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.
• Be clear about what appropriation of goods is and how it affects the passing of property in goods.
• Distinguish between passing of property and passing of title.
• Understand th e rule of ‘nemo dat quod non habet’ (no one can give what he has not got) and exceptions thereof.
• Be familiar with the rules relating to delivery of goods and acceptance of goods.
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 lies only when the property has passed to the buyer.
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 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. Example: 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.
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: 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. Goods must be ascertained:
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] The rules in respect of passing of property of unascertained goods are as follows:
1. Sale of unascertained goods by description [Section 23(1)]: 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 be given either before or after the appropriation is made.
2. Delivery 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: 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.
Analysis of section 23:
Sale of unascertained goods and Appropriation: 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.
C. Goods sent on approval or “on sale or return” (Section 24)
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; or
(c) he does something to the good which is equivalent to accepting the goods e.g. he pledges or sells the goods.
Example 1: P brought a musical instrument from a musical shop on a condition that he will purchase it, if he likes that instrument. After a week he has informed the shop owner that he has agreed to purchase the musical instrument. The ownership is transferred when he has decided to purchase the instrument as his own.
A buyer under a contract on the basis of ‘sale or return’ is deemed to have exercised his option when he does any act exercising domination over the goods showing an unequivocal intention to buy, example, if he pledges the goods with a third party. Failure or inability to return the goods to the seller does not necessarily imply selection to buy.
Example 2: ‘A’ delivered some jewellery to ‘B’ on sale or return basis. ‘B’ pledged the jewellery with ‘C’. It was held that the ownership of the jewellery had been transferred to ‘B’ as he had adopted the transaction by pledging the jewellery with ‘C’. In this case, ‘A’ has no right against ‘C’. He can only recover the price of the jewellery from ‘B’.
Example 3: A sends to B a water motor on approval or return in March, 2016. B to return it after trial in August, 2016. The water motor has not been returned within a reasonable time, and therefore, A is not bound to accept it and B must pay the price.
Sale for cash only or Return
It may be noted that where the goods have been delivered by a person on “sale or return” on the terms that the goods were to remain the property of the seller till they are paid for, the property therein does not pass to the buyer until the terms are complied with, i.e., cash is paid for.
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. Before the payment of the price, ‘B’ pledged the jewellery with ‘C’. It was held that at the time of pledge, the ownership was not transferred to ‘B’. Thus, the pledge was not valid and ‘A’ could recover the jewellery from ‘C’.
D. Reservation of right of disposal (Section 25)
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. [Sub-section (1)]
Where goods are shipped, or delivered to a railway administration for carriage by railway and by the bill of lading or railway receipts, 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. [Sub-section (2)]
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. [Sub-section (3)]
This section preserves the right of disposal of goods to secure that the price is paid before the property in goods passes to the buyer.
Where there is contract of sale of specific goods or where the goods have been subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, as the case may be, reserve the right to dispose of the goods, until certain conditions have been fulfilled. In such a case in spite of the fact that the goods have already been delivered to the buyer or to a carrier or other bailee for the purpose of transmitting the same to the buyer, the property therein will not pass to the buyer till the condition imposed, if any, by the seller has been fulfilled.
Example: X sends furniture to a company by a truck and instructs the driver not to deliver the furniture to the company until the payment is made by company to him. The property passes only when the payment is made.
Circumstances under which the right to disposal may be reserved: In the following circumstances, seller is presumed to have reserved the right of disposal:
(1) If the goods are shipped or delivered to a railway administration for carriage 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, then the seller will be prima facie deemed to have reserved to the right of disposal.
(2) Where the seller draws a bill on the buyer for the price and sends to him the bill of exchange together with the bill of lading or (as the case may be) the railway receipt to secure acceptance or payment thereof, the buyer must return the bill of lading, if he does not accept or pay the bill.
And if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not passes to him.
It should be noted that Section 25 deals with “conditional appropriation” as distinguished from ‘unconditional appropriation’ dealt with under Section 23 (2).