PASSING OF PROPERTY OR TRANSFER OF OWNERSHIP (SECTIONS 18-20)

(a) Risk follows the ownership, whether the delivery has been made or not. If the goods are lost or damaged by accident, then the loss falls on the owner of the goods at the time they are lost or damaged.

(b) When there is a danger of the goods being damaged by the action of third parties, it is generally the owner who can take action.

(c) In case of insolvency of either the seller or the buyer, it is necessary to know whether the goods can be taken over by the official assignee or the official

receiver. It will depend upon whether the property in the goods was with the party adjudged insolvent.

Passing of Property in Specific / Ascertained Goods

1. 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.

2. 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 is done by seller and buyer has notice of it. (Sec. 21)

3. When there is a sale of specific goods in a deliverable state, but seller is bound to weigh, measure, test or do something with reference to the goods for the purpose of ascertaining the price, the property to the goods for the purpose of ascertaining the price does not pass until such act or thing is done and the buyer has notice of it. (Sec. 22)

4. If goods are delivered to the buyer “on approval” or “on sale of return” basis then the property passes to the buyer when he signifies his approval or

acceptance to the seller or he does not signify his approval or acceptance to the seller but retains goods beyond a reasonable time.

Passing of property in Unascertained Goods

- The property in unascertained or future goods does not pass until the goods are ascertained.

- The property in unascertained or future goods sold by description passes to the buyer when goods of that description and in a deliverable state are

unconditionally appropriated.

- If there is a sale of a quantity of goods out of a large quantity, for example, 50 quintals of rice out of a heap in B’s godown, the property will pass on the

appropriation of the specified quantity by one party with the assent of the other.

- Delivery by the seller of the goods to a carrier or other buyer is sufficient to pass the property in the goods.

PASSING OF RISK (SEC. 26)

- The general rule is that unless otherwise agreed the goods remain at the seller’s risk until the property is transferred to the buyer, but when the property is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.

- Rule is known as Resperit Demino i.e. the loss falls on the owner.

- But the parties may agree that risk will pass at the time different from the time when ownership is passed, e.g. the seller may agree to be responsible for the goods even after the ownership is passed to the buyer or vice versa.

Exceptions to the above general rule:

(i) If there is agreement between the parties.

(ii) If the delivery of goods are delayed either due to buyer’s or seller’s default, goods are at risk of party in default.

(iii) Trade customs.

Transfer of Title by Person not the Owner (Section 27-30)

The general rule is that only the owner of goods can sell the goods. Conversely, the sale of an article by a person who is not or who has not the authority of the owner, gives no title to the buyer. The rule is expressed by the maxim; “Nemo Dat Quod Non Habet” i.e. no one can pass a better title than he himself has.

Exception to the General Rule

(a) Sale by a mercantile agent: A buyer will get a good title if he buys in good faith from a mercantile agent who is in possession either of the goods or documents of title to the goods with the consent of the owner.

(b) Sale by a co-owner: A buyer who buys in good faith from one of the several joint owners who is in sole possession of the goods with the permission of his co-owners will get good title to the goods.

(c) Sale by a person in possession under a voidable contract: A buyer buys in good faith from a person in possession of goods under a contract which is voidable, but has not been rescinded at the time of the sale.

(d) Sale by seller in possession after sale: Where a seller, after having sold the goods, is in possession of the goods and again sells them to a person who buys in good faith and without notice of the previous sale, such a buyer gets a good title to the goods.

(e) Sale by buyer in possession: If a person has brought or agreed to buy goods, any sale by him to a buyer who takes in good faith, will give a good title to the buyer.

In any of the above cases, if the transfer is by way of pledge or pawn only, it will be valid as a pledge or pawn.

(f) Estoppel: If the true owner stands by and allows an innocent buyer to pay over money to a third-party, who professes to have the right to sell an article, the true owner will be estopped from denying the third-party’s right to sell.

(g) Sale by an unpaid seller: Where an unpaid seller has exercised his right of lien or stoppage in transit and is in possession of the goods, he may resell them and the second buyer will get absolute right to the goods.

(h) Sale by person under other laws: A pawnee, on default in repayment, has a right to sell the goods, pawned and the buyer gets a good title to the goods. The finder of lost goods can also sell under certain circumstances. The Official Assignee or Official Receiver, Liquidator, Officers of Court selling under a decree, Executors, and Administrators, all these persons are not owners, but they can convey better title than they have.

