Effects of the Contract

Transfer or passing or property – Risk Follows ownership:

Transfer of property in the goods is distinct from delivery of goods. Transfer of property means transfer or passing of ownership in the goods. Property means the general property in the goods and not merely a special property [sec 2(11)]. Property or ownership in the goods may pass to the buyer without delivery of the goods. On the other hand, mere delivery of the goods may not constitute transfer of ownership in the goods. Therefore, property in the goods is distinct from delivery or possession of the goods. Transfer of property thus means that the ownership of the seller in the goods ceases and the buyer’s ownership in the goods commences. The time of transfer or property in the goods decides various rights and liabilities of the seller and the buyer. As a general rule, unless otherwise agreed, the goods remain at the seller’s risk until the property therein transferred to the buyer. When the property therein is transferred to the buyer the goods are at the buyer’s risk, whether delivery has been made or not (Sec 26). Risk, therefore prima facie passes with the property.

Now let us see when property in the goods passes from the seller to the buyer or what are the rules regarding transfer of property as between seller and buyer?

Time when Property passes:

Sections 18 to 26 lay down the rules determining the time when the ownership in the property passes from the seller to the buyer.

For this purpose goods are divided into two classes:

1) Specific or ascertained
2) Generic, unascertained or future

Time when property passes in specific pr ascertained goods: Specific or ascertained goods are identified goods and agreed upon at the time a contract of sale [sec 2(14)]. Property in case of specific or ascertained goods passes when intended to pass (Sec 19)

As a rule, 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. For the purpose of ascertaining the intention of the parties regard shall be had to:

(1) the terms of the contract; (2) the conduct of the parties and (3) the circumstances of the case.

Supreme Court has held that where contract provides that property in the goods does not pass till after delivery and after successful testing and issuance of take over certificate, the property in the goods remains at the risk of supplier till delivery was completed.

It is, therefore, necessary that the contract must show the intention. Unless a different intention appears, the following are the three 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 in case of specific or ascertained goods. These rules are presumptive and can be rebutted by terms of the contract, the conduct of the parties and the circumstances of the case.

Rules:

Specific goods in a deliverable state: (Sec 20) 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. It is in material whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. The goods are said to be in a ‘deliverable’ state when they are in such a state that the buyer would under the contract be bound to take delivery of them [Sec 2 (3)].

Therefore, the first rule is that when the goods are in the deliverable state, the property in the specific goods passes when the contract is made. The contract must be unconditional.

Illustrations:

1) B offers A for his horse for Rs 1000, the horse to be delivered to B on a stated day and the price to be paid on another stated day. A accepts the offer. The horse becomes B’s property when the contract is made, that is, as soon as the offer is accepted.
2) B offers A for his horse Rs 1000 on a month’s credit. A accepts the offer. The horse becomes B’s property as soon as the offer is accepted.

When the goods are ascertained and in a deliverable state, on the order being placed by the purchaser in one state, the seller in another State loaded the goods on the lorry and dispatched the same to the purchaser, property in the goods passed in the state of the seller.

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