( BBA 1st Semester Business Low Notes )
TRANSFER OR PASSING OF PROPERTY IN GOODS
Business Low Notes :-
The main object of a sale is the transfer of ownership of goods from the seller to the buyer. As the risk of loss follows ownership, it is important to know the precise moment at which the seller ceases to be the owner and the buyer becomes the owner of the goods.
Subject to any contract between the parties, the Act lays down the circumstances when the ownership passes from the seller to the buyer The fundamental rule is that property or ownership passes only in ascertained goods and not in unascertained goods.
Passing of property or ownership in specific or ascertained goods: In a sale of specific or ascertained goods the property passes to the buyer at the time when the parties intend it to pass. But, unless a contrary intention appears, the following rules are applicable for ascertaining the intention of the parties :
- Where there is 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, even though the payment of the price or the delivery of the goods or both are to take place at a later date. Deliverable state means such a state that the buyer would be bound to take delivery , as nothing remains to be done by the seller either to the goods or for the. purpose of ascertaining the price. Therefore, property in goods passes at the time of entering into the contract of sale if the following conditions are fulfilled :
- The goods are specific goods;
- The goods are in a deliverable state, that is to , they can be immediately delivered;
- The contract of the sale is without any condition;
- The parties themselves have not fixed a different time for the passing of property,
Examples :
- A bought from B on 4th January a stack of hay lying on B’s The price was to be paid on 4th February and the haystack was to remain on B’s land till the first of May. The haystack was destroyed by fire. The buyer, A had to bear the loss as the property had passed to him on 4th January, the date of the contract, although the payment of price and the delivery of the goods were postponed.
- A sold a motor-car to B, the price being payable by monthly instalments and on default of payment of any instalment, the seller was at liberty to take possession of the The property in the car passed only on the payment by B of all the instalments.
- Where there is a contract for the sale of specific goods not in a deliverable state, i.e., the seller has to do something to the goods to put them in a deliverable state, the property does not pass until that thing has been done and the buyer has notice of
Examples :
- A bought from B 200 bottles of hair oil. When B had filled all the bottles and had got them ready for delivery and, A, the buyer came to know of the fact, the ownership passed to A, and the goods at that stage were in a deliverable
- There was a contract for the sale of certain teak trees. The buyer was to select and the seller was to cut away rejected portion. Unless the rejected portion had been severed from a teak tree, the property in it did not pass to the
- Where 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 something with reference to the goods for the purpose of ascertaining the price, the property does not pass untill such act or thing is done and the buyer has notice of
Examples :
- 289 bales of goat skins, containing 5 dozens in each bale, were sold at Rs.57.50 per dozen, arid the seller had to count over the skins to ascertain the price. Before the counting was done, the whole lot was destroyed by fire. The loss fell on the seller as the property had not passed to the
- A sold wheat lying in a heap at a particular place, and it was to be weighed before delivery to ascertain price. A part of it was weighed and delivered but the remaining wheat was destroyed by high floods. The loss of the unweighed residue fell on the seller as the property had not
- Where goods are sold and delivered on ‘approval’ or “on sale or return” the property therein passes to the buyer
- when he signifies his ‘approval’ or acceptance to the seller or does any other act adopting the transaction;
- if he retains the goods without notice of rejection, beyond the time fixed for the return of the goods, or if no time is fixed, beyond a reasonable
Examples :
- A agreed to sell a horse to B, on the terms that B, should take it away, try it for 8 days, and then return it, if he should not find it suitable for his purpose. This was a sale ‘on approval’ or ‘on sale or return’. The horse died within 3 days without fault of either The buyer was riot liable to pay the price as the property had not passed; it could only pass after the expiry of 8 days.
- A delivered jewellery to B on sale or return. B pledged it with C. The pledge amounted to an act by B adopting the transaction, and therefore, the property in the jewellery passed to him so that A could not recover it from
Ownership in Unascertained Goods: We have seen before that according to section 18, the property in unascertained goods does not pass until goods are ascertained.
Unascertained goods are goods by description only, e.g., 100 tonnes of coal, and not goods identified and agreed upon when the contract is made. Hence property does not pass in unascertained goods.
