Transfer of Ownership – Sale of Specific Goods, Unascertained Goods, on Approval

Transfer of Ownership

The word “Property in the Goods” means the legal ownership or title to the goods. Sale of goods involves transfer of ownership or property from the seller to the buyer. It is necessary to determine the time at which the ownership of the goods is transferred to the buyer.

 Transfer of Ownership

Transfer of Ownership – Sale of Specific Goods, Unascertained Goods, on Approval

Secs. 18 to 24 of the Indian Sale of Goods Act 1930 deal with the rules for the transfer of ownership which determine the time at which the ownership of the goods is transferred from the seller to the buyer. However, the general rule is that the transfer of ownership depends upon the intention of the parties to the contract.

The parties may fix any time for the transfer of ownership from the seller to the buyer. But sometimes the intentions of the parties may not clear from the contract itself. In such cases, their intention is ascertained according to the rules laid down in Secs. 18 to 24 of the Sale of Goods Act. These rules can be discussed in the succeeding paragraphs.

1. Transfer of Ownership in case of Sale of Specific Goods

The rules relating to the transfer of ownership in case of sale of specific goods are contained in Secs. 20 to 22 of the Sale of Goods Act which may be discussed under the following sub-heads:

1. The Ownership is Transferred at the Time of Making the Contract

As per Sec. 20 of the Act, in case of specific goods, the ownership is transferred at the time of making the contract if the following conditions are fulfilled.

1) Specific Goods

The sale must be of specific goods – the goods that are identified and agreed upon at the time of making the contract of sale.

2) Deliverable State

The goods must be in a deliverable state. The goods are in a deliverable state when they are acceptable to the buyer and he can take delivery immediately.

3) Unconditional Contract of Sale

The contract of sale must be unconditional – the contract in which no condition is imposed with regard to the transfer of ownership of the goods.

On the fulfillment of the above said three conditions, the ownership of the goods is transferred from the seller to the buyer.

Example: A, a car dealer, had many cars in his show room. Out of them, he sold one car to B. But at the time of contract of sale, the car sold to B was not identified and separated from the other cars. Here the ownership of the car is not transferred to B at the time of contract of sale, because the contract is not for the sale of specific goods. However, had the car been identified and kept separate from the other cars, the ownership of car would have been transferred to B at the time of making the contract.

2. The Ownership may also be Transferred at Some Other Time

When the conditions specified in Sec. 20 of the Act are not satisfied, the ownership will not be transferred at the time of Contract of Sale. In such cases, the rules contained in Secs. 21 and 22 of the Sale of Goods Act shall be applicable.

In the following two cases, the ownership can be transferred at some other time:

1) Where the goods are to be put in a deliverable state by the seller i.e. where the goods are not in a deliverable state at the time of contract, and the seller has to do some act to put them in a deliverable state. In such cases, the ownership is transferred as soon as the seller has put the goods in a deliverable state and the buyer comes to know about this act of the seller. The seller may be required to do certain acts to put the goods into a deliverable state e.g., packing, filling the goods in containers, collecting the goods, separating or loading the goods etc.

Example: A sold some quantity of oil lying in cistern to B. According to the terms of the contract, A was required to fill the oil in drums and then the drums were to be taken away by B. A filled some of the drums in the presence of B. Before the remainder could be filled, a fire broke out and the whole quantity of oil was destroyed. Held, the buyer must bear the loss of oil which was filled in drums, and the seller must bear the loss of remaining unfilled drums.

2) Where the goods are to be weighed by the seller to ascertain the price i.e. where the seller has to do some act for the purpose of ascertaining their price. In such cases, the ownership is transferred to the buyer as soon as the seller has done such act and the buyer comes to know about this act of the seller.

The seller may be required to do certain acts for the purpose of ascertaining the price of the goods e.g., to weigh the goods, measure the goods or to test the goods etc.

Example: A sold to B some quantity of wheat at the rate of Rs.350 per 100 kg. However, A had to weigh the wheat so as to know the price of the entire quantity of wheat sold to B. Here the ownership of the wheat shall transfer to B as soon as the A weighs the wheat and B comes to know about the same.

2. Transfer of Ownership in case of Sale of Unascertained Goods

Unascertained goods are those goods that are not specifically identified at the time of making the contract of sale. In case of sale of unascertained goods, the ownership is transferred to the buyer as and when the goods are identified and are set apart for the purpose of delivering to the buyer.

