Passing of property in goods
Contract II · Unit V · Topic 16 of 18 · 7 min read
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Cases checked to exist. Read the judgment before quoting a holding.
Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.
1. Property and possession
“Property” means the general property in goods, that is, ownership, not merely a special property such as a pledgee has (section 2(11)). Property and possession may be in different hands: a buyer may own goods still in the seller's warehouse, and a seller may have delivered goods whose ownership he has reserved.
2. Unascertained goods: section 18
Where there is a contract for the sale of unascertained goods, no property passes to the buyer unless and until the goods are ascertained. A contract for 100 quintals of wheat out of the 500 in the seller's godown passes nothing until 100 quintals are separated and identified as the goods of the contract. This rule is absolute; the parties' intention cannot override it.
3. Property passes when intended: section 19
Where there is a contract for the sale of specific or ascertained goods, the property passes when the parties intend it to pass (section 19(1)). Intention is found from the terms of the contract, the conduct of the parties and the circumstances of the case (section 19(2)). Unless a different intention appears, the rules in sections 20 to 24 apply (section 19(3)).
4. The rules: sections 20 to 24
Rule 1: specific goods in a deliverable state (section 20). Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property passes when the contract is made, and it is immaterial whether the time of payment of the price or of delivery, or both, is postponed. Goods are 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 (section 2(3)).
Rule 2: specific goods to be put into a deliverable state (section 21). Where the seller is bound to do something to the goods to put them into a deliverable state, property does not pass until that thing is done and the buyer has notice of it. The English case Underwood Ltd. v. Burgh Castle Brick and Cement Syndicate (1922) is the illustration: a 30-ton engine had to be detached from its concrete bed before dispatch; it was damaged in loading, and as it was not yet in a deliverable state the loss fell on the seller.
Rule 3: specific goods to be weighed, measured or tested (section 22). Where the goods are in a deliverable state but the seller is bound to weigh, measure, test or do some other act to ascertain the price, property does not pass until the act is done and the buyer has notice of it. The rule does not apply where it is the buyer who is to weigh.
Rule 4: goods on approval or sale or return (section 24). Where goods are delivered on approval or on sale or return, property passes to the buyer:
- (a) when he signifies his approval or acceptance to the seller, or does any other act adopting the transaction; or
- (b) if he does not signify approval or acceptance but retains the goods without giving notice of rejection, on the expiry of the time fixed for return or, if no time is fixed, of a reasonable time.
In Kirkham v. Attenborough (1897) a person who took jewellery on sale or return and pledged it was held to have adopted the transaction, so property passed and the owner could not recover it from the pawnbroker. Where the contract said the goods remained the seller's until settled for, there was a different intention and property did not pass (Weiner v. Gill, 1906).
Rule 5: unascertained or future goods sold by description (section 23). Property passes when goods of that description and 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 assent may be express or implied, and given before or after the appropriation. Where the seller delivers the goods to the buyer or to a carrier for transmission to the buyer and does not reserve the right of disposal, he is taken to have unconditionally appropriated them (section 23(2)). Appropriation means an irrevocable earmarking of particular goods for the contract; merely setting goods aside, which the seller remains free to change, is not enough.
5. Reservation of the right of disposal: section 25
Where there is a contract for specific goods, or goods are later appropriated, the seller may reserve the right of disposal until certain conditions are fulfilled, usually payment. Property then does not pass, even if the goods are delivered to the buyer or a carrier, until the conditions are fulfilled (section 25(1)). Where goods are shipped or sent by rail and by the bill of lading or railway receipt are deliverable to the order of the seller or his agent, the seller is prima facie taken to reserve the right of disposal (section 25(2)). Where the seller draws a bill of exchange on the buyer for the price and sends it with the bill of lading, the buyer must return the bill of lading if he does not honour the bill of exchange; if he wrongfully keeps the bill of lading, property does not pass to him (section 25(3)). Retention-of-title clauses in commercial contracts rest on this section.
6. Risk prima facie passes with property: section 26
Unless otherwise agreed, the goods remain at the seller's risk until the property is transferred to the buyer; when property passes, risk passes with it, whether delivery has been made or not (res perit domino, the thing perishes to its owner). Two provisos:
- where delivery has been delayed through the fault of either party, the goods are at the risk of the party at fault as regards any loss which might not have occurred but for the fault. In Demby Hamilton & Co. v. Barden (1949), apple juice set aside for a buyer who delayed taking delivery went bad; the buyer bore the loss;
- nothing in the section affects the duties of either party as bailee of the goods for the other.
The parties may separate risk from property by agreement. In Sterns Ltd. v. Vickers Ltd. (1923) the buyer of an undivided part of oil in a tank was held to bear the risk of its deterioration although property had not passed, because the delivery warrant transferred the risk.
7. Problem
A agrees on Monday to buy a particular car from a dealer for Rs 6 lakh, to be paid and the car collected on Friday. The car is ready for the road. On Wednesday the dealer's showroom is destroyed by fire without the dealer's fault. The dealer demands the price.
Issue. Whether property and risk had passed to A when the car was destroyed.
Law. Section 20: in an unconditional contract for specific goods in a deliverable state, property passes when the contract is made, even though payment and delivery are postponed. Section 26: risk follows property. Section 55(1): the seller may sue for the price once property has passed.
Application. The car was specific and in a deliverable state, the contract was unconditional, and nothing shows an intention to delay the passing of property. Property, and with it risk, passed on Monday. The fire was not caused by the dealer's fault or delay.
Conclusion. A bears the loss and must pay the price. The result would differ if the dealer had still to fit seat covers before handover (section 21: no property until done and notice given), or if the contract said ownership passes on payment (section 19).
How this is examined
Essay: “Explain the rules regarding the transfer of property from seller to buyer” or “Risk prima facie passes with property. Discuss.” Set out sections 18 and 19 first, then the five rules with one illustration each, then section 26. Short notes: sale or return, appropriation, reservation of right of disposal. Destroyed-goods problems are answered on the pattern above.
Now try the real questions: Contract II past question papers.