Passing of Property – Part 1

A sale of goods or property implies a transfer or passing of ownership to the buyer. The passing of property is an important aspect to help determine the liabilities and rights of both the buyer and the seller. Once a property is passed to the buyer, then the risk in the goods sold is that of the buyer and not the seller. This is true even if the goods are in the possession of the seller. Let us learn more about the passing of property in the Sale of Goods Act.

Passing of Property

There are four primary rules that govern the passing of property:

• Specific or Ascertained Goods
• Passing of Unascertained Goods
• Goods sent on approval or “on sale or return”
• Transfer of property in case of reservation of the right to disposal

In this article, we will be looking at the first two rules.

Passing of Ascertained Goods

Section 19

This is the first rule of the passing of property. It deals with the passing of specified goods and states that –Specific or ascertained goods pass when intended to pass. Section 19 of The Sale of Goods Act, 1930, has three sub-sections as follows:

• Sub-section (1): Imagine a contract for the sale of specific or ascertained goods with a clear mention of the time when the parties to the contract intend to transfer the property. In such cases, the property is transferred at the time mentioned in the contract.
• Sub-section (2): To understand the intention of the parties, the terms of the contract, the conduct of the parties, and the circumstances of the case are considered.
• Sub-section (3): Sections 20 to 24 of The Sale of Goods Act, 1930, contain rules to ascertain the intention of the parties. This intention is about the time at which the property in the goods will pass to the buyer. Let’s look at these sections

Section 20

Section 20 relates to Specific goods in a deliverable state. It states that if the contract is unconditional for the sale of specific goods in a deliverable state, then the property in the goods passes to the buyer the moment the contract is made. This rule holds true even if the time of payment of price or delivery of the goods or both is postponed.

Example: Peter goes to an electronics store and buys a television set. He asks the shopkeeper to deliver it to his house. The shopkeeper agrees. The television immediately becomes the property of Peter.

Section 21

Speci­fic goods to be put into a deliverable state (Section 21) – Imagine a contract for the sale of goods where the seller has to do something before the goods are ready for delivery. In such cases, the passing of property happens only after the seller does the things and informs the buyer.

Example: Peter buys a laptop from an electronics store and asks for a home delivery. The shopkeeper agrees to it. However, the laptop does not have a Windows operating system installed. The shopkeeper promises to install it and call Peter before making the delivery. In this case, the property transfers to Peter only after the shopkeeper has installed the OS making the laptop ready for delivery.

Section 22

Specific goods are in a deliverable state but the seller has to do something to ascertain the price – Imagine a contract of sale of goods which are in a deliverable state but the seller has to do something like weight, measure, test, or perform any other act on the goods to ascertain the price. In such cases, the property does not pass until the seller does the act and informs the seller.

Example: Peter sells a carpet to John and agrees to lay it in John’s house as a part of the contract. He delivers the carpet and informs John that he will lay it the next day. That night the carpet gets stolen from John’s premises. In this case, John is not liable for the loss since the property had not passed to him. According to the terms of the contract, the carpet would be in a deliverable state only after it is laid.

Passing of Unascertained Goods

If there is a contract for the sale of unascertained goods, then the passing of the property of the goods to the buyer cannot happen unless the goods are ascertained. This is specified under Section 18 of The Sale of Goods Act, 1930.

Section 23

Further Section 23 lists two important rules for the passing of property of unascertained goods:

• Sale of unascertained goods by description: Imagine a contract for the sale of unascertained or future goods by description. If any goods of that description are appropriated to the contract either by the buyer or the seller with the consent of the other party, then the property of the goods passes to the buyer. The consent can be express or implied and given before or after the appropriation is made.
• Delivery to the carrier: If the seller delivers the goods to the buyer or a carrier or a bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, but does not reserve the right of disposal, then he is deemed to have unconditionally appropriated the goods to the contract.

Some Points to Remember about the Appropriation of Goods:

If goods are selected with the intention of using them in performing the contract, with the mutual consent of the buyer and the seller, then it is called appropriation of goods. Here are some essentials:

• A contract for the sale of unascertained or future goods exists
• The goods conform to the quality and description stated in the contract
• They are in a deliverable state
• The goods are unconditionally appropriated to the contract either by delivery to the buyer of his agent or the carrier.
• The appropriation is made by the buyer with the assent of the seller or the seller with the assent of the buyer.
• The assent can be express or implied
• The assent can be given before or after the appropriation.

Solved Question of Passing of Property

Q: Peter sells goods to John to be sent by rail. A bill of lading is made in John’s name. The goods are lost in transit. Who is liable?

Ans: Peter makes a bill of lading in the name of John for a railway parcel sent to John. In this case, the ownership of the goods passes to John. If the goods are subjected to accidental loss, Peter is not liable.