Welcome to Contract law II

Law of Sale of goods 2.1 (Transfer of property)

Maxime Chevalier (Lecturer, JGLS)

LL.M. International Arbitration (Stockholm University)
M.A Common law (Université de Paris V – Descartes)
Transfert of the risks (main purpose of transfer of property)

When is the property transferred

How is the property transfered

 Definition of property

Property means the general property or ownership in goods as distinguished from special property or
interest such as that of a bailee or pledgee [section 2(11)]. When it is said that the property in the goods
has passed to the buyer it means that the goods have ceased to be the property of the seller and have
become the property of the buyer. Transfer of property in goods is distinct from delivery of goods.
Property in goods may pass from the seller to the buyer without delivery of the goods to the buyer, i.e.,
though the goods have never come into the possession of the buyer. Property in goods is thus distinct
from possession of goods. [Mulla]

Property
= Delivery
 Transfer of the risks
S. 26. Risk prima facie passes with property.-
Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but
when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made
or not;

Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of
the party in fault as regards any loss which might not have occurred but for such fault:

Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the
goods of the other party.

Risk follow the property

Unless delay in delevery is due to one party’s fault [Exception n°1]

The legal regime of bailee applies [Exception n°2]

 Possession, Property & Delivery timeline

Seller in POSSESSION Buyer in POSSESSION

Transfer of property Delivery of the goods

Contract of SOG

Seller bears the risks Buyer bears the risks

1st January 1st of February
Transfer of risks
10th January

Incident n°1 Incident n°2

 Property assimilated to bearing of the risks
S. 26. Risk prima facie passes with property.-
Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the
buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether
delivery has been made or not;

The prima facie rule in this section is that the goods remain at the seller’s risk until the property in the goods is
transferred to the buyer. But when the property in the goods is transferred to the buyer the goods are at the buyer’s
risk whether delivery has been made or not. [Mulla]

In general: property = bearing of the risks

“res perit demino”

 Exception n°1: Parties can agree otherwise
“Unless otherwise agreed, the goods remain at the seller’s risk…”

! Parties are free to agree otherwise

The agreement to the contrary contemplated in this section may be in writing or may be inferred from the course of
dealing or by usage binding on both. [Mulla]

CASES:
- it was held that the course of dealing indicated that the property did not pass till the buyer paid and hence the goods were
lying at the seller’s risk till payment of the price [NS Billimoria v Gauri Mal Narain Das]

- Where a contract of sale provides that either party shall insure the goods during transit, it is presumed that the party who has to
insure the goods in transit takes upon himself the risk of loss [Anderson v Morice]

- Parties may even contract that the risk shall pass on delivery irrespective of the passing of the
property [Anderson v Morice]
 Exception n°2: the delay of delivery due to a party’s
fault
S. 26. Risk prima facie passes with property.-

Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the
risk of the party in fault as regards any loss which might not have occurred but for such fault:

Conditions: Effect:

- A delay in the delivery - Despite risks allocation due to possession, the

- Cause by the fault of a party (chain of causation) party in fault bears the risks

- If a party prevented the SOG contract from being emptio perfecta (perfectly performed),
such party bears the risks [Martineau v Kitching]

- A party bought 30 tons of apple juice. The risks were on the Seller but the Buyer was late taking the delivery. The
juice went bad. Despite risks being on Seller, the Buyer was liable of bearing the risks and thus, forced to pay the
price of the goods. [Demby Hamilton & Co Ltd v Barden]
 Exception n°3: application of bailor/bailee regime
S. 26. Risk prima facie passes with property.-
Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of
the goods of the other party.

“If A sells goods to B, but continues in possession after sale, he is a bailee of the goods for B. Similarly if A agrees
to sell goods to B, who obtains possession thereof before the property in the goods passes to him, B is a bailee of
the goods for A. In either case the duties and liabilities of A and B as a bailee for the other are not affected by this
section.” [Mulla]

See legal regime of Bailor/Bailee

 When does the transfer of property happens?

Specific/Ascertained goods

Transfer of property
Generic/Unascertained/Future goods

! Rules are different between these goods

I- Specific/Ascertained goods

When is the property of specific goods transferred?

1. According to parties’ intention [S- 19]

2. According to legal rules supplementing parties intention [S- 20-24]

 1. Property passing according to parties’ intention

S. 19. Property passes when intended to pass.-

(1)  Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the
buyer at such time as the parties to the contract intend it to be transferred.

(2)  For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case.

(3)  Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the
intention of the parties as to the time at which the property in the goods is to pass to the buyer.

