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Possessing ownership
31/05/2005 The Star Articles of Law with Bhag Singh
Many words when used as a phrase come to convey a specific meaning in a
particular industry . One such phrase is “passing of title”.
The words “passing” and “title” are two very basic ordinary words. “Passing”
is moving from one point to another or from one person to another. “Title”
on the other hand refers to amongst others to ownership or evidence of
ownership.
Yet the phrase “passing of title” has acquired a meaning of its own though
not entirely unrelated to the original meaning of the words. It conveys a
concept, which goes beyond the meaning of the ordinary words, used in
isolation. It has become a topic by itself. It is a phrase which deals
specifically with goods where the ownership is transferred.
The phrase is better understood in the light of an examination of the
concept of ownership on the one hand and possession on the other. Unless a
person is the creator of a product in which case the person would at the
very outset be both the owner and be in possession of the product, an item
of property is usually acquired by one person from another either as a gift
or by purchase or through legal means.
Thus in the case of goods, the provisions in the Sale of Goods Act 1957
govern the acquisition and transfer of ownership. Under the Act “goods” mean
every kind of moveable property other than actionable claims and money and
includes stock and shares, growing crops, grass, and things attached to or
forming part of the land which are agreed to be severed before sale or under
the contract of sale.
When a person buys an item from another person two concepts are involved.
One is the legal transfer of ownership of the goods, which is called
“passing of title”. The other is the goods being physically passed over to
the buyer, which gives possession.
Thus in a case where a person lends an item to another for temporary use,
what happens is that the title or rather the legal ownership remains with
the lender and the borrower of the item merely has possession.
Legal ownership
Legal ownership or the transfer of the title only occurs when the owner
transfers the ownership or title to the other person. Thus in an ordinary
sale and purchase of goods situation the seller transfers ownership and also
possession to the buyer. However as there may be a lapse of time between an
agreement being reached and possession finalised, the question remains as to
when title or “legal ownership” passes?
This depends on the nature of the transaction. Section 20 of the Sale of
Goods Act 1957 provides that “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 it is immaterial when the
time of payment of the price, or the time of delivery of the goods, or both,
is postponed.”
What is the significance of the passing of the title? Apart from giving the
person who has acquired the goods their legal ownership, it has implications
in terms of risk. Section 26 provides that “unless otherwise agreed, the
goods remain at the seller’s risk until the property therein is transferred
to the buyer, but when the property therein is transferred to the buyer, the
goods are at the buyer’s risk whether delivery has been made or not.”
Of course where delivery is delayed through the failure of the buyer or
seller, the risk factor may then shift to the person who is considered to be
at fault. This is because the consequences of the risk may not have occurred
if there was no delay.
It is because of these factors that a person who buys a car, which turns out
to be stolen, will have to return it to the true owner. This is because the
person who has sold the car did not have legal ownership in the first place.
Of course the person who had obtained the car from another, whether a thief
or someone else who bought it from the thief, may have paid him the money.
Protecting the seller
But this does not create any rights against the true owner. The basis of
this is provided in section 27 of the Sale of Goods Act , which reads
“Subject to the provisions of this Ordinance and of any other law for the
time being in force, where goods are sold by a person who is not the owner
there of and who does not sell them under the authority or with the consent
of the owner, the buyer acquires no better title to the goods than the
seller had, unless the owner of the goods is by his conduct precluded from
denying the sellers of authority to sell.”
The importance of this subject arises from the fact that once the title has
passed to the buyer, the new owner, especially if he has obtained possession
of the goods, has acquired complete rights. Such a person can legitimately
sell the goods and pass the title to another person.
At the same time the seller cannot usually take the goods back if the buyer
does not pay him. Once the transaction is completed in this manner the
seller becomes a mere creditor and the buyer the debtor. If the goods were
not paid for, the remedy would be for the unpaid seller to sue for the price
of the goods.
This is where in commercial transactions “retention of title” clauses are
sometimes used. This is to protect the seller against the buyer at least to
a limited extent by taking possession relying on the concept of “passing of
title” or rather “non passing of title”.
The effect of a “retention of title” clause is that the title to the goods
is retained by the seller until such time as the goods have been paid for.
This is especially important where the goods have been delivered to the
buyer but have not been paid for.
Of course such a claim will only be useful if the goods are still in the
hands of the purchaser and in a condition where they can be retrieved. Even
then the condition may have deteriorated and the value may have diminished
somewhat.
However this does not detract from the fact that since the title has not
passed, the seller can take them back whatever their value may be.
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