This Transfer of Ownership – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.
Transfer of Ownership – CA Foundation Business Law Study Material
Question 1.
What is the appropriation of goods under the Sale of Goods Act, 1930? State the essentials regarding appropriation of unascertained goods.
Answer:
Under Section 23(1), in a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer when the goods of that description are 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 goods are ascertained by appropriation. Until appropriation, there is merely an agreement to sell. Appropriation means the selection of goods with the mutual consent of the parties.
The following are the essentials of appropriation:
1. The goods should conform to the description and quality stated in the contract.
2. The goods must be in a deliverable state.
3. The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to the buyer or his agent or the carrier.
4. The appropriation must be
- by a seller with the assent of buyer or.
- by the buyer with the assent of the seller.
5. The assent may be expressed or implied.
6. The assent may be given either before or after appropriation.
Question 2.
‘Nemo Dat Quod Non-Habet’ – None can give to the other what he has not got. Explain the rule and state the cases in which the rule does not apply under the provisions of the Sale of Goods Act, 1930.
Answer:
Transfer of property is an essential condition to the contract of sale. For sale to be effective passage of property must take place from the seller to the buyer. If the seller’s title is defective, the buyer’s title will also be defective. A person can only transfer what he has. No one can transfer a better title to the goods than he himself possesses. This principle is expressed by the Latin phrase, “Nemo dat quad non habet”, which means “none can give who does not himself possess”.
Exceptions – In each of the following cases, a person who is not an owner, can give to the transferee a valid title to the goods:
1. Transfer of title by estoppel [(Sec. 27)]
When the true owner of the goods by his conduct or words or by any act or omission leads the buyer to believe that the seller is the owner of the goods or has the authority to sell them, he cannot afterward deny the seller’s authority to sell. The buyer in such a case gets a better title than that of the seller.
2. Sale by a mercantile agent [Proviso to Sec. 27]
Sale of goods by a mercantile agent gives a good title to the purchaser even in cases where the agent acts beyond his authority, provided the following conditions are satisfied
- The agent is in possession of the goods or of a document of title to the goods.
- Such possession is with the consent of the owner.
- The agent sells the goods in the ordinary course of business.
- The purchaser acts in good faith and has no notice that the agent had no authority to sell.
3. Sale by one of several joint owners [Sec. 28]
This section enables a co-owner to sell not only his own share but also of his other co-owners. If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them from such joint owner provided the buyer acts in good faith and without notice that the seller had no authority to sell.
4. Sale of goods obtained under avoidable agreement [Sec. 29]
When the seller of goods has obtained possession thereof under the avoidable agreement but the agreement has not been rescinded at the time of sale, the buyer obtains a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.
It is to be noted that the above section applies when the goods have been obtained under an avoidable agreement, not when the goods have been obtained under a void or illegal agreement. If the original agreement is of no legal effect (void ab initio) the title to the goods remains with the true owner and cannot be passed on to anybody else.
5. Sale by the seller in possession of goods after the sale [Sec. 30(1)]
Under this exception, a second sale by the seller remaining in possession of the goods will give a good title to the buyer acting in good faith and without notice. Three conditions should be fulfilled under this exception:
- The seller must continue in possession of the goods or of the documents of title to the goods as a seller. Possession as a hirer or bailee of the goods from the buyer after delivery of the goods to him will not do.
- The goods must have been delivered or transferred to the buyer or the documents of the title must have been transferred to him.
- Good faith and absence of notice of the previous sale on the part of the second buyer.
6. Sale by the buyer in possession of goods over which the seller has some rights [Sec. 30(2)]
This exception deals with the case of a sale by the buyer of goods in which the property has not yet passed to him. When goods are sold subject to some lien or right of the seller (for example for unpaid price) the buyer may pledge, or otherwise, dispose of the goods to a third party and give him a good title, provided the following conditions for sell, are satisfied:
- The first buyer is in possession of the goods or of the documents of title to the goods with the consent of the seller.
- The transfer is by the buyer or by a mercantile agent acting for him.
- The person receiving the same acts in good faith and without notice of any lien or other right of the original seller.
7. Sale by an unpaid seller [Sec. 54]
An unpaid seller of goods can, under certain circumstances, re-sell the goods. The purchaser of such goods gets a valid title of the goods.
8. Sale under the Contract Act
- A pawnee may sell the goods of the pawner if the latter makes default of his dues. The purchaser under such a sale gets a good title.
- A finder of goods can sell the goods under certain circumstances. The purchaser gets a good title.
- Sale by an Official Receiver or Liquidator of the company will give the purchaser a valid title.
Question 3.
When does the property in goods pass to the buyer in case of Sale on an approval basis?
Answer:
Transfer of property in the sale by approval.
When goods are delivered on approved (Sec. 24): When goods are delivered to the buyer on approval or ‘on sale or return,’ or on other similar terms, the property therein passes to the buyer:
- When he signifies his approval or acceptance to the seller, or
- When the buyer does any other act adopting the transaction, e.g., pledges the goods or resells them.
