Transfer of Property under Sale of Goods Act 1930

What is Transfer of Property?

The Transfer of Property Act (ToPA), enacted on July 1, 1882, stands as one of the oldest and pivotal legal frameworks in the Indian legal system, addressing the intricacies of property transfers between buyers and sellers. In India, the Transfer of Property Act 1882 is highly significant as it regulates the act of transferring property from one individual to another. This legislation holds particular significance for individuals intending to transfer immovable assets such as land, homes, or plots. ToPA applies to diverse immovable property transactions involving individuals, companies, and organizations, excluding properties inherited or disposed of through wills. Encompassing mortgages, exchanges, gifts, sales, leases, and actionable claims, the act specifies that individuals over 18, mentally sound, and entitled to or authorized to dispose of property can initiate transfers. Emphasizing the need for written agreements, even for properties valued under 100 rupees, ToPA ensures lawful and transparent property transactions by establishing clear guidelines for various types of property transactions.

Key Takeaways:

• In a sale of goods, the property passes when parties intend it to pass, as per the Sale of Goods Act 1930.
• The general rule is that property transfers when goods are intended to be transferred, even if delivery is postponed.
• If goods are sold “specifically,” property passes when the parties intend, and if not specified, when the contract is made.
• Risk follows property, so the buyer bears the risk from the time the property is transferred, unless otherwise agreed upon.

What is Passing the Property in Goods?

Property in goods is distinct from possession, denoting ownership rather than mere physical custody. In chattel, legal rights fall into two categories: possession and ownership. Ownership aligns with general property in goods, separate from possession. The transfer of property doesn’t automatically confer ownership, as exemplified by a scenario where A sells and delivers the title deed of goods to B but withholds possession. Notably, property in goods can pass before possession, contingent on prerequisites like ascertaining goods and putting them in a deliverable state. Passing, in this context, refers to the transfer of ownership. The timing of this transfer isn’t fixed by law; it depends on the circumstances outlined in the contract. Property can be transferred by consent or at various times as specified in the contract. While no fixed time is mandated, the seller must dispatch the goods within a reasonable time, and the buyer should demand delivery within a reasonable timeframe, with reasonableness determined by the specific circumstances.

Exact Time of Passing of Property 

1. Risk Associated with Ownership: When a contract of sale is made, the issue of bearing the risk in case of destruction or damage to goods arises. As per Section 26 of the Sale of Goods Act of 1930, the general rule is that the goods remain at the seller’s risk until they pass to the buyer. However, this rule is subject to the agreement between the parties, allowing them to decide when the risk will pass differently from the property. Determining the agreed-upon moment for risk transfer is crucial for buyer and seller to avoid disputes.

2. Action Against Third Party: In cases where a third party causes actionable injury to the goods, only the person with ownership can sue the third party. The term “third-party” refers to anyone other than the buyer or seller. However, either party, with the other’s consent, can sue for the benefit of whomever it may concern. If a third party suffers damages due to the goods, they can sue the owner at that particular time, emphasizing the significance of determining the moment of passing ownership. This underscores the importance of clear communication and consent between the buyer and seller for potential legal actions involving third parties.

3. Action by Third Party: When goods cause harm to a third party, they can only sue the person who owns the goods at that specific time. Even if the possession of the goods changes hands, understanding when the property in the goods; i.e., ownership, passes is crucial for legal clarity. The third party’s ability to seek legal recourse is contingent upon the accurate determination of ownership transfer, highlighting the need for transparency in transactions.

4. Remedy to Unpaid Seller: Section 55 allows an unpaid seller to sue for the price of the goods. Regardless of delivery, if the buyer wrongfully neglects or refuses to pay the price, the seller can sue for the price, underscoring the importance of determining the moment of passing ownership. Having a clear understanding of the ownership transition is crucial for the unpaid seller to exercise their legal rights and seek appropriate remedies.

5. Insolvency of Seller: In cases of seller insolvency, the ability of the receiver to take over the property depends on ownership. The receiver may not claim the goods if the seller becomes insolvent before delivery. Determining the precise moment of passing ownership is crucial, especially when insolvency occurs before delivery. This emphasizes the need for proactive measures, such as contractual agreements and legal documentation, to protect the interests of both parties in cases of insolvency.

6. Insolvency of Buyer: Similarly, when the buyer becomes insolvent, it is vital to establish whether the property in the goods has passed to the buyer. If the buyer has ownership, the receiver can take over the goods due to insolvency, emphasizing the need to pinpoint the exact moment of passing ownership. Understanding and documenting the ownership transfer becomes crucial for the seller to navigate potential complications in the event of buyer insolvency.

