Transfer of Property

Submitted by- Kirit Kene

Submitted to- Prof.Y.A. Lad

Property, Possession & Risk• Three stages in the performance of a contract of goods

by a seller, viz.,The transfer of property in the goods;The transfer of possession of the goods(i.e,delivery); &The ,passing of the risk.• Transfer of property in goods from the seller to the

buyer is the main object of a contract of sale.• The term ‘property’ in goods must be distinguished from

‘possession of goods’.• ‘Property in goods’ means the ownership of goods

whereas ‘possession of goods’ refers to the custody or control of goods.

Property, Possession & Risk• The property of goods passes from the seller to the buyer for the

following reasons:• Risk follows ownership: Risk follows ownership whether

delivery has been made or not & whether price has been paid or not.

• Thus the risk of loss as a rule lies on the owner. Sec.26 provides in this regard 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.

• Action against third parties: When the goods are in any way damaged or destroyed by action of third parties, it is only the owner of the goods who can take action against them.

Property, Possession & Risk• Insolvency of the seller or the buyer: In the event of

insolvency of either the seller or the buyer, the question whether the Official Receiver or Assignee can take over the goods or not depends on whether the property in the goods has passed from the seller to the buyer.

• Suit for price: The seller can sue for the price, unless otherwise agreed, only if the goods have become the property of the buyer.

Passing of Property

• The primary rules for ascertaining when the property in goods passes to the buyer are as follows:

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 & the goods are ascertained (Sec.18)

Intention of the parties: 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 [sec 19 (1)]

Where the intention of the parties cannot be ascertained

• Where the intention of the parties as to time when the property in the goods is to pass to the buyer cannot ascertained from the contract, the rules contains Secs.20 to 24 apply [Sec.19(3)]. These are as follows.

1. Specific goods

2. Unascertained goods

3. Goods sent on approval or ‘on sale or return’.

Where the intention of the parties cannot be ascertained

1. Specific goods (Secs.20 to 22)

A. Passing of property at the time of contract: 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.

2. Passing of property delayed beyond the date of the contract:

i) Goods not in a deliverable state: Where there is a contract for the sale of specific goods are not deliverable states, i.e., the seller has to the goods to put them into a deliverable state, the property does not pass until such thing is done & the buyer has notice of it. (Sec.21)

• Specific goods (Secs.20 to 22)• When the price of goods is to be ascertained by weighing,

etc. :- 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, property does not pass until such act or thing is done & the buyer has notice thereof (Sec.22)

2. Unascertained goods:- Where there is a contract for the sale of unascertained goods, the property in the goods does not pass to the buyer until the goods are ascertained(Sec.18). Until goods are ascertained there is merely an agreement [Sec.23 (i)] further provides that where is a contract for the sale of ascertained or future goods by description & goods of that description & in a deliverable state are unconditionally appropriate to the contract, the property in the goods there upon passes to the buyer.

Unascertained goods• Delivery to carrier: A seller is deemed to have

unconditionally appropriated the goods to the contract where he delivers them to the buyer or to a carrier or the bailee for the purpose of transmission to the buyer, & does not reserve the right of disposal [Sec.23(2)].

1. Absolutely for the buyer: Where the bill of lading or railway is made out in the name of the buyer & is sent to him.

2. Absolutely for the seller: Where the bill of lading, or railway receipt is taken in the seller’s or his agent’s name & is sent to the seller to be delivered to the buyer on the fulfillment of certain conditions, the seller to be delivered to the buyer on the goods.

3. Goods sent on approval or ‘on sale or return’: 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-

i) When he signifies his approval or acceptance to the seller.

ii) When he does any other act adopting the transaction

iii) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, beyond the time fixed for the return of the goods, or if no time has been fixed, beyond a reasonable time. The question as to what is a ‘reasonable time is a question of fact (Sec 63).

Contracts Involving Sea Routs• F.A.S. Contracts- F.A.S stands for “free alongside ship”. The

Property in goods sold under an F.A.S contract passes from the seller to the buyer when the goods are delivered alongside the ship named by the buyer under a contract of carriage.

• Seller’s duties:- 1. To deliver the goods alongside the ship.

2. To notify the buyer immediately that the goods have been delivered the ship.

• Buyer’s duties:- 1. To arrange for the contract of affreightment.

2. To give the seller sufficient notice of the ship & time for delivery alongside the ship.

3. To pay all charges & to bear all risks from the time the goods are delivered alongside the ship.

• F.O.B. Contracts:- F.O.B stands for “free on board”. If A of Delhi agrees to sell 100 tons of sugar, F.O.B. Mumbai, to B of Manchester, this would mean that A must put the goods on board a ship at Mumbai at his own expense under a contract of carriage by sea, to be made by or on behalf of the buyer, for the purpose of transmission to the buyer.

• Seller’s duties:- 1. To deliver the goods on board the ship named by the buyer. When once the goods are put on board the ship, they are at the risk of the buyer. The duty of the seller ends when he delivers the goods at his own expense to the ship at the port of shipment. Such transfers the possession, property & risk to buyer.

2. To give notice of the shipment to the buyer so as to enable him to protect himself by insurance against loss during the sea transit; if the seller fails to do this, the goods will be at his risk.

