TRANSFER OF OWNERSHIP

INTRODUCTION
A Sale is defined as transfer of ownership of the goods from the seller to the buyer for a price.
Therefore, what is important in a transaction of sale is the transfer of the ownership. It is essential
to determine the exact point of time at which the Property in the goods is transferred in favor of the
buyer. The term Property in goods means the ownership of the goods. The term transfer of
property means the transfer of ownership from seller to buyer so as to constitute the buyer the
real owner of the goods. When the ownership of the goods is transferred to the buyer, he becomes
the real owner of the goods and the seller ceases to be the owner from that point of time. This
ultimately determines the various rights and liabilities of the buyers and sellers in respect of the
goods sold. Sections 18 to 25 of the Sale of Goods Act, determine when the property passes from
the seller to the buyer.

PASSING OF PROPERTY
The primary rules for ascertaining when the property in goods passes from seller to buyer may be
summarized as follows:
1. Goods Must Be Ascertained: As per section 18 in a contract for sale of unascertained goods, the
property in the goods does not pass to the buyer unless and until the goods are ascertained.
For example, under a contract Billu was entitled to cut teak trees of more than 12 inches girth.
The stumps of trees after cutting had to be 3 inches high. It was held that property in the timber
that was cut would pass to Billu when the trees were felled. Till the trees were felled, they were
not ascertained.
2. Intention of the Parties for Such Transfer: As per section 19(2) in 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 intended to be transferred. The intention of the parties is ascertained from the
terms of the contract, the conduct of the parties and the circumstances of the case.
When intention of the parties cannot be ascertained, rules contained in sections 20-24 are required
to be applied for ascertaining the time of transfer of property which are discussed hereunder:
IN CASE OF SPECIFIC GOODS
1. Specific Goods in a Deliverable State: According to Section 20 of the Act, in 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. Goods are said to be in
deliverable state when they are in such a state that the buyer would under the contract is bound
to take delivery thereof. For example, Rocky selected some party wears in a retail showroom. He
agreed to take the delivery next day and agreed to pay next week. The party wears are destroyed
by fire that took place same day. The property in goods has passed on to the buyer and he is
liable to pay for it whether delivery is taken or not or paid or not.
2. Specific Goods to be Put into a Deliverable State: According to Section 21 of the Act, 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. For example, there was a contract for sale of
 timber from oak trees. The buyer marked out the selected parts of the tree. As per trade practice
the seller was required to remove the rejected portion from the trees. But before he could do so,
he was declared bankrupt. It was held that the property in goods has not passed on to the buyer
so he cannot take away the timber. Until the seller had severed the rejected portion, the goods
cannot be said to be in a deliverable condition to enable transfer of property therein. Unless
otherwise agreed, delivery to buyer’s premises is not to be made by seller. Goods are supposed
to be sold “as is where is”.
3. Specific Goods in a Deliverable State: According to Section 22 of the Act, when the seller has to
do something thereto in order to ascertain price, if 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. For example, Anil makes
a contract to sell 200 books to Sunil. The books are stored in racks and Sunil has to select the titles
and separate them before they can be delivered. If there is fire and books are destroyed the loss
will be Anil’s as ownership is yet to be transferred.
IN CASE OF UNASCERTAINED GOODS (SEC. 23)
Where there is a contract for the sale of unascertained or future goods by description and goods
of that description are in a deliverable state and 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 expressed or implied,
and may be given either before or after the appropriation is made. In case of transfer of property
from buyer to seller when the goods are unascertained, their ascertainment and unconditional
appropriation to the contract are two pre-conditions. Ascertainment is the process by which the
goods answering the description to the contract are identified and set apart. Ascertainment is the
unilateral act of seller; appropriation involves selection of goods with the intention of using them in
the performance of the contract and with the mutual consent of the seller and buyer. For example,
in a sale of 20 hogsheads of sugar out of a larger quantity, 4 were filled and taken away by the buyer.
The remaining 16 hogsheads were subsequently filled and the buyer was informed of the same. The
buyer promised to take them away, but before he could do so, the goods were lost. Held the
property had passed to the buyer at the time of the loss.
Delivery to Carrier: Where, in pursuance of the contract, the seller delivers the goods to the buyer
or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the
right of disposal, he is deemed to have appropriated the goods for the purpose of the contract.
GOODS ON APPROVAL OR ‘ON SALE OR RETURN BASIS’ (SEC. 24)
In order to push up the sales generally there is a practice of sending goods to the customer with the
clear-cut understanding that he has option to approve or return the goods within a given period.
This type of sales is known as “approval on sale or return”. In such cases the transaction does not
terminate into sale until the goods are approved by the customer and the property in goods still
remains with the seller.
When goods are delivered to the buyer on approval or on sale or return or other similar terms, the
property therein passes to the buyer—
When He Signifies His Approval or Acceptance to The Seller
 Example: A sends 5 dozen of Silk Sarees to B on approval on sale or return basis with an option to
return the same within 21 days. B send a letter of approval of goods to A within 10 days. Sales has
taken place after 10 days and the property in goods get transferred to B.
When He Does Any Other Act Adopting the Transaction
 Example: A send 25 tons of cement to B on approval on sale or return basis, with the option to
return the goods within 30 days if not acceptable to him. B used the cement in his project. Since
B has appropriated the goods, the sale has crystallized, property in goods stands transferred to B.
 Example: A send 20 bales of cotton to B on approval on sale or return basis. B has a choice to
return the goods within 3 weeks. However, B instead of conveying his approval or rejection of the
goods sold the same to C. Here also B by his act has signified his approval, the sale is complete
and property in goods passes on to B.
If He Does Not Signify His Approval or Acceptance to The Seller but Retains the
Goods Without Giving Notice 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.
 Example: A horse was delivered to B on the condition of sale or return within 8 days. The horse
died within 8 days. It was held that the loss would fall on the seller as the property in goods has
not been passed on to the buyer. [Elphick v Barnes (1880)]
 Example: A delivered some jewellery to B on sale for cash only or return. Before B paid price, he
pledged the jewellery with C. Held the pledge was not valid and A could recover jewellery from C.
 Example: S Ltd agreed to sell a tractor to HC Municipality on the condition that if the latter was
not satisfied, it could reject the tractor. The municipality used the tractor for a month and a half
and then wanted to reject. Held a reasonable time to reject having elapsed, the property in the
tractor had passed to the municipality and therefore it could not reject.

