Passing of property
It is worthwhile to
note that the property in goods sold may pass to the buyer, though the seller
still retains possession of the goods. Property and possession are two words
with different meanings. Possession is a question of fact. It refers to the
custody over the goods. Thus an agent or servant entrusted with goods, or a
thief who steals them or a carrier to whom goods are entrusted for conveyance,
all have possession of the goods but not property in them. Property signifies control
over an object, together with the right to the possession of the same. In
short, it means ownership of the object.
The question as when
property passes from the seller to the buyer is important for the following
reasons:
(i) Where property
has passed to the buyer, the risk of destruction or loss of goods sold falls on
the buyer and not on the seller though the goods may still be in the possession
of the seller.
Example: A agrees to
purchase B’s car for Rs. 20,000. The ownership is to pass on 15th
August 1983 while the price is paid in advance. On 10th August 1983
the car is damaged in an accident. B will have to bear the loss.
(ii) When there is
danger of the goods being damaged by the action of third parties, it is only
the owner who can take action.
(iii) In the event of
the insolvency of either the seller or the buyer, it is necessary to know
whether the goods can be taken over by the Official Assignee or the Official
Receiver. The answer will depend upon whether the ownership in goods is with
the buyer or with the seller.
Time when property passes
It is upon to the
parties to fix any time when the property may pass from the seller to the
buyer. When the parties express their intention clearly no problem arises. The
property may pass at once, or at a future time or on the performance of some
condition. Certain rules are laid down in the Act for determining when property
passes in a contract of sale. These are as follows-
(1) In the case of 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. A contract
to sell unascertained goods is not a complete sale, but an agreement to sell.
The ascertainment of goods is a necessary condition to the maturing of an
agreement to sell into a sale. A contract for the sale of shares in a company,
which are not identified by numbers, does not transfer any property to the
buyer.
Example: A having
1200 maunds of oil in a storage tank sells 500 maunds, receives the price and
gives delivery order to the buyer. Nothing is done to appropriate the 500
maunds of oil to the contract. No property in oil passes to the buyer as the
goods sold have remained unascertained.
(2) In the case of ascertained goods
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. In other words, where once the goods which are the subject
matter of a sale are ascertained, it is purely a question of the intention of
the parties, as to when property is to pass. The intention of the parties is to
be gathered from the terms of the contract, the conduct of the parties and
surrounding circumstances.
Example: There was a
mixed contract for storage of paddy and its subsequent sale. The paddy was in
the first instance delivered to the defendant for storage and the plaintiff had
the option to name a day on which the defendant was to buy at his current buying
rate for that day. In these circumstances the property in the goods was held
not to pass until the option had been exercised.
Rules as regards passing of property
The fundamental rule
is that the property shall pass when the parties intend it to pass. But in many
cases, the intention of the parties cannot be judged. To meet such cases, the
Act lays down a number of rules for determining as to when property will pass
from the seller to the buyer. These rules are as under.
(1) Specific goods in deliverable state
In a contract of sale
of specific goods in a deliverable state, the property in goods passes to the
buyer when the contract is made. This rule will be applicable in case the
following three conditions are fulfilled.
(i) the contract of
sale must be unconditional.
(ii) it must relate
to specific goods, and
(iii) the goods must
be in a deliverable state.
It is immaterial that
the time of the payment of the price or the delivery of the goods or both is
postponed.
Examples: (a) B
offers A for his horse Rs. 1000 on a month’s credit. A accepts the offer. The
horse becomes B’s property as soon as the offer is accepted.
(b) There was an
auction sale of cut timber in forest. i.e., or specified goods in deliverable
state. The price was payable in installments. The first installment was paid at
the time of provisional acceptance of bid. The formal contract signed by both
the parties was sent to the higher authorities and delivery of goods was made
to the purchases. The goods were destroyed by fire before the contract could be
signed by the higher authorities. It was held that the sale was of specified
goods and the buyer will have to bear the loss.
The goods are said to
be in a “deliverable state” when they are in such a state that the buyer would
under the contact be bound to take delivery of them.
