Transfer of Ownership under Sale of Goods Act – Meaning and Rules

 Q. What do you mean by “Transfer of ownership”. Give the rules relating to transfer of ownership under Sale of Goods Act. 

Ans. Meaning of Transfer of ownership: Transfer to ownership implies the transfer of all rights to the property in goods from seller to the buyer by virtue of which the buyer can use the goods as he desires, and this right of buyer cannot be restricted. 

For example, Ram gives his watch to Shyam on ‘approval or return’ basis, and allows him to keep it for ten days, and buys it if he likes it, otherwise return the watch. Here Ram has only given the possession of the watch to Shyam; he has not transferred his ownership. If, after ten days, Shyam wants to buy the watch and pays its price to Ram, the ownership will be transferred and Shyam will become the owner.

Transfer of ownership from the seller to the buyer is important in a contract of sale for the following reasons:

(i) Risk follows ownership: The fundamental principle of law is that risk and ownership are co-existent— one follows the other even if there is no transfer of possession. If the goods are damaged or destroyed by any reason, the loss is the owner’s even if he is not in possession of goods at that time. The transfer of ownership in a sale deal is vital because it defines the rights and obligations of the seller and the buyer. Risk follows ownership whether or not a transfer possession of goods has taken place. In case of a delay in the delivery of goods because of a default on the part of the buyer or the seller, the goods are at the risk of the defaulter. 

(ii) Action against third parties: If the goods are destroyed or damaged by any action of a third party only the owner of goods can initiate any proceedings against the third party.

(iii) Insolvency of the seller or the buyer: In case of insolvency of the seller or the buyer, it becomes important to know if the official receiver can take over the goods. This depends on who becomes involvement and who is the owner of the goods — the seller or the buyer. 

Rules: The transfer of ownership from the seller to the buyer can be discussed under the following headings: 

(a) Time when the property changes hands: Normally, it is agreed between parties when transfer will take place, but, in the absence of such agreement, the act stipulates when the transfer of ownership will deemed to be affected in a sale contract.  As per the provisions of the act, the transfer of ownership depends on the type of goods sold, and each type has different rules governning such transfer. The types of goods are:

(i) Ascertained or specific goods

(ii) Unascertained or generic goods

(iii) Goods sent on approval or sale or return

(i) Passing of property in ascertained goods: Ascertained or specific goods refers to such goods that have been identified or specified by the parties at the time of making the contract, and the seller does not have to make any modification or addition to the goods. In this case, both parties, i.e., the seller and the buyer, know specifically what the goods are and what is the quantity for which the transfer of ownership is to take place. For example, A says to B that he wants to buy the blue jar that is displayed in the show window of B’s shop. In this case, both parties have clearly identified the ‘goods’ that is to be sold. Ascertain goods are available with the seller at the time of the contract.

According to Section 19, if the contract of sale is about a ascertained or specific goods,  and the parties to contract have agreed to the terms of the sale, in the absence of contract to the contrary, the transfer of ownership will be affected according to the following rules:

– When the goods are in a deliverable state: Goods are deemed to be in deliverable state when the buyer agrees to accept the delivery of goods and the goods are in a condition that they can be delivered. According to Section 20 of the Sale of Goods Act, when the contract is about the sale of a ascertained goods which are in a ‘deliverable state’, the ownership of goods is transferred to the buyer when the contract is made, if the contract is unconditional.  Whether the payment of goods or the delivery thereof,  or both, are postponed to a later date does not affect the transfer of ownership. For example, A offers to buy B’s horse for ₹2,000, and B accepts the offer, but the horse dies before it is delivered from B to A. The loss in this case will be A’s, and he will have to pay price to B because the ownership of the horse was legally transferred to B when the contact was made. 

– When specific goods need to be put in a deliverable condition: According to Section 21, when the contract of sale is for such ascertained goods, which are not in a deliverable state, and the seller is required to do something to bring the goods into a deliverable state, the transfer of ownership is not affected till such time as the necessary work has been done on the goods, and the buyer has been informed about it. For example, A buys a gold ring from B which will be delivered to A only after it has been polished. The ownership of the ring will only be deemed to be transferred to A when it is been polished and B has informed A that the ring is in a deliverable state. 

