How the Intention of Parties as to Passing of Property is Ascertained?

When there is neither an express agreement nor it can be inferred from the conduct or circumstances of the case, then intention of the parties, as to passing of property, can be ascertained from the rules given in Sees. 20 to 24. These rules are discussed below:

1. Specific goods:

(i) When goods are 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. Payment of price or delivery of goods is not essential for passing of property.

Example:

A selected a piece of jewellery from a jeweller’s shop. A agrees to pay the price on the first day of the next month and asks the shop-keeper to send the jewellery at his (buyer’s) home. Without any negligence, the jewellery is destroyed by fire in the shop. A (buyer) is liable for the loss as the ownership in the jewellery had passed from the seller to the buyer.

It should be noted that in the example given above, neither the price has been paid nor the jewellery has been delivered, even then the ownership had passed from the seller to the buyer.

(ii) When goods are not in a deliverable state (Sec. 21):

Where there is an unconditional contract for the sale of specific goods and the seller is bound to do something for the purpose of putting the goods in a deliverable state, the property will pass only when such thing is done and the buyer has notice thereof.

2. Unascertained or future goods:

The rules relating to passing of property in unascertained or future goods are given in Sees. 18 and 23.

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 (Sec. 18).

So long as the goods remain unascertained, the property does not pass and there is merely an agreement to sell, it does not become sale.

Where there is a contract for the sale of unascertained or future goods by description, no property in the goods is transferred to the buyer unless and until goods of that description and in a deliverable state are unconditionally appropriated by the seller with the consent of the buyer or by the buyer with the consent of the seller [Sec. 23(1)].

Thus for passing of property in unascertained or future goods, firstly, there should be ascertainment of goods and secondly, there should be unconditional appropriation of such goods to the contract.

Ascertainment is the act of identifying the goods answering the description, whereas appropriation implies common intention of the seller and the buyer to use the goods for performance of the contract.

Appropriation should be done unconditionally, i.e., without a condition. For example, the seller should not reserve to himself the right of disposal.

Appropriation may be done either by the seller with the consent of the buyer or by the buyer with the consent of the seller.

The consent of the seller or buyer may be expressed or implied and may be given before or after the appropriation is made.

(a) Appropriation of goods by the seller:

1. By separating the quantity sold from the lot or other goods and informing the buyer.

Example:

A has 100 bags of rice in his godown. Out of this he agreed to sell 10 bags of rice to B. A separates 10 bags and informs B.

2. By putting the goods sold in suitable receptacles e.g. tins bags, etc. and informing the buyer.

Example:

20 hogsheads of sugar out of a bulk were agreed to be sold. Four hogsheads of sugar were filled up and taken away by the buyer. Subsequently, the seller filled up 16 hogshead and informed the buyer. However, before the buyer could take their delivery, they were lost. Held, the buyer was responsible as the ownership had passed to the buyer [Rhode v. Thwaites],

3. By delivery of the goods to the carrier:

Appropriation of goods may also be done by making delivery of the goods to the carrier for transmission to the buyer.

The delivery of goods may be:

(i) Conditional,

(ii) Unconditional.

In case of conditional delivery of goods, ownership does not pass to buyer, unless condition is fulfilled, e.g., bill is accepted or payment is made.

In case of unconditional delivery of goods, the ownership passes from seller to the buyer, (b) Appropriation by the buyer:

Sometimes appropriation of goods may also be done by the buyer. It may happen when the goods are in the possession of the buyer. In such a case, the buyer can appropriate the goods with the consent of the seller. The consent may be given before and after the appropriation by the buyer.

Example:

A’s 100 bags of wheat are stored in B’s godown. A sells 10 bags to B. Since B is in possession of the goods, he appropriates 10 bags and informs A. Property passes from A to B as soon as B informs A of the act of appropriation.

3. Goods on approval, or on sale or return basis (Sec. 24):

Where goods are delivered to the buyer on approval, or sale or return or other similar terms, the property in the goods passes to the buyer.

