PASSING OF PROPERTY IN A SALE OF GOODS ACT – THE CORNERSTONE OF SALE

The commercial law (or the English Contract Act 1979) covers only those agreement which are binding and enforceable under the Act. As the scope of commercial law suggests, every promise and its acceptance does not constitute a binding contract. In order to create an enforceable contract, the parties must intent to create legal relationship. The intention is sine que non under the Contract Act since, it forms the basis of contractual relationship. It was observed by Lord Atkin in case Balfour v Balfour1that “It is necessary to remember that there are agreements between parties which do result in contracts within the meaning of that term in our law......one of the most usual forms of agreement which does not constitute a contract appears to me to be the arrangements which are made between husband and wife.....”

The English Contract Act 1979 defines a contract of sale in section 2(1) requiring that the seller should transfer or agree to transfer ‘the property’ in goods to the buyer. The concept of “the property” used in the Act is of special significance as it put forth the requirement of transfer of property in goods2. Here the property in goods not only includes ownership but also the legal interest in the goods. It is to be noted that the requirement is about the transfer of property in the goods and not necessarily of title in goods or mere interest in the goods. The English Contract law provides for cases where even though the title is not transferred (i.e., seller has no title) it constitutes a valid sale3. It is also different from the transfer of interest in the goods like bailment or pledge which is not a contract of sale under the Act. The fundamental rule under the English law about the title is “nemo dat quod non habet”. Its effect on the effective sale of goods is that in case, the transferor does not have the title to the goods, it does not pass that to the transferee. It therefore can be said that the concept of property in the Sale of Goods Act, despite the limited meaning assigned to it by section 62(1) must be expanded to mean ‘a title to the absolute legal interest in the goods sold’4. Passing of property is also relevant from the point of view of claim for payment, damages, claims under insurance etc. It is generally considered that the risk passes alongwith the property unless stated otherwise and therefore, for both buyer and the seller, it is important to note that when the property passes to them or from them as that point of time is the point when payment obligation arise, revenue in the books recognized, claims can be made and other legal rights can be enjoyed by the buyer.

The importance of passing of property to a transaction of sale is amply provided in the Sale of Goods Act itself. The subsection 21(1) of the Act says “Subject to the Act, where the goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of ther owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods by his conduct precluded from denying the seller’s authority to sell”

Basic rules

  • In order to give effect to the contract of sale under the Sale of Goods Act, the goods must be ascertained and till the point the goods are not ascertained, the property does not pass and the sale does not take effect5.
  • The property in goods pass at the time when the parties intent to transfer it6. It therefore may be conferred that in cases where the property take long time to comes into shape e.g. ship or vessel, the parties may agree on a different date of transfer of property other than the usual date based on custom i.e., on the completion of the ship or vessel7
  • The Rule Nemo Dat Quod Non Habet:The rule simply state that the transferor cannot pass a better title than what he has. This has special significance regarding the ‘passing of property’ in the context of sale of goods. Since, passing of property, is sine quo non under the Sale of Goods Act, if the property is not passed, the sale is not complete and therefore void. Therefore, if the seller acquired the property by fraud or misrepresentation, the bonafide buyer will not get the better property than the seller himself. Thus Lord Cairns LC observed in Cundy v Lindsay8“......that being so, it is idle to talk of the property passing. The property remained, as it originally had been, the property of the Respondent and the title which was attempted to be given to the Appellants was a title which could not be given to them..” class="described"
    • Estoppel: Is basically the act of owner which later on preclude him to rescind the sale on the grounds that the seller did not had the title. This may be due to the fact that the owner by this actions made the buyer to believe that the seller is the owner or has the rights to sell the goods9.
    • There are other exceptions e.g. under the Factors Act of 1889, under the powers of sale or court order, sale by person in possession etc.
    All these exceptions stems from the same principle of the seller having acquired a right from the actions of the owner or operation of the law to sell the goods and create a valid sale despite the fact that he was not he owner.


Conclusion
It can therefore be concluded that passing of property assumes significance in the Sale of Goods Act and it is one of the essentials of the sale under the Act. Though the Sale of Goods Act does not define the term property, it is mean to be a title to the absolute legal interest in the goods sold’10 which allows the buyer complete right in the goods.


1 (1919) 2 K.B. 571
2 Commercial Law, Text, Cases, and Material (Fourth edition) by LS Sealy and RJA Hooley – pp 274
3 Section 21-25 and 48(2) all deal with cases where the seller has no title or defective title.
4 Commercial Law, Text, Cases, and Material (Fourth edition) by LS Sealy and RJA Hooley – pp 277
5 Wait & James v Midland Bank (1926) 31 Com Cas 172, King’s Bench Division
6 Section 17 of the Sale of Goods Act
7 Re Blyth Shipbuilding & Dry Docks Co Ltd (1926) Ch 494 CA
8 (1878) 3 App Cas 459, House of Lords
9 Commonwealth Trust v Akotey (1926) AC 72, Privy Council
10 Commercial Law, Text, Cases, and Material (Fourth edition) by LS Sealy and RJA Hooley – pp 277

Aditya