- When the buyer retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods, or if no time has been fixed, beyond a reasonable time. In short, the property passes either by acceptance or by failure to return the goods within a specified or reasonable time.
Question 4.
What are the rules with respect to the passage of property in case of specific or ascertained goods under the Sale of Goods Act, 1930?
Answer:
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 [Sec. 19( 1)]. 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. [Sec. 19(2)]
It is only when the intention of the parties cannot be judged from their contract or conduct or other circumstances that the rules laid down in Sections 20 to 24 apply. [Sec. 19(3)]. These rules are as follows:
(1)Specific goods in a deliverable state: [Section 20]
- in case of an unconditional contract for the sale of specific goods in a deliverable state,
- the property in the goods passes to the buyer on making the contract, and
- it is immaterial whether the time of payment of the price or the time of delivery of the goods or both is postponed.
(2)Specific goods to be put in the deliverable state: [Section 21]
- 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 in the goods does not pass until such a thing is done and the buyer has the notice thereof.
(3)Specific goods to be Weighed or Measured: [Section 22]
- in a contract for the sale of specific goods in a deliverable state,
- where 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 an act or thing is done and the buyer has the notice of the same.
Question 5.
What is the effect of part delivery of goods made under the contract of sale?
Answer:
The number of goods to be delivered is specified in the contract. If the parties have not agreed otherwise, the seller must deliver all the goods in a single delivery. However, where part of the goods have been delivered, and the rest of the goods are yet to be delivered, there may be two possibilities:
- where the part delivery is made in the progress of the whole delivery, then it is treated as delivery of the whole. And the ownership of the whole quantity is transferred to the buyer.
- Where the part delivery is made with the intention of separating it from the whole, then it is not treated as delivery of the whole, (since each part of the delivery is intended to be treated as separate delivery) In such a case the ownership of the whole quantity is not passed to the buyer.
Question 6.
What is the effect of wrong delivery by the seller to the buyer under the provisions of the Sale of Goods Act, 1930?
Answer:
Delivery of wrong quantity [Sec. 37]
Subject to any usage of trade, special agreement, or course of dealing between parties, the following rules shall apply when delivery of wrong quantity is made
1. Short delivery: If the seller delivers to the buyer a quantity less than he contracted to sell, the buyer may:
- reject the goods, or
- accept the goods if he accepts, he shall pay for the accepted quantity at the rates contracted for.
2. Excess delivery: If the seller delivers to the buyer a quantity larger than he contracted to sell, the buyer may:
- reject the whole, or
- accept the whole, or
- accept the quantity he ordered and reject the rest.
3. Delivery of goods mixed with other goods: If the seller delivers to the buyer goods ordered mixed with goods of a different description, the buyer may:
- reject the whole, or
- accept the agreed goods and reject the remaining goods.
Question 7.
J, the owner of a fiat car wants to sell his car. For this purpose, he hands over the car to P, a mercantile agent for sale at a price, not less than ? 50,000. Does the agent sell the car for ₹ 40,000 to A, who buys the car in good faith without notice of any fraud? P misappropriated the money also. J sues A for the recovery of the car. Decide with reasons whether J would succeed?
Answer:
Hint: Sale by the mercantile agent is valid and binding on the principal provided the agent is in possession of the goods or documents of title with the consent of the owner, the agent sells the goods while acting in the ordinary course of business of the agency, the buyer should have acted in good faith & the buyer should not have noticed that at the time of sale, the agent had no authority to sell.
In the given case P the agent was in possession of the goods with the consent of J. The car was sold by P in the ordinary course of business of the agency and the car was bought by A in good faith without notice that the agent was not authorized to sell it for ₹ 40,000. Thus sale is valid and A acquires a good title to the car & J will not succeed in recovering the car from A. J can only proceed against his agent lawfully.
Question 8.
Mr. Samuel agreed to purchase 100 bales of cotton from Mr. Varun, out of his large sand sent his men to take delivery of the goods. They could pack only 60 bales. Later on, there was an accidental fire and the entire stock was destroyed including 60 bales that were already packed. Referring to the provisions of the Sale of Goods Act, 1930, explain as to who will bear the loss and to what extent?
Answer:
Hint: According to the provisions of Section 26 of the Sale of Goods Act, 1930, unless a contract to the contrary is made, the goods remain at the seller’s risk until the property therein is transferred to the buyer. Further, the Act also states that in case of sale of unascertained goods, the property in goods shall pass on to the buyer only when they are ascertained and appropriated unconditionally to the contract either by the buyer with the consent of the seller or by the seller with the consent of the buyer.
In the given case appropriation with respect to 60 bales of cotton has been done. Therefore property in the said 60 bales of cotton stands passed to Mr. Samuel, the buyer. Thus the loss with respect to the said 60 bales shall be borne by Mr. Samuel. In respect of the remaining bales, the loss shall be borne by Mr. Varun since the property in respect of the same has not been passed to the buyer Mr. Samuel.
Question 9.
A offered to sell to B a certain machine for ₹ 50,000. B refused to buy it unless certain work was done on it to put it into a running condition. A agreed to do the same but while the machine was being repaired, it was destroyed without the fault of any person. Can A recover the price from B?
