Transfer Of Ownership And Delivery Of Goods – Chapter Notes
CA Foundation Business Laws Chapter 3 Unit 3 notes on Transfer of Ownership and Delivery of Goods under the Sale of Goods Act, 1930. Covers Sections 18 to 44, passing of property, risk, nemo dat, delivery and acceptance.
Contents
This unit answers one core question: when does ownership in goods pass from seller to buyer? Once ownership passes, the legal consequences change immediately. Risk, right to sue, right to price, insolvency consequences and title disputes all depend on this point.
- How and when ownership passes from seller to buyer.
- Meaning of appropriation and its effect on passing of property.
- Distinction between passing of property and passing of title.
- Nemo dat quod non habet and its exceptions.
- Rules relating to delivery and acceptance of goods.
- Confusing ownership with possession.
- Assuming risk always passes only on delivery.
- Missing appropriation in unascertained goods.
- Confusing Section 23 unconditional appropriation with Section 25 reservation of disposal.
- Applying nemo dat without checking exceptions.
Passing of property means passing of ownership. It is the most important factor for deciding rights and liabilities of buyer and seller.
| Why ownership matters | Legal consequence |
|---|---|
| Risk of loss or damage | The person who owns the goods generally bears the loss. |
| Right to sue third party | The owner can sue if goods are damaged by a third party. |
| Seller’s suit for price | Seller can generally sue for price after property has passed. |
| Insolvency | Ownership decides whether goods belong to buyer’s estate or seller’s estate. |
The rules for passing of property depend on two basic factors: identification of goods and intention of parties.
| Factor | Rule | Section |
|---|---|---|
| Identification of goods | In unascertained goods, property cannot pass until goods are ascertained. | 18 |
| Intention of parties | In specific or ascertained goods, property passes when parties intend it to pass. | 19 |
| Default rules | Sections 20 to 24 help determine intention unless contrary intention appears. | 20–24 |
Section 19 — Intention of Parties
Where there is a contract for sale of specific or ascertained goods, the property passes at such time as the parties intend. Intention is gathered from the terms of contract, conduct of parties and circumstances of the case.
Section 20 — Specific Goods in Deliverable State
Where there is an unconditional contract for sale of specific goods in a deliverable state, property passes to the buyer when the contract is made, even if payment or delivery is postponed.
X buys a television in a shop and asks for home delivery. The shopkeeper agrees. The television immediately becomes the property of X because it is specific and in a deliverable state.
Section 21 — Specific Goods to be Put into Deliverable State
If seller has to do something to put specific goods into deliverable state, property does not pass until that thing is done and the buyer has notice of it.
Peter buys a laptop but Windows is not installed. Seller promises to install it and call Peter before delivery. Ownership passes only after installation and notice to Peter.
Section 22 — Seller Must Ascertain Price
If goods are already in deliverable state but seller must weigh, measure, test or do some act to ascertain price, property does not pass until the act is done and buyer has notice.
Facts Carpets were sold to a company and delivered to its premises, but under the contract they still had to be laid. Before laying, the carpets were stolen.
Issue Had ownership passed merely because the carpets reached the buyer’s premises?
Held No. Laying the carpet was part of putting goods into the contracted deliverable state. Therefore ownership had not passed to the buyer.
| Section | Situation | When property passes |
|---|---|---|
| 20 | Specific goods in deliverable state | When contract is made. |
| 21 | Seller must make goods deliverable | When act is done and buyer has notice. |
| 22 | Seller must weigh/measure/test to ascertain price | When act is done and buyer has notice. |
In a contract for sale of unascertained goods, no property passes until the goods are ascertained. Once goods answering the contract description are selected and unconditionally appropriated with mutual assent, ownership passes.
Appropriation means selection of goods with the intention of using them in performance of the contract, with mutual consent of buyer and seller.
Essentials of Valid Appropriation
Section 23(2) — Delivery to Carrier
When the seller delivers goods to buyer, carrier or other bailee for transmission to buyer and does not reserve right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.