(i) When he signifies his approval or acceptance to the seller:

In this case the buyer expressly accepts the goods by informing the seller that he has accepted the goods.

(ii) When he does any act adopting the transaction:

In this case, the buyer impliedly approves or accepts the goods by doing any act which shows an intention on his part to accept the goods.

Example:

In Krikham v. Attembrough certain jewellery was delivered to the buyer on sale or return basis. The buyer pledged the jewellery. Held, the buyer had adopted the transaction and as such property had passed and the seller could not recover the jewellery from the Pawnee.

(iii) Where he does not signify his approval or acceptance but retains the goods beyond the time fixed for the return of the goods, or beyond a reasonable time if no time is fixed (Sec. 24).

Transfer of title (Ownership) by non-owners (Sec. 27) :

As a general rule, only an owner of the goods can transfer ownership in the goods. The general aim is “Nemo dat quo non habet, i.e., no one can pass a better tile than what he has.” The object of this rule is to protect the rule for owners. Thus if a person who buys goods from a thief, will also be called a thief. Such a person does not get a good title even if he has paid the price and does not know that the goods were stolen property.

However, this principal is subject to the following exceptions:

(I) Estoppel:

Estoppel means that a person who by his conduct or words leads another to believe that certain state of affairs existed, would be estopped from denying later on that such a state of affairs exists.

Where the owner of the goods acts, in such a manner so as to lead others to believe that the person selling the goods has authority to sell the goods, he will be estopped from denying seller’s authority to sell the goods (Sec. 27).

Example:

A tells B within the presence and hearing of C that he (A) is the owner of certain goods. In fact C is the owner of these goods. Later on, A sells these goods to B. B will get a good title to the goods as C will be estopped from denying A’s right to sell.

(II) Sale by a Mercantile Agent:

Where a mercantile agent is, with the consent of the owner, in possession of the goods or documents of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be valid as if he were expressly authorized by the owner of the goods. But the buyer should have acted in good faith and had no notice at the time of sale, that the seller had no authority to sell (Sec. 27).

A buyer will acquire good title to the goods only if the following conditions are satisfied:

1. The agent must be mercantile.

A mercantile agent is one, who in the customary course of business, has as such agent, authority either to sell the goods, or to consign them, or to buy goods, or to raise money on the security of goods.

It should be noted that this rule does not apply to sale by any other person, like caretaker, servant or clerk etc. of the seller.

2. The goods must be in possession of the mercantile agent in his capacity as mercantile agent.

3. The goods must be in possession of the mercantile agent with owner’s consent.

4. The buyer must have acted bonafide, i.e., in good faith and should have no knowledge that the agent had no authority to sell.

Example:

A entrusted his car to a mercantile agent to receive offers and not to sell. A also delivered signed documents to the agent. On the basis of these documents, the agent pretended to the buyer that he had authority to sell the car. Held that the owner was estopped from denying buyer’s title [Estern Distributers Ltd., v. Godring],

Whether sale by a mercantile agent of goods which were stolen will confer a good title? The answer is ‘No’.

National Employers Mutual General Insurance Association Ltd. v. Jones. A car was stolen and was sold to a car dealer, A Ltd., who sold it to another car dealer M. Ltd., who in turn sold it to the appellant. The appellant purchased the car in good faith and without notice of the original owner’s rights. The respondents, who were the insurer of the original owner, sued for the possession of the car from the appellant.

The appellant submitted that the seller was a mercantile agent in terms of Sec. 9. The Court held that Sec. 9 did not confer title on a purchaser if the mercantile agent from whom the goods have been purchased had come into possession of the goods from a thief or a person deriving title from a thief since the owner would not have entrusted goods to a thief.

(III) Sale by one of the joint owners:

If one of the several joint owners of goods has the sole possession of them by permission of the other joint owners, the property in the goods is transferred to any person who buys them of such joint owner in good faith and without notice that the seller has no authority to sell (Sec. 28).

Example:

A and B jointly purchased a horse. A took the horse to his house with the consent of B. Later on A , sold the horse to an innocent purchaser. The purchaser will get a good title.