Ans. Hint: In case of specific goods the property in goods shall pass on the formation of contract only if the goods are:
- Specific
- Goods are in a deliverable state Le. the seller has done, all that he is required to do, to put the goods in such a state that the buyer shall be bound to take the delivery of the same
- The contract of sale is unconditional.
If the seller is bound to do something in respect of the goods to put them into a deliverable state and he has yet not done the same, then the property in goods shall pass on to the buyer in the future, when the seller does what he is required to do and brings the same to the knowledge of the buyer. In the given case the seller A was required to conduct repairs in respect of the machine before B buys the same. Thus the passage of property intends to take place when the repairs are conducted by A and B has the knowledge of the same. Since the machine is destroyed before repairs could be completed, the passage of property has not taken place. The risk of loss vests with A and therefore he cannot recover the price from B.
Question 10.
A delivered some jewelry to B on a sale or return basis. B pledged the jewelry with C. A want to claim back the goods from C. Advice.
Answer:
Hint: Rules for passage of property in case of Sale on approval basis; the ownership has been transferred to B as he has adopted the contract by pledging it with C. A cannot claim the goods back from C.
Question 11.
Referring to the provisions of the Sale of Goods Act, 1930, state the circumstances under which 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. Ms. Preeti owned a motor car which she handed over to Mr. Joshi on a sale or return basis. After a week, Mr. Joshi pledged the motor car to Mr. Ganesh. Ms. Preeti now claims back the motor car from Mr. Ganesh. Will she succeed? Referring to the provisions of the Sale of Goods Act, 1930, decide and examine what recourse is available to Ms. Preeti.
Answer:
Transfer of property in the sale by approval
When goods are delivered on approval (Sec. 24): When goods are delivered to the buyer on approval or ‘on sale or return,’ or on other similar terms, the property therein passes to the buyer :
- When he signifies his approval or acceptance to the seller, or
- When the buyer does any other act adopting the transaction, e.g., pledges the goods or resells them.
- When the buyer retains the goods, without giving notice of rejection, beyond the time fixed for the return of goods, or if no time has been fixed, beyond a reasonable time. In short, the property passes either by acceptance or by failure to return the goods within a specified or reasonable time.
In the given case Ms. Preeti has handed over the car to Mr. Joshi on a sale or return basis and afterward, Mr. Joshi pledges the car with Mr. Ganesh. Applying the above-stated provisions it can be concluded that pledging of the car by Mr. Joshi amounts to the adoption of the transaction. Thus property in the car passes on to Mr. Joshi on the pledge and Ms. Preeti cannot claim back the car. She is only entitled to claim the price of the motor car since the property therein has passed to Mr. Joshi.
Question 12.
Mr. G sold some goods to Mr. H for a certain price by the issue of an invoice, but payment in respect of the same was not received on that day. The goods were packed and lying in the godown of Mr. G. The goods were inspected by H’s agent and were found to be in order. Later on, the dues of the goods were settled in cash. Just after receiving cash, Mr. G asked Mr. H that goods should be taken away from his godown to enable him to store other goods purchased by him. After one day, since Mr. H did not take delivery of the goods, Mr. G kept the goods out of the godown in an open space. Due to rain, some goods were damaged.
Referring to the provisions of the Sale of Goods Act, 1930, analyze the above situation and decide who will be held responsible for the above damage. Will your answer be different, if the dues were not settled in cash and are still pending?
Answer:
According to section 26 of the Sale of Goods Act, 1930, 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 defaulting party 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 bailee of the goods to the other party. In the given case ownership of goods stands transferred to Mr. H, on the date of examination & approval of goods by his agent. However since delivery was not taken, Mr. G, the seller continued to hold the goods as the bailee and was found in such capacity to take reasonable care of the goods.
Thus applying the above provisions, it can be concluded that though the risk in goods passed to Mr. H with the ownership Mr. G. continued to be liable to take reasonable care of the goods in the position of the bailee. Since he failed to fulfill his duty as a bailee which resulted in a loss to Mr. H, Mr. G. shall be held liable for the consequent damage. The answer would remain the same even if the price is not paid since ownership is transferred & Mr. G continues to hold goods as a bailee.
Question 13.
Goods are delivered by A to B on a ‘sale or return ‘ basis. They are further delivered by B to C and then by C to D on similar terms. The goods are stolen while in the custody of D. Who is to bear the loss of goods and why?
Answer:
In case of goods sent on a ‘sale or return’ basis the property in goods passes to the buyer the moment the buyer accepts the goods. Such acceptance can be in any of the following ways:
- By express approval or
- By retaining goods beyond the reasonable time period or
- By doing any of such acts which are inconsistent with the rights of the seller.
In. the given case by virtue of delivery of goods by B to C the property in goods stands transferred to B. The further delivery of goods by C to D on the same terms of ‘sale or approval’ basis results in further passage of title of goods to C. Thus loss shall be borne by B, as between A & B, since the property in goods stands transferred to B and with it the risk in goods.