In the commercial world, with the effect of the legal system, there is an important concept related to the passing of the property. This concept is to be imbibed as to work in this world legally and without getting defrauded.
‘Passing of the Property’ is connected with the passing of the risk, which further ascertains on who’s liability the property is understood to be held. Hence this matter of discussion is needed.
Passing of Property
Sale of goods or property means a transfer or passing of the ownership to the buyer. The passing of property is one of the important aspects of the Sales of Goods Act. This determines the rights and duties of both the buyer and the seller (the contracting party in the agreement). A property once passed to the buyer, is now of the buyer. Also, the related risk in the goods is now of the buyer and not the liability of the seller, disregarding the fact whether the goods are in the possession of the seller or not.
There are four important rules which govern ‘the passing of property’:
Specific (Ascertained Goods).
Passing of the unascertained goods.
Goods sent on approval (sale or return).
Transfer of the property in the case of reservation of the right to disposal.
Passing of Property in Goods
The passing of property means that the transfer of ownership and not the physical possession of goods. An example is where a principal sends goods to his agent, he only transfers the physical possession and not the owner of goods. The principle here is the owner of the goods even if he does not have the physical possession of goods and the agent is having possession of goods but he is not the owner. The significance of Transfer of Property is that at the time of transfer of ownership of goods decides various rights and liabilities of the seller and the buyer gets decided. Thus, it becomes noteworthy to know the exact time of transfer of ownership of goods from the seller to the buyer.
Passing of Property in the Sale of Goods Act 1930
“Passing of goods or property” enlightens about the transfer of ownership which is governed by the principles of the Sale of Goods Act, 1930. For the total understanding of the rights, duties and liabilities of both the buyer and seller and the buyer is important to first understand the concept of ‘passing of property’. It is an already established principle of law that together with the ownership of the goods or property, the risk also gets transferred from the seller to the buyer.
Passing of Property and Risk
The passing of property is the ownership of the goods from the seller to the buyer. This is one of the essentials of a contract of sale. It is an essence of a contract of sale. To determine the liability of parties, it is important to dive into this concept of the passing of property.
The theory of passing of risk is yet another topic difficult regarding contract sales law. When the sold goods are lost or damaged by accident, the buyer does not receive what he bought as the seller is discharged from its obligation of delivering the goods or services.
Passing of Property Commercial Law
Section 20 in commercial law relates to the specific goods in a deliverable state. It states that if the contract is an unconditional one, which is for the sale of specific goods in a deliverable state, then the property within the goods is passed to the buyer the moment the contract is made. The rule holds even if the payment or delivery of the goods is postponed.
There are quite a few concepts to be dealt with under SOGA, 1930. The importance of which is passing or transfer of the property. The real meaning of passing of property is the transfer of the ownership on a determined price. The ownership is transferred solely when the proprietary of the property rights are transferred from the seller to the buyer. This is to be noted that the transfer of ownership is distinct from that of possession of the goods where the latter means that the goods are subject only to the custody or under physical control. Under SOGA, 1930, ‘property’ is not a special property but assumed as a general property in goods.
FAQs on Property Passing: Part 2 Explained
1. What is the core principle governing the transfer of title by a non-owner under the Sale of Goods Act, 1930?
The core principle is encapsulated in the Latin maxim 'Nemo dat quod non habet', which means 'no one can give what they do not have.' This rule protects the true owner of the goods. It signifies that if a seller does not have a valid title or ownership of the goods, they cannot legally transfer a better title to the buyer, even if the buyer purchases in good faith and for value.
2. What are the key exceptions to the 'Nemo dat quod non habet' rule where a buyer can get a good title from a non-owner?
A buyer can acquire a good title from a non-owner in several specific situations, which are crucial exceptions to the general rule. These include:
- Sale by an Ostensible Owner: When the true owner allows another person to appear as the owner, who then sells the goods to a bona fide purchaser.
- Sale by a Mercantile Agent: A sale made by a mercantile agent who is in possession of goods with the owner's consent, provided the buyer acts in good faith.
- Sale by a Joint Owner: When one of several joint owners, in sole possession of the goods by permission of the co-owners, sells them.
- Sale by a Person in Possession Under a Voidable Contract: If a person has possession of goods under a contract voidable (but not yet voided), a sale to an innocent buyer is valid.
- Sale by a Seller in Possession After Sale: If a seller, having sold goods, continues in possession and resells them to a new, bona fide buyer.
3. How does the passing of property differ for goods sold on an 'approval' or 'sale or return' basis?
In a 'sale on approval' or 'sale or return' contract, the property (ownership) does not pass to the buyer immediately upon delivery. Instead, the property passes only when one of the following conditions is met:
- The buyer signifies their approval or acceptance to the seller.
- The buyer does any other act adopting the transaction, such as pledging the goods.
- The buyer retains the goods without giving notice of rejection beyond the time fixed for return, or if no time is fixed, beyond a reasonable time.
4. What is the fundamental relationship between the 'passing of property' and the 'passing of risk' in a sales contract?
The fundamental rule, known as 'Res perit domino', states that risk follows ownership. This means, prima facie, the party who has the property (ownership) in the goods must bear the risk of any accidental loss or damage. For instance, if property has passed to the buyer, the buyer is liable for any loss even if the goods are still in the seller's possession, and vice versa. However, this general rule can be modified by an express agreement between the parties.
5. Under what circumstances can the risk in goods pass to the buyer even before the property has legally passed?
Yes, risk can pass to the buyer before ownership does, challenging the general rule of 'risk follows ownership'. This typically happens in two scenarios:
- Express Agreement: The contract between the buyer and seller explicitly states that risk will pass at a different time than ownership.
- Delay Caused by Fault: If the delivery of goods is delayed due to the fault of either the buyer or the seller, the party at fault is liable for any loss that might not have occurred but for that fault. In this case, risk passes based on fault, not ownership.
6. Why is the concept of an 'ostensible owner' so important for commercial transactions?
The concept of an ostensible owner is crucial because it protects innocent third parties who act in good faith. An ostensible owner is a person who appears to be the real owner of a property with the express or implied consent of the true owner. If this ostensible owner sells the property to a bona fide purchaser for consideration, the true owner is prevented (by the principle of estoppel) from denying the seller's authority to sell. This upholds the security and certainty of commercial dealings.
7. What does 'unconditional appropriation of goods' mean and why is it necessary for the passing of property in unascertained goods?
For unascertained or future goods, property cannot pass until the goods are identified. Unconditional appropriation is the act of setting aside, selecting, or identifying specific goods with the mutual consent of the buyer and seller to fulfill the contract. This act makes the goods 'ascertained'. It is a necessary step because until specific goods are earmarked for the contract, ownership cannot be transferred from the seller to the buyer. Appropriation must be unconditional, meaning the seller cannot attach new conditions to it.