DELIVERY

Rules as to Delivery

(a) Delivery should have the effect of putting the buyer in possession.

(b) The seller must deliver the goods according to the contract.

(c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the buyer to claim delivery.

(d) Where the goods at the time of the sale are in the possession of a third person, there will be delivery only when that person acknowledges to the buyer that he holds the goods on his behalf.

(e) It is no duty of the seller to send or carry the goods to the buyer unless the contract so provides. But the goods must be in a deliverable state at the time of delivery or tender of delivery.

(f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be delivered at the specified place during working hours on a working day.

Where no place is mentioned, the goods are to be delivered at a place at which they happen to be at the time of the contract of sale.

(g) While the cost of obtaining delivery is said to be of the buyer, the cost of the putting the goods into deliverable state must be borne by the seller.

Delivery - Voluntary transfer of possession from one person to another Actual or physical delivery takes place where the goods are handed over by the seller to the buyer or his agent authorised to take possession of the goods.

Constructive delivery takes place when the person in possession of the goods acknowledges that he holds the goods on behalf of and at the disposal of the buyer.

Symbolic delivery is made by indicating or giving a symbol. Here the goods themselves are not delivered, but the “means of obtaining possession” of goods is delivered, e.g, by delivering the key of the warehouse where the goods are stored, bill of lading which will entitle the holder to receive the goods on the arrival of the ship.

(h)If the goods are to be delivered at a place other than where they are, the risk of deterioration in transit will be borne by the buyer.

ACCEPTANCE OF GOODS BY THE BUYER

Acceptance of the goods by the buyer takes place when the buyer:

(a) intimates to the seller that he has accepted the goods; or

(b) retains the goods, after the lapse of a reasonable time without intimating to the seller that he has rejected them; or

(c) does any act on the goods which is inconsistent with the ownership of the seller, e.g., pledges or resells. If the seller sends the buyer a larger or smaller quantity of goods than ordered, the buyer may:

(a) reject the whole; or

(b) accept the whole; or

(c) accept the quantity be ordered and reject the rest.

INSTALLMENT DELIVERIES

When there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and either the buyer or the seller commits a breach of contract, it depends on the terms of the contract whether the breach is a repudiation of the whole contract or a severable breach merely giving right to claim for damages.

SUITS FOR BREACH OF CONTRACT

- Where the property in the goods has passed to the buyer, the seller may sue him for the price.

- Where the price is payable on a certain day, the seller may sue for the price, if it is not paid on that day.

- Where the buyer wrongfully neglects or refuses to accept the goods and pay for them, the seller may sue the buyer for damages for non-acceptance.

- Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue him for damages for non-delivery.

- If the buyer has paid the price and the goods are not delivered, the buyer can sue the seller for the recovery of the amount paid. In appropriate cases the buyer can also get an order from the court that the specific goods ought to be delivered.

UNPAID SELLER (SEC 45 – 54)

Seller is deemed to be an unpaid seller, when:

- Whole of the price has not been paid or tendered and seller had an immediate right of action for the price.

- bill of exchange or other negotiable instrument was given as payment, but the same has been dishonoured, unless this payment was an absolute and not a

conditional payment.

Rights of Unpaid Seller against Goods

• Right of lien or retention.

• Right of stoppage in transit.

• Right of resale.

• Right to withhold delivery.

 

Right of Lien or Retention (Sec. 47 - 49 & 54)

It can be exercised on the goods for the price while he is in possession until the payment of price of such goods. It can be exercised in following cases:

(i) Where goods have been sold without any stipulation as to credit.

(ii) Where goods have been sold on credit but the term of credit has expired.

(iii) Where buyer becomes insolvent.

This right depends upon physical possession. It can only be exercised for the nonpayment of price.

This right is terminated under following circumstances:

a. Where he delivers goods to carrier or bailee for the purpose of transmission to buyer without reserving the disposal right.

b. Where buyer or his agent lawfully obtains possession of goods.

c. Where seller has waived the right of lien.

d. By estoppel.

Right of Stoppage in Transit (Sec. 50 - 52)

It means right to stop the further transit of goods, to resume possession and to hold the same till the price is paid.

