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Transfer of Property in Sale of Goods Act

Updated: May 6


Transfer of Property in Sale of Goods
Transfer of Property in Sale of Goods

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The essence of a contract of sale lies in the transfer of property in goods from the seller to the buyer. This transfer may occur either at the time of entering into the contract or at a later point.


The timing of this transfer is crucial in different scenarios; for instance, if goods are destroyed or damaged after the contract is formed, the party who holds ownership of the goods at that moment will bear the loss.


The passing of property is intricately linked to numerous rights and obligations of the parties involved. One of the most significant effects is that the "risk" typically passes with the property, meaning that the goods are subject to the risk of the party who holds ownership.


Additionally, once the property has passed to the buyer, they gain the ability to exercise proprietary rights over the goods. This includes the right to sue the seller for delivery and, in cases where the seller has resold the goods to a dishonest buyer, the original buyer may seek recourse from them as well.


Furthermore, the seller is unable to sue for the price unless the goods have officially become the property of the buyer.


The transfer of property in goods is distinct from the delivery of goods. It's possible for the property in goods to pass from the seller to the buyer without the physical delivery of the goods to the buyer, meaning the goods never enter the buyer's possession.


This distinction highlights that property in goods is separate from possession of goods.


Goods for the purpose of property transfer can be categorised into two classes: specific or ascertained goods and future or unascertained goods. Specific goods are those that have been identified and agreed upon at the time of contract formation.


For instance, if a seller has 1,000 bags of rice and agrees to sell 100 bags to a buyer, with those 100 bags being marked or otherwise identified, it constitutes a sale of specific goods. Conversely, if it hasn't been specified which 100 bags out of the 1,000 are to be delivered to the buyer, the goods are considered future goods.

 
 

TRANSFER OF PROPERTY IN SPECIFIC GOODS


Intended Transfer of Property (Section 19)

Clause (1): In the case of a contract for the sale of specific goods, the transfer of property in them to the buyer occurs at the time intended by the parties to the contract.


Clause (2): To determine the parties' intention, regard shall be given to the terms of the contract, the conduct of the parties, and the circumstances of the case.


Clause (3): Unless a different intention is evident, the rules outlined in Sections 20-24 serve as guidelines for determining the parties' intention regarding the timing of property transfer in goods to the buyer.


Thus, while the transfer of property is a natural consequence of a sale, it is not an inevitable outcome. The Act defers the entire question of property transfer to the intentions of the parties involved. In the case of Sacks v Tilley (1915) 32 TLR 148, for instance, certain diamonds were dispatched to the buyers via post by a foreign firm.


Along with them, a bill for the price was sent, with a condition that property would transfer upon acceptance of the bill.


However, the bill was never accepted. Despite the general rule that property passes upon dispatch of documents, it was held that this rule was overridden by the explicit declaration of the parties' intention, which required acceptance for property transfer to occur.


Specific Goods in a Deliverable State (Section 20)


"When there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods transfers to the buyer at the time the contract is formed, irrespective of whether the payment of the price or the delivery of the goods, or both, is postponed."


A contract that is free from any condition precedent or subsequent is deemed unconditional. According to Section 2(3), a deliverable state refers to a condition where the buyer, under the contract, is obligated to accept delivery of the goods.


Therefore, if, for example, a table needs to be polished by the seller before delivery, it is not in a deliverable state initially but will become so once polished.


In the case of Tarling v Baxtor (1827) 6 B & C 360, a contract was formed for the sale of a specific stack of hay on January 6th, with the price to be paid on February 4th, and the stack not to be removed until May 1st.


However, the stack was accidentally destroyed by fire on January 20th. It was ruled that the property in the goods had already passed to the buyer, despite the postponed payment of price and delivery of goods, thus placing the burden of loss on the buyer.


Similarly, if B offers A Rs. 1,000 for his horse with a one-month credit term, and A accepts the offer, the horse becomes B's property immediately upon acceptance of the offer.


In Dennant v Skinner (1948) 2 KB 164, the plaintiff auctioned a car to X, who offered to pay with a cheque. X was permitted to do so upon signing a document stipulating that the property in the car would not transfer to him until the cheque amount had been credited to the seller's account.


However, the cheque was later found to be dishonoured. The plaintiff sued X to reclaim the car, which X had subsequently sold to Y. The plaintiff argued that X had not become the owner of the car due to the dishonoured cheque.


The court held that at the time of contract formation, i.e., when X's bid was accepted at the auction, the contract was unconditional and pertained to specific goods in a deliverable state. Consequently, X had become the owner of the car.


Any undertaking by X made after the property had already been transferred to him, stating that he would not become the owner until the cheque was encashed, was deemed ineffective. Therefore, the plaintiff could not recover the car from X.