– When the seller has to do something for ascertaining the price: According to section 22, where the sale contract is about such ascertained goods which are in a deliverable state but the seller needs to assertain their price – by measurement, weightage or doing any other act on the goods – the ownership cannot be transferred till such time that the seller has ascertained the price of goods and communicate the same to the buyer. If anything remains to be donn with the goods, the ownership of, and the risk of damage to, the goods remains the seller’s. For example, A makes a contract to sell 200 books to B. The books are stored in racks and A has to select the titles and separate them before they can be delivered. If there is a fire and the books are destroyed, the loss of the loss will be A’s because the ownership of the books has not yet been transferred. 

(ii) Passing of property in unascertained goods: According to Section 18, if the contract is for the sale of unascertained goods, the transfer of ownership is not affected till the goods have been ascertained. Unascertain goods refer to such goods that have not been identified when the contract is made; only a description of the goods has been given in the contract. For example, A contacts to buy a sheet of glass of a particular size and thickness from B’s godown. The ownership of the sheet is not transferable to A until he selects or identifies the sheet that he wants to buy. The ownership of an unascertained goods cannot be transferred till such time that the goods are ascertained. The rules governning the transfer of ownership of unascertained goods are as follows:

– Goods must be ascertained: According to Section 18, when a contract is made for the sale of unascertained goods, the ownership is not transferable to the buyer till such time that they are ascertained. Ascertained here implies that, if the goods have not been manufactured, they need to be manufactured; and if they have not been procured, they need to be procured. 

– Goods must be appropriated: By appropriation is meant the separation of goods to be sold from other goods. When there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriate 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 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. 

– Goods must be delivered to the carrier:  Where 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 unconditionally appropriated the goods to the contract. 

(iii) Passing of property in case of goods sent on approval, or on sale or return: According to Section 24, when the goods are delivered to the buyer for his approval on sale or return basis, or, on some other normal condition in practice, the transfer of ownership to the buyer can be affected as under:

– When the buyer expressly communicates to the seller his acceptance of goods or does something to indicate his acceptance, the transfer of ownership is completed.

– When the buyer does not indicate his acceptance of goods to the seller but retains the goods without communicating his dispproval to the seller or, if a time limit has been fixed for approval, at the expiry of the time, or within a reasonable time if no limit has been fixed, the ownership is deemed to be transferred to the buyer. What is reasonable time, depends upon the circumstances of the case. 

Example: Ram delivers his car to Shayam on 1 January on the condition that, if he likes the car, he should communicate his approval to Ram by 10 January or return the car. If shayam does not communicate his approval even after that date, and does not return the car, his approval is implied and Ram is entitled to receive the payment for the car. 

(b) Reservation of the right of disposal: The Latin for ‘the right of disposal’ is jus disponendi. When the goods sold to a buyer who is far away and the goods id despatched to the buyer by public transport, in order to ensure that he receives the payment for the good, the seller reserves the right of disposal. 

Normally, if the goods are delivered to the carrier and the Bill of Lading or the Railway Receipt is taken in the name of the seller or agent, it is presumed that the seller has reserved the right of disposal, and any damage to the goods in transit is borne by the seller. Section 25(1) lays down that, when a contract of sale is made for specific goods and the goods are delivered after the contract is made, under the terms of the contract of delivery, the seller is entitled to reserve the right of disposal till such time as such terms are met. In such case, even if the seller has dispatched the goods to the buyer, he retains the right of ownership of goods till the conditions of the contract are satisfied. When the goods are delivered to shipping company or the railways, the seller sends the Bill of Lading or the Railway Receipt along with other documents to the buyer through his agent or bank with instructions that these be delivered to the buyer only when he has made the payment for the goods. In this way, the seller reserves the right of disposal of goods.