Why is it necessary to know when property or ownership passes from seller to the buyer?

Passing of property from seller to the buyer decides various rights, and liabilities of the seller and buyer. In particular it is necessary to know, the precise moment of time of passing of the property from the seller to the buyer for the following reasons:

1. For ascertaining risk or loss:

It is a cardinal rule of law that risk follows property, i.e., ownership. It means that whosoever is the owner of the goods at the time of risk, i.e., loss, shall bear the loss.

Example:

A sold a radio to B. B left the radio in A’s shop. The radio is destroyed in an accidental fire. Since B was the owner of the radio, B will bear the loss as the ownership has passed from the seller A to the buyer B.

2. For ascertaining right of action against the third parties:

It is the owner of the goods who can take action against the third parties, if they cause loss to the goods.

3. For ascertaining rights of insolvency of the seller or the buyer:

If the ownership has passed to the buyer, the buyer’s Official Assignee or Receiver can take possession of the goods even if the goods have not been delivered by the seller. If the ownership has not passed, he cannot.

Passing of ownership will depend upon whether the goods are unascertained, specific or ascertained.

1. Unascertained goods (Sec. 18):

Where there is a contract for the sale of unascertained goods, the property in the goods is not transferred to the buyer unless the goods are ascertained.

Thus no property passes until the goods are identified or become ascertained. It is a necessary condition.

2. Specific or ascertained goods [Sec. 19(1)]:

Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer when the parties intend it to be transferred.

Ascertaining intention of the parties:

For the purpose of ascertaining intention of the parties, the terms of the contract, the conduct of the parties and the circumstances of the case [Sec. 19(3)].

1. Express intention:

The parties may agree that the ownership will pass on payment or on acceptance of a bill or in an auction sale on falling of the hammer, etc.

Example:

Certain diamonds were sold to the buyer with the express condition that property in them would pass on the bill being accepted. The diamonds were sent along with the bill and the invoice. The bill was never accepted. Held, the property did not pass as the parties had intended it to pass only on acceptance which was never there [Sacks v. Tillery}.

2. Implied intention:

Where the intention of the parties is not express, it may be implied from the conduct of the parties or circumstances.

Example:

A offered to sell a certain machine to B. B refused to buy unless the machine was repaired. Thereupon, the seller agreed with the buyer that the buyer would get the machine repaired and the repair charges be adjusted in the sale price. The buyer handed over the machine for repairs. Without any fault of the mechanic, the machine was destroyed during the course of repair. Held that the circumstances implied that the property in the goods would pass only when the machine was repaired [Appleby v. Myers].