Examples: (a) A sold
a stock of hay lying on his land to B on 4th January. The price was
to be paid after a month and the hay stock was to remain on A’s land till 1st
May. It was also stipulated that no hay was to be cut till the price was paid.
On the burning of the hay stock by fire before the payment of the price was
made, the purchaser B was held liable for the loss because the property in the
hay stock had already passed to him on the day he had entered into the contract.
(b) There was a sale
of a fixed condensing engine. It was to be severed and delivered free on rail
at a specified place. It was damaged in transit before it reached the railway.
The property did not pass as when it reached the railway it was not in a
deliverable state.
(2) Specific goods not in a deliverable state
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. This rule provides that the property in goods will not pass unless
‘something’ is done in order to put the goods in a deliverable state.
‘Something’ means an act, like collecting the goods, severing the goods, or
packing or loading the goods or filling them in containers, etc.
Example: The contents
of a tank of a oil were sold, the oil was to be filled into drums by the seller
and then the drums were to be taken away by the buyer. Some of the drums 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. The buyer must
bear the loss of the oil which was put into drums and the seller must bear the
loss of the remainder.
(3) When goods have 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. This
section assumes that the goods are already in a deliverable state, but some act
requires to be done by the seller for ascertaining the price, such as weighing,
measuring etc.
Examples: (a) A the
owner of a wagon of hay, contracts to sell it to B. It was to be weighed and
delivered at Rs. 1000 per ton. B agrees to take and pay for it on a certain
day. Part is weighed and delivered to B; the ownership of the residue is not
transferred to B until it has been weighed.
(b) There was a
contract for sale of 975 maunds of rice being the contents of one goal at a
certain price per maund. The buyer aid the entire price but agreed to remove
the rice after weighing the same before a certain date. After delivery was
taken of a part of the rice the other part was destroyed. It was held that the
weighing by the buyer was only for his satisfaction and not necessary for
ascertaining the price; that the property passed to the buyer and he had,
therefore, to bear the loss.
(4) Unascertained goods and its appropriation
The question of
passing of property in the case of a contract for the sale of unascertained or
future goods by description. It provides that in such cases, when the goods 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 goods passes to the buyer. The assent to the appropriation may be
given either before or after appropriation is made. However, the appropriation
of the goods must take place before there has been a breach of the contract by
either party. It is obvious that the property in the goods cannot pass until
the goods are ascertained. The selection of the goods by one party, and the
adoption of that act by the other, convert that which before was mere agreement
to sell into an actual sale, and the property thereby passes.
The word
‘appropriation’ has not been defined in the Act. It means an overt act showing
an intention to identify and determine the specific goods as those to which the
bargain of the parties shall apply. Appropriation is generally made by the
seller by putting the goods into boxes, or gunny bags, or in the case of fluids
into bottles or other suitable containers with the assent of the buyer. The
assent of the buyer may be express or implied.
Example: A had a
quantity of sugar in bulk, more than sufficient to fill 20 bags. He contracts
to sell B 20 bags of it. After the contract A fills 20 bags with sugar and
gives notice to B that the bags are ready the requires him to take them away. B
says he will take them as soon as he can. By this appropriation by A and assent
by B, sugar becomes the property of B.
Where in pursuance of
the contact, the seller delivers the goods to buyer or to a carrier or other
bailee 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. The general rule is that a delivery of goods to a carrier, in
accordance with the terms of a contract of sale is a delivery to the buyer
sufficient to pass title to the goods, and the carrier at once becomes the
agent of the buyer. The delivery of goods to a carrier, however, will not
amount to an unconditional appropriation if the seller reserves the right of
disposal to himself. In other words, notwithstanding the delivery of goods 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.
In the following two
cases, the seller is deemed to have reserved the right of disposal to himself.
(a)
Where the goods are shipped or
delivered to a railway administration for carriage and by the bill of lading or
railway receipt, they are deliverable to the order of the seller or his agent.
