Book Name: Commercial Law and Industrial Law 26th Edition
Writer: Arun Kumar Sen, Jitendra Kumar Mitra
TRANSFER OF OWNERSHIP
WHEN DOES PROPERTY PASS FROM THE SELLER TO THE BUYER ?
Sections 18 to 25 of the Sale of Goods Act lay down the rules which determine when ownership of property passes from the seller to the buyer. These rules may be summarized as follows :
1. Unascertained Goods
When there is a contract for the sale of unascertained goods, property in the question is not transferred to the buyer unless and until the goods are ascertained.-Sec.18.
An agreement to sell 50 maunds out–of a large quantity of rice in a godown does not make the buyer the owner of anything. He can become owner of 50 maunds of rice only after when the said quantity of rice has been separated out from the other rice in the godown. “The individuality of the thing to be delivered” must be established before property in it can pass from the seller to the buyer. (Lord Ellenborough in, Busk v. Davis. 1)
2. The Intention of the Parties
In a contract for the sale of specific or ascertained goods, the property passes at such time as the parties to the contract intend it to pass. 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. If the intention of the parties cannot be otherwise determined, the rules mentioned below are to be applied.-Sec.19.
3. Specific goods
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.-Sec. 20.
Property passes at the time of entering into the contract of sale if the following conditions are fulfilled :
(i) The goods are specific goods.
(ii) The goods can be immediately delivered..
(iii) The contract of sale is without any condition.
(iv) The parties themselves have not fixed a different time for the passing of property.
Goods are said to be in a `Deliverable state’, when they are in such state that the buyer would under the contract be bound to take delivery of them.-Sec. 2(3).
On the 4th January, a haystack lying on the seller’s land was sold. It was agreed that the price as to be paid on 4th February, The haystack will remain on the seller’s land till 1st May and no hay was to be cut till the price was paid. The haystack was destroyed by fire.It was held that, the property in the haystack had passed on the making of the contract and the buyer must bear the loss. Tarling v. Baxter t
4. When seller has something to do
Where there is a contract for the sate 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. Sec. 2l.
The contents of a cistern of oil was sold, the oil was to be filled into casks by the seller and then taken away by the buyer. Some of the casks were filled in the presence of the buyer but, before the remainder could be filled, a fire broke out and the entire quantity of oil was destroyed. Held, the buyer must bear the loss of the oil which was put into casks and the seller must bear the loss of the remainder. Rugg v. Alinnerz.
5. When goods are to be measured, tested, 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, the property does not pass until such act or thing is done and the buyer has notice thereof.-Sec. 22.
A certain quantity of bark was sold at a fixed price per ton. h was agreed that for determining the money payable by the buyer, the bark would be weighed by the agents of the parties. After a certain quantity was weighed taken away, the rest was carried away by flood. Held, the buyer is liable to pay for the part taken away by him and the loss of the remainder must be borne by the seller. Simmons v. swift.,
6. Unconditional appropriation
Unconditional appropriation means doing something which identifies and determines the actual goods to be delivered. Property passes when such unconditional appropriation is made by one party with the consent of the other.
Where there is a contract for the sale of unascertained goods, 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 expressed or implied, and may be given either before or after appropriation is made.-Sec. 23(1).
G sold to P, 140 bags of rice out of his stock (sale of unascertained goods). After the price was paid G sent a delivery order for 125 bags and wrote a letter saying that the remaining 15 bags were ready for delivery at his warehouse. P sent for the 15 bags after about a month, when it was discovered that the bags were stolen. Held, there was unconditional appropriation of the 15 bags by the seller, there was implied consent of the buyer to the appropriation (because he did not object) and therefore property in the 15 bags has passed to the buyer. He must therefore bear the loss and is not entitled to get back the price paid by him for them. Pignataro v. Gilroy‘
7. Delivery to the carrier
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.-Sec. 23(2).
The general rule is that when the seller delivers the goods to a carrier for being taken to the buyer, there is unconditional appropriation on his part and the property passes to the buyer.To this rule there is one exception : property does not pass if the seller reserves the “right of disposal” of the goods.
Reservation of the Right of Disposal
(Sec. 25) Reservation of the right of disposal means any action by the seller which expresses an intention on his part not to part with control over the goods until certain conditions are fulfilled. In such cases, the property, passes when the conditions are fulfilled.
An intention to reserve the right of disposal may be presumed when a Bill of Lading or a Railway Receipt makes the goods deliverable to the order of the seller.