RISK PRIMA FACIE PASSES WITH PROPERTY (SEC. 26)

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.
EFFECT OF DESTRUCTION OF GOODS
1. Goods Perishing Before Making of Contract (Sec 7): Where there is a contract for the sale of
specific goods, the contract is void if the goods without the knowledge of the seller have, at the
time when the contract was made, perished or become so damaged as no longer to answer to
their description in the contract.
2. Goods Perishing Before Sale but After Agreement to Sell (Sec 8): Where there is an agreement
to sell specific goods, and subsequently the goods without any fault on the part of the seller or
buyer perish or become so damaged as no longer to answer to their description in the agreement
before the risk passes to the buyer, the agreement is thereby void.
It is to be noted that both section 7 and section 8 are applicable only in case of specific goods and
not in the case of uncertain/generic goods.
 Example 1: In Demby Hamilton & Co V Barden Engineering Works ltd 1949 ALL ER 435, A
contracted to purchase 30 tons of apple juice from B. Deliveries were to be made in weekly
truckload. B crushed the apples and put the juice in containers for delivery. A delayed the taking
of delivery as a result juice got deteriorated in quality. It was held that the property in goods has
passed on to A. Accordingly the loss will be borne by A only.
 Example 2: Baman of Banaras writes Chagan of Chennai to send him 50 pieces of wrist watches
by post parcel. Chagan sends the 50 pieces of wrist watches by parcel post with correct address
of Baman. However, the parcel was misplaced in the post and never reached Baman. This loss will
be borne by Baman as the property in goods has passed on to the buyer the moment the parcel
is delivered to the post office with correct address.
 Example 3: Ashwin of Delhi agreed to purchase 500 liters of Engine oil from Harshad. As per the
terms of agreement, delivery was to made in a special pouch of 500 ML supplied by Ashwin. While
Harshad was filling 500 ml pouches for delivery to Ashwin, the store got fire as a result the entire
quantity of Engine oil lying therein lost in fire. As per section 26 the risk and property in the goods
still remained with the seller and the entire loss will be borne by Harshad only.
It may further be noted that if the seller was aware of the destruction of goods and still enters
into a contract. He is stopped from disputing the contract. In such case the buyer can sue him for
breach of contractual obligations and claim damages.

