The Sale of Goods Act, 1930

Introduction to Sales of Goods Act

Objective After going through this lesson, you shall be able to understand the following concepts.

• Transfer of Property - Meaning • Significance of Passing Property • Rules Regarding Transfer of Property in Specific or Ascertained Goods • Rules Regarding Transfer of Unascertained Goods

Before going through this lesson, let us read the meaning of difficult words that we will come across in this lesson. Introduction

We know that a contract of sale or an agreement to sell is basically entered into to pass the ownership of goods from the seller to the buyer. In our previous lessons, we have discussed all the conditions and warranties attached to a contract of sale or an agreement to sell. In this lesson, we will understand the significance and rules of transferring property from the seller to the buyer.

Transfer of Property - Meaning

The term 'transfer' means 'passing on something to somebody'. In terms of law, 'transfer of property' means 'transfer of ownership'. All the rights and liabilities with respect to goods contracted upon are dependent upon the transfer of property.

Transfer of property is different from transfer of physical possession of goods. Transfer of physical possession can be done even without the transfer of ownership of goods. For example, the seller transfers the property in the goods but still has its possession as an unpaid seller or as a bailee for the buyer. Similarly, it may also happen that the seller passes the physical possession of the goods, but the property in the goods is still with the seller.

Significance of Passing Property

As discussed above, the knowledge of transfer of property in goods is significant to the extent that all the rights and liabilities of the seller and the buyer with respect to the goods contracted upon are dependent upon the time of transfer of ownership of goods. Some of the factors highlighting the significance of knowing the exact time of passing property are discussed below.

• Risk related to goods: We know that goods belong to the person who has the ownership over those goods. Now, suppose the same goods are destroyed by fire in the warehouse where they have been kept.

 

Can you make out who has to bear the loss in case like this?

Exactly! It’s the owner of the goods who has to bear the loss.

This means that the risk of loss of goods primarily lies on the person who owns the property; that is, the owner of the goods has to bear the risk even if the goods are in possession of some other person. According to Section 26 of the Sale of Goods Act, 1930, “Unless otherwise agreed the goods remain at the seller’s risk (who is the owner of goods) until the property therein is transferred to the buyer, but when the property is transferred to the buyer, the goods are at the buyer’s risk (as the buyer becomes the new owner of goods) even if the delivery has been made or not”. In other words, risk flows with the ownership of goods. However, there is an exception to the rule ‘risk follows ownership’, which provides that in case the delivery of goods has been delayed due to the fault of either the buyer or the seller, the goods are at the risk of the party at fault, irrespective of their ownership.

• Action against the third party: In case goods are damaged by a third party, it is only the owner who can take an action. The knowledge of transfer of property provides the information regarding the person who actually has the right to sue the third party for the damage caused.

• Suit for price: The seller can legally sue the buyer for the price of goods if the property in goods has already been passed to the buyer, but the price has not been paid. This suit for price can be maintained only if the property in goods has already been transferred.

• Insolvency of the buyer or seller: In case of insolvency of either the seller or the buyer of the goods, the Official Receiver or assignee can take the possession of goods if and only if the ownership of the goods is with the party who goes insolvent. In other words, in case of insolvency of the buyer, the Official Receiver or assignee can take the possession of goods from the seller only if the ownership in goods has been transferred to the buyer; and in case of insolvency of the seller, the Official Receiver or assignee can take the possession of goods only if the transfer of ownership has not been made to the buyer. Let us go through the note given below that explains the significance of passing property.

Example 1: State whether the following sentences are true or false.

(i) Transfer of possession of goods physically is called passing of property.

(ii) A agreed to sell B certain goods at an agreed price. The property in goods was passed to B, they were still in possession of A. The court declared A insolvent. The Official Receiver of A can take over these goods.

(iii) In case of damage caused to goods in possession of A belonging to B by C, A can take an action against C.

(iv) The seller can sue the buyer for the price if the property in goods has been transferred but the price has not been paid.

Solution

(i) False Passing of property implies transfer of ownership and not the physical possession of goods.  Possession of goods refers to the custody over the goods and not the ownership of goods. Property in goods can be passed on to the buyer even without the physical transfer of the goods.

(ii) False In case of insolvency of either the seller or the buyer, the Official Receiver can take over the goods the property of which is with the party that goes insolvent. Since the property in goods has already been passed on to the buyer, the Official Receiver of the seller cannot take over the goods that have been passed on to the buyer even if the possession is with the seller.

(iii) False As per the Sale of Goods Act, 1930, only the owner of the goods can take an action against the third party for the damage caused to the goods.

(iv) True  The seller can sue the buyer for the price only if the property in goods has been passed on to the buyer but the price has not been paid.

Rules Regarding Transfer of Property

By now, it is clear that the knowledge of the exact time of the transfer of property is very significant. However, the transfer of goods is governed by certain rules provided under the Sale of Goods Act, 1930. We will discuss these rules under following four heads:

• Transfer of property in specific or ascertained goods

• Transfer of property in unascertained and future goods

• Transfer of property in goods that are sent on approval basis

• Transfer of property in case of reservation of right to disposal

Note: In this lesson, we will study the rules regarding the transfer of property in the first two cases only; the remaining cases will be discussed in the next lesson.

(i) Transfer of property in specific or ascertained goods: We know that specific goods are the goods that are identified and agreed upon at the time of making a contract of sale. The property in these goods can be transferred as per the intentions of the parties to contract. This has been specifically provided under Section 19 (1) of the Sale of Goods Act, 1930 that states that in case of a contract of sale for specific goods, the property in goods is transferred to the buyer at such time as parties to the contract intend it to be transferred. As specified under Section 19 (2) of the Sale of Goods Act, 1930, the intentions of the parties can be ascertained through the terms of the contract, the conduct of the parties and the circumstances of the case.

However, in case the intentions of the parties cannot be ascertained from the contract, from the conduct of the parties or from the circumstances of the case, as per Section 19 (3) of the Sale of Goods Act, 1930, rules depending upon the circumstances of different circumstances laid down under Sections 20, 21 and 22 are applied that have been discussed below.

(a) In case of unconditional contract of sale of specific goods in deliverable state: In case of a contract of sale with no condition regarding the transfer of ownership of specific goods contracted upon already in deliverable state, the property in such goods passes to the buyer as soon as the contract is made. This is provided under Section 20 of the Sale of Goods Act, 1930, which states that the property in specific goods already in deliverable state passes to the buyer as soon as the contract is made, irrespective of the time of payment of price or the time of delivery of goods. Also, it is important to note that the goods are said to be in deliverable state when the buyer is bound to take the delivery of the goods under the contract.

Example: Mohit agrees to purchase a ready-to-use laptop for Rs 25,000 from Rohit on credit of one month and takes the delivery of the same on that very day. In such a case, the o