The Sale of Goods Act [India Act III, 1930]

Chapter III [Effects of the Contract]

“Transfer of Property as between Seller and Buyer”

Transfer of property is different from the transfer of possession of goods. Property in

Goods means the ownership of goods, and possession of goodswhich means the physical custody
of the goods.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.

Section 18: Goods must be ascertained

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.
This section means that before delivering unascertained goods, they need to be made certain and
only after that, they can be transferred to the buyer.
Illustrations:

 A has ten cars. He promises B to sell one of them but does not specify which car he will sell.
It is a contract for sale of unascertained goods.
 A sells 200 maunds of wheat out of a total of 618 maunds stored in a warehouse and gives a
delivery order to B, the purchaser, directing the warehouse men to deliver 200 maunds of
wheat to B. B lodges the delivery order with the warehouse men to no transfer of property
takes place from A to B so far as the quantity to be sold to him is concerned because the
goods were unascertained.

Section 19: Property passes when intended to pass

(1) 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 in to
the transferred.

(2) 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 circumstance of the case.
(3) Unless a different intention appears, the rules contained in section 20 to 24 are rules for
ascertaining the intention of the parties as to the time at which the property in the
goods is to pass to the buyer.
This section of The Sale of Goods Act, 1930, has three sub-sections as follows:

 Sub-section (1): Where there is 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 , the
property is transferred to the buyer at the time mentioned in the contract.
 Sub-section (2): For the purpose of ascertaining 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.

Section 20: Specific goods in a deliverable state

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.
Section 20 relates to Specific goods in a deliverable state. It states that if the contract does not
have any other conditions and goods are also specific and are also in a deliverable state, then the
buyer is bound to accept the delivery of those goods the moment the contract is made. This rule
holds true even if the time of payment or delivery of the goods or both is postponed.
Illustrations:
 B purchases a specific quantity of hemp from A. The payment is to be made on 4th of Feb and
the delivery on 1st of May while the contract is made on 20th of Jan. The property will be
transferred from A to B on 20th Jan if there is no other conditions.
 A buys a bicycle for 1,40000 kyats 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.
 X goes into a shop and buys a television and asks the shopkeeper for its home delivery. The
shopkeeper agrees to do it. The Television immediately becomes the property of X.
 Section 21: Specific goods to be put into a deliverable state
Where there is a contract for the sale of specific goods and the seller is bound to do
something of 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.
It states that in this case, the goods are definite but the seller has to do something in order for the
goods to be in a deliverable state. It means the passing of property happens only after the seller
complies with the conditions to put the goods in a deliverable state and informs the buyer thereof.
Illustrations:
 A 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 A before making the delivery. In this case, the
property transfers to A only after the shopkeeper has installed the OS making the laptop ready
for delivery.
 There was a contract for the wood of Oak trees in a certain forest. The buyer purchased the
wood from the seller selecting certain portion of trees and rejecting others. According to the
custom of trade, the seller was to separate the selected portions from the rejected portions. But
the buyer threw upon himself the duty of separating the two portions. There was no transfer of
ownership has taken places so far as wood is concerned.

Section 22: Specific goods in a deliverable state, when the seller has to do anything thereto
in order to ascertain price
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.
Here in this section, the seller is responsible to ascertain the price of specific goods by weighing,
measuring, testing or doing some other act. Only after doing some act to ascertain the price and
giving a notice to the buyer, the passing of the property will happen.
Illustrations:
 Sale of a stack of bark at a certain price per ton, the bark to be weighed by the seller and
buyer. Part was weighed and taken away, but before anything more was done a flood carried
away the remainder. The loss of this fell on the seller. It means the property did not pass to
buyer.
 A stock of wheat was sold at an agreed price per quintal. The wheat was to be weighed by the
seller for ascertainment of the price. Before doing so, the wheat was damaged in a fire. Held,
 the loss of the remainder should be borne by the seller since the property in the remainder has
not passed because the required weighing was not done.