SALE BY PERSON NOT THE OWNER OF GOODS

In normal course, a buyer may assure that the seller is the owner of the goods or having authority
form the owners to sell the goods. 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, unless the owner of the goods is by conduct
prohibited from denying the seller’s authority to sell. Generally, the owner alone can transfer
property in goods.
“Nemo dat qui habet” / “Nemo dat qoud non habet” means that no one can give what he himself
does not have. It means a non-owner cannot make valid transfer of property in goods. If the title
of the seller is defective, the buyer’s title will also be subject to same defect. If the seller has no
title, the buyer does not acquire any title although he might have acted honestly and might have
acquired the goods after due payment. This rule is to protect the real owner of the goods.
Though this doctrine seeks to protect the interest of real owners, but in the interest of the trade and
commerce there must be some safeguard available to a person who acquired such goods in good
faith for value; accordingly, the Act provides the following exceptions to this doctrine which seeks
to protect the interest of bonafide buyers.
1. Sale By Mercantile Agent (Sec. 27): Where a mercantile agent is with the consent of the owner,
in possession of the goods or of a document of title to the goods, any sale made by him, when
acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were
expressly authorized by the owner of the goods to make the same, provided that the buyer’s act
is in good faith and has not at the time of the contract of sale notice that the seller has no authority
to sell. For example, F the owner of a car, deliver it to H, a mercantile agent for sale at not less
than `20,000. H sold the car for `15,000 to K who bought it in good faith and without notice of any
fraud. H misappropriated the money. F sued to recover the car from K. Held as H was in possession
of the Car with F’s consent for the purpose of sale, K obtained a good title to the Car.
2. Sale By One of Joint Owners (Sec. 28): If one of several joint owners of goods has the sole
possession of the goods by permission of the co-owners, sells the goods to any person who buys
them form such joint owner in good faith and has not at the time of the contract of sale notice
that the seller has no authority to sell gets the good title of the goods. For example, A, B and C
are three joint owner of a car which is with B with the consent of A and C. B wrongfully sold the
car to D without any knowledge and authority of remaining partner. D in good faith purchased
the car, paid the price and takes the delivery. The property in goods stand transferred to D despite
that B is not the only owner of the car.
3. Sale By Person in Possession Under Voidable Contract (Sec. 29): When the seller of goods has
obtained possession thereof under a contract voidable under Section 19 or Section 19A of the
Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer
acquires a good title to the goods, provided he buys them in good faith and without notice of
the seller’s defect of title. For example, A purchased a mobile set from B by fraud. A has avoidable
title to the mobile set at the option of B. Before B could rescind the contract, A sold the same to
C who purchased it from A in good faith and without knowledge of fraud by A and paid for it. C
had a good title to the goods.
4. Seller or Buyer in Possession After Sale (Sec. 30): Where a seller, having sold goods, continues or
is in possession of the goods or of the documents of title to the goods, again sells them by himself
or by a mercantile agent acting for him to a person who buys in good faith and without notice of
the previous sale, a buyer gets a good title of the goods. For example, A sells his blackberry mobile
to B. He promised to deliver the same after one week. However, A instead of delivering to B, sold
it to C who purchased it from A in good faith and paid the price. C gets a good title to it.
5. Sale By Estoppel (Sec. 27): Where the owner by his conduct or omission, leads the buyer to
believe that the seller has authority to sell, he is stopped from denying the fact afterwards. The
buyer thus gets a better title than the seller. For example, A tells B in the presence of C that A is
agent of C. C maintains silence instead of denying it. Later if A sells C’s goods to B, C cannot dispute
B’s title to the goods.
6. Sale By a Finder of Goods: Under section 169 of the Contract Act, if a finder of lost goods could
not reasonably find the true owner or the true owner refuses to pay the lawful charges of the
finder of lost goods, the finder of lost goods can sell the goods when the goods are perishable
in nature or when the lawful charges of the finder of lost goods amount to 2/3rd of its value.
7. Sale By Official Receiver or Assignee: In case of insolvency of any individual his official receiver
or liquidator of a company can sell the goods and buyer thereof gets good title to it.

NOTE – Video Lectures of these notes are available only on “GYAANI ACADEMY” YouTube Channel.
NOTE – Video Lectures of these notes are available only on “GYAANI ACADEMY” YouTube Channel.