TRANSFER OF PROPERTY

INTRODUCTION

• The phrase “transfer of property in goods” means transfer of

ownership of the goods.

• Property in goods is different from possession of goods.

• Possession refers to the custody over the goods.

• So the property in goods may pass from the seller to the buyer
but the goods may be in possession of the seller either as unpaid
seller or as a bailee for the buyer.

• In other cases the property in goods may still be with the seller
although the goods may be in possession of the buyer or his
agent or a carrier for transmission to the buyer.
 IMPORTANT ELEMENTS
• 1. Risk ‘prima-facie’ passes with property.

– As a general rule the risk of the loss of goods is prima-facie in the

person in whom property is.

– Section 26 provides to the same effect, thus, “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 buyer, the goods are at the buyer’s risk whether
delivery has been made or not.”

– Thus, if after the contract the goods are destroyed or damaged the
question who is to bear the loss is to be decided not on the basis of
possession of the goods but on the basis of ownership of goods.
Whosoever is the owner of the goods at the time of loss must bear
the loss.
• ILLUSTRATION.

– A buys goods from B and property has passed to him, but the goods remain in B’s warehouse.
Before delivery of goods to A, there is a fire in B’s warehouse and all the goods are destroyed.
A must bear the loss and pay the price of goods to B, if he has not paid to so far.

• The provision to Section 26 also lays down an exception to the rule that ‘risk follows
ownership.’

• It provides that where delivery of the goods has been delayed through the fault of
either buyer or seller, the goods are at the risk of the party in fault as regards any loss
which might not have occurred but for such fault.

• ILLUSTRATION.

– A contracted to purchase 30 tons of apple juice from B.B crushed the apples and filled 30 tons
of juice in casks and kept them ready for delivery. After a few casks had been delivered A
refused to take further deliveries. The juice became putrid and had to be thrown away. Held
although the property in good was still with B, yet the loss had to be borne by A (Demby
Hamiltion & Co. Ltd. vs Barden, 1949).

•  
• 2. Action against third parties.

– If after the contract of sale, the goods have been damaged by a third party, it is only
the person in whom the property vests who can take action against the wrongdoer.

• 3. Suit for price.

– Generally speaking the seller can only sue for the price if the property in goods has
passed to the buyer.

• 4. Insolvency of the seller or the buyer.

– In the event of insolvency of either the seller or the buyer, the answer to the
question whether the Official Receiver or Assignee can take over the goods or not,
shall depend upon whether the property in goods was with the party who has
become insolvent.

• For example, if the seller becomes insolvent before giving delivery of the goods but the
property in goods has already passed to the buyer who has paid the price, the Official Receiver
can have no claim against the goods.
 RULES REGARDING TRANSFER OF PROPERTY

• Two Divisions:

– (1.) Transfer of property in specific or ascertained

goods.

– (2.) Transfer of property in unascertained and

future goods.
• (1.) Transfer of property in specific or 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.

– Thus, in the case of specific goods, the transfer of property takes place when the
parties intend to pass it.

– The parties may intend to pass the property at once at the time of making of the
contract or when the goods are delivered or when the goods are paid for.

• It is only when the intention of the parties cannot be judged from their
contract or conduct or other circumstances that the rules laid down in
Sections 20, 21, 22 and 24 apply [Sec. 19(3)]. These rules are as follows:
• When goods are in a deliverable state (Sec. 20).

– Where there is an unconditional (i.e., not subject to any condition precedent to be fulfilled
by the parties) contract for the sale of specific goods in a deliverable state, the property in
the goods passes to the buyer as soon as 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 are
postponed.
 
• ILLUSTRATIONS

– (a) A buys a bicycle for Rs 300 on a month’s credit and asks the shopkeeper to send it to his
house. The shopkeeper agrees to do so. The bicycle immediately becomes the property of A.

– (b) P buys a table for Rs 100 on a week’s credit and arranges to take delivery of the table the
next day. A fire broke out in the furniture mart, the same evening and the table is destroyed.
The property in the table has passed to P and he is bound to pay the price.

• The goods are said to be in a ‘deliverable state’ when they are in such a state that
the buyer would, under the contract, be bound to take delivery of them [Sec. 2(3)].
For example, in illustration (b) above, if the seller has to polish the table to make it
acceptable to the buyer, it is not in a deliverable state until it is so polished, and the
buyer does not acquire property at the time of the contract.
• When goods have to be put into a deliverable state (Sec. 21).

– 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.

– The word ‘something’ here means as act like packing the goods, or loading them on rail or ship, or
filling them in containers or polishing them in order to give finished shape, etc.

– It is to be noted that merely putting the things in a deliverable state would not result in the transfer of
property in the goods from the seller to the buyer.

– It is further necessary that the buyer must have notice thereof, i.e., the fact that the goods have been
put in a deliverable sate must come to knowledge of the buyer in some way or the other.

• ILLUSTRATION.