• Buyer’s duties:- 1. To arrange for the contract of affreightment.

2. To name the ship to which the goods are to be delivered or to authorize the seller to select the ship.

• C.I.F. Contracts: CIF stands for “Cost, Insurance & Freight”. It includes 1) the price of goods, 2) the cost of insurance & 3) the freight up to Manchester.

• A C.I.F contract is performed by the delivery of documents representing the goods to the buyer, through a bank. The documents are usually delivered by the bank against payment of the price, or against acceptance of a draft. This protects both the seller & the buyer. The seller continues to the owner of goods until the buyer pays for the goods and get the documents.

• Seller’s duties: 1. To make out an invoice of the goods sold.

2. To ship at the port of shipment goods of the description contained in the contract.

• Buyers Duties:

1. To pay the unloading, wharfage charges etc. At the port of destination.

2. To pay all customs & import duties.

Sale by Non-Owner• Exceptions

1. Sale by a person not the owner or title by estoppel:- Where the owner of the goods by his words or conduct or by an act or omission causes the buyer to believe that the seller has the authority to sell the goods & induces the buyer to buy them, he cannot afterwards set up sellers’ ant of title or authority to sell. He shall be estoppel or precluded from denying the authority of the seller to sell.

2. Eg. A is the owner of certain goods but he behaves such a manner as to lead B to believe that C, is the owner of those goods or has A’s authority to sell them. Consequently, B buys the goods from C. Here A is precluded or estopped by his conduct from disputing B’s title to goods.

Sale by Non-Owner2. Sale by mercantile agent:- Mercantile agent is an agent who, in

the customary course of his business, has as such agent, authority either 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.

• The buyer acts in goods faith, he has no notice at the time of the contract of dale that the seller has no authority to sell

1. The agent is in possession of the goods or of the document of title to the goods

2. He is in possession of the goods as mercantile agent of the owner

3. The agent sells the goods in the ordinary course of his business as a mercantile agent

4. The buyer acts in good faith

5. The buyer has no notice at the time of contract of sale that the agent has no authority to sell

Sale by Non-Owner

3. Sale of one of the several joint owners:- If one of the several joint owners of the goods has the sole possession of them by permission of the other co-owners, the property in the goods is transferred to any person who buys them from such joint owner: 1) in good faith 2) at the time of the contract of sale has no notice that the seller has no authority to sell.

• If he is in sole possession of the other joint owner’s share in the goods with his consent, & the buyer acts in faith & has no notice that the co-owner has no authority to sell, the buyer obtains a good title to the goods. The sale is valid.

Sale by Non-Owner

4. Sale of goods by a person in possession of goods under a voidable contract:-When the seller of goods has obtained possession of the goods under a contract voidable under Indian contract Act, but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods provided

• He buys the goods in good faith• Without notice that the seller’s title is defective.

Eg. A buys a horse from B under coercion & sells it to C who is an innocent purchase without notice of A’s defective title. C gets a good title & B cannot recover the horse from him even if the agreement with A is subsequent with A is subsequently rescinded.

(Coercion, under influence, fraud, misrepresentation)

Sale by Non-Owner

5. Sale of seller in possession after sale:- Where a person having sold the goods continues or is in possession of the goods or of the documents of title to the goods, after the sale, sells, pledges, mortgages, or disposes them to any other person, the buyer shall get a good title to the goods provided. 1)he receives goods in good faith 2) without notice of the previous sale.

E.g. A buy a picture from a shop & leaves it with the shopkeeper. The shopkeeper sells it to C who buys in good faith & has no knowledge of the previous sale. C gets a good title. Delivery of picture by shopkeeper to C has the same effect as if the shop-keeper was expressly authorized by A to deliver the picture.

Sale by Non-Owner6. Sale by buyer in possession after sale:-Where goods are sold & the

possession is in the hands of the buyer, but the property in the goods or ownership has not passed to the buyer, third person who purchases the goods from first buyer gets a good title provided:-

1. The first person has possession of the goods or documents of title to the goods with the consent of the seller, before property in the goods has passed to him

2. The third person receives the goods in faith

3. The third person has no notice of the seller’s lien or other rights of the original seller in respect of the goods

E.g. B purchases furniture under an agreement that the price is to be paid in two installment & then the furniture would be the property of A. A sold the furniture before the second installment was paid. It was held that A was bound by the agreement therefore, the transfer by him to a bonafide purchase for a value without notice, conveyed a good title.

Sale by Non-Owner7. Sale by an unpaid seller: Where an unpaid the seller who has

exercised 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.

8. Exceptions in other Acts:

a. Sale by a finder of lost goods under certain circumstances (Sec.169 of the Indian Contract Act.1872).

b. Sale by a pawnee or pledgee under certain circumstances (Sec.176 of the Indian Contract Act,1872).

c. Sale by an Official Receiver or Official Assignee or Liquidator of a company: Where goods are sold in market over, the buyer acquires a good title to them irrespective of the seller’s title provided-

i) The goods are sold in accordance with the usage of the market: &

ii) The buyer bought the goods in good faith & without notice of any defect or want of title on the part of the seller.

• Thank You