Section 23: Sale of ascertained goods and appropriation

(1) Where there is a contract for the sale of unascertained or 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 express or implied and maybe given either before or after the appropriation is
made.
(2) 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.
The section 23 means the following.
(1) According to section 18, no transfer of property can take place from the seller to the buyer in
unascertained goods. Therefore some acts have got to be done in order to convert
unascertained goods into ascertained or specific goods. Such acts are collectively and
technically called ‘appropriation’. Before unascertained or future goods are unconditionally
appropriated to the contract, they must be of the same description under which they are sold
(contract to sell silver cups cannot be sale of gold cups) and also in deliverable state.
Appropriation of goods is done on the basis of consent of either the buyer or the seller. And as
soon as such appropriation is made, the property of the goods is transferred to the buyer.
Consent can be expressed or implied and obtained either before or after appropriation.
(2) When the seller delivers the goods, to the buyer or to a carrier or other bailee to take the
goods to the buyer, and does not reserve the right of disposal as defined by section 25, the
property passes to the buyer since unconditional appropriation is assumed to be made.
Illustrations:
 A agrees to purchase 1000 quintals of cotton from warehouseman, out of which he took
delivery of 500 quintals and remaining to take later on.The warehouseman weighed the
cotton and kept the remaining separately and informed A to take them and agreed to do so.
Before he takes delivery of the remaining goods the warehouse caught fire and destroyed the
cotton.A, is liable for the price to the warehouseman since he has appropriated the goods, and
the ownership is transferred to him. [Sec 23(1)]
 A bill of lading of railway parcel is made out in the name of the buyer and is sent to him, the
ownership in the goods passes from the seller to the buyer. In case the goods are subjected to
accidental loss or by theft, the seller will not be liable. [Sec 23(2)
 Section 24: Goods sent on approval or “on sale or return”

When goods are delivered to the buyer on approval or "on sale or return" of 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 does not signify his approval or acceptance to the seller but retains the does
without giving 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.

When a seller sends good to a buyer on approval basis or on terms similar to ‘on sale or return’,
the property passes to the buyer only when:
 The buyer communicates his approval to the seller or does an act which signifies acceptance
of the transaction, for example he sells the goods or pledges it.
 He does not give his approval or acceptance to the seller but accepts the goods without
giving a notice of rejection. There are two possibilities here:
o A time has been fixed for the return of goods – In this case, if the approved time has
expired, then the property is passed to the buyer.
o A time has not been fixed for the return of goods – In this case, the property is passed to
the buyer once a reasonable time has expired.

Illustrations:

 U Aung is a jeweler. Mg Mg visits his shop to buy a necklace for his wife Mya Mya.
However, he is not sure if Mya Mya will like the necklace he has chosen. U Aung agrees to
deliver the necklace to Mg Mg’s house on a sale or return basis. If Mya Mya does not like the
necklace, then Mg Mg can return it to U Aung without having to pay for it.
Or when U Aung reaches Mg Mg’s house, another man called U Hla is also present in the
house. Mya Mya or Mg Mg don’t express their approval to U Aung but Mg Mg pledges the
necklace with U Hla for a certain amount. In this case, the ownership of the necklace transfers
to Mg Mg since his act of pledging the necklace shows his unequivocal intention to buy it. U
Aung can recover the price of the necklace from Mg Mg.
 P brought a musical instrument from a musical shop on a condition that he will purchase it, if
he likes that instrument. After a week he has informed the shop owner that he has agreed to
purchase the musical instrument. The ownership is transferred when he has decided to
purchase the instrument as his own.
 A, sends to B a water motor on approval or return in March 2012. B to return it after trial in
August, 2012. The water motor has not been returned within a reasonable time, and therefore,
A is not bound to accept it and B must pay the price.
 Section 25: Reservation or right of desposal
(1) Where there is a contract for the sale of specific goods or where goods are subsequently
appropriated to the contract, the seller may, be the terms of the contract or
appropriation, reserve the right of disposal of the goods until certain conditions are
fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or 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.

(2) Where goods are shipped or are dispatched by railway and are by the bill of lading or
by railway receipt deliverable to the order of the seller or his agent the seller is prima
facie deemed to reserve the right of disposal.