– A agrees to B the whole of turpentine oil lying in a cistern. It is further agreed that the
oil is to be put into casks by A and then B is to take them away. Some of the casks are
filled in the presence of B, but before any are removed or the remainder filled, the
whole is destroyed accidentally by fire. B must bear the loss of oil which had been put
into the casks because in all these casks the property has passed to him as nothing
further remained to be done to them by the seller. But the property in the casks not
filled up remained in the seller, at whose risk they continued (Rugg vs Minett, 1809)
• 3. When the goods have to be measured etc., to ascertain price (Sec. 22).

– 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.

• ILLUSTRATION.

– A sold to B 289 bales of goat skins, each bale containing five dozens, and the price was for certain sum per
dozen skins. It was the duty of A to count the goat skins in each bale. Before A could do the same, the bales
were destroyed by fire. Held, that the property in the goods had not passed to the buyer (i.e., B) as
something still remained to be done by the seller (i.e., A) for ascertaining the price, and as such the loss
caused by fire had to be borne by the seller (i.e., A) (Zagury vs Furnell, 1809).

• It may be noted that if the seller has done all what he was required to do under the contract and
nothing remains to be done by him, the property passes to the buyer even if the buyer has to do
something for his own satisfaction.

• ILLUSTRATION.

– A contracted with B to sell him 975 maunds of rice, the whole content of a certain ‘golah’. B paid the entire
price but agreed to remove the rice after weighing (for his own satisfaction) before a certain date. After
delivery was taken of a part of the rice the other part was destroyed by fire. Held, the ownership had passed
to the buyer because nothing remained to be done by the seller to ascertain the price, and therefore, B the
buyer, must suffer the loss (Shoshi Mohun Pal vs Nobo Kristo Paddar, 1878).
• When goods are delivered on approval (Sec. 24).

– When goods are delivered to the buyer on approval or ‘on sale or return,’ or on
other similar terms, the property therein passes to the buyer:

• When he signifies his approval or acceptance to the seller or does any other act adopting the
transaction, e.g., uses the goods, pledges the goods or resells them;

• 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 goods, or if no time has been
fixed, beyond a reasonable time.

• ILLUSTRATIONS.

– (a) A delivered a horse to B on the terms of ‘sale or return, within 8 days,’ The horse
died on the third day without any fault on the part of B. Held, A was to bear the loss
as the horse was still his property when it perished (Elphick vs Bares, 1880).
 
– (b) A delivered a horse to B on trial for 8 days. B continued to retain the horse even
after the expiry of 8 days without giving notice of rejection to A. B had
automatically become the owner of the horse on the expiry of 8 days.
• (2.) Transfer of property in unascertained and future goods.

– The rule relating to transfer of property in unascertained and future goods is

contained in Section 18 and 23.

– These Sections provide that where goods contracted to be sold are not
ascertained or where they are future goods, the property in goods does not pass
to the buyer unless and until the goods are ascertained or unconditionally
appropriated to the contract so as to bring them in a deliverable state.
 
– It must be noted that the above rule (as contained in Secs. 18 and 23) is a
fundamental rule and it applies irrespective of what the parties intended. Until
goods are ascertained or appropriated there is merely. ‘an agreement to sell.’

– Thus a sale of ten quintals of wheat from a granary containing a large quantity,
has not the effect of transferring property in the ten quintals to the purchaser. it
amounts only to ‘an agreement to sell.’ It is only when ten quintals are
appropriated to the contract by the seller and the buyer has notice thereof, that
property shall pass from the seller to the buyer.
 RULE OF TRANSFER OF TITLE ON SALE

• The general rule relating to the transfer of title on sale is that “the seller
cannot transfer to the buyer of goods a better title than he himself has.”

• If the title of the seller is defective the buyer’s title will also be subject to
the same defect.

• Section 27 also lays down to the same effect and provides that “where
goods are sold by a person who is not the owner thereof and who does not
sell them under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had...”

• This rule is expressed by the maxim, “nemo det quod non habet,” which
means that no one can give what he has not got.
TRANSFER OF TITLE BY NON-OWNERS
• 1. An unauthorized sale by a mercantile agent (Sec. 27)
– Mercantile agent having an authority to sell goods conveys a good title
to the buyer.

– But by virtue of this provision (proviso to sec.27) a mercantile agent can

convey a good title to the buyer even though he sells goods without
having any authority from the principal to do so, provided the following
conditions are satisfied:
 
• He should be in possession of the goods or documents of title to the goods in his
capacity as mercantile agent and with the consent of the owner,

• he should sell the goods while acting in the ordinary course of business,

• the buyer should act in good faith without having any notice, at the time of the
contract, that the agent has no authority to sell.
• ILLUSTRATION.

– F entrusted his car to a mercantile agent for sale at

a stated price and not below that. The agent sold it
to S, a bonafide purchaser, below the reserve price
and misappropriated the proceeds. S resold the car
to K, the defendant. held, S obtained a good title to
the car from the mercantile agent and he conveyed
a good title to K and therefore F was not entitled
to recover the car from K (Folkes vs King, 1923).
• 2. Transfer to title by estoppel (Sec. 27).