It can be exercised in following cases:

(i) Seller must be unpaid.

(ii) He must have parted with the possession of goods.

(iii) Goods are in transit.

(iv) Buyer has become insolvent.

(v) Right is subject to provisions of the Act.

Goods are deemed to be in transit from the time they are delivered to carrier or other bailee- for transmission, until buyer or his agent takes delivery of them.

This right is lost under following cases:

(i) Buyer taking delivery

(ii) Acknowledgment by carrier

(iii) Delivery to ship

(iv) Wrong denial to deliver by carrier

(v) Sub sale

(vi) Goods in possession of ship’s master acting as buyer’s agent.

Right of Resale (Sec. 54)

It can be exercised in following cases:

a. Where the goods are of perishable nature, buyer need not be informed of the intention of resale.

b. Where he gives notice to the buyer of his intention to resell the goods, the buyer does not within a reasonable time pay or tender the price.

c. Where the right is expressly reserved in the contract.

If no notice has been given to the buyer of intention to re-sell, unpaid seller cannot claim any damages and buyer will be entitled for all profits.

Unpaid seller can recover from buyer the balance amount (if any) on resale.

If notice has been given to buyer, then profits origin out of sale of goods won’t be shared with buyer. Only seller will hold the samples.

Rights to Withhold Delivery

- It is exercised if the property in goods has not passed to the buyer.

- It is in additions to above 3 rights.

- However if the property has not been passed the unpaid seller has a right of with-holding delivery similar to and co-extensive with his rights of lien and stoppage in transit.

Rights of Unpaid Seller against Buyer

Suit for Price (Sec. 55)

Seller may sue —

(a) Where the property has passed to the buyer and he wrongfully neglects or refuses to pay for goods.

(b) Where the property has not passed and price is payable on a certain day irrespective of delivery and buyer wrongfully neglects or refuses to pay such

price.

Suit for Damages for Non-Acceptance (Sec. 56)

The seller may sue the buyer for non-acceptance, where he wrongfully neglects or refuses to accept and pay for the goods.

AUCTION SALES (SEC. 64)

- It is a mode of selling property by inviting bids publically and the property is sold to the highest bidder.

- It is a public sale where goods are offered to be taken by bidders.

- Auctioneer is only an agent of seller.

- Following rules apply —

a. When goods are put up for sale in lots, each lot is treated to be the subject of a separate contract of sale.

b. Sale is complete when the auctioneer announces its completion by fall of hammer or in another customary manner.

c. Right to bid may be reserved expressly by or on behalf of seller.

d. If such right is not reserved, it is not lawful for the auctioneer knowingly to take any bid from seller.

e. Sale may be notified to be subject to a reserve or upset price.

f. If seller makes use of pretended bidding to raise the price, sale is voidable at the buyer's option.

TRADING CONTRACTS INVOLVING RAIL OR SEA TRANSIT

These contracts are made when goods are to be shipped by sea. Under this various conditions are attached to the contract by parties, or by custom and practice of merchants. It includes:

(a) Free on Board (F. O. B.)

(b) Free on Rail (F. O. R.)

(c) Cost Insurance & Freight (C. I. F. or C. F. I.)

(d) Ex - Ship.

Free On Board (F. O. B.)

- Under this contract, it is the seller’s duty to put the goods on board at his own expense.

- As soon as they are put on board, the ownership along with the risk, passes to the buyer.

- Seller must notify the buyer immediately when the goods are put on board.

- If seller fails to do so, goods will be at seller’s risks.

- Buyer must get them insured on receipt of notification.

Free on Rail (F. O. R.)

- Similar to F. O. B.

Cost Insurance and Freight (C. I. F.)

- It refers to a contract of insured goods.

- Seller bears both the expenses of putting the goods on board as well as the freight and insurance charges.

- Proper documents have to be transferred.

- On receiving the documents, buyer has to first pay and then take delivery. 

- Buyer can reject the goods, if they are not according to the contract.

Ex – Ship

- Seller is required to arrange for shipment of goods till such inland destination as the buyer indicates.

- Goods travel at seller’s risks.

- Seller is not bound to insure them.

- Buyer is not bound to pay for them unless they are ready for unloadinq from the ship and all freight charges are paid.