Effects of Contract
Section 18. Goods must be ascertained.
This rule applies to a contract for the sale of unascertained goods.
Unascertained goods are goods that are not yet identified at the time of contract.
In such cases, ownership (property) does not pass to the buyer immediately.
Ownership will pass only when the goods are ascertained.
So these goods needs to be specifically identified and set aside for the buyer.
Section 19. Property passes when intended to pass.
19(1).
A contract for the sale of specific or ascertained goods involves goods that are already identified.
The transfer of ownership / property takes place at the time the parties intend it to occur.
Their intention must be shown through the contract terms, their actions, or the overall circumstances.
19(2).
To determine when ownership is meant to transfer, the court looks at several factors.
These include the terms of the contract.
It also considers the conduct of the parties.
Additionally, it examines the circumstances of the case.
19(3).
Sections 20 to 24 provide rules that help determine when ownership in the goods passes to the buyer.
These rules apply unless the contract shows a different intention.
If the parties haven’t clearly stated when ownership will pass, the rules in these sections help figure it out.
Section 20. Specific goods in a deliverable state.
When a contract is unconditional and relates to specific goods that are already in a deliverable state, ownership rules are straightforward.
The property (ownership) in the goods passes to the buyer as soon as the contract is made.
This happens even if the parties have agreed that payment will be made later.
It also applies even if delivery of the goods will occur later.
So ,once such a contract is finalized, the buyer becomes the owner immediately, regardless of when payment or delivery happens.
Section 21. Specific goods to be put into a deliverable state.
This situation involves a contract for the sale of specific goods, but the goods are not yet in a deliverable state.
The seller must perform required actions on to the goods to get them ready for delivery.
These actions could include finishing, repairing, packing, or modifying them.
Ownership does not pass to the buyer until the seller has completed that required action.
Ownership also does not pass until the buyer receives notice that the action has been completed.
Section 22. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price.
Sometimes specific goods are already in a deliverable state, but the seller must still perform an act to determine the final price.
This act may involve weighing, measuring, testing, or doing anything else needed to fix the price.
Ownership does not pass to the buyer until the seller has completed that required act.
Ownership also does not pass until the buyer is notified that the act has been completed.
Section 23. Sale of unascertained goods and appropriation.
23(1).
A contract may involve unascertained goods or future goods that are described in the agreement.
When goods of that exact description are identified and placed in a deliverable state, they may then be appropriated to the contract.
Appropriation means the goods are specifically set aside for that particular buyer.
This appropriation can be done by:
The seller, with the buyer’s assent.
The buyer, with the seller’s assent.
Once such appropriation is made unconditionally, ownership in the goods passes to the buyer.
The assent of either party may be express or implied.
Assent may be given before or after the goods are appropriated.
23(2). Delivery to Carrier
The seller may deliver the goods to the buyer, or to a carrier, or to any other bailee whether or not that person was named by the buyer.
The delivery must be for the purpose of sending the goods to the buyer under the contract.
When a seller does not reserve the right of disposal, the goods are deemed to be unconditionally appropriated to the contract.
As soon as that occurs, the ownership (property) passes to the buyer.
Section 24. Goods sent on approval or on sale or return.
When goods are delivered to the buyer on approval, on sale or return, or similar terms, ownership passes to the buyer in the following cases:
(a).
Ownership passes when the buyer expressly approves or accepts the goods, or performs any act that shows he adopts the transaction.
This includes using, selling, or altering the goods.
(b).
If the buyer does not expressly approve or accept the goods but keeps them without rejecting, ownership passes:
When a fixed time for return expires, if such a time was agreed.
When a reasonable time expires, if no fixed time was agreed.
So , keeping the goods beyond the allowed or reasonable time results in ownership passing to the buyer.
Section 25. Reservation of right of disposal.
25(1).
A seller may reserve the right of disposal of the goods by including such terms in the contract or in the act of appropriation.
So , the seller keeps control over when ownership will pass, even if the goods are specific or have been appropriated to the contract.
The transfer of ownership will happen only after certain conditions set by the seller are fulfilled.
This rule applies even if the seller has already delivered the goods to the buyer, or to a carrier or another bailee, for transmission to the buyer.
Until the conditions are met, property in the goods does not pass to the buyer.
Therefore , the seller can keep ownership until the buyer satisfies agreed conditions, regardless of delivery.
25(2).
Sometimes goods are shipped or delivered to a railway administration for transport.
The transport document may be a bill of lading or a railway receipt, depending on the mode of carriage.
If that document states that the goods are deliverable to the order of the seller or the seller’s agent, this indicates something important.
In such a situation, the seller is prima facie considered to have reserved the right of disposal of the goods.
So , if the shipping document says the goods should be delivered according to the seller’s instructions, the seller is treated as keeping control over ownership.
Example:
Suppose a seller ships 100 laptops to a buyer and issues a bill of lading that says, ‘Deliver to the order of the seller.’
Even though the goods are already in transit, the buyer does not get ownership yet.
The shipping company can hand over the goods only if the seller endorses the document or gives instructions.
So , the seller retains control until the buyer pays or meets agreed conditions.”
25(3).
