Contents -

1. Meaning of Transfer of Property or Ownership.
2. Possession and Risk.
3. Rules of Transfer of Property.
4. Exceptions Rules of Transfer of Title by Non-Owners (Section 27).
5. Differences Between Transfer of Property & Possession.

  • Meaning of Transfer of Property or Ownership -
Transfer of Property implies transfer of ownership and not the physical possession of 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.

For example : Where a principal sends goods to his agent he merely transfer the physical possession and not the ownership of goods. Here the principal is a owner of the goods but is not having possession  of goods and their agent is having possession of goods but is not the owner.

  • Possession and Risk -
     There are three levels in the process of performance of the contract of sale of goods by a seller namely :
1. The Transfer of Property in goods.
2. The transfer of possession of the goods.
3. The passing of risk.
The Transfer of Property in goods from the seller to the buyer is a prime aim of a contract of sale.
     Passing on a general property is needed in case of sale. Property means general property in goods and not merely a special property and legal ownership. Transfer of Property implies passing on a legal ownership. It is necessary to fix whether property in goods has been transferred to the buyer to define rights and liabilities of the buyer and the seller. Commonly, risk accompanies property in goods i.e. when property in goods passes risk too passes. If property in goods has already passed on to the buyer, the cellar cannot stop delivery of goods although in the meantime the buyer has become bankrupt.
     Property in goods means the ownership of goods where as possession of goods implies the custody of goods. Risk passes with ownership. The expression property in goods must be distinguished from passession of goods. Transfer of possession does not mean Transfer of Property e.g. if goods are handed over the transporter or Godown keeper. Possession is transferred but property remains with owner. Similarly if goods remain the possession of seller after the transaction is over the possession is with seller but property is with buyer.
     The usual rule in the Sale of Goods Act is that prima facie passes with ownership. Goods are at the risk of the party who possesses ownership. Risk and ownership go hand in hand. In case of loss of goods The loss shall by the party who has the ownership at that particular time. Actual delivery of goods is not significant for passing of risk. It is ownership which is much apt for passing of Risk. The rules are :
1. When the property in goods is transferred to the buyer the goods are at the risk of the buyer whether delivery has been made or not. In case of loss he has to bear the loss.
2. The goods remain at the seller risk until the property there in transferred to the buyer. In case of loss, he has to bear the loss.

For example :  A buys goods from B and property has passed to him but the goods remained in B's warehouse. Before delivery of goods to A, there is a fire in which 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 it so far.
     The opening words of Section 26 namely, unless otherwise agreed are of great significance. These words imply that risk passes with property is not an absolute or inflexible rule, but if prima facie one. Risk is not taste of property passing. There is nothing to prevent the parties from contracting that rick shall pass even before passing of property or vice versa.

Following Actions will be Taken under the Risk :

1. Suit for Price - Generally speaking the seller can sue for the price if the property in goods has passed to the buyer.

2. Insolvency of the seller or the buyer - In case of insolvency of the buyer or seller, whether official receiver or assignee can take over goods 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 on to the buyer who has paid the price, the official receiver have no claim on goods.

3. Action against Third Parties - If after the contract of sale the goods having damage by a third-party, it is only the person in whom the property vests who can take action against the wrong doer.

  • Rules of Transfer of Property -
Rules regarding Transfer of Property are discussed under the following three major heads :

1. Transfer of Property in Specific or Ascertained Goods (Section 19-22) -
The rules relating to Transfer of Property in specific goods are as follows :

a) General Rule (Section 19) -
According to Section 19 of the Sale of Goods Act, 1930, "Where there is a contract, for the sale of specific or ascertained goods, the property in the goods is transferred to the buyer at such time as the parties intend it to be transferred". For ascertaining the intention of the parties regard is to be had to the term of the contract of the parties and to circumstances of the case.

b) Specific Goods in a Deliverable State (Section 20) -
Where the goods are in a deliverable state, i.e. where the goods are in such a state that the buyer would, under the contract be bound to take delivery of them.
For example : B makes an offer of Rs.4000 for a horse to A and agrees to accept the amount after one month. A accept the offer. The horse shall be the property of A as soon as the offer has been accepted, the contract for the sale of horse being unconditional and the horse being in a deliverable state.