Section 23 provides property in unascertained or future goods sold by description passes to the buyer when the goods of that description and in deliverable state are appropriated to the contract, either by the seller with the assent of the buyer, or the buyer with the assent of the seller.
Where, in pursuance of the contract, the seller delivers the goods to buyer or to a carrier 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.
Business Low Notes :-
Appropriation: The appropriation of the goods may be made :
- By the buyer with the assent of the seller, where the buyer has the possession of the goods. For example, where the buyer is a warehouseman for the seller in respect of bales of cotton and agrees to buy 25 bales out of them, the buyer may, with the seller’s assent, select 25 out of the 60 bales, and when he has done so, the goods (25 bales) become appropriated and ownership in them passes to the
- By the seller with the buyer’s assent when the goods are in his possession, which is the more common thing. In the above examples, if the bales were lying with the seller and he selected 25 bales with the buyer’s consent, the ownership of those 25 bales would pass to the buyer as soon as this was
The seller may appropriate the goods :
- by putting the quantity contracted for in suitable receptacles, as for example, putting the oil in bottles or grain in bags and getting the assent of the buyer, or in bottles or bags supplied by the
- by separating the articles contracted for from the others, as for instance, in a sale of jute, the marking by the seller of the quantity of the goods required by the buyer, will transfer property;
- by delivery to the carrier or other bailee for transmission to the buyer, without reserving the right of disposal, as for example, handing over the goods to a railway administration or a shipping company for carriage and the railway receipt or bill of lading is made out in the name of the
Contract of Sale Involving Sea Transit
In a sale of goods to be shipped abroad, a number of conditions are attached by the parties or by custom. The most usual of such contracts are as follows :
F.O.B. Contracts: F.O.B. or free on Board means that the property in the goods passes to the buyer only after the goods have been loaded on board, and accordingly the risk attaches to the buyer only on shipment of goods. The goods are at the risk of the seller before they are put on board but after they are on board the buyer runs the risk of loss.
C.I.F. Contracts: Cost, Insurance and Freight with contract is said to be a contract of sale of goods with insurance and freight terms.
It may be defined as a contract for the sale of goods to be performed by the delivery of documents representing the goods, i.e., of documents giving the right to have the goods delivered or the possible right, if they are lost or damaged, recovering their value from the ship owner or from the insurer.
Where the buyer orders goods from a merchant abroad, the seller will insure the goods, deliver them to the shipping company and send the bill of lading and the insurance policy together with the invoice to a bank and the buyer has to pay the price (which, includes cost of goods, premium of insurance and freight), and receive the above documents from the bank, and get delivery of the goods from the shipping company on producing the documents.
This method protects the seller, for the goods continue to be in his ownership until the buyer pays for them and gets the documents* and the buyer is equally protected; as he is only called upon to pay against the documents, and the moment, he pays he obtains the documents which enables him to obtain delivery of goods, as soon as they arrive.
If, m the meantime the goods are lost, neither would be put to loss, for either the seller or the buyer, whoever is the owner at the time of the loss, can make a claim against the insurers for such loss. If after taking delivery of the goods, the buyer finds that they are not according to the contract he may reject the goods and sue for damages.
Ex-ship Contract: In the case of contracts where delivery has to be made “ex ship”, the ownership of the goods will not pass untill actually delivered. The goods are at the seller’s risk during the voyage, and he is not obliged to insure them on the buyer’s behalf.
He will, however, insure them to protect his own interests. Even if the buyer has paid the price against the documents, the buyer does not thereby acquire an interest in the goods.
Passing of Risk: Section 26 lays down the rules regarding the passing of risk. The general rule is risk follows ownership. The goods remain at the seller’s risk until the property therein is transferred to the buyer. After the property has passed to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.
Thus, where A buys goods of B and property passes to him, but the goods remain in B’s warehouse which catches fire and goods are destroyed the loss will fall on A and he must pay the price to B.
There are two exception to the above rule :
- Where delivery has been delayed through the fault of either the buyer or the seller, the goods are at the risk of the party at
- The parties may agree that the risk will pass at a time different from the time when property passed. For example, the seller may agree to be responsible for the goods even after the property has passed to the
