The phrase “passing of property in the goods” implies “transfer of ownership in the goods” which has been provided under the Sale of Goods Act, 1930. The passing of property is one of the important concept related to the contract for sale of goods and property. This article deals with several aspects of the concept by covering the rules for the passing of ownership and the various contracts in which the delivery of goods is done through ships.
In a contract for sale of goods or property, the ownership of such goods or property is also passed to the buyer. It is important to determine the exact point at which the property is passed from seller to the buyer as the risk involving the property depends on it. Thus, the following shall be determined:
- a) The exact point of time when the property in the goods is passed from the buyer to the seller.
- b) The point of time at which risk passes on to the buyer from seller.
- c) The time when right of ownership and possession is passed on to the buyer by seller.
The three stages involved in the performance of contract of sale of goods are:
1) Transfer of property in goods (Section 18 to 25)
2) Transfer of possession of goods (Section 26)
3) Transfer of title (Section 27-30)
Rules relating to Passing of Property
1) Passing of risk (Section 26): The section provides the goods, unless the property is transferred to the buyer, shall remain with the seller. As soon as the property is transferred to the buyer, the goods are at the buyer’s risk whether the goods have been delivered or not. But, if delivery is delayed due to the fault of either party, the risk lies with the party at fault. Therefore, ‘property’ and ‘risk’ goes simultaneously.
2) Rules as to the passing of property in the goods (Section 18-25): The general rules relating to the transfer of property in the goods are:
- a) Ascertainment of goods (Section 18): The property in the goods cannot be transferred by the seller to the buyer if the contract for sale is of ascertained goods. Therefore, the goods must be ascertained for transfer of property in the goods.
- b) The intention of parties [Section 19(1)]: The property in the goods is passed to the buyer when both the parties intend to do so. The terms of the contract, conduct of parties and circumstances of case shall be considered for determining the intention of the parties.
3) Specific Goods (Section 20-22): Rules relating to the transfer of property in specific goods are provided under Section 20 to 22 which are as follows:
- a) Goods in Deliverable State (Section 20): A state in which a buyer is bound to take delivery of the goods is known as a deliverable state. When a contract for transfer of property in the goods is unconditional, the transfer of property in the goods is said to be done when such contract is made.
- b) Goods to be put in deliverable state (Section 21): In some contracts, the seller is supposed to do something with the goods for putting them in deliverable state, and the property in the goods is not said to be transferred unless such thing is done to the goods and the buyer is given notice of the same.
- c) Price of goods ascertained through weighing (Section 22): Where the price of the specific goods in a contract of sale is to be determined by weighing, measuring or some other method, the property in the goods is not said to be passed unless such weighing, measuring or the method is used for ascertainment of price and buyer is given notice of the same.
4) Unascertained goods (Section 23): In a contract for sale of unascertained goods by description, the property in the goods passed on to the buyer if the goods of the said description are in deliverable state and are unconditionally appropriated to the contract by the buyer with the consent of seller or vice-versa. The consent can be either express or implied and can be given after or before the appropriation is done.
As per a contract, if the goods are delivered to the buyer, carrier or bailee who doesn’t have a right of disposal (named by a buyer or not) by the seller, it is assumed that he has unconditionally appropriated the goods to the contract.
5) Goods sent on approval basis (Section 24): When the goods are delivered to the buyer on specific terms i.e. ‘approval’, ‘sale on return’ or any other such term, the property is said to be transferred when:
- a) The buyer indicated his approval or acceptance to the seller;
- b) The buyer acts in a way which indicates adoption of the transaction;
- c) The buyer retains the goods even after expiry of fixed period.
6) Reserving right of disposal (Section 25): If a seller reserves a right to dispose the goods until fulfillment of certain conditions, then the property in the goods cannot is not transferred to the buyer until such conditions are fulfilled even if the goods are specific or subsequently appropriated.
Contracts Involving Sea Routes
Where the contracts are for sale involving sea routes, there are special clauses and conditions prepared keeping in mind the international customs and practices of merchants:
- A) Free Alongside Ship Contracts: In FAS contracts, the property in the goods sold passed to the buyer when the seller delivers the goods alongside the ship whose name has been mentioned in the contract of carriage between the parties. The seller’s and buyer’s duties under such contracts are as following:
- Delivery of goods alongside the ship.
- Notify the buyer of delivery alongside the ship.
- Arrangement for affreightment contract.
- Notify the seller of the ship name and delivery alongside the ship.
- Bear risks and pay charges for the goods delivered alongside the ship.
- B) Free on board Contracts: Under FOB contracts, if a seller agrees to sell goods, then the seller have to put the goods on a ship on behalf of buyer, at his own expenses under the contract of carriage by sea for transmitting the goods to buyer.
- Delivery of goods on the ship named by buyer. Once the goods are put on a ship, they are at buyer’s risk. The seller’s duty ends once he delivers goods to the ship at his own expenses.
- Notify the buyer about the shipping of goods. The notification is in order to enable the buyer to protect the goods against loss during transmission of goods. If the seller fails to notify the buyer, the goods will be at his risk.
- Arrange for the contract of aafireightment;
- To tell the seller the name of the ship through which the goods are delivered.
- Bear risks and charges relating to delivery of goods on ship.
The property in the goods is said to be passed on to the buyer when the goods are delivered. If the buyer fails to name a ship for transfer of goods, the seller can sue the buyer for the non-acceptance of goods but he cannot sue for the price.
- C) Cost, Insurance and Freight Contracts: When a seller agrees to sell goods, the price of goods shall include the price of goods, cost of insurance and freight. Such contracts are said to be performed when the documents, bill of lading, insurance policy, invoice, etc are delivered to the buyer through a bank. The bank transfers the documents at a charge. The seller is said to be the owner of goods till the time buyer receives the documents and pays for the goods.
- D) Ex-Ship Contracts: Under these contracts, the seller delivers the goods from a ship arrived at the port of destination at his own expenses. The property in the goods is not said to be transferred until the goods are delivered to the buyer.
Case Laws relating to Passing of Propert-
Badri Prasad v. State of M.P: In this case, the court held that in the cases of sale of trees, the property in the goods is said to be transferred when the trees fell after they are being cut as they cannot be ascertained unless they fall.
Multanual Chempalal v. C.P. Shah & Co.: In this case, it has been held that section 26 of the Sale of Goods Act, the risk passes only when the property is passed but if there is a contract to the contrary, the risk passes before the title to the property is passed. Thus, the parties can enter into a contract which provides for passing of risk before the passing of property.
The Sale of Goods Act, 1930 provides for several aspects relating to the passing of property in a contract for sale of goods or property. There are several rules provided under Sections 18 to 25 of the Act through which rights and liabilities of the buyer and seller can be determined. Passing of property in the goods signifies the transfer of ownership in the goods which is a different concept from the possession of goods as possession only involves delivery or custody of goods.