What is Passing of Property?
Meaning of Passing of Property: – The literal meaning of the passing of property is the transfer of ownership at an agreed price. The passing of property is an important aspect to help determine the liabilities and rights of both the buyer and the seller. Once a property is passed to the buyer, then the risk in the goods sold is that of the buyer and not the seller. This is true even if the goods are in the possession of the seller. Ownership is transferred only when the ownership of property rights is transferred from the seller to the buyer.
Thus, the following will be determined: –
- The exact time when the property in the goods is transferred from the buyer to the seller.
- The time when the risk is transferred from the seller to the buyer.
- The time when the seller give the right of ownership and possession to the buyer.
There are four primary rules that govern the passing of property: –
- Specific or Ascertained Goods
- Passing of Unascertained Goods
- Goods sent on approval or “on sale or return”
- Transfer of property in case of reservation of the right to disposal
There are three stages involved in the performance of a contract of sale of goods: –
- Transfer of property in goods (Sections 18 to 25)
- Transfer of possession of goods (Section 26)
- Transfer of title (Section 27-30)
What are the rules related to the passing of property?
The rules related to the passing of property are as follows: –
- Risk passing (Section 24): – The section provides that the goods will remain with the seller until the property is transferred to the buyer. As soon as the property is transferred to the buyer, the goods are at the buyer’s risk of whether the goods have been delivered or not. But, if delivery is delayed due to either party’s fault, the risk lies with the party’s fault because of whom the delivery gets delayed. Therefore, ‘assets’ and ‘risks’ go together.
- Rules for the passage of property in goods (Section 18-25): – The general rules relating to the transfer of property in goods are: –
- Ascertainment of goods (Section 18): – The property in goods cannot be transferred by the seller to the buyer if the contract for sale is of ascertained goods. Therefore, the goods must be ascertained for the transfer of property in goods.
- Parties Intent [Section 19 (1)]: – Property in goods is given to the buyer when both parties intend to do so. The terms of the contract, the conduct of the parties and the circumstances of the case will be considered to determine the intent of the parties.
- Specific Goods (Section 20-22): – Rules relating to transfer of property in specific goods are provided under sections 20 to 22 which are as follows: –
- Goods in Deliverable State (Section 20): – A state in which a buyer is obliged to take delivery of goods is known as a deliverable state. When the contract for the transfer of property in goods is unconditional, the transfer of property in goods is done when such a contract is made. For example: – Peter goes to an electronics store and buys a television set. He asks the shopkeeper to take it to his home. The shopkeeper agreed. Television immediately becomes Peter’s property.
- To keep the goods in a deliverable condition (Section 21): – In some contracts, the seller is presumed to have something to do with the goods so that they can be placed in the deliverable condition, and the property in the goods is not yet transferred until such a thing is said to be done for the goods and the buyer is informed of the same. For example: – Peter buys a laptop from an electronics store and asks for home delivery. The shopkeeper agreed to it. However, the laptop does not have the Windows operating system installed. The shopkeeper promises to set it up and calls Peter before making the delivery. In this case, the property is transferred to Peter only after the shopkeeper has installed the OS to prepare the laptop for delivery.
- Price of goods determined by means of weights (Section 22): – Where the price of the specific goods in the contract of sale is to be determined by weight, measurement or in any other way, the property in the goods is not said to be passed unless the weighing, measurement or method is used to determine the price and is informed to the buyer. For example: – Peter sells John a carpet and as part of the contract agrees to place it in John’s house. He lays the carpet and informs John that he will be laying it the next day. That night the carpet is stolen from John’s premises. In this case, John is not liable for the loss because the property was not given to him. As per the terms of the contract, it will be in a deliverable condition only after the carpet is laid.
- Uncertain Goods (Section 23): – In a contract for the sale of uncertain goods by description, the property in the goods is delivered to the buyer if the goods of the said description are in deliverable condition and are unconditionally appropriated to the contract by the seller with the consent of seller or vice versa. Consent can be either expressed or implied and given after or before appropriation.