c) Goods not in Deliverable State (Section 21) -
Where there is a contract for sale of specific goods and the seller is bound to do something to the good for the purpose of putting them in a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.
For example : A, a boat builder contract to sale to B, for the stated price, a Boat which is laying in A's yard. The boat to be painted and fitted for plying in the turbulent river and the price is to be paid on the delivery. Under the contract the property in the boat and the risk do not pass to B, until the board has been painted and fitted and noticed thereof is given to B.

d) When the Price of Goods is to be Ascertained by Weighing etc.(Section 22) -
Where there is a contract for the sale of specific good in the deliverable state, out the seller is bound to weigh, measure, lest or do some act or thing with reference to them for ascertaining the price, the property does not pass till such act or thing is done and the buyer has notic of it.

2. Transfer of Property in Unascertained Future Goods -
Transfer of Property in unacertained and future goods is as follows :

a) Where there is a contract for sale of unascertained or future goods by description and goods of that description and in a deliverable state are Unconditionally appropriate to the contract by the seller, with the assent of the buyer or by the buyer with the assent of the seller, property in the goods passes to the buyer. Such assents may be given expressly or impliedly and either before or after the appropriation.
Where in pursuance of the contract the seller delivers the goods to the buyer or to a carrier or other bailee for their transmission to the buyer and does not reserve the right of disposal, he is Deemed to have Unconditionally appropriated the goods to the contract Section 23.
For example : X having a quality of sugar in bulk, more than sufficient to fill 20 bags, contract to sale to Y 20 bags of it. After the contract, X fills 20 bags with the suger, gives notice to Y that the bags are ready and require him to take them away, Y says he will take them as soon as he can. By this appropriation by X and assent by Y the property in the sugar passes to Y.

b) When the contract is for unascertained goods, no property there in is transferred to the buyer unless and until the goods are ascertained Section 18.

3. Goods Sent 'On Approval' or 'On Sale or Return' Basis -
Goods sent on approval or on sale or return basis mean those goods in respect of which the buyer has option either to return or retain Rules Section 24.
Where goods are delivered to the buyer on approval or on sale to return or on similar terms, the property passes to the buyer.

a) Adopting of Transaction -
When the buyer does not seen his approval to the seller, but does some act regarding goods which shows that he has accepted goods, the property in goods will pass on search adoption.

b) Failure to Return the Goods -
When the buyer does not intimate the seller of his approval or rejection and retain the good at the expiration of reasonable period of time the ownership passes to the buyer.

c) When he Signifies his Approval or Acceptance to the Seller -
On the approval for acceptance of good, when the buyer informs the seller, the property in goods passes to the buyer.

For example : A delivered some jewellry to B on approval basis without specifying any time for its return in case of non acceptance. B pledges the Jewellery with C. A can recover the price all jewellery from B because ownership has passed to B as B  had adopted the transaction by pledging the jewellery with C.

  • Transfer if Title by Non-Owner (Section 27) -
Section 27 of the Sale of Goods Act, 1930 lays down a general rule as to transfer of title i.e. it is only the owner of goods who can transfer a goods title. No one can give a better title than what he himself has.
This rule is expressed by the maxim, 'nemo dat quod non haber' which means that no one can give what he himself has not. If the seller therefore has no title or he has defective title, the buyer title will be equally wanting or defective, as the case may be though he has purchased in good faith and for value.
For example : Ramesh the hirer of goods under a hire purchase agreement, sales them to Suresh. Suresh through a bona fide purchaser, does not require the property in the goods. At the most he acquires such an interest as the hirer had.

