Transfer of Ownership and Transfer of Title by a Non-Owner

When Does Property Pass from the Seller to the Buyer?

Knowing exactly WHEN ownership ("property") in the goods passes from seller to buyer matters enormously — it decides who bears the RISK of loss (Section 26), who can sue whom if the goods are damaged by a third party, and what happens if either party becomes insolvent before delivery.

• Section 18 — unascertained goods: where there is a contract for the sale of UNASCERTAINED goods, no property in the goods passes to the buyer at all UNLESS AND UNTIL the goods are ASCERTAINED (identified and set aside for this particular contract).
• Section 19 — specific/ascertained goods, general rule: property in specific or ascertained goods passes to the buyer at whatever time the PARTIES THEMSELVES INTEND it to pass — this intention is gathered from the terms of the contract, the conduct of the parties, and the surrounding circumstances of the case (Section 19(1)-(2)). Where the parties' intention cannot be clearly made out, Sections 20-24 supply a set of default rules.
• Section 20 — specific goods in a deliverable state: unless a different intention appears, where there is an UNCONDITIONAL contract for the sale of specific goods already in a DELIVERABLE STATE, property passes to the buyer AT THE TIME THE CONTRACT IS MADE — regardless of whether the time of payment or the time of delivery (or both) is postponed.
• Section 21 — specific goods NOT yet in a deliverable state: where the seller still has 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.
• Section 22 — goods to be weighed/measured/tested to fix the price: where the seller has to weigh, measure, test, or do some other act with reference to the goods for the purpose of ascertaining the PRICE, property does not pass until that act is done AND the buyer has notice of it.
• Section 23 — unascertained or future goods, sold by description: property passes when goods of that description, and in a deliverable state, are UNCONDITIONALLY APPROPRIATED to the contract, either by the seller with the buyer's assent, or by the buyer with the seller's assent (the assent may be given before or after the appropriation).
• Section 24 — goods sent on approval or "on sale or return": property passes to the buyer (a) when he signifies his APPROVAL or ACCEPTANCE to the seller, or (b) when he does any other act ADOPTING the transaction (such as pledging or reselling the goods), or (c) if he neither approves nor rejects, on the expiry of a reasonable time (or a fixed time, if one was agreed) WITHOUT giving notice of rejection.

Reservation of the Right of Disposal (Section 25)

A seller may deliberately RESERVE the right of disposal of the goods until certain conditions (typically, payment of the price) are fulfilled — Section 25(1). Even after the goods are delivered to a carrier for transmission to the buyer, the seller is DEEMED to reserve the right of disposal where, by the terms of the contract or appropriation, the goods are deliverable to the seller himself or to his order, e.g. where the bill of lading makes the goods deliverable to the seller's order (Section 25(2)). Where a seller draws a bill of exchange on the buyer for the price and sends it along with the bill of lading (or other title document) to secure the buyer's acceptance or payment, the buyer must return the bill of lading if he does not honour the bill; if he wrongfully retains it, property in the goods does not pass to him (Section 25(3)).

Passing of Risk (Section 26)

Unless otherwise agreed, RISK prima facie passes WITH PROPERTY — goods remain at the seller's risk until the property in them is transferred to the buyer, and once transferred, are at the buyer's risk whether delivery has been made or not. (An important exception: where delivery is 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 such fault.)

Transfer of Title by a Non-Owner

What happens if a person who does NOT actually own goods sells them to someone else? Section 27 states the general rule, using the well-known Latin maxim nemo dat quod non habet — "no one can give what he does not have." Where goods are sold by a person who is NOT the owner and does NOT sell them under the authority or with the consent of the true owner, the BUYER ACQUIRES NO BETTER TITLE to the goods than the seller himself had — unless the conduct of the true owner is such that he is PRECLUDED (estopped) from denying the seller's authority to sell, or unless some other law (such as the rules governing mercantile agents) gives the buyer a good title despite the seller's own lack of title.

The general rule protects the TRUE OWNER's title above all else — but it would make ordinary commerce impossibly risky for every innocent buyer, so the Act carves out several well-defined EXCEPTIONS where an innocent buyer, acting in good faith, DOES get a good title even from a non-owner:

1. Sale by a mercantile agent (Section 27's own proviso): where a mercantile agent, who is in possession of goods (or of documents of title to goods) WITH THE CONSENT OF THE OWNER, sells them in the ORDINARY COURSE OF BUSINESS of a mercantile agent, a buyer acting in GOOD FAITH and without notice of any lack of authority gets a good title, exactly as if the agent had been expressly authorised to sell.
2. Sale by one of several joint owners (Section 28): if one of several joint owners of goods has SOLE POSSESSION of them WITH THE PERMISSION of his co-owners, a person who buys those goods from him in good faith, without notice at the time of the sale that the seller has no authority to sell, acquires a good title to the goods.
3. Sale under a voidable contract (Section 29): where the seller has obtained possession of the goods under a contract that is VOIDABLE (for coercion, undue influence, fraud, or misrepresentation, under Sections 19/19A of the Indian Contract Act, 1872), but the contract has NOT YET BEEN RESCINDED at the time of the sale, a buyer who buys the goods in good faith and without notice of the seller's defect of title acquires a GOOD TITLE.
4. Seller in possession after sale (Section 30(1)): where a seller, having already sold goods, continues to be (or remains) in POSSESSION of the goods or of documents of title to them, and then sells or pledges them a SECOND time to another buyer/pledgee who takes them in good faith and without notice of the earlier sale, that second buyer/pledgee gets a good title — even though the seller had already sold the goods once before. …