We are talking about specific/ascertained goods

Property passes according to parties intention

Consruction of parties intention according to contract, conduct & cirumstances

The law will supplement parties’ intention

Parties’ intention first

the property passes when the parties to the contract intended it to pass. It is a question of construction of a contract in
each case at what stage the property shall pass and a question of fact in each case whether that stage has been
reached. [Seath v Moore]

Parties’ intention prevails vis-à-vis sections 20 to 24

“The words in sub-section (1) “at such time as the parties to the contract intend it to be transferred” indicate that
the intention of the parties is paramount and hence the rules laid down in sections 20 to 24 are presumptive.
The said rules can be rebutted by the terms of the contract, the conduct of the parties and the circumstances of
the case. [State of Madras v Ramalingam & Co, AIR 1956]

- Intention of the parties is the decisive factor as to when the property in goods passes to the purchaser. If
the contract is silent, intention has to be gathered from the conduct and circumstances of the case. [Hoe
Kim Seing v Maung Ba Chit]
Construction of parties’ intention

- In a contract of a sale of logs of wood, it was provided that the buyer was entitled to inspect, measure and weigh the goods at
the place of destination before taking delivery from the railway. It was held that the parties did not intend to pass property in
goods until the buyer had performed the said acts. [CST, Eastern Division Nagpur v Husenali Adamji & Co, AIR 1959]

- Where a contract provided that the seller shall consign the goods “free on rail”, it was held that the circumstances showed an
intention that the property should not pass to the buyer until the goods were placed in safety on rail [Underwood Ltd v Burgh
Castle Brick and Cement Syndicate]

- In case of goods delivered on the basis of “on sale for cash or return within a week” the parties did
not intend to pass the property in the goods until the price was paid in a week or the goods are
returned within a week. [Re Ferrier, (1944) 1 ChD 295]
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 Rules of law supplementing parties’ intention
S. 20. Specific goods in a deliverable state.-
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, and it is immaterial whether the time of payment of the price
or the time of delivery of the goods, or both, is postponed.

Conditions
Effect

- Specific/Ascertained goods - Transfer of property when the

- Unconditional contract contract is made
- Goods in a deliverable state

“This indicates that as soon as a contract is made in respect of specific goods which are in a deliverable state, the
title in the goods passes to the purchaser. The passing of the title is not dependent upon the payment of price or
the time of delivery of the goods. If the time for payment of price or the time for delivery of goods, or both, is
postponed, it would not affect the passing of the title in the goods so purchased.” [Mulla]
This section applies to the case of specific goods—

(1) where the contract is unconditional, i.e., not subject to any condition to be fulfilled
by the parties; and

(2) where the goods are in a deliverable state, i.e., they are in such a state that the buyer
would under the contract be bound to take delivery of them.

- Where the contract was for the sale of a fixed condensing engine which had to be severed and delivered free on
rail at a specified price and it was damaged in transit before it reached the railway, it was held that the engine was
not in a deliverable state when it reached the railway [Underwood v Burgh Castle Brick and Cement Syndicate]
 When buyer should put the goods in a deliverable
state
S. 21. Specific goods to be put into a deliverable state.-
Where there is a contract for the sale of specific goods and the seller is bound to do something
to the goods for the purpose of putting them into a deliverable state, the property does not pass
until such thing is done and the buyer has notice thereof.

Conditions
Effect
- Sellers does what he his required to do to put the goods in a
- Property passes when Seller
deliverable state gets notice
- Buyer shall have notice that Seller did what he had to do
“The words “and the buyer has notice thereof” are intended to prevent the hardship which might result in the risk
being transferred to the buyer without notice.

The words “has notice thereof” have been deliberately used; the said words do not cast a direct obligation on the
seller to give notice. The said words mean that the buyer has knowledge thereof, i.e., comes to know of it
somehow.” [Mulla]

In a case where the seller had to bag the rice and book it on the railway and dispatch it as and when the
wagons became available and then deliver the railway receipt to the buyer, it was held that until the goods
were loaded in wagons and dispatched, they were not in a deliverable state [Lachhmi Niwas Rice Mills v
Firm Ram Das Ramniwas]
 When Seller should do something to acertain the
price
S. 22. Specific goods in a deliverable state, when the seller has to do anything thereto in order
to ascertain price.-

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 some other act or thing with reference to the goods for the purpose of
ascertaining the price, the property does not pass until such act or thing is done and the buyer has
notice thereof.

Conditions Effect
- Such thing should be done - Property passes immediately when buyer has notice
- Buyer should have notice that is has been done

The section does not apply when the thing which has to be done is to be done by the
buyer and not the seller. [Hoe Kim Seing v Maung Ba Chit]
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II- Generic/Unascertained goods

S. 18. Goods must be ascertained.-

Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to
the buyer unless and until the goods are ascertained.

Unascertained goods Become ascertained Transfer of property

Transfer of property
 the ascertainment took place when the goods from the larger stock were delivered [Jute and Gunny Brokers
Ltd v UOI, AIR]

Until appropriation, there is merely an agreement to sell. The agreement to sell becomes a sale when the goods
on which the contract is to operate are ascertained and unconditionally appropriated to the contract as per
section. The mere fact that the goods are to come out of a specified stock does not make them ascertained goods
nor is it sufficient to transfer the property therein to the buyer [White v Wilks ; Laurie & Morewood v Dudin & Sons]

How are the goods ascertained?

