Rules for Transfer of Property (Sections 18-24)

These sections lay down the rules determining when property (ownership) passes from the seller to the buyer.

1. Principle for Unascertained Goods: Goods Must Be Ascertained (Section 18):

This is a fundamental rule. You cannot transfer ownership of something that is not yet identified. Until the specific goods meant for the buyer are singled out from a larger mass, ownership cannot pass. This is a prerequisite for unascertained goods.

2. Overriding Principle: Property Passes When Intended to Pass (Section 19):

This is the paramount rule. The intention of the parties, as gathered from the terms of the contract, their conduct, and the circumstances of the case [Section 19(2)], governs the timing of property transfer. The subsequent rules (Sections 20-24) are merely guidelines or presumptions to ascertain this intention unless a different intention appears.

Illustration: A contract for a specific car might state that property passes only after full payment. Even if the buyer takes possession, if full payment isn't made, the intention is that property has not passed.

3. Specific Rules for Ascertaining Intention (Sections 20-24):

When the intention is not explicit, these statutory rules provide clarity:

a. Specific Goods in a Deliverable State (Section 20):

This is a common scenario. If the goods are already identified and ready for delivery without any further action by the seller, ownership passes the moment the contract is legally formed, even if payment or actual delivery happens later.

• • Illustration: A sells a specific dining table (ready for use, no assembly by A needed) to B for ₹20,000. The contract is concluded. Ownership of the table passes to B immediately, even if B is to pay next week and collect it the week after.

b. Specific Goods to be Put into a Deliverable State (Section 21):

• If the seller has to perform an act (like painting, polishing, or repairing) to make the goods ready for delivery, ownership does not pass until that act is completed AND the buyer is made aware of it.
• • Illustration: A sells a sofa to B, agreeing to re-upholster it in a specific fabric. Property does not pass until the re-upholstery is done and A informs B.

c. Specific Goods in a Deliverable State, When the Seller Has to Weigh, Measure, Test, etc., for Ascertaining Price (Section 22):

Even if the goods are otherwise ready, if the final price needs to be determined by an act of the seller (e.g., weighing a specific quantity of coal, measuring timber), property doesn't pass until that act is done and the buyer has notice.

• • Illustration: A sells a pile of bricks to B at ₹5 per brick. The total number of bricks needs to be counted by A to fix the price. Property passes after A counts the bricks and informs B of the count and total price.

d. Sale of Unascertained Goods and Appropriation (Section 23):

For unascertained goods, the crucial event for property transfer is unconditional appropriation. This means singling out and setting aside specific goods for the contract with the mutual consent (express or implied, before or after the act) of both parties.

• • Delivery to Carrier [Section 23(2)]: "Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee... for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract." This is a very common form of appropriation.
• • Illustration: A orders 100 units of a product from a factory. When the factory completes 100 units, labels them for A, and dispatches them via a shipping company (without reserving disposal rights), property passes to A at the time of dispatch.

e. Goods Sent on Approval or "On Sale or Return" (Section 24):

In these 'trial' sales, ownership is conditional. It vests in the buyer only upon a positive act of acceptance, an act inconsistent with the seller's ownership, or simply by holding onto the goods beyond a reasonable or agreed period.

• • Illustration: A provides a camera to B on a 5-day trial. If B sells the camera to C on day 3, B has adopted the transaction, and property passes to B on day 3. If B keeps the camera for 7 days without informing A (and no fixed time was set), ownership passes to B after a reasonable time, say, the end of the 5th day.

4. Reservation of Right of Disposal (Section 25)

Despite delivery to the buyer or a carrier, property does not pass until the seller's conditions are fulfilled. This is a powerful tool for the seller to protect their interests, often by retaining control over documents of title until payment.

Common Scenarios:

• o Bill of Lading/Railway Receipt in Seller's Name [Section 25(2)]: If goods are shipped and the transport document makes them deliverable to the order of the seller or their agent, the seller is presumed to have reserved the right of disposal.
• o Bill of Exchange with Bill of Lading [Section 25(3)]: If the seller draws a bill of exchange on the buyer for the price and sends it with the bill of lading, the buyer must honour the bill of exchange to get the bill of lading. If they don't, and wrongfully retain the bill of lading, property does not pass.

Illustration: A sends machinery to B via a shipping company. The bill of lading is made "to the order of A." A sends this bill of lading to B's bank, with instructions to release it to B only upon full payment. Property does not pass to B until B makes the payment and receives the bill of lading.

5. Risk Prima Facie Passes with Property (Section 26)

This is the most crucial "effect" of the transfer of property.

The fundamental principle is that risk follows ownership. The party who owns the goods at the time of accidental loss or damage bears that loss. Physical possession is generally irrelevant to the passing of risk.

Explanation of Proviso: This is an important exception. If the loss or damage occurs because one party caused a delay in delivery, that party bears the risk, irrespective of who owns the goods, provided the loss wouldn't have occurred without that delay.

Illustration:

• o Risk with Buyer: A sells B a specific car (property passes immediately under S.20). Before B collects it, the car is stolen without any fault of A. B must still pay A the price because the property (and thus risk) had already passed to B.
• o Risk with Seller (due to fault): A sells B furniture, to be delivered by A next week. A negligently delays delivery. During the delay, the furniture in A's warehouse is damaged by a leak that wouldn't have affected it if delivered on time. A bears the risk, even if property had technically passed, due to A's fault.