When the Bill of Lading or the Railway Receipt for the goods, and the Bill of Exchange for the price are sent together and the Bill of Lading or the Railway Receipt is deliverable to the buyer only when the Bill of Exchange is accepted or paid, the buyer is bound to return the Bill of Lading or the Railway. Receipt if he does not honor the bill of exchange. If he wrongfully retains the Bill of Lading or the Railway Receipt, the property in the goods does not pass to him.
(i) X sends certain goods by lorry for delivery to W: without reservation of the right of disposal. The property passes to W as soon as the goods are handed over to the carrier.
(ii) .X sends certain goods by lorry to Y and instructs the lorry driver not to deliver the goods until the price is paid by Y to the lorry driver. The property. passes only when the price is paid.
8. Goods sent on approval or “on sale or return”
(Sec. 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 doss not –signify his approval a 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.
(i) K delivered some jewellery to .X on sale or return. X pawned the jewellery with A. Held, X’s act amounts to an acceptance’ of the sale transaction and hence .4’s rights are protected. Kirkham v. Attenborough.
(ii) Certain goods were delivered to R on sale of return. A delivered the goods to $ an similar terms, 8 to C, and C to D. D lost the goods. Held, sins A was unable to return the goods to the seller, the sale was complete and must pay the price. Genn v. Winkei
(iii) P sends certain books to Q on approval. Q does not return them or ask the seller to take them away, for six months. He is deemed to have approved the sate and must pay the price.
TRANSFER OF OWNERSHIP : TIME OF
Sale of goods involves transfer of ownership of property from the seller to the buyer. It is necessary to determine the precise moment of time at which the ownership of the goods passes from the seller to the buyer, because of the following reasons :
I. Risk passes with property.: The general rule is that risk passes with the property. If the goods are lost or damaged by accident or otherwise, then, subject to certain exceptions, the toss falls on the person who is the owner at the time when the goods are lost or damaged.
2. Who can take action ? : When there is danger of the goods being damaged by the action of third parties it is the owner who can take action.
3. What is the effect of insolvency ? : in case of insolvency of either- the buyer or the seller it is necessary to know whether the goods will be taken over by the official Assignee. The answer depends upon whether the ownership of the goods is with the party who has become insolvent.
Passing of risk
Section 26 lays down the rules regarding the passing of risk.
The general rule is that goods remain at the seller’s risk until the ownership is transferred to the buyer: After the ownership has passed to the buyer, the goods are at the buyer’s risk whether delivery has been made or not. “Risk follows ownership.” (See examples given in pages 224-225).
There are two exceptions to the rule stated above.
1. Where delivery has been delayed through the fault of either the buyer or the seller, the goods are at the risk of the party in fault as regards any toss which might not have occurred but for such fault.
2. The parties may agree that the risk will pass at a -time different from the time when ownership passed. For example. the seller may, in a particular case, agree to be responsible for the goods even after the ownership has passed to the buyer.
TRANSFER OF TITLE BY NON-OWNER
The general rule is that only the owner of goods can sell the goods. No one can convey to a transferee a better title than he himself has. If a person transfers an articles not belonging him, the transferee gets no title. This principle is expressed by the Latin phrase ,”Nemo quod qui non habet”, which means “none can give who does not himself possess”. This rule applies to both movable and immovable property. But as regards movable goods it is subject to certain exception noted below. In each of the following cases, a person who is not an owner, can give to the transferee a valid title to the goods :
Under certain circumstances the true owner may be prevented, by his conduct, from denying the seller’s authority to sell. Suppose that X is the owner of certain goods. X acts in such a manner that Y is induced to believe that the goods belong to Z. On that belief Y buys the goods from Z . Under these circumstances, the court will not allow X to prove his ownership.Thus Y gets a good title to the goods even though he has purchased them from Z who is not their owner.
P. the owner of certain machinery, left them in the possession of Q. A person named R who had obtained a decree against Q, seized the goods in execution of the decree. P took no steps for several months to claim the goods. He also conversed with R’s solicitor regarding the execution without mentioning his title to the machinery. R then had the machinery sold in execution. It was held that P was estopped from denying that the machinery was Q’s. Pickard v. Sears.
2. Sale by a mercantile agent
Sale of goods by a mercantile agent gives a good title to the purchaser even in cases where the agent acts beyond his authority, provided the following conditions are satisfied. (Sec. 27) :
(i) The agent is in possession of the goods or of a document of title to the goods.
(ii) Such possession in with the consent of the owner.