 Goods being ascertained
S. 23. Sale of unascertained goods and appropriation.-

(1) Where there is a contract for the sale of unascertained or future goods by description and goods of that
description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with
the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon
passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the
appropriation is made.

(2) Delivery to carrier.-Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a
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 is deemed to have unconditionally appropriated the goods to the contract.

Conditions
Effect
- Unconditionally appropriated to the contract
- Assent of the other party - Transfer of property
Unconditional appropriation of the goods to the contract

i.e., the cotton must be Fair Bengal cotton. Assuming that the seller has selected 100 bales of Fair Bengal
cotton, it is not sufficient for passing the property in the bales to the buyer that he has set aside the 100 bales
in his own warehouse. Such an act indicates merely an intention to appropriate the bales to the contract. The
matter resting in intention only, the seller is at liberty to change his mind and deliver the goods to another
buyer. What is required for the transfer of the property to the buyer is an unconditional appropriation of the
bales to the contract. [Mulla]

This is usually done by the seller giving notice to the buyer that the bales are ready for delivery and
the buyer assenting to the appropriation by saying that he will take delivery thereof [Nippon Yusen
Kaisha v Ramjiban Serowgee]

Assentment

- Appropriaiton by the Seller assented by the Buyer

- Appropriation by the Buyer assented by the Seller
The selection of the goods by the one party and the adoption of that act by the other, connects that, which before
was a mere agreement to sell into an actual sale, and the property thereby passes. [Rhodes v Thwaites]

Cases

- A, having a quantity of sugar in bulk, more than sufficient to fill 20 hogsheads, contracts to sell to B 20
hogsheads of it. Alter the contract, A fills 20 hogsheads with the sugar, and gives notice to B that the
hogsheads are ready and requires him to lake them away. B says he will take them as soon as he can. By this
appropriation by A and assent by B, the property in the sugar passes to B [Rhodes v Thwaites]

- A contracts to sell B a certain quantity of liquor out of a big cask containing a much larger quantity. The
required quantity is not separated or bottled. The property in the liquor does not pass to the purchaser.
[Emperor v Kunverji Kavasji]
 Essentials of appropritation of the goods to the contract [Mulla]

(1) The goods should conform to the description and quality stated in the contract. [Vigers v Sanderson]

(2) The goods must be in a deliverable state

(3) The goods must be unconditionally appropriated to the contract. It shows clearly that the seller has
not reserved his right to dispose of the goods

(4) The appropriation must be

(i) by seller with the assent of buyer.
(ii) by buyer with the assent of seller.

(5) The assent may be expressed or implied.

(6) The assent may be given either before or after appropriation.

 Assentment to appropriation
Contract can determine if appropriation is done by Seller or Buyer

- A contracts to sell to B 100 maunds of grain, according to a sample produced, out of a larger bulk which B has not
seen, and which is already in sacks of A. Certain number of the sacks are marked by A with B’s name and the words
“To Wait Orders”. The sacks so dealt with do not become B’s property in the absence of specific assent from B or
previous authority from B to A to select them on B’s behalf. [Jenner v Smith]
 Unascertained goods becoming ascertained by
delivery to carrier
(2) Delivery to carrier.-Where, in pursuance of the contract, the seller delivers the goods to the
buyer or to a 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 is deemed to have
unconditionally appropriated the goods to the contract.

if a tradesman orders goods to be sent through a carrier, though he does not name any carrier, the moment
the goods are delivered to the carrier it operates as a delivery to the buyer and the property in the goods
passes to the buyer [Dutton v Solomonson]

Conditions
- Delivers goods to buyer/carrier/bailee
- For the purpose of the contract
- Does not reserve the right of disposal
 III-”on sale or return”
S. 24. Goods sent on approval or “on sale or return”.-
When goods are delivered to the buyer on approval or “on sale or return” or other similar terms, the property
therein passes to the buyer—

(a)  when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;

(b)  if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of
rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time
has been fixed, on the expiration of a reasonable time.

Halsbury’s Laws of England, IVth Edn, vol 41, para 727.

“Unless a different intention appears, when goods are delivered to the buyer on approval, or on sale or return,
or other similar terms, the property in the goods passes to the buyer when he signifies his approval or
acceptance to the seller or does any other act adopting the transaction; and if he does not signify his approval
or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been
fixed for the return of the goods, on the expiration of that time and, if no time has been fixed, on the expiration
of a reasonable time. What is a reasonable time is a question of fact.”
There is a transfer of property when…

Approval/acceptance/conduct
Transfer of property

Expiration of the time

“on sale or return” to accept

Retains goods Lack of notice of rejection

Expiration of
reasonable
time
No transfer of property when

- Rejection
- Rejection within time fixed by contract/reasonable time
 Nature fo the transaction on “Sale of approval”

It is an agreement to sell (before approval)

“the transaction is merely an agreement to sell, and the property and the risk remain in
the seller until the buyer does one or other of the things mentioned in the section. If the
buyer does any one of those things, the transaction becomes a sale and the property
and risk pass to the buyer” [Mulla]