Passing of Property

What is passing of property

The passing of property stands for the change in ownership. When a property changes ownership it is referred as the passing of property, for example from seller to buyer.

  • In a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend for it to be transferred or agreed otherwise.
  • For ascertaining the intentions of the parties, (when shall property pass on) regard shall be given to the terms of the contract, the conduct of the parties and the circumstances of the individual

Four rules for ascertaining intention

Unless a different intention appears, there are four rules for ascertaining the intention of the parties as to the time at which the property is to pass to the buyer.

Rule 1 – Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and irrespective of the time of payment, the time of delivery, or both. Defective goods are deliverable but if the buyer rejects them then the property reverts back to the seller.

Rule 2 – Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until the specific thing agreed upon is done/ finished and the buyer has noticed that it has been done.

Rule 3 –Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until the act or thing is done, and the buyer has been notified of that such act has been carried out or accomplished.

Rule 4 –When goods agreed to be delivered to the buyer upon his approval as a precondition or on sale or return or on other similar terms the property in the goods passes to the buyer

  • When he signifies his approval or acceptance to the seller or does any other act which is equivalent to adopting the transaction.
  • If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time the property or ownership will pass to the buyer.

Unpaid sellers rights

An unpaid seller of goods has by implication of the law:

  • A lien on the goods or right to retain them until the seller is paid for the goods. The seller can retain the possession of unpaid item as well.
  • In case of the insolvency of the buyer, an unpaid seller has a right to stop the goods which are in transit after he has parted with the possession of them.
  • A right of resale which is limited by statute.

Where the property in goods has not passed to the buyer, the unpaid seller has remedies available to him for example, the right to withhold delivery or retention and stoppage of goods which are in transit.

If an unpaid seller resells the goods for which he is unpaid for, he puts unpaid goods from out of his power to perform his contract and his action will be inconsistent with the sale to the original buyer. Once there is a resale by an unpaid seller who is also in possession of the contractual goods, the contract of sale is rescinded whether it be for the whole of the goods or part of them.

Rescission

Where an unpaid seller who has exercised his right of lien or retention or stoppage in transit, re-sells the goods, the new buyer acquires a good title to them as against the original buyer and the contract with an old buyer who has not paid will end.

Example

Ali Co sold 10 TVs to Star Electricals, who failed to pay the agreed price. Ali then managed to take possession of the 10 TV’s and sold them to Mercury Electronics. The new buy takes them free from any claim from Star Electricals as they acquire a good title. This will end the contract of sale of goods between Ali Co and Star Electricals.

  • Where the goods are of perishable nature, or where the unpaid seller gives notice to the buyer of his intention to re-sell, and the buyer within a reasonable time does not pay or tender the price, the unpaid seller may resell the goods and recover from the original buyer damages for any loss incurred by his/her breach of contract.
  • Where the seller expressly reserves the right of resale in case the buyer should make default, and on such default, resells the goods, the original contract of sale is rescinded but without prejudice, to any claim, the seller may have for damages.

Example

Ali Co sold 10 TVs to Star Electricals. In the contract of sale of goods, Ali Co (seller) and Star Electronics (buyer) agreed expressly that seller reserves a right of resale where the buyer defaults on payments. Star Electronics has now defaulted on payment. Ali Co then managed to take possession of the 10 TV’s and sold them to Mercury Electronics. The original contract will come to an end but Ali can still start legal proceedings against the Star Electronics for damages.

Disclaimer

While every effort has been made to ensure the accuracy of the information provided in this article, it does not constitute legal advice and cannot be relied upon as such. Each legal case and issue may have unique facts and circumstances, as a result legalally does not accept any responsibility for liabilities arising as a result of reliance upon the information provided. For further help and guidance, you can always rely on and seek advice from our experienced lawyers.