In a contract of sale of goods, one of the most important question is as to when the property in goods passes from seller to the buyer. The time of transfer of ownership of goods decides various rights and liabilities of the seller and the buyer. In business, the goods are generally bought for resale and it is only the owner of goods who can sell them. Therefore, a buyer who has become the owner of the goods can sell those goods. Thus, it becomes very important for us to know the exact moment as to when the ownership passes from the seller to the buyer for the following reasons:
1. Risk passes with the ownership: It is the rule of law that ‘risk prima facie passes with the property’ (Section 26). It implies that if the goods are lost or suffer any damage then whosoever is the owner of the goods at the time of loss or damage, he shall bear the loss. Therefore, if the property in goods is transferred to the buyer, the buyer becomes the owner of goods and in case the goods are lost or damaged, the buyer will have to bear the loss. Hence it is important to know whether the property in the goods has passed to the buyer or is still with the seller. It is the owner of the goods who runs the risk of loss and not the person who may be in possession of goods.
Examples
i) A sold certain book to B. B left the books in A’s shop. The books were damaged as a result of fire in the shop. The loss is to be borne by B because at the time of loss of books he had become the owner of the books.
ii) A lends his book to B. As a result of an accidental fire the book is totally damaged. The loss will be borne by A because at the time of loss he was the owner of the book.
2. Action against third party: In the case of loss or damage to the goods caused by a third party, it is the owner who alone can take action and not the person who was in possession of the goods. The buyer gets proprietary rights over the goods i.e., he gets all the rights over the goods as their owner.
3. Suit for price: The seller becomes entitled to recover the price of the goods from the buyer only when the property in the goods has passed to the latter.
4. Insolvency of seller or buyer: If the seller or buyer becomes insolvent, the question arises as to whether or not the Official Receiver or the Assignee can take over the goods. The answer depends upon whether the property in the goods has passed to the buyer or not. If the property in goods has passed to the buyer and the buyer is adjudged insolvent, the buyer’s Official Receiver or Assignee shall take the possession of the goods even though the goods have not been delivered by the seller.