M orders a book from a Mumbai bookseller and asks for courier delivery. Seller sends the book by courier. The book is lost in transit. Since this is unconditional appropriation by delivery to carrier, M bears the loss.
Facts Seller had 100 bales. Buyer’s representatives were sent to select 60 bales. Fire destroyed the bales before final delivery.
Issue Who bears the loss: seller or buyer?
Held If 60 bales were selected with buyer’s assent, property in those 60 passed to buyer, so buyer bears that loss. If no valid selection/assent occurred, seller bears the loss.
When goods are delivered on approval, sale or return, or similar terms, ownership passes only in the situations given under Section 24.
| Situation | When property passes |
|---|---|
| Buyer signifies approval or acceptance | When approval/acceptance is communicated. |
| Buyer does an act adopting the transaction | When buyer sells, pledges or otherwise deals as owner. |
| Buyer retains goods without rejection | On expiry of fixed return time; if no time fixed, after reasonable time. |
| Sale for cash only or return | Property does not pass until cash/payment condition is fulfilled. |
Facts A delivered jewellery to B on sale or return basis. B pledged it with C.
Issue Did pledging amount to acceptance/adoption of transaction?
Held Yes. By pledging, B acted as owner. Ownership passed to B, and A could not recover jewellery from C. A could recover price from B.
Facts A delivered jewellery to B on sale for cash only or return basis. Contract said jewellery would remain A’s property until price was paid. Before payment, B pledged it with C.
Issue Did ownership pass to B before payment?
Held No. Since ownership was expressly reserved until payment, B had no title to pledge. A could recover jewellery from C.
Reservation of right of disposal means the seller reserves ownership until certain conditions, usually payment, are fulfilled. This prevents ownership from passing even if goods have been delivered to buyer, carrier or bailee.
If the seller reserves the right of disposal until conditions are fulfilled, property does not pass to buyer until those conditions are fulfilled.
X sends furniture by truck and instructs the driver not to deliver it until the company pays. Property passes only when payment is made.
When Right of Disposal is Presumed
- Goods are shipped or delivered to railway/carrier and bill of lading or railway receipt makes goods deliverable to seller’s order or agent.
- Seller draws bill of exchange on buyer and sends it with bill of lading/railway receipt to secure acceptance or payment.
- If buyer wrongfully retains bill of lading or railway receipt without accepting/paying bill, property still does not pass.
| Section 23 | Section 25 |
|---|---|
| Unconditional appropriation | Conditional appropriation |
| Seller does not reserve right of disposal. | Seller reserves right until payment/condition. |
| Ownership passes to buyer. | Ownership remains with seller. |
| Buyer generally bears risk. | Seller generally retains risk unless agreed otherwise. |
Unless otherwise agreed, goods remain at the seller’s risk until property is transferred to the buyer; when property is transferred to the buyer, goods are at buyer’s risk whether delivery has been made or not.
| Situation | Who bears risk? |
|---|---|
| Property not passed | Seller. |
| Property passed | Buyer, even if delivery is pending. |
| Delay caused by seller or buyer | Party at fault bears loss which would not have occurred but for that fault. |
| Special agreement | Parties may agree that risk passes before or after ownership. |
| Goods held as bailee | Duties/liabilities as bailee remain unaffected. |
Facts A bid was made for an antique painting. Before acceptance was completed, the auctioneer damaged the painting.
Issue Did buyer bear the loss merely because he had bid?
Held No. Ownership had not yet passed. Seller bore the loss.
Facts A contracted to sell 100 bales of cotton to B. B accepted part delivery but defaulted in taking remaining bales, which later became unfit.
Issue Who bears loss caused by delay in acceptance?
Held Buyer bears the loss because his default caused the risk situation.
No one can give what he has not got.
The general rule is that a seller cannot transfer a better title than he himself has. If seller is not owner, buyer also does not become owner, even if buyer acted honestly and paid price.