In Kursell v Timber Operators (1927) 1 KB 298, the case revolved around the sale of uncut timbers, defined as "all trunks and branches of trees, excluding seedlings and young trees with a diameter of less than 6 inches at a height of 4 feet from the ground", with the timber to be cut not more than 12 inches from the ground.


The buyers were granted a 15-year period to cut and remove the timber.


The court ruled that the goods were not sufficiently identified and therefore not specific, primarily because only trees meeting certain specifications were to be taken.


Additionally, the goods were not in a deliverable state until they were severed by the purchasers. As a result, the property in the timbers did not pass to the buyer at the time of contract formation.

 
 

Specific Goods Not in a Deliverable State (Section 21)


"In cases where there is a contract for the sale of specific goods, and the seller is obligated to perform an action on the goods to render them in a deliverable state, the property does not transfer until such action is completed, and the buyer is notified of its completion."


For instance, if the terms of the contract require the seller to pack the goods into bags, the property in the goods will not transfer to the buyer until the seller has completed the packing and the buyer has been informed accordingly.


In a scenario where a portion of the goods has been rendered in a deliverable state and the buyer is aware of it, but before the remaining goods can be prepared similarly, the entire lot is destroyed by fire, the property in the goods that have been prepared for delivery transfers to the buyer. Consequently, the buyer must bear the loss concerning those goods.


In the case of Underwood v B.C.B. & Cement Syndicate (1922) 1 KB 343, a contract was established to supply a condensing engine, F.O.R. (Free on Rail) London. At the time of contracting, the engine was installed at the seller's premises and subsequently dismantled. While being loaded onto trucks for transportation to the rails, the engine sustained damage.


The court determined that the intention of the parties was such that the property should not transfer until the engine was safely placed on the rail in London. Consequently, the seller bore the loss for the damage to the engine.


Bankes LJ further clarified that a 'deliverable state' is not solely contingent on the completeness of the subject-matter in all its parts, but also on the actual condition of the goods at the time of the contract and the condition in which they are to be delivered according to the terms of the contract.


If the vendors are required to expend as much effort and expense as the buyers in preparing the goods for delivery, then the subject-matter cannot be considered to be in a deliverable state.


Specific Goods to be Weighed, Tested, etc. by the Seller (Section 22)


"In cases where there is a contract for the sale of specific goods in a deliverable state, but the seller is obligated to perform an action such as weighing, testing, or another act related to the goods to determine the price, the property does not transfer until such action is completed and the buyer receives notice thereof."


An example illustrating this principle can be found in Zagury v Furnell (1809) 2 Camp. 240, where a contract was made for the sale of 289 bales of goat skins, with each bale containing 5 dozens, priced at 5 shillings and 6 pence per dozen. As per trade custom, the seller was responsible for ensuring each bale contained the specified number.


However, before the seller could fulfil this obligation, the bales were destroyed by fire. It was ruled that the property in the goods had not passed to the buyer as there was still an action remaining to be performed by the seller. Consequently, the loss of goods had to be borne by the seller.


For Section 22 to apply, there must be an action remaining to be done by the seller. If the seller has already fulfilled all obligations, Section 22 does not apply, and the property may pass at the time of contract formation under Section 20.


For instance, if the buyer is required to weigh the goods for their own satisfaction, and the seller agrees to compensate for any deficiency, the property would immediately pass as no further action remains to be done by the seller.


In the case of Shoshi Mohan Pal v Nobo Krishto [I.L.R. (1979) 4 Cal. 801], a contract was made for the sale of the entire amount of rice in a storage facility, with the buyer responsible for weighing the rice.


It was held that the property in the entire amount of rice had passed because nothing further remained to be done by the seller to ascertain the price, and the buyer was required to weigh the rice for their own satisfaction.

 
 

Ambalavana Chettiar v Express Newspaper

In the case of Ambalavana Chettiar v Express Newspaper (AIR 1968 SC 741), the brief facts are as follows: On November 13, 1951, the respondent agreed to sell to the appellants a stock of 415 tons of newsprint in sheets then located in the respondent's godown.


Initially, there was an unconditional contract for the sale of specific goods in a deliverable state, and the property in the goods passed to the appellants.


However, on November 26, 1951, the contract was modified, and the parties agreed that the appellants would purchase only 300 tons of the original 415-ton stock of newsprint, thus transforming the contract from the sale of specific goods to the sale of unascertained goods.


The appellants accepted delivery of some of the stock but later refused to accept delivery of the remaining balance and repudiated the contract. Subsequently, after giving notice to the appellants, the respondent resold the remaining goods to a third party.