(iii) The agent sells the goods in the ordinary course of business.
(iv) The purchaser acts in good faith and has no notice that the agent had no authority to sell.
[“Mercantile Agent “–`Mercantile agent’, means an agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods.-Sec. 2(9)]
3. Sale by one of several joint owners
If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them from such joint owner provided the buyer -acts in good faith and without notice that the seller had no authority to sell ( Sec 28).
4.Sale of goods obtained under a voidable agreement
When the seller of goods has obtained possession thereof under a voidable agreement but the agreement has not been rescinded at the time of sale, the buyer obtains a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.(Sec. 29).
X, buys a ring from Y at a low price by undue influence and sells it to Z who is an innocent purchaser without notice of X’s defective title. Z has a good title and Y cannot recover the ring from him even if the agreement with .X is subsequently rescinded.
It is to be noted that the above section applies when the goods- have been obtained under a voidable agreement, not when the goods have been obtained under a void or illegal agreement.
If the original agreement is of no legal effect (void ab initio) the title to the goods remain with the true owner and cannot be passed on to anybody else.
In Cundy v Lindsay – goods were obtained by an agreement which was found to be void. It was held that no title passed to the buyer though he was a bonafide purchaser for value and without notice of any defect in the seller’s title.
5. Sale by the seller in possession of goods after sale
Where a person, having sold goods, continues to be in possession of the goods or of the documents of title to the goods, a transfer of title by him or his agent by way of sale of pledge, gives a good title to the transferee provided the transferee was acting in good faith and had no knowledge of the seller’s want of title.Sec. 30(1). The original buyers in such cases can obtain damages from the seller but cannot recover the goods from the second buyer.
M has 50 barrels of tobacco at a warehouse or dock. The dock warrant was issued to him. M sell the tobacco to J who leaves the dock warrant to M – J takes no step to have the tobacco transferred to the same. M subsequently pledges the tobacco and deliver the dock warrant to C. Held, C, acting in good faith, will acquire good title against J. Johnson v. Credit Lyannals.
[Document of title to goods” includes a bill of lading, dock warrant, ware housekeeper’s certificate, wharfingers’ certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession on control of goods; or authorizing or purporting to authorize, either-by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby pre presented. Sec. 2(4)].
6. Buyer in possession of goods over which the seller has some rights
When goods are sold subject to some lien or right of the seller (for example for unpaid price) the buyer may sell, pledge, or otherwise dispose of the goods to a third party and give him a good title, provided the following conditions are satisfied. Sec. 30(2).
(i) The first buyer is in possession of the goods or of the documents of title to the goods with the consent of the seller.
(ii) The transfer is by the buyer or by a mercantile agent action for him.
(iii) The person receiving the same acts in good faith, and without notice of any lien or other right of the original seller.
Furniture was delivered to :1′ under an agreement that the price was to be paid in two installment, the furniture to become the property of .X on payment of the second installment of the price. .X sold the furniture before the second installment was paid. It was, held that there was a binding agreement by X to buy the goods and therefore a transfer by him to a bonafide purchaser for value without notice conveyed a good title. Lee v. Butler.
7. An unpaid seller
An unpaid seller of goods can under certain circumstances, re-sell the goods. The purchaser of such goods gets a valid title of the goods.Sec. 54.
8. Sale under the Contract Act
(a) A Pawnee may sell the goods of paw nor if the latter makes a default of his dues. The purchaser under such a sale gets a good title.-Sec. 176 of Contract Act.
(b) A finder of goods can sell the goods under certain circumstances. The purchaser gets a good title. Sec. 169, Contract Act.
Cases not coming within the exceptions
It is to be noted that apart from the cases mentioned above; the general rule applies, and no seller can give a better title that he himself has. Some examples are given below.
(i) X found a ring. He made a reasonable search for the owner but did not find him. He then sold the ring to y. it was held that the true owner can recover the ring from }’. Farquaharson Bros. v. King h Co. I
(ii) A horse was sold at a public auction. The horse was stolen property but this was not known to either the auctioneer or the buyer. Held, the true owner can recover the horse. Lee v. Bayes.2
(iii) B let out a motor car on hire to M at £ 15 per month. It was agreed between the parties that it could purchase the car by paying in all £ 424 at any time within 24 months. After a few months M pledged the car with C, B sued to recover the car from C. It was held that as ,11 had only an option to purchase, the cannot give good title to C and hence B can recover the car.Belsize Motor Supply Co. v. Cox.