The ownership in case of unascertained goods is transferred to the buyer only on the fulfillment of the following two conditions:

  1. When the goods are ascertained, and
  2. When the goods are appropriated to the contract.

1. Ascertainment of Goods

The term “ascertainment” may be referred as the process by which the goods to be delivered under the contract are identified and set apart. After ascertaining the goods, these must be appropriated to the contract.

2. Appropriation of Goods to the Contract

The term “appropriation” may be defined as the process by which the goods to be delivered under the contract are ascertained with the mutual consent of the seller and the buyer. The goods may be appropriated either by the seller with the consent of the buyer, or by the buyer with the consent of the seller.

Generally, the act of appropriation is done by the seller, because the goods are in his possession. Once the goods are appropriated with the mutual consent of the parties, they become the property of the buyer.

The seller may appropriate the goods in any one of the following ways:

1. Separating the contracted goods from the other with the consent of the buyer.

2 Putting the contracted quantity in suitable receptacles i.e. by putting the goods into boxes, gunny bags, in case of liquids by putting them into bottles etc. with the consent of the buyer.

3. Delivering the contracted goods to the carrier or other bailee so as to transmit to the buyer without reserving the right of disposal.

Example: A agreed to sell to B the oil to be produced by him. The oil was filled by A into the bottles which were supplied by B. It is an effective appropriation, and the ownership passes to the buyer when the oil is filled into the bottles. Here the buyer gave his consent to the appropriation by supplying the bottles.

3. Transfer of Ownership in case of Sale on Approval

“Sale on Approval” is a sale in which the buyer may return the goods within a reasonable period, if the goods do not serve his purpose. This is also called “sale or return” basis. In this case, the ownership is transferred to the buyer when he accepts the goods. If the goods are not returned within a reasonable time, the seller can only recover the price of the goods and cannot ask for the return of the goods. Here the ownership is transferred to the buyer in any of the following three ways:

  1. By acceptance.
  2. By adoption of the transaction.
  3. By failure to return the goods.

1. By Acceptance

The buyer may accept the goods and inform the seller accordingly. If the buyer gives his acceptance to the seller, the ownership is transferred to the buyer.

Example: A, a book seller, delivered books to B on “sale on approval” basis. Later on, B informed A that he had accepted the books. In this case, there is an express approval of the books, and the ownership is transferred to B on his approval.

2. By Adoption of the Transaction

The buyer may adopt the transaction by doing some act in respect of the goods. When the buyer does some act, which shows that he has adopted the goods, the ownership is transferred to him on the act of adoption. It is known as the implied acceptance. It generally takes place when the buyer deals with the goods as his own.

Example: A delivered some golden ornaments to B on “sale or return” basis. 8 delivered them to C, and C to D on similar terms. The ornaments were stolen while in the custody of D. In this case, B had adopted the transaction by delivering the ornaments to C. Thus, B is liable to pay the price to A. Similarly, C had also adopted the transaction by delivering the ornaments to D. And thus, C is also liable to pay the price to B.

3. By Failure to Return the Goods

The ownership is also transferred to the buyer when he fails to return the goods to the seller. This also amounts to implied acceptance of the goods. This point may be discussed under the following sub-heads:

1. When the Time is Fixed for the Return of the Goods

Sometimes, the goods are delivered on “sale or return” basis and the time is fixed for the return of the goods. In such cases, ownership is transferred to the buyer, if the buyer fails to return the goods within the fixed time.

2. Where no Time is Fixed for the Return of the Goods

Sometimes, the goods are delivered on “sale or return” basis and no time is fixed for the return of the goods. In such cases, if the buyer fails to return the goods within reasonable time, then the ownership is transferred to the buyer on the expiry of the reasonable time. The term “reasonable time” is a question of fact in each case.

Example: A delivered a horse to B on “sale or return” basis and agreed that B should try it for one week and then return if he did not like it. The horse died on the 5th day without any fault on the part of B. Held, the horse was still the property of the seller. As such, the seller could not recover the price from the buyer.

Sometimes, it is expressly agreed between the seller and the buyer that the ownership shall not be transferred to the buyer until the price is paid. In such cases, the transaction is known as the “sale for cash only or return” basis. And the ownership is transferred from the seller to the buyer only on the payment of the price. Moreover, the buyer’s act of dealing with the goods will not amount to the adoption of the transaction.

Example: A delivered his diamonds to B on “sale for cash only or return” basis. It was expressly provided in the contract that the diamonds shall remain A’s property until the price is paid. Before the payment of the price, B pledged the diamonds with C. It was held that at the time of pledge, the ownership was not transferred to B. Thus, the pledge was not valid and A could recover the diamonds from C.

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