Understanding the Concept of Property
Property is a fundamental concept in law and commerce, forming the basis of most contracts and transactions. In legal terms, property refers to the rights and interests a person has over a tangible or intangible thing, which can be owned, transferred, or controlled. According to general principles of law, property encompasses both movable and immovable goods, and can include money, goods, land, intellectual property, or contractual rights.
The Sale of Goods Act, 1930 and Indian Contract Act, 1872 provide a framework for understanding property in the context of commercial transactions, particularly regarding the transfer of ownership or passing of property from seller to buyer. This is crucial to determine who bears risk, who has possession, and when rights and liabilities arise in a sale.
In this essay, we will define property, explain the concept of possession, and outline the rules governing the passing of property under Indian law. Real-life examples and mnemonics are included to help students and practitioners retain key concepts efficiently.
Definition of Property
Under Indian law, property is broadly defined as the ownership or legal rights over goods or things. While the term is not explicitly defined in the Sale of Goods Act, it can be understood through the following:
- Ownership (Title): Property gives the owner the right to possess, use, and dispose of goods. Ownership can be transferred via sale, gift, or exchange.
- Transferability: Property can be transferred from one person to another, which is essential for commerce.
- Legal Recognition: Property rights are recognized and protected by law, ensuring remedies in case of unlawful interference.
Section 3 of the Sale of Goods Act, 1930 defines goods as every kind of movable property, except actionable claims and money. Goods are thus the most common type of property involved in contracts of sale.
Example:
A farmer owns wheat, which he sells to a trader. The wheat represents property in the legal sense. The transfer of ownership from farmer to trader follows rules laid down under the Sale of Goods Act.
Possession of Property
Possession refers to the physical control or custody of property, which may or may not coincide with ownership. Under Indian law:
- Actual Possession: The buyer or holder physically holds the goods.
- Constructive Possession: Possession is recognized through documents or legal acts, e.g., delivery of warehouse receipts.
Possession affects rights and remedies. For example, if a buyer takes possession of goods, the risk of loss may pass to him depending on the contract terms.
Difference Between Possession and Ownership
| Aspect | Ownership | Possession |
|---|---|---|
| Definition | Legal right to use and transfer goods | Physical control of goods |
| Transfer | Can be sold or gifted | Cannot be sold unless ownership is transferred |
| Rights | Includes enjoyment, disposal, and liability | Only control and custody, no right to transfer without ownership |
Example:
If a buyer receives goods at a warehouse but has not yet paid the seller, he has possession, but ownership may still reside with the seller until full payment is made.
Rules Relating to Passing of Property (Sections 18–24 of Sale of Goods Act)
The passing of property determines when ownership of goods transfers from seller to buyer, affecting risk, liability, and rights. The Sale of Goods Act, 1930 provides detailed rules:
1. Property Passes When Intended (Section 18)
Ownership passes when the parties intend it to pass. The intention is determined by:
- The terms of the contract
- The nature of the goods
- The circumstances of delivery
Example:
A contract may state that ownership passes only after full payment, even if the buyer takes goods earlier.
2. Specific Goods in Deliverable State (Section 19)
If specific goods are sold, property passes when the goods are in a deliverable state, and the seller is ready to deliver them.
Example:
If A sells 100 bales of cotton, property passes once the cotton is packed and ready for delivery.
3. Sale by Description (Section 20)
When goods are sold by description, property passes only when the goods match the description. If the wrong goods are delivered, property does not pass.
Example:
A buyer orders 100 kg of “Basmati Rice.” If the seller delivers ordinary rice, property does not pass.
4. Undivided Shares (Section 21)
If goods are part of an undivided bulk, property passes only when the bulk is separated and identified.
Example:
A seller sells 50 tons of oil from a 200-ton bulk. Ownership passes only when the 50 tons are segregated.
5. Risk Follows Property (Section 26)
Once property passes, the risk automatically transfers to the buyer, regardless of possession. This rule protects the seller until ownership is legally transferred.
Example:
If a buyer takes ownership of goods but they are damaged during transit due to no fault of the seller, the buyer bears the loss.
6. Goods Sent on Approval or Sale or Return (Section 27)
For goods sent on approval or sale or return, property passes only when the buyer signifies acceptance or retains the goods beyond a reasonable period.
Example:
A clothing supplier sends dresses for display. Ownership passes only when the retailer accepts or keeps the dresses beyond the trial period.
7. Unascertained or Future Goods (Section 18(2))
For unascertained goods, property passes only when goods are ascertained, e.g., a specific set is separated from bulk or identified by the contract.
Example:
A contract to deliver 500 kg of rice from a warehouse passes property only when 500 kg are selected and allocated to the buyer.
Real-Life Example
Consider ABC Ltd., which sells 1,000 laptops to a retailer. The contract specifies that ownership passes only upon delivery to the retailer’s warehouse. While the laptops are in transit, the seller remains the owner, and any loss due to shipping mishaps is borne by ABC Ltd. Once the retailer receives and accepts the laptops, property passes, and the risk shifts to the retailer.
This illustrates the importance of clear contractual terms regarding the passing of property and possession in real-life commercial transactions.
Mnemonic to Remember Rules of Passing of Property — “SPUR-RS”
Use the mnemonic “SPUR-RS” to recall the main rules for passing property:
- S – Specific goods in deliverable state (Sec. 19)
- P – Property passes when intended (Sec. 18)
- U – Unascertained/future goods (Sec. 18(2))
- R – Risk follows property (Sec. 26)
- R – Sale by description (Sec. 20)
- S – Segregation from undivided bulk (Sec. 21)
Mnemonic Sentence:
“Smart Property Usually Requires Rules Strictly.”
This helps law students remember the sequence and logic of property passing rules efficiently.
About lawgnan:
Master the Concept of Property under the Sale of Goods Act, 1930 and Indian Contract Act, 1872 with comprehensive, student-friendly notes at Lawgnan.in. Learn how ownership and possession differ, when property passes from seller to buyer, and how risk and liability transfer under Sections 18–27. With clear explanations, real-life examples, and mnemonics like “SPUR-RS,” Lawgnan makes complex legal principles easy to understand and memorize. Whether preparing for LLB exams or revising business law, Lawgnan offers reliable and simplified study material tailored for law students and professionals. Visit today to enhance your legal knowledge!
