Transfer of Title

Table of Contents

INTRODUCTION

The act of point in place or time at which ownership of a thing is passed from one person to another. The ” Transfer of Title ” is a significant legal term of the sale of goods and it is impossible to discuss it without considering the law of sale of goods act. If someone sells goods, the person has to transfer the title of the goods to the purchaser. Without the transfer of ownership and delivery of possession of the goods from the seller to buyer, no sale transaction can be completed. Usually, what happens in the contract, the real owner of the goods transfers the title to a new owner. In some cases, a title-bearing document is created through the shipment process; for instance, shipments covered by a negotiable marine bill of lading. Also called transfer of ownership. However, at the moment, unauthorised sales of goods have been a frequent and difficult problem for judges and legislators.

But there is an exception, nonetheless, there are certain exceptions to this rule under which a non-owner can convey a better title to the bona fide purchaser of goods for value.

LEGAL PROVISIONS

There is a Latin maxim: ‘Nemo dat quod non habet’ which says that no one can give what he doesn’t have. This is the basic or ground principle regarding the transfer of title. Sections 27 to 30 of the Sale of Goods Act, 1930 specifically lays down the laws about the transfer of title. Let us take a look.

1. SECTION 27

Section 27 deals with the sale by a person who is not the owner. Imagine there is 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. Let us see an example. X steals a mobile phone from his office and sells it to Y, who buys it in good faith. However, Y will not get the title to the phone and will have to return the mobile phone to the owner when he demands, i.e. there is no transfer of title.

Now, this seems to be a really straight-forward rule. However, enforcing this rule can mean that innocent buyers might suffer losses in most cases. Therefore, to protect the interest of the buyers, certain exceptions are provided.

EXCEPTIONS TO SECTION 27

1) Sale by a Mercantile agent (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. In such type of cases, transfer of title is valid.

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: X, Y, and Z are three friends to buy a home theatre to watch the upcoming cricket World Cup. They collectively decide to keep the home theatre at Z’s house. Once the World Cup is over, the TV is still at his house.

One day, Z’s office colleague visits his house and Z sells the home theatre to her. She buys it in good faith and has no knowledge about the fact that it was purchased jointly. In this case, she gets a good title to the home theatre.

3) Sale by a Person in Possession of Goods under a Voidable Contract (Section 29)

Consider a person who acquires possession of certain goods under a contract voidable on grounds of coercion, misrepresentation, fraud or undue influence. If this person sells the goods before the contract is terminated by the original owner of the goods, then the buyer acquires a good title to the goods.

Example: X fraudulently obtains a gold diamond ring from Y. Y can void the contract whenever she wants. Before Y realizes the fraud, X sells the ring to anyone. In this case, Y cannot recover the ring from that person since she didn’t void the contract before the sale was made.

4) Sale by a Person who has already sold the Goods but Continues to have Possession [Section 30 (1)]

Suppose a person who has already sold goods but continues to be in possession of that goods or of the documents of title to them. This person might sell the goods to another buyer.

If the new buyer acts in good faith and is unaware of the fact that goods were sold to someone else earlier, then he will have a good title to the goods even though the property in the goods was passed to the first buyer earlier. A pledge or other disposition of the goods or documents of title by the seller in possession are valid too.

5) Sale by Buyer obtaining possession before the Property in the Goods has Vested in him [Section 30 (2)]

Consider a buyer who obtains possession of the goods before the property in them is passed to him, with the permission of the seller. He may sell, pledge or dispose of the goods to another person.

If the second buyer obtains delivery of the goods in good faith and without notice of the lien or any other right of the original seller, he gets a good title to them.

This rule does not hold true for a hire-purchase agreement which allows a person the possession of the goods and an option to buy unless the sale is agreed upon.

Example: Peter takes a car from John under the conditions that he will pay Rs. 5,000 every month as rent of the vehicle and that he can choose to purchase it for Rs. 100,000 to be paid in 24 equal instalments. Peter pays Rs. 5,000 for three months and then sells the car to Oliver. In this case, John can recover his car from Oliver since Peter had neither purchased the car nor agreed to purchase it. He only had an option to buy the car.

6) Estoppel

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.

Let us see an 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.

7) 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.

8) 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]

Author: Shivam Bansal,
Symbiosis law School, Noida - 2nd Year