The key question in this case revolves around whether the respondent had the right to resell the goods under Section 54(2) of the Sale of Goods Act, 1930.


Under this provision, the seller can claim damages equivalent to the difference between the contract price and the amount realised on resale if the property in the goods has passed to the buyer subject to the lien of the unpaid seller.


However, if the property in the goods has not passed to the buyer, the seller has no right of resale under Section 54(2). Therefore, the crucial inquiry is whether the property in the 300 tons of newsprint had passed to the appellants before the resale.


The court observed that the variation of the contract effectively annulled the passing of property in the goods. As of November 26, 1951, the property in the entire stock of 415 tons belonged to the respondent.


It is a prerequisite for the passing of property under a contract of sale that the goods are ascertained, as outlined in Section 18 of the Sale of Goods Act. This condition is not fulfilled when there is a contract for the sale of a portion of a specified large stock, as was the case here.


Until the portion is identified and appropriated to the contract, no property passes to the buyer. Therefore, there is no indivisibility until the goods have been divided and the vendor has made their selection.


Consequently, the respondent had no right to resell the goods under Section 54(2). The claim to recover the deficiency on resale is not sustainable.


However, the respondent is entitled to claim damages equivalent to the difference between the contract price and the market price on the date of the breach of contract by the appellants.



Sadhusaran Singh v W.B. State Electricity Board 

In Sadhusaran Singh v W.B. State Electricity Board (AIR 1986 Cal. 240), the plaintiff submitted a tender for the purchase of specified quantities of M.S. Rods of a particular description lying in railway yards, which was subsequently accepted by the seller.


According to the terms of the agreement, the buyer was required to deposit the price and complete the removal of the goods in instalments within a specified time frame. The plaintiff managed to remove part of the goods after depositing the proportionate price.


However, due to unavoidable circumstances such as heavy breaches on the road caused by rain and landslides, there were difficulties in transporting the remaining goods. Consequently, the buyer requested an extension of time, which the seller refused to grant.


In response, the seller wrote to the buyer cancelling the contract with respect to the remaining goods and began to resell them. The buyer then brought an action seeking an injunction to restrain the seller from doing so.


The buyer argued that it was a sale of specific goods in a deliverable state, and the contract was unconditional, thus the property in the goods had passed to the buyer when the contract was made upon the acceptance of their tender.


Therefore, the seller had no right to cancel the contract and resell the goods, regardless of the postponement of the payment and delivery times, as per Section 20 of the Sale of Goods Act.


The buyer referred to the case of Prem Singh v Deb Singh (AIR 1948 PC 20), where it was held that a contract for the sale of ascertained goods intended the property to transfer upon the signing of the contract, even if certain conditions were attached, such as warranties.


The respondent seller, however, contended that there was no contract of sale but only an agreement to sell subject to certain conditions. The intention of the parties was that delivery would take place upon payment, making the contract conditional, and thus falling under Section 22 of the Sale of Goods Act.


The court rejected the respondent's argument and upheld the buyer's plea, granting the injunction.


TRANSFER OF PROPERTY IN UNASCERTAINED OR FUTURE GOODS

When it comes to unascertained goods or future goods, the property cannot pass until the goods are identified. In the case of future goods, the contract functions as an agreement to sell, meaning the buyer does not become the owner at the time of contracting.


Section 23(1) outlines the conditions under which the property in unascertained goods sold by description transfers to the buyer:


  1. There must be an appropriation of goods to the contract, either by the seller or the buyer.

  2. The appropriation must be made with the assent of the other party. In other words, if the seller appropriates the goods, it must be with the buyer's consent, and vice versa.

  3. The goods appropriated to the contract must match the description given in the contract and must be in a deliverable state.

  4. The appropriation must be unconditional.


The transfer of property in goods is a fundamental aspect of a contract of sale, defining the rights and obligations of the parties involved. The timing of this transfer is crucial, determining issues such as risk allocation and the exercise of proprietary rights.


Specific goods, whether in a deliverable state or not, entail distinct rules for property transfer. When goods are in a deliverable state, property typically passes at the time of contract formation, unless conditions necessitate otherwise.


Conversely, for goods not yet in a deliverable state, property transfer awaits completion of actions stipulated in the contract.


Unascertained or future goods pose additional considerations, requiring the identification and appropriation of goods before property can pass. Until then, the contract operates as an agreement to sell, with ownership not conferred upon the buyer.


Throughout, the Sale of Goods Act meticulously addresses scenarios and intentions of the parties, ensuring clarity and fairness in property transfers.


From the intricate details of specific goods to the uncertainties surrounding unascertained ones, the Act provides a framework for navigating the complexities of commercial transactions.

 
 




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