TRANSFER OF PROPERTY OWNERSHIP : MEANING, IMPORTANCE AND EXCEPTION OF RULE

MEANING OF TRANSFER OF OWNERSHIP

• Transfer of ownership implies the transfer of all rights to the property in goods from the seller to the buyer by virtue of which the buyer can use the goods as he desires, and these rights of the buyer cannot be restricted.

• It is important here to understand the difference between the transfer of ownership and the transfer of possession of goods.

• A person may be the owner of goods even if the goods are not in his possession. If a person who has the right of ownership of goods sells the goods the right of ownership is transferred from the seller to the buyer of goods.

IMPORTANCE OF TRANSFER OF OWNERSHIP

1) Risk follows Ownership: The fundamental principle of law is that risk and ownership are co-existent one follows the other even if there is no transfer of possession. If the goods are damaged or destroyed by any reason. The loss is the owners even if he is not in possession of goods at that time.

2) Action against third parties: if the goods are destroyed or damaged by any action of a third party, only the owner of goods can initiate any proceeding against the third party.

3) Insolvency of the seller or the buyer: in case of insolvency of the seller or the buyer, it becomes important to know if the official receiver can take over the goods. This depends on who becomes insolvent and who is the owner of the goods.

TRANSFERS OF TITLE OF GOODS/SALE BY NON-OWNERS

Section 27 deals with the sale by a person who is not the owner. Imagine a sale contract where the seller –

• Is not the owner of the goods?

• Does not have consent from the owner to sell the goods

• Has not been given authority by the owner to sell the goods on his behalf In such cases, the buyer acquires no better title to these goods than the seller had, provided the conduct of the owner precludes the seller’s authority to sell.

EXCEPTIONS OF RULE

1)    Sale by a mercantile agent (Proviso to Section 27):

·         Consider a mercantile agent, who is in possession of the goods or a document to the title of the goods, with the consent of the owner. Such an agent can sell the goods when acting in the ordinary course of business of a mercantile agent.

·          The sale shall be valid provided the buyer acts in good faith and has no reason to believe that the seller doesn’t have any right to sell the goods. The transfer of title is valid in such a case.

2)     Sale by one of the Joint Owners (Section 28):

·         Many times goods are purchased in joint ownership. In many cases, the goods are kept in the possession of one of these joint owners by the permission of the co-owners. If this person (who has the sole possession of the goods) sells the goods, the property in the goods is transferred to the buyer.

·         This is provided the buyer acts in good faith and has no reason to believe that the seller does not have a right to sell the goods.

Example: Peter, John, and Oliver are three friends to buy a 42-inch television set to watch the upcoming cricket World Cup. They unanimously decide to keep the television set at Oliver’s house. Once the World Cup is over, the TV is still at his house.

3)    Estoppels

·         If an owner of goods is stopped by the conduct from denying the seller’s authority to sell, the buyer gets a good title. However, to get a good title by estoppel, it needs to be proved that the original owner had actively suffered or held out the seller in question as a person authorized to sell the goods.

Example: Peter, John, and Oliver are having a conversation. Peter tells John that he owns the BMW car parked nearby which actually belongs to Oliver. However, Oliver remains silent. Subsequently, Peter sells the car to John.

·         In this case, John will get a good title to the car even though the seller is Peter who has no title to it. This is because, Oliver, by his conduct, did not deny Peter’s authority to sell the car.

4)    Sale by an Unpaid Seller [Section 54 (3)]

·         If an unpaid seller exercises his right of lien or stoppage in transit and sells the goods to another buyer, then the second buyer gets a good title to the goods as against the original buyer. So in such a case transfer of title will occur.

·         The buyer in such re-sale gets an absolute title to the goods,. Whether or not the original buyer has been informed of the resale has no effect on the title of the new buyer.

5)    Sale under the Provisions of other Acts

·         Sale by an Official Receiver or Liquidator of the Company will give the purchaser a valid title.

·         Purchase of goods from a finder of goods will get a valid title under circumstances [Section 169 of the Indian Contract Act, 1872]

·         A sale by a Pawnee can convey a good title to the buyer [Section 176 of the Indian Contract Act, 1872]

6)    Sale in overt market:

·         An overt market implies a market where goods are openly bought and sold according to normal practices of the trade without any restrictions.

·         According to the English law, if a buyer buys some goods in an overt market in good faith and according to the practices of trade in such market, he gets a good title to such goods, even if the seller is selling stolen goods.

7)    Sale by a person in possession of goods under a voidable contract:

·         According to section 29, if a buyer buys goods from a person from a person who has obtained the goods by coercion, fraud or undue influence and if the contract under which the seller has obtained the goods is not rescinded, the buyer gets a good title to the goods.