- Goods sent on approval basis (Section 24): – When goods are delivered to the buyer on specific terms i.e. ‘approval’, ‘return on sale’ or any other such period, the property is transferred when: –
- The buyer indicated his acceptance or approval to the seller;
- The buyer acts in a way that indicates the adoption of the transaction;
- The buyer retains the goods even after the expiry of the fixed period.
- Right to Dispose (Section 25): – If a seller reserves the right to dispose of the goods until certain conditions are met, the property in the goods cannot be transferred to the buyer until such conditions are fulfilled.
What is contracts by sea?
Meaning of contracts by sea: – A contract by sea may be defined as an agreement that is concluded between a carrier and a shipper for the carriage of goods by sea, in which a carrier, against the payment of freight, undertakes to deliver goods from one port to another.
Where contracts involving sea routes are for sale, special clauses and conditions have been prepared keeping in mind the international customs and practices of the merchants: –
- Free Alongside Ship Contracts: – Free alongside ship (FAS) is a contractual term used in the international export business which specify that the seller must arrange for goods to be delivered to a designated port and next to a specific vessel for easier transfer. Contracts between a buyer and a seller for international transportation of goods include details like the time and place of delivery, the payment due, and which party pays the costs of freight and insurance. The contract also will indicate the date when the risk of loss shifts from the seller to the buyer. The duties of seller and buyer under such contracts are as follows: –
- Duties of seller: –
- Delivery of goods with ship.
- Notify buyer of ship as well as delivery.
- Buyer Duties: –
- Arrangement of Affreightment contract.
- Notify the seller of the ship’s name and delivery with the ship.
- Take a risk and pay a fee for the ship as well as the goods delivered.
- Duties of seller: –
- Free on board contracts: – Free on Board is a term used to indicate who is liable for goods damaged or destroyed during shipping. “FOB origin” means the buyer is at risk and takes ownership of goods once the seller ships the product. Under Free on board (FOB) contracts, if a seller agrees to sell the goods, the seller must ship the goods on behalf of the buyer at his own expense to ship the goods to the buyer under a carriage contract.
- Duties of seller: –
- Delivery of goods on a ship designated by the buyer. Once the goods are put on the ship, they are at the buyer’s risk. The seller’s duty ceases when he delivers the goods to the ship at his own expense.
- Inform buyer about shipping of goods. The notification is intended to enable the buyer to protect the goods against loss during the transmission of the goods. If the seller fails to notify the buyer, the goods will be at his / her own risk.
- Buyer’s duties: –
- Arrange for fire extinguishing contracts;
- To tell the seller the name of the ship through which the goods are transported.
- Carry risk and fees related to delivery of goods onboard.
- The property of the goods is said to be given to the buyer when the goods are delivered. If the buyer fails to name the ship for the transfer of the goods, the seller can sue the buyer for non-acceptance of the goods but cannot sue for the price.
- Duties of seller: –
- Cost, insurance and freight contracts: – When a seller agrees to sell goods, the price of the goods will include the price of the goods, the cost of insurance, and the freight. Such contracts are done when documents, bills of lading, insurance policies, invoices etc. are given to the buyer through the bank. The bank transfers the documents at a fee. The seller is called the owner of the goods until the buyer receives the documents and pay for the goods.
- Ex-Ship Contracts: – Under these contracts, the seller delivers the goods from the ship arriving at the port of destination at his own expense. Property in goods is not said to be transferred until goods are delivered to the buyer.
Case laws under passing of property
- Badri Prasad vs. State of Madhya Pradesh: – In this case, the court stated that in cases of sale of trees, property in goods is transferred when the trees fall after being cut down because they cannot be ascertained unless they fall.
- Multanual Chempalal vs. C.P. Shah & Co: – In this case, it has been held that Section 26 of the Sale of Goods Act, risk passes only when the property is passed, but if there is a contract to the contrary, for the passing of the l risk before the title of the property. Thus, the parties can enter into a contract that provides for the risk to pass before the property is passed.