill of lading of railway parcel is made out in the name of the 
buyer and is sent to him, the ownership in the goods passes from the seller to 
the buyer. In case the goods are subjected to accidental loss or by theft, the 
seller will not be liable. 
Example 5: M places an order for book with a book seller in Mumbai. He asks 
him to send the book by courier. Payment of the book was to be made by 
cheque. The seller sends the book by courier. The book is lost in the way. The 
seller wants the buyer to bear the loss.  According to Section 23(2), it is an 
unconditional appropriation of goods because of which buyer M has become 
the owner of the goods. Therefore, he will bear the risk of loss of the book in 
the way.
© The Institute of Chartered Accountants of India