(b)
Where the seller of goods draws on the
buyer for the price of the goods and sends the bill of exchange and bill of
lading or railway receipt to the buyer together, the property in the goods does
not pass to the buyer unless he accepts the bill of exchange. The buyer must
return the bill of lading or railway receipt if he does not honour the bill of
exchange. If he wrongfully retains the bill of lading or railway receipt, the
property in the goods does not pass to the buyer.
Example: D ordered 20
motor cars, from P upon terms that P should send them by rail and that D should
pay for them to P’s agent at Delhi
against the railway receipt P’s agent was to receive the payment from D and to
deliver the railway receipt to D on payment. The railway receipt was made out
by P in his own name as consignee endorsed by them in blank. The cars were
consigned at the owner’s risk. However, the cars were destroyed by fire in
transit. D refused to pay the bill and P sued to recover the price. It was held
that the property in the cars did not pass to D on delivery to the railway
company and that D is not liable for the price.
(5) Goods sent on approval or “on sale or return” (Sec
24)
When goods are sold
under a contract of ‘sale or return’ or on approval, the sale is a conditional
sale. The property is such a case passes to the buyer-
(i)
when the buyer signifies his approval
or acceptance to the seller; or
(ii)
does any other act adopting the
transaction; or
(iii)
where the buyer does not signify his
approval or acceptance but retains the goods without giving notice of
rejection, in such a case.
(a)
if a time has been fixed for the return
of the goods, on the expiration of such time; and
(b)
if no time has been fixed on the
expiration of a reasonable time.
Example: (a) The
buyer of a horse on ‘sale or return’ terms had 8 days in which to return the
horse. The horse died within 8 days, but without his fault. It was held that
the seller could not recover the price of the horse as the property in horse
had not yet passed to the buyer.
(b) P gave some jewellery to D on ‘sale or
return’ basis. D pledged it with a pawnbroker who took it in good faith. It was
held that the pawn broker became the owner of the goods and P could not recover
the jewellery from the pawnbroker, because by pledging it D had done an act
adopting the transaction, the property in the goods had passed to D. P can sue
d only for the recovery of price.
(c)
G delivered certain diamonds to W on
‘sale or return’ basis. W delivered them to X and X delivered them to Y on the
same terms i.e., sale or return basis. The diamonds were lost while in
possession of Y. G remained unpaid. It was held that W was responsible to G for
the payment of price as by reselling them he had deprived himself of the right
to return the goods.
Passing of risk
Section 26 lays down
the general rule that risk prima facie passes with the property. It provides
that subject to a contract between the parties the goods remain at the seller’s
risk until property therein has passed to the buyer. But once the property in
the goods is transferred to the buyer, the goods are at the buyers risk,
whether delivery has been made or not. For instance, A bids Rs. 1000 for a
picture at a sale by auction. After the bid, the picture is damaged by an
accident. If the accident happens before the hammer falls, the loss falls on
the seller, if afterwards on A.
The general rule that
the risk passes with the property is subject to the following exceptions
namely;
(i)
The rule has no application where the
parties have come to some agreement to the contrary.
(ii)
The rule has no application where
delivery has been delayed through the fault of either buyer or seller. In such
a case, the goods are at the risk of the party in fault as regards any loss
which might not have occurred but for such fault.
Example: D contracted
to buy from P 30 tonnes of apple juice. Delivery was to be made in weekly truck
loads. P crushed all the apples they had for the season and put the juice in
casks to enable them to perform the contract. Deliveries would have been
completed by February, but for the buyers request that they should be held up.
D took some deliveries subsequently and then stopped altogether. The juice was
still waiting for their orders upto November when it deteriorated. It was held
that the loss fell upon the buyer.
(iii) The rule does
not affect the rights and liabilities of the seller or the buyer as bailee of
goods for the other even when the risk is passed.
Example: Furs are
delivered on approval with invoice. They are stolen by burglars. By the custom
of the fur trade, goods were at risk of the person ordering them on approval.
The sender, it was held, could recover the invoice price from the person to
whom he delivered them.