If A sells stolen goods to B, B gets no title even if he buys in good faith. If a hirer under hire purchase sells a vehicle, the buyer gets no better title than the hirer.
| Exception | Section / Source | Conditions / Rule |
|---|---|---|
| Sale by mercantile agent | Proviso to 27 | Agent has possession with owner’s consent, acts in ordinary course, buyer acts in good faith without notice. |
| Sale by one joint owner | 28 | Joint owner has sole possession with co-owner permission; buyer buys in good faith without notice. |
| Sale by person under voidable contract | 29 | Seller obtained possession under voidable contract; contract not rescinded before sale; buyer in good faith. |
| Seller in possession after sale | 30(1) | Seller continues in possession after sale and sells/pledges to third party who takes delivery in good faith without notice. |
| Buyer in possession before ownership | 30(2) | Buyer has possession with seller’s consent before ownership passes and disposes to good faith transferee without notice. |
| Estoppel | General principle | True owner by conduct allows buyer to believe seller has authority. |
| Unpaid seller resale | 54(3) | Unpaid seller exercising lien or stoppage resells; new buyer gets good title. |
| Other statutory sales | Other Acts | Official receiver/liquidator, finder of goods, pawnee etc. may pass valid title in stated circumstances. |
Facts A, B and C jointly owned a TV and VCR. With consent of B and C, the goods were in A’s sole possession. A sold them to P, who bought in good faith without notice of lack of authority.
Issue Does P get good title though A was only one joint owner?
Held Yes. Section 28 protects a good faith buyer where one joint owner has sole possession with permission of co-owners.
Facts X fraudulently obtained a diamond ring from Y. Before Y rescinded the voidable contract, X sold the ring to Z, an innocent buyer.
Issue Can Y recover the ring from Z after rescinding the original contract?
Held No. Z gets good title because the voidable contract had not been rescinded before sale.
Facts Furniture was delivered to B under an agreement that property would pass only after second instalment. Before paying the second instalment, B sold the furniture to another buyer.
Issue Could the later buyer get good title though B was not yet owner?
Held Yes. Since B was a buyer in possession with seller’s consent, a good faith purchaser from B got good title.
Facts A told buyer B in presence of true owner C that A owned the horse. C remained silent. B bought the horse from A.
Issue Can C later deny A’s authority?
Held No. C’s silence induced B to believe A was owner. C is estopped from denying A’s authority.
Performance of contract of sale means seller delivers goods and buyer accepts delivery and pays price according to contract terms.
Delivery means voluntary transfer of possession from one person to another.
| Type of Delivery | Meaning | Example |
|---|---|---|
| Actual delivery | Physical transfer of goods. | Seller hands over goods to buyer. |
| Symbolic delivery | Delivery of symbol or means of possession. | Delivery of keys, bill of lading, railway receipt. |
| Constructive delivery / Attornment | Possession changes legally without physical movement. | Warehouseman acknowledges he now holds goods for buyer. |
Section 31 — Duties of Seller and Buyer
Seller must deliver goods, and buyer must accept and pay for them according to the terms of contract.
Section 32 — Payment and Delivery are Concurrent Conditions
Unless otherwise agreed, seller must be ready and willing to give possession in exchange for price, and buyer must be ready and willing to pay in exchange for possession.
| Rule | Section | Meaning |
|---|---|---|
| Delivery | 33 | Delivery may be anything agreed by parties or anything putting goods in buyer’s possession or authorised holder’s possession. |
| Part delivery | 34 | Part delivery in progress of whole delivery has effect of delivery of whole for passing property; part delivery with intention to sever does not. |
| Buyer to apply | 35 | Seller is not bound to deliver until buyer applies, unless otherwise agreed. |
| Place of delivery | 36(1) | If no contract: goods sold delivered where they are at sale; goods agreed to be sold where they are at agreement; future goods where manufactured/produced. |
| Time of delivery | 36(2) | If seller must send goods but no time fixed, he must send within reasonable time. |
| Third-party possession | 36(3) | No delivery until third person acknowledges to buyer that he holds goods on buyer’s behalf. |
| Reasonable hour | 36(4) | Demand or tender of delivery must be at reasonable hour; reasonableness is question of fact. |
| Expenses | 36(5) | Seller bears expenses of putting goods into deliverable state unless otherwise agreed. |
Facts Goods lying at wharf were sold in a lot. Seller instructed wharfinger to deliver goods to buyer. Buyer accepted and took away part.