(3) Where the seller of goods draws on the buyer for the price and transmits the bill of
exchange and bill of landing or railway receipt to the buyer together, to secure
acceptance or payment of the bill of exchange, the buyer is bound to return the bill of
lading or railway receipt if he does not honour the bill of exchange and if he wrongfully
retains the bill of lading or railway receipt the property in the goods does not pass to
him.

This section states that –

(1) In a contract for the sale of specific goods or where goods are subsequently appropriated to
the contract,
 The seller may reserve the right of disposal of the goods until certain conditions are
fulfilled.
 In such a case, even if the goods are delivered to the buyer himself, or to a carrier or other
bailee for transmission to the buyer, the buyer does not acquire ownership until the
conditions imposed by the seller are satisfied.

(2) When goods are shipped or delivered to railways for carriage but the document of title i.e. the
bill of lading (in case of carriage of sea) or the railway receipts (in case of carriage by
railways) are taken by the seller in his own name or in his agent’s name, the seller is
presumed to have reserved the right of disposal. The property passes over to the buyer only
when the buyer pays the price in exchange of bill of lading or the railway receipt.

(3) If the goods are delivered to a carrier (i.e. the shipping company or railways) and the bill of
lading is taken in the name of the buyer. But the seller draws a bill of exchange on the buyer
for the price of the goods, and sends the same to the buyer along with the bill of lading or
railway receipts to secure the payment of the price. The property in goods does not pass to
the buyer until he accepts the bill of exchange or pays the price of the goods. If he retains the
goods without accepting the bill of exchange or payment of price the property does not pass.
Illustrations:
 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. [Sec. 25(1)]
 A sold certain bales of paper to B which were to be sent to him by railway. A took the
railway receipt in the name of B, and sent them to his own banker to be delivered to B on the
payment of the price. Before B paid the price, and received railway receipts, the goods were
destroyed by fire. The court held that the seller should suffer the loss as he has reserved the
right of disposal and at the time of destruction of bales, their ownership has not been
transferred to the buyer. [Sec. 25(2)]

Section 26: Risk prima facie passes with property

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 the buyer, the
goods are at the buyer's risk whether delivery has been made or not:
Provided that, where delivery 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:
Provided also that nothing in this section shall affect the duties or liabilities of either seller
or buyer as a bailee of the goods of the other party.
When goods are sold, the seller bears the risk until the property in the goods is transferred to the
buyer. Once the property is passed, it will be the buyer who bears the risk even if the delivery has
not been made.
There are some points about the passing of risk:

 It holds true unless the buyer and seller have agreed to some other terms
 In cases where the delivery has not been made, if the delay in delivery is due to the fault of
the seller, then the risk lies with the seller. If the delay is due to a fault of the buyer, then the
goods are at the buyer’s risk.
 Regardless of the buyer or the seller bearing the risk, the duties and responsibilities of both of
them as a bailee of goods for the other party, remain unaffected.

Illustrations:

 U Aung is auctioning his great-grandfather’s wristwatch at a function. In a true auctioneer

style, he manages to get a gavel (hammer used by auctioneers) and sets up a table inviting bids
for the historical watch. He manages to get the highest bid of $500. As he strikes the gavel to
signify acceptance of the bid, he accidentally damages the watch. In this case, the property
had not passed to the bidder. Hence, the risk was U Aung’s and he will have to bear the loss.
 A contracted to sell 100 bales of cotton to B to be delivered in February. B took the delivery
of the part of the cotton but made a default in accepting the remaining bales. Consequently
the cotton becomes unfit for use. The loss will have to be borne by the buyer. It should,
however, be remembered that the general rule shall not affect the duties or liabilities of either
seller or buyer as a bailee of goods for the other, even when the risk has passed. As noted
above, the risk (i.e., the liability to bear the loss in case property is destroyed, damaged or
deteriorated) passes with ownership. The parties may, however, agree to the contrary. For
instance, the parties may agree that risk will pass sometime after or before the property has
passed.