What rules decide when title to goods passes from the seller to the buyer?

Posted by Priyash Nigam on January 6th, 2020

The expression sale of goods is a composite expression consisting of various ingredients or elements. There are elements of bargain or contract of sale, the payment or promise of payment of price, delivery of goods and the actual passing of title. Each of these ingredients is essential to a transaction of sale though the sale is not concluded unless the purchaser becomes the owner of the property.

The word ‘sale’ in its legal sense imports passing of property in the goods but in the popular sense it signifies the transaction itself which results in passing of the property. A sale under the Sales of Goods Act can be effected only by a contract of sale of goods.

 Under Section 4 of the Sales of Goods Act,1930 a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. The contract of sale may be absolute or conditional depending upon the parties and the transaction. It is only as after the contract of sale the property passes from seller to buyer.

“Passing of property” means passing of title and ownership of the goods from the seller to the buyer. Passing of property is independent from the passing of possession. Section 19 (1) of the Act, lays down when the property passes or should be deemed to be intended to pass. In such cases, as enjoined in Section 19 (2) of the Act, the intention of the parties has to be ascertained with reference to the conduct of the parties and the circumstances of the case.

Thus, parties can incorporate their intentions into the contract which can be ascertained by having recourse to the terms of the contract, the conduct of the parties and the circumstances of the case. The Act further provides some rules into Section 20 to 24 which apply where the intentions of the parties cannot be gathered under Section 19 of it.

It is an evident fact that the passing of property is normally a question of intention, and the intention of the parties must be gathered from the terms of the contract. It is true that if the goods are appropriated to a contract, the property will pass. But the appropriation must be unconditional, and if the appropriation is conditional, then the property will only pass when the condition is satisfied.

Section 22 relates to the case where, for the purpose of ascertaining the price, the seller has to weigh, measure, test, or to do some other act or thing to the goods. But it is not applicable in cases when the price was paid out before the the ascertainment.

Section 23 (1) of the Act lays down that where there was a contract for the Sale of Goods in a deliverable state and such goods are appropriated to the contract, either by the seller with the assent of the seller, the property in the goods thereupon passes to the buyer; and

Section 23 (2) lays down that where the seller delivers the goods to the buyer or to carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he was deemed to have unconditionally appropriated the goods to the contract.

Thus, passing of property connotes vesting of rights in the property and at the same time exercising possession over it. Passing of Risk though incidental to the passing of property but is a distinct event. “Passing of risk” means passing of liability of loss and damage of goods from seller to the buyer, irrespective of the fact whether the title has yet passed or not.

Section 26 of the Sales of Goods Act, 1930 provides that the risk prima facia passes with the property. It is a general rule which is subject to exceptions, which can be created through the agreement between the parties. In a sale’s transaction where delivery of the goods is delayed due to the fault of either party the risk of loss and damage, which may occur due to that fault, is upon the faulting party. Parties can also agree upon different points of time for the transfer of risk and property. As in Taranchand Ganshamdas v. Louis Dryfus and Co., it was held that:-

“The property in goods under a contract of sale does not pass to the purchaser until it is weighed by the vendor unless there are other terms of the agreement or some particular trade or local usage to the contrary. But however, their Lordships have said that defaulting purchaser delaying to take delivery of goods purchased by him is bound to compensate the seller for loss occasioned by reason of such delay, owing to deterioration of the goods in the ordinary course of things i.e., by rainfall even though the property in goods has not passed to the purchaser.”

Further in Multanmal Champalal v C P Shah & Co., the court made following observation “it is permissible for the contracting parties to enter into an agreement that although the property does not pass, the risk passes and they may fix the point of time when it so passes. Section 25 of the Act gives right to the seller to keep the goods at his disposal till the fulfilment of a certain condition. In case such right of disposal of goods is reserved by the seller the risk passes to the buyer at the time when the property would have passed if there had been no reservation of right of disposal of goods. In other words, when the option of reservation of right is exercised, the property does not pass and it remains at the disposal of the seller till the fulfilment of condition precedent but the risk travels to the buyer earlier.”

Conclusion

Therefore, to conclude it can be said that in general with the passing of the property the risk also passes to the buyer from the seller. But if the sale agreement specifies any other circumstance or incidence of passing of risk then that will have effect and risk will pass only on that specified condition or event. Thus, it becomes quite imperative for the buyer and the seller to determine the incidence of passing of risk so that the liability towards the goods can be ascertained as the passing of property connotes vesting of rights in the property and at the same time exercising possession over it. Passing of Risk though incidental to the passing of property but is a distinct event.