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.