  • Exceptions to the General Rule -

To the above general rule there are certain exceptions circumstances under which even in non-owner may confer a good title on the transferee. These exceptions are laid down by (Section 27-30) and are as follows :

1. Sale by Mercantile Agent (Section 2(9)) -
Section 2(9) of the Sale of Goods Act, 1930 defines a mercantile agent as an agent having in the customary course of business as such agent, authority either to sell goods or a consign goods for the purpose of sale or to buy goods or to rise money on the security of goods.
If a mercantile agent, who is in possession of either the goods or Documents of Title to the goods, with the consent of the owner, sells the goods in the ordinary course of business as a mercantile agent, the buyer gets a good title to the goods provided he buys them in good faith and for value. Thus, a person who is good faith buys the goods from a factor for an auctioneer will get a good title to them, even through the seller has exceeded the authority or authority has been revoked by the owner before sale.

2. Sale by a Joint Owner (Section 28) -
According to Section 28 of the Sale of Goods Act, 1930 "Where of one of several joint owners of goods, has sole possession thereof. The consent of the others any purchaser from such person for value without notice at that time, of the sellers want of authorities to sell, acquires a good title thereto against the other joint owners". In case of sale by a co-owner, good title can pass to the buyer only if the co-owner was in possession with the consent of the other co-owners.

3. Sale by a Person in Possession under a Voidable Contract (Section 29) -
According to Section 29 of the Sale of Goods Act, 1930 "A person who has obtained possession of goods, under a contract which is voidable on the ground of fraud, mispresentation or undue influence can convey a good title provided the sale takes place before the voidable contract is a avoided".

4. Sale by a Seller in Possession of Goods after Sale (Section 30(1)) -
According to Section 30 of the Sale of Goods Act, 1930 "Where a person having sold goods continuous in pissession thereof document of title to the goods, the delivery or transfer by such person or his mercantile agent, by way of sale, pledge or other disposition, will pass a good title to the transferee, if such letter person in a bona fide purchaser for value and without notice of the previous sale etc. (Section 30). The seller must be in possession as seller and not in any other capacity. Thus, where the buyer asks the seller to keep the goods as his bailee, the section will not apply.

5. Sale by a Buyer in Possession of Goods (Section 30(2)) -
As stipulated in Section 30 "Where a person having bought or agreed to buy obtains, with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer by such person or by a mercantile agent acting for such, person the goods are documents by way of sale, pledge or other disposition thereof will be valid and effective, if the person receiving the same, acted bona fied and without notice of the sellers lien, if any.
However, a person in possession of goods under a hire purchase agreement which gives him only an option to buy is not covered within this section, unless he has exercised his option to buy.

6. Sale by an Unpaid Seller (Section 54(3))-
According to Section 54(3) of the Sale of Goods Act, 1930 "An unpaid seller of goods who has exercised his right of lien or stoppage in transit can even through the ownership in them has passed to the buyer, resell the goods and convey valid title to another buyer, through no notice of resale has been given to the original buyer".

7. Exceptional Cases under other Act's -
There are some exceptions under other laws. These are as follows :

A) Sale by a finder of lost goods under certain circumstances shall be valid againts the true owner (Section 169), Indian Contract Act, 1872. A finder of goods, may sell them :
i) If the owner cannot, with reasonable diligence be found.
ii) If found he refuses to pay lawful charges of the finder.
iii) If  the goods are in the danger of perishing or of losing the greater part of their value.
iv) If the lawful charges of the finder in respect of the goods found, amount to 2/3 of their value.

B) Sale by an official assignee or  receiver under the Presidency Towns Insolvency Act or Provincial Towns Insolvency Act.

C) Sale by a pawnee or pledge under (Section 176) of the Indian Contract Act, 1872.

D) Sale by Liquidator under the Companies Act, 1956.

  • Differences Between Transfer of Property & Possession 

Transfer Of Property

Transfer Of Possession

Transfer of  Property implies transfer of ownership.

Possession does not mean ownership of property.

Property or ownership in the goods may pass to the buyer without delivery of goods.

In case of possession it refers to the custody over the goods.

Risk prima facie passes with property.

In case of possession of property risk is associated with owner of the goods.

Owner of the goods can sue for damage by the action of a third party.

Owner cannot sue.