Issue Was there delivery of the whole lot or only the part taken?
Held There was delivery of the whole because part delivery was made in progress of delivery of the whole.
Section 37 — Delivery of Wrong Quantity
| Seller delivers | Buyer’s option | If buyer accepts |
|---|---|---|
| Less than contracted quantity | May reject. | Must pay at contract rate for goods accepted. |
| More than contracted quantity | May accept contract quantity and reject rest, or reject whole. | If accepts whole, pay at contract rate for whole. |
| Contract goods mixed with other goods | May accept contract goods and reject rest, or reject whole. | Pay for accepted goods. |
Section 38 — Instalment Deliveries
Unless otherwise agreed, buyer is not bound to accept delivery by instalments. Where instalment delivery and separate payment are agreed, breach in one instalment may or may not amount to repudiation of whole contract. It depends on the terms of contract and circumstances.
| Situation | Legal effect |
|---|---|
| No agreement for instalments | Buyer need not accept instalment delivery. |
| Instalments agreed with separate payments | Default in one instalment may be severable or may affect whole contract depending on facts. |
| Serious default showing intention not to perform | May justify treating whole contract as repudiated. |
Section 39 — Delivery to Carrier or Wharfinger
Delivery of goods to a carrier or wharfinger for transmission to buyer is prima facie deemed to be delivery to buyer, unless otherwise authorised. Seller must make reasonable contract with carrier on buyer’s behalf. If seller fails and goods are lost or damaged in transit, buyer may decline delivery or hold seller responsible.
Section 40 — Deterioration During Transit
Where seller agrees to deliver goods at his own risk at a distant place, buyer must take risk of deterioration necessarily incidental to course of transit, unless otherwise agreed.
Section 41 — Buyer’s Right to Examine Goods
Where goods are delivered to buyer but buyer has not previously examined them, he is not deemed to have accepted them unless he has reasonable opportunity to examine them for conformity with contract.
Section 42 — When Buyer is Deemed to Have Accepted Goods
| Mode of Acceptance | Meaning |
|---|---|
| Express acceptance | Buyer intimates to seller that he has accepted goods. |
| Act inconsistent with seller’s ownership | Buyer uses, sells, alters, pledges or deals with goods as owner. |
| Retention beyond reasonable time | Buyer keeps goods without rejecting them after reasonable time. |
Section 43 — Buyer Not Bound to Return Rejected Goods
Unless otherwise agreed, if buyer rightfully refuses to accept goods, he is not bound to return them to seller. It is enough if he intimates seller that he refuses to accept.
Section 44 — Liability for Neglecting or Refusing Delivery
If seller is ready and willing to deliver and requests buyer to take delivery, but buyer neglects or refuses within reasonable time, buyer is liable for any loss caused by neglect/refusal and reasonable charge for care and custody of goods.
| Case / Example | Topic | Principle |
|---|---|---|
| Television Home Delivery | Section 20 | Specific goods in deliverable state pass when contract is made. |
| Laptop OS Installation | Section 21 | Ownership waits until seller makes goods deliverable and buyer has notice. |
| Carpet Laying | Section 21/22 | Pending contractual act may prevent passing of property. |
| Book Sent by Courier | Section 23(2) | Delivery to carrier without reservation is unconditional appropriation. |
| Jewellery Pledged | Section 24 | Pledge on sale-or-return basis amounts to adoption and passes property. |
| Cash-only Jewellery | Section 24/25 | Express reservation until payment prevents title passing. |
| Antique Painting | Section 26 | Risk remains with seller until ownership passes. |
| Stolen Goods | Nemo dat | Buyer gets no better title than seller. |
| Joint Owners’ TV and VCR | Section 28 | Good faith buyer protected if joint owner has sole possession with consent. |
| Diamond Ring Fraud | Section 29 | Voidable contract not rescinded before sale can pass good title. |
| Lee v. Butler | Section 30(2) | Buyer in possession before property passes may pass good title to bona fide buyer. |
| Wharf Part Delivery | Section 34 | Part delivery in progress of whole may operate as delivery of whole. |
One-Line Revision
- Property: Means ownership, not possession.