It should be noted that the joint owner must be in possession with the consent of the other joint owner, otherwise the buyer will not acquire a good title.

(IV) Sale by person in possession under voidable contract (Sec. 29):

A person who has obtained possession of goods under a voidable contract and before the contract has been rescinded, sells these goods, the buyer will acquire a better title.

Example:

A purchased a watch from B by fraud. A sold the watch to C who bought it in good faith without knowing A’s fraud. C gets good title.

It should be noted that the rule does not apply in case the agreement was void as was held in the case of Lake v. Simons or Cundy v. Lindsey.

(V) Sale by seller in possession after sale [Sec. 30(1)]:

The buyer, after purchasing the goods may leave them with the seller. If the seller re-sells these goods to another buyer, that buyer will acquire a good title to the goods if he acted in good faith and without notice that the seller had no authority to sell the goods. Example:

A had fifty hogsheads of tobacco lying in bond in his name at a warehouse. The dock warrant was issued to him in his name. He sold the tobacco to the plaintiff, who left the dock warrant with the seller. The buyer did not take any steps to have the tobacco transferred in his own name. The seller subsequently pledged the tobacco and handed the dock warranty to the defendant who acted in good faith. Held, the defendant acquired a good title against the plaintiff [Johnson v. Lyonuais.]

It should however be noted that the rule does not apply where the goods have been delivered by the seller and subsequently, the goods again come back to the seller as a bailee or in any other capacity.

Example:

Staffs Motor Guarantee Ltd. v. British Wagon Co. Ltd. A, dealer, sold a motor lorry to the defendant, who then lent it back to him on hire-purchase agreement. A then fraudulently sold the lorry to the plaintiff who had no knowledge of the previous transaction. Held, that A was in possession of the lorry as a bailee and not as a seller. Hence the subsequent sale to the plaintiff was not valid against the defendant.

(VI) Sale by buyer in possession after sale or agreement to sell [Sec. 30(2)]:

Where a person having bought or agreed to buy goods, obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent, acting for him, of the goods, or documents of title under any sale, pledge or other disposition thereof receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist.

It should be noted that this rule does not apply where the buyer has got merely an option to buy as in hire-purchase agreement. He cannot transfer title to any person as option to buy does not mean an agreement to buy.

In strict legal terms in hire-purchase agreement, a hire-purchaser has an option to buy. If there is no such option to buy, it is a contract of sale by installment and not of hire-purchase.

Example:

A entered into a hire-purchase agreement with B for a motor car with a condition that on paying 20 installments of Rs. 2,000 per month, the car will be his (B) property. However, after paying only 10 installments, B pledged the car with C. A filed a suit to get back the car. Held, A could recover the car as B had only an option to buy [Motor Supply Co. v. Cox].

(VII) Sale by an unpaid seller [Sec. 54(3)]:

Where an unpaid seller who has exercised his right of lien or stoppage in transit, re-sells the goods, the buyer acquires a good title to the goods as against the original buyer even if no notice of resale is given.

(VIII) Sale in market overt:

Market overt means an open, public and legally constituted market. According to this rule, if a person buys goods in market overt, the buyer acquires a good title to the goods, even if the goods sold were obtained by theft. The only condition being that the buyer should buy the goods in good faith and without knowledge of any defect or absence of title. This rule is applicable in England. It has not been recognized in India as it will encourage the thieves to steal things and sell them in market over.

(IX)Miscellaneous Exceptions:

Besides, Sale of Goods Act, there are certain exceptions under the Indian Contract Act, Insolvency Law and Companies Act as follows:

1. Under the Contract Act:

(i) Finder of lost goods under certain circumstances can pass better title (Sec. 169).

(ii) A pawnee or pledgee under certain circumstances can pass a better title (Sec. 176).

2. Under the Insolvency Law:

An Official Receiver or Assignee can pass a better title.

3. Under the Companies Act:

A Liquidator of a company can pass a better title.