Rules Regarding Transfer of Property

1. Where Goods Are Specific or Ascertained: Specific goods refer to those identified and agreed upon at the time of a sale contract, while ascertained goods become known to a certain extent after the contract. Section 19 of the Sale of Goods Act emphasizes that the transfer of property in specific or ascertained goods occurs when intended by the parties. The determination of intention involves considering the contract terms, parties’ conduct, and circumstances. The flexibility of the law allows parties to mutually decide when ownership is transferred, be it at the time of delivery, payment, or other agreed-upon points.

2. Rules for Ascertaining the Intention of the Parties: When dealing with specific goods in a deliverable state, not in a deliverable state, or requiring further action for price ascertainment, the parties’ intention determines property transfer time. Section 20 states that if specific goods are in a deliverable state and the sale is unconditional, ownership transfers when the contract is made. Sections 21 and Section 22 outline scenarios where goods are not in a deliverable state and the seller needs to act for price ascertainment. A clear understanding of these rules is crucial to avoid disputes and ensure smooth transactions.

3. Where Goods Are Unascertained, or Future Goods: For unascertained or future goods, the Sale of Goods Act highlights that ownership transfers once the goods are identified or ascertained and appropriately set apart for delivery. Ascertainment of goods, as per Section 18, involves establishing the identity of goods, and Section 23 emphasizes unconditional appropriation for the transfer of ownership. These provisions underline the importance of a clear understanding of when the goods are deemed ascertained or appropriated. Parties must fulfill the conditions of ascertainment and appropriation to transform an ‘agreement to sell’ into a ‘sale,’ ensuring legal clarity in ownership transfer.

4. Where Goods Are Sent on Approval or ‘on Sale or Return: Section 24 of the Sale of Goods Act outlines scenarios where ownership in goods delivered on approval or ‘on sale or return’ terms passes to the buyer. The buyer’s actions, such as approval, adoption of the transaction, or failure to return within a specified or reasonable time, determine ownership transfer. Recognizing these conditions is crucial for both buyers and sellers when engaging in transactions with such terms.

5. Risk Prima Facie Passes With Property: Section 26 establishes the general rule that risk prima facie passes with property, emphasizing that risk follows ownership. This means the owner bears the burden of loss, irrespective of possession or payment status. While exceptions exist, understanding this fundamental principle is essential for both sellers and buyers to navigate potential losses associated with goods. Parties should be mindful of the general rule that ‘risk follows ownership’ as they engage in transactions, considering exceptions to ensure comprehensive risk management.

Conclusion

In conclusion, the Sale of Goods Act 1930 provides a comprehensive framework governing the transfer of property in goods, ensuring clarity and fairness in commercial transactions. The Act meticulously outlines the rules for determining when the property in goods is transferred, either immediately or at a later time. The buyer’s rights and obligations are clearly delineated, emphasizing the significance of examining the terms of the contract and the intention of the parties involved. The Act contributes to the smooth functioning of the marketplace by establishing a legal foundation for property transfer, facilitating commerce and trade. Additionally, the provisions regarding risk, delivery, and conditions ensure a balanced and equitable relationship between buyers and sellers. The Sale of Goods Act 1930, with its detailed provisions, remains a cornerstone in regulating property transfers, fostering transparency and reliability in commercial dealings.

Transfer of Property under Sale of Goods Act 1930- FAQs

What are the steps for a transfer deed in India?

To transfer property title in India, the transferor needs to draft the transfer of possession title on stamp paper. Subsequently, the transfer deed should be attested by two witnesses before its registration. The final step involves registering the gift deed at a subregistrar’s office, and once registered, the transfer becomes irrevocable.

Elaborate on Section 5 of the Transfer of Property Act.

Section 5 of the Transfer of Property Act represents “transfer of property” as an act wherein an individual conveys property, either presently or in the future, to one or more other individuals, or themselves, or one or more other living persons.

Are there properties that cannot be transferred?

Yes, as per Section 6 of the Transfer of Property Act, certain rights and ownership cannot be transferred from one person to another. These include the tenure of services, religious office, the right of preemption, and more. Any attempt to transfer such rights is considered invalid.

Who is not competent to transfer property?

A minor, being deemed incompetent to contract, cannot transfer property. Section 7 of the Transfer of Property Act of 1882 addresses the competency of a transferor, not the transferee. Consequently, a minor can act as a transferee but not as a transferor.

Is partition considered a transfer of property?

No, ‘partition’ of joint property does not qualify as a ‘transfer of property’ between individual co-parceners or co-tenants. In a transfer, the transferee acquires rights and title to the property that did not previously vest in them. Partition among joint property holders does not fall under this category.

References:

• Consumer Affairs Department
• Legislative Department

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