- Section 18: Unascertained goods cannot pass until ascertained.
- Section 19: Specific/ascertained goods pass when parties intend.
- Section 20: Specific goods in deliverable state pass when contract is made.
- Section 21: Goods to be made deliverable pass after act + notice.
- Section 22: Goods requiring weighing/measuring/testing for price pass after act + notice.
- Section 23: Unascertained goods pass on unconditional appropriation with assent.
- Section 24: Sale or return passes on approval, adoption or retention beyond time.
- Section 25: Reserved right of disposal keeps ownership with seller.
- Section 26: Risk prima facie follows ownership.
- Nemo Dat: No one can give better title than he has.
- Exceptions: Mercantile agent, joint owner, voidable contract, seller/buyer in possession, estoppel, unpaid seller and statutory sales.
- Delivery: Voluntary transfer of possession.
- Acceptance: Express acceptance, inconsistent act or retention beyond reasonable time.
High-Frequency ICAI Traps
- Do not say ownership passes merely because goods are delivered.
- Do not say risk always passes only after delivery.
- Do not forget notice requirement in Sections 21 and 22.
- Do not confuse ascertainment with appropriation.
- Do not confuse Section 23 unconditional appropriation with Section 25 reserved disposal.
- Do not apply nemo dat without checking the eight exceptions.
- Do not treat a hire-purchase hirer as a buyer in possession unless the transaction amounts to sale.
- Do not forget buyer’s right to examine goods before acceptance.
Transfer of Ownership and Delivery — One Page Recall
- No property passes in unascertained goods until goods are ascertained.
- Specific/ascertained goods pass when parties intend.
- Goods must generally be in deliverable state.
- Intention comes from terms, conduct and circumstances.
- Unless otherwise agreed, risk follows ownership.
- Seller bears risk until property passes.
- Buyer bears risk after property passes, whether delivery is made or not.
- Fault-based delay shifts risk to party in fault.
- Sec 20: deliverable state → contract date.
- Sec 21: make deliverable → act + notice.
- Sec 22: ascertain price → act + notice.
- Sec 18: no property until ascertained.
- Sec 23: appropriation needed.
- Goods must match description.
- Assent may be express or implied.
- Approval communicated.
- Buyer adopts transaction.
- Buyer retains beyond fixed/reasonable time.
- Pledge or sale = acceptance.
- Seller reserves ownership until condition.
- Usually until payment.
- Even carrier delivery may not pass title.
- Conditional appropriation.
- Mercantile agent.
- One of joint owners.
- Person in possession under voidable contract.
- Seller in possession after sale.
- Buyer in possession before property passes.
- Effect of estoppel.
- Unpaid seller resale.
- Other Acts: finder of goods, pawnee, official receiver or liquidator.
- Voluntary transfer of possession.
- Actual delivery.
- Symbolic delivery.
- Constructive delivery / attornment.
- Payment and delivery are concurrent conditions.
- Part delivery may operate as whole delivery.
- Buyer must apply for delivery.
- Place/time depend on contract; otherwise reasonable rules apply.
- Third party must acknowledge buyer.
- Seller bears cost of making goods deliverable unless agreed otherwise.
- Wrong quantity may be accepted or rejected.
- Buyer not bound to accept instalments unless agreed.
- Delivery to carrier is prima facie delivery to buyer.
- Buyer has right to examine goods.
- Buyer intimates acceptance.
- Buyer acts in a manner inconsistent with seller’s ownership.
- Buyer uses, alters, sells or pledges the goods as owner.
- Buyer retains goods beyond reasonable time without rejection.