Transfer of Property

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What is Transfer of Property?

The transfer of property (or ownership) is important as it determines who owns the goods at a particular point during the contract.

The term transfer of property implies transfer of ownership and not physical possession of goods.

Sections 18 to 25 of Sales of Goods Act 1930 lay down the rules which determine when ownership of the property passes from the seller to the buyer.

These rules may be summarised as follow:

1. Transfer of Property in Specific Goods i.e. Ascertained Goods

2. Transfer of Property in Uascertained Goods

3. Transfer of Property in Sale on approval [Sec. 24]

4. Transfer of Property When Right of Disposal is Reserved [Sec. 25]


Transfer of Property in Specific Goods

In case of the sale of specific goods, the rules relating to the transfer of ownership are contained in Sections 20-22 of the Sales of Goods Act which may be discussed as under:

Ownership is transferred at the time of making contract

The ownership is transferred immediately at the time of making the contract if all the following conditions are satisfied:

a. The contract is for specific goods.
b. The goods are in a deliverable state.
c. The goods are not required to be weight or measured for determining the price.

Example: A sold to B, 100 bales of cotton lying in his warehouse. Before the bales could be identified and separated, all the bales were destroyed on the fire. Here, the seller is liable for damage because the ownership is not transferred.

Ownership is transferred when goods are put in a deliverable state

If the goods are not ready in the deliverable state at the time of making the contract of sale, the ownership of goods is transferred after the formation of the contract of sale when the following conditions are satisfied:

a) The contract is for specific goods.
b) The goods are put in a deliverable state by the seller.
c) The fact that the goods are put into a deliverable state has come to the knowledge of the buyer.

Example: A certain quantity of oil was purchased by A. The oil was to be filled in tins. B filled up some of the tins and informed A to take the delivery. In the meantime, a fire destroyed the entire quantity of oil. Held, A will bear the loss of the oil which was filled in the tins and the seller must bear the loss of the balance.

Ownership is transferred when goods in the deliverable state put to weighted or measured to ascertained price

If the goods are not weighed or measured at the time of making a contract of sale, the ownership of the goods is transferred after the formation of the contract of sale when the following conditions are satisfied:

a) The contract is for specific goods.
b) At the time of formation, the price is not determined. It is determined later by the weight or measurement.
c) The goods are put in a deliverable state by the seller.
d) The fact that goods have been weighted or measured in order to determine the price has come to the knowledge of the buyer.

Example: A sold 10 Kg of sugar. The sugar was to be weighted. Before the sugar was weighted, it was carried away by the flood. Held, the ownership of the sugar was left with the seller and it did not pass to the buyer.


Transfer of Property in Uascertained Goods

The goods are not transferred to the buyer until and unless they are ascertained.

Example: You buy 100 bags of cement and pay for it and take it away; you promise to take another 100, but you have not ascertained unconditionally, that is, you may take them if you need—there is no contract for the next 100 bags.

How goods are ascertained? – By valid appropriation

Appropriation

Appropriation means selection of goods with the mutual consent of the parties.

The following are the essentials of appropriation:

a) The goods should confirm to the description and quality stated in the contract.
b) The goods must be in a deliverable state.
c) The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to buyer or his agent or the carrier.

Example: The cement dealer selected 100 bags that you approved, paid, and took away. Upon your consent, he set apart another 100 bags, but you failed to take them away and they got damaged. You are liable for the damage because you had consented to take them although the payment was pending.


Transfer of Property in Sale on approval

When the goods are delivered to the buyer on approval basis, from the moment of approval or ‘on sale or return,’ or on other similar terms, the goods transferred to the ownership of the buyer.

Example: A bookseller sends a consignment of books to the library; the librarian approves some and keeps them and sends back the rest.


Transfer of Property When Right of Disposal is Reserved

The object of reserving the right of disposal of goods is to secure that the price is paid before the property passes to the buyer.

For example, under the VPP (Value Pre Paid) system the ownership passes to the buyer when the price is paid against the delivery of goods, till then the seller retains control over the goods.

Section 25(1) lays down that –

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.

For example, 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.

In the following circumstances, the seller is presumed to have reserved the right of the disposal:

By taking a document of title in his own name or his agent’s name. [Sec. 25(2)]

When goods are shipped or delivered to railways for carriage but the document of title i.e. the bill of lading 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.

When the bills of exchange along with the RR/bill of lading is sent to the buyer. [Sec. 25(3)].

If the goods are delivered to a carrier (i.e. the shipping company or railways) and the bill of lading or RR are 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 the price the property does not pass.


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Business Law Book References

  1. Goel, P. K. (2006). “Business Law for Managers” Wiley
  2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
  3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

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