When does the property in the goods pass from seller to the buyer in case of—(i) Specific or ascertained goods; (ii) Unascertained goods; and (iii) Goods sent on approval or “on sale or return” basis. States the rules regarding the passing of the property in goods from seller to the buyer?

The transfer of ownership, legally termed the “passing of property,” is a crucial aspect of a contract for the sale of goods. It determines when the buyer acquires rights over the goods and also dictates who bears the risk of loss or damage. The Sale of Goods Act lays down specific rules to ascertain the precise moment when this transfer occurs, which can vary depending on the nature of the goods and the terms of the contract. This article will delve into the rules governing the passing of property in three key scenarios: specific or ascertained goods, unascertained goods, and goods sent on approval or “on sale or return” basis.

I. Passing of Property in Specific or Ascertained Goods

General Rule: For specific or ascertained goods (goods identified and agreed upon at the time of the contract), the general rule, as per the Act, is that property in the goods passes to the buyer when the contract is made, provided the contract is unconditional and the goods are in a deliverable state. However, to determine the exact intention of the parties regarding the timing of this transfer, the Act provides three specific rules:

Rule 1: Specific Goods in a Deliverable State (Section 20)

  • Principle: Where the contract for the sale of specific goods is unconditional (not subject to any conditions to be fulfilled by either party) and the goods are in a deliverable state (ready for the buyer to take possession), the property in the goods passes to the buyer at the moment the contract is made. This holds true regardless of when the price is to be paid or when the goods are to be delivered, or both.
  • Example 1: A agrees to buy a haystack on the seller’s land on January 4th, with the price payable on February 4th. It’s also agreed that the hay will remain on the seller’s land until May 1st, and the buyer cannot interfere with it until the price is paid. In this case, the property in the haystack passes to A on January 4th when the contract was made. If the haystack is accidentally destroyed by fire before May 1st, A, as the owner, must bear the loss.
  • Example 2: A agrees to buy a horse from B for Rs. 500 in a ready-money transaction. A requests B to keep the horse for a week before taking delivery and paying. Before the week expires, the horse dies. This is an unconditional contract for specific goods in a deliverable state. Therefore, the property and the risk passed to A when the contract was made, even though payment and delivery were postponed. B is entitled to the Rs. 500 price.

Rule 2: Specific Goods to be Put into a Deliverable State (Section 21)

  • Principle: Where there is a contract for the sale of specific goods, and the seller is obligated to do something to the goods to put them into a deliverable state, the property in the goods does not pass until such thing is done and the buyer has notice thereof.
  • Example: A agrees to sell the entire contents of an oil cistern to B. It is agreed that A will put the oil into casks, and then B will take them away. Some casks are filled in B’s presence, but before they are removed or the remaining oil is filled, the entire contents are accidentally destroyed by fire. B must bear the loss of the oil that had been put into the casks (as it was in a deliverable state after A’s action and B had notice), but not the remaining oil that was yet to be put into casks.

Rule 3: When Seller Has to Do Something to Goods to Ascertain Price (Section 22)

  • Principle: Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test,1 or perform some other act with reference to the goods to ascertain the price, the property in the goods does not pass until such act or thing is done and the buyer has notice thereof.
  • Example: A sells a stock of bark to B at a certain price per ton, with the bark to be weighed by agents of both A and B. Part of the bark is weighed and taken away by B, but before the rest is weighed, a flood carries it away. The ownership of the remaining bark had not transferred to B because the act of weighing (to ascertain the price) was not completed for that portion. Therefore, the loss of the remainder due to the flood must be borne by A.

II. Passing of Property in Unascertained Goods

The transfer of property in unascertained goods (goods not specifically identified at the time of the contract) follows a different set of rules:

Rule 1: Goods Must Be Ascertained (Section 18)

  • Principle: For unascertained goods, no property in the goods passes to the buyer unless and until the goods are ascertained. This means that before ownership can transfer, the specific goods that will fulfill the contract must be identified and agreed upon.
  • Example: Defendants (warehousemen) held 618 quarters of maize belonging to A. A sold 200 quarters to B and gave B a delivery order, which B lodged with the defendants. The defendants did not acknowledge B’s title or separate the 200 quarters. Before any specific 200 quarters were allocated to B, A, as an unpaid seller, stopped delivery. The court held that merely giving the delivery order and handing it to the warehousemen was not enough to pass the property in the 200 quarters to B before those specific quarters were separated from the bulk.

Rule 2: Sale of Unascertained Goods After Appropriation (Section 23(1) & (2))

  • Principle: When unascertained or future goods are contracted to be sold by description, the property in the goods passes to the buyer when goods of that description, in a deliverable state, are unconditionally appropriated to the2 contract by mutual assent. This means that specific goods are identified and irrevocably linked to the contract with the agreement of both the buyer and the seller. This consent can be express or implied and can be given before or after the act of appropriation.
  • Example of Appropriation by Seller with Buyer’s Assent: A has a large quantity of sugar and contracts to sell 20 hogsheads of it to B. A fills 20 hogsheads with the sugar and informs B that they are ready for pickup. B replies that he will take them as soon as he can. By A’s act of filling the specific hogsheads and B’s assent to take them, the property in the sugar in those 20 hogsheads passes to B.
  • Delivery to Carrier: If the seller, in accordance with the contract, delivers the goods to the buyer or to a carrier (whether named by the buyer or not) for transmission to the buyer and does not reserve the right of disposal, it is deemed that the seller has unconditionally appropriated the goods to the contract. This signifies the transfer of ownership to the buyer upon delivery to the carrier.

III. Passing of Property in Goods Sent on Approval or “On Sale or Return”

When goods are delivered to the buyer on approval or “on sale or return” or similar terms, the property passes to the buyer under the following circumstances (Section 24):

  • Buyer Signifies Approval or Adopts the Transaction (Section 24(1)): The property passes when the buyer explicitly communicates their approval or acceptance to the seller or performs any other act that adopts the transaction. An act adopting the transaction is one that clearly indicates the buyer’s intention to keep the goods.
  • Buyer Retains Goods Without Rejection (Section 24(2)): If the buyer does not signify approval but retains the goods without giving notice of rejection:
    • If a time has been fixed for the return of the goods: The property passes on the expiration of that fixed time.
    • If no time has been fixed: The property passes on the expiration of a reasonable time. What constitutes a reasonable time is a question of fact determined by the specific circumstances (Section 63).
  • Example: A takes a diamond ring from a jeweler “on sale or return” with a condition to return it within three days if not satisfied, otherwise to pay for it. The next day, A pledges the ring with a moneylender and disappears. The court held that A’s act of pledging the ring was an act adopting the transaction, and therefore, the property in the ring had passed to A. Consequently, the jeweler could not recover the ring from the moneylender.

Conclusion

Understanding the precise moment when the property in goods passes from the seller to the buyer is fundamental in a contract of sale. The Sale of Goods Act provides a clear set of rules based on the nature of the goods (specific, ascertained, unascertained, or sent on approval) and the actions and intentions of the contracting parties. These rules determine ownership, risk of loss, and the rights and liabilities of both the buyer and the seller. By carefully considering the specific circumstances of each transaction and the relevant provisions of the Act, parties can avoid potential disputes and ensure a clear understanding of their respective rights and obligations.