Unascertained Goods and Appropriation | Sale of Goods Act
This article analyzes unascertained goods and appropriation under the Indian Sale of Goods Act, 1930, with case laws and illustrations.
The Sale of Goods Act, 1930 governs the sale of goods in India