The seller may draw a bill of exchange on the buyer for the price of the goods.
The seller may also send the buyer the bill of exchange together with the bill of lading or railway receipt.
These documents are sent so that the buyer will accept or pay the bill of exchange.
If the buyer does not accept or pay the bill of exchange, he must return the bill of lading or railway receipt to the seller.
If the buyer wrongfully keeps the bill of lading or railway receipt, ownership of the goods does not pass to him.
Exception:
The expressions Railway and Railway administration carry the same meanings as defined in the Indian Railways Act, 1890.
Section 26. Risk prima facie passes with property.
Unless the parties agree otherwise, the goods remain at the seller’s risk until ownership passes to the buyer.
Once ownership transfers to the buyer, the goods are at the buyer’s risk, even if delivery has not yet occurred.
If delivery is delayed due to the fault of either the buyer or the seller, the goods are at the risk of the party at fault.
This applies only to losses that would not have occurred if the delay had not happened.
The section does not affect the duties or liabilities of the seller or the buyer acting as a bailee of the other party’s goods.
So , whoever is holding the goods must still take proper care of them, regardless of who bears the risk.
Section 27. Sale by person not the owner.
The seller generally cannot give the buyer a better title than he himself has.
This applies when the seller:
Is not the owner, and does not have the owner’s authority or consent to sell the goods.
In such cases, the buyer normally gets no better title than the seller had.
So , the buyer cannot become the true owner if the seller himself was not.
Exception
If the owner’s conduct has created a situation where it appears the seller has authority to sell, the owner may be prevented (estopped) from denying that authority.
This means the owner’s behaviour may allow the buyer to obtain a good title, even though the seller was not authorised.
Sale by a Mercantile Agent
If a mercantile agent (a professional agent dealing with goods) is in possession of the goods or a document of title (e.g., bill of lading, warehouse receipt), the law provides additional protection to buyers.
The mercantile agent must be in possession with the consent of the owner.
Any sale made by such an agent is considered valid, as if the agent had explicit authority from the owner, provided the following two conditions are met:
1. The mercantile agent acts in the ordinary course of his business.
The sale must occur in a manner typical for that type of agent, not in an unusual or suspicious way.
2. The buyer acts in good faith.
The buyer must genuinely believe the agent has authority.
The buyer must not have notice at the time of sale that the agent (or seller) lacks authority to sell the goods.
When these conditions are satisfied, the buyer gets a good title, even though the agent may not have had express permission to sell.
Section 28. Sale by one of joint owners.
Goods may be jointly owned by multiple owners.
Sometimes, one joint owner is given sole possession of the goods by the other co-owners.
This possession must be with the permission of the co-owners.
When that joint owner sells the goods, the buyer may acquire good title, but only if certain conditions are met:
The buyer purchases the goods in good faith.
The buyer must not have notice that the joint owner lacks authority to sell.
So, at the time of the contract, the buyer must not know that the seller does not have the right to sell the entire goods.
If these conditions are satisfied, the property in the goods passes to the buyer, even though the seller was only a joint owner.
Section 29. Sale by person in possession under voidable contract.
A seller may have obtained possession of goods under a contract that is voidable under sections 19 or 19A of the Indian Contract Act, 1872.
A voidable contract includes situations involving coercion, undue influence, fraud, or misrepresentation.
Even though the seller’s contract is voidable, it may not yet have been rescinded (cancelled) at the time the seller sells the goods.
If the seller sells the goods before the original contract is rescinded, the buyer can still get a good title, provided:
The buyer acts in good faith.
The buyer has no notice of the seller’s defective title.
So, The buyer must not know that the seller obtained the goods under a voidable contract.
When these conditions are met, the buyer becomes the lawful owner, even though the seller’s own title was defective.
Section 30. Seller or buyer in possession after sale
30(1).
A situation may arise where a person has already sold the goods, but still remains in possession of:
The goods themselves.
The documents of title related to those goods.
If that person then delivers or transfers the goods or the documents of title again to someone else, the law protects the new recipient, provided certain conditions are met.
The second transaction may be:
A sale.
A pledge.
Any other disposition of the goods.
The new buyer or pledgee must meet two requirements:
They must act in good faith.
They must have no notice of the previous sale.
When these conditions are satisfied, the delivery or transfer has the same legal effect as if the seller had been expressly authorised by the true owner to make that second sale or disposition.
30(2).
A person may have bought goods or agreed to buy goods under a contract.
If that person obtains possession of the goods or the documents of title, this possession must be with the seller’s consent.
After obtaining possession, the buyer (or a mercantile agent acting on his behalf) may deliver or transfer the goods or the documents of title to another person.
Such a transfer may take place under:
A sale.
A pledge.
Any other form of disposition.
The law protects the new recipient if two conditions are met:
The new recipient must act in good faith.
The new recipient must have no notice of any lien or right of the original seller.
They must be unaware that the original seller still has a right over the goods (such as a right to withhold them until payment).
When these conditions are satisfied, the transfer has the effect of extinguishing the original seller’s lien or right.
Legally, it is treated as if no such lien or right ever existed, and the new buyer or pledgee obtains protection.