– In the words of Lord Halsbury. “Estoppel arises when you are precluded from
denying the truth of anything which you have represented as a fact, although it is
not a fact”.

– When the true owner of the goods by his conduct or words or by any act or
omission leads the buyer to believe that the seller is the owner of the goods or
has right to sell. The buyer in such a case gets a better title than that of the seller.

• ILLUSTRATION.

– M, the owner of a wagon allowed one of his employees K, to have his name
painted on it. M did so for the purpose of inducing the public to believe that the
wagon belonged to K. C purchased the wagon from K in good faith. C acquires a
good title as M is estopped from denying K’s authority to sell (O’ Connor vs Clark)
• 3. Sale by a joint owner (Sec. 28).

– 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 in good faith without notice of
the fact that the seller has no authority to sell.

– It may be noted that in the absence of this provision (i.e., Sec. 28) the buyer
would have obtained only the title of the co-owners and would have become
merely a co-owner with the other co-owners. Hence the provision constitutes
an exception to the rule – “no one can give what he has not got.”

• ILLUSTRATION.

– A,B and C are three brothers. They own a cow in common. B and C entrust
the work of looking after the cow to A and leave the cow in A’s possession. A
sells the cow to D.D purchases bonafide for value. D gets a good title.
• 4. Sale by person in possession under voidable contract (Sec. 29)

– When a person has obtained possession of the goods under a voidable

contract and he sells those goods before the contract has been rescinded,
the buyer of such goods acquires a good title to them provided the buyer
acts in good faith and without notice of the seller’s defect of title.

• ILLUSTRATION.

– A by misrepresentation induces B to sell and deliver to him a cow. A sells

the cow to C before B has rescinded the contract. C purchases the cow in
good faith and without notice of the seller’s defective title. C acquires a
good title.

• It is to be noted that his Section (Sec. 29) does not apply unless
there is a contract. Thus it does not apply to a contract originally
void or where goods have been obtained by theft.
• 5. Sale by Seller in possession after sale [Sec. 30(1)].

– Where a seller, after having sold the goods, continues to

be in possession of the goods or of the documents of title
to them and again sells or pledges them either himself or
through a mercantile agent, he will convey a good title to
the buyer or the pledgee provided the buyer or the
pledgee acts in good faith and without notice of the
previous sale.

– For the application of this exception it is essential that

the possession of the seller must be as seller and not as
hirer or bailee.
• 6. Sale by buyer in possession after ‘agreement
to buy’ [Sec. 30(2)].

– Where a buyer has agreed to buy the goods and has

obtained possession of the same or the documents of
title to them with the consent of the seller, resells or
pledges the goods either himself or through a
mercantile agent, he will convey a good title to the
buyer or the pledgee provided the person receiving
the goods acts in good faith and without notice of any
lien or other right of the original seller in respect of
those goods.
• ILLUSTRATIONS.

– (a) A buys some furniture and agrees to pay for that in two monthly
installments, the ownership to pass to him on payment of the second
installment. Having obtained possession of the furniture. A, sells the
furniture to B before paying the second installment. B buys the furniture
bonafide. Subsequently, A does not pay the second installment. The
furniture dealer cannot take back furniture from B, who obtains a good
title to the same. The dealer can, of course, sue A for the breach of the
contract and claim damages.

– (b) A agreed to buy a car and pay for it, if his solicitor approved. A
obtained possession of the car and sold the same to B. But the solicitor
subsequently disapproved of the transaction. It was held that B, the
bonafide buyer, got a good title, because A agreed to buy (Marten vs
Whale, 1917).
• 7: Resale by an unpaid seller [Sec. 54(3)].
– Where an unpaid seller who has exercised his right
of lien or stoppage in transit, resells the goods (of
which ownership has passed to the buyer), the
subsequent buyer acquires a good title thereto as
against the original buyer, even though the resale
may not be justified in the circumstances, i.e. no
notice of the resale has been given to the original
buyer.
• 8. Exceptional under other Acts.

– Other Acts also contain some provisions under which a non-owner may
pass to the buyer a better title than he himself has. For example,
 
• (a) Sale by finder of lost goods under certain circumstances (Sec. 169, The Indian
Contract Act).

• (b) Sale by pawnee or pledgee under certain circumstances (Sec. 176, The Indian
Contract Act).
 
• (c) Sale by Official Receiver or Assignee in case of insolvency of an individual and
Liquidators of companies. These persons are not owners of the properties they
deal in, but convey a better (good) title to the buyers than they themselves
possess.
 
• (d) Under the Negotiable Instruments Act, a holder in due course gets a better title
than what his endorser had. In other words, a person who takes a negotiable
instrument in good faith and for value becomes the true owner even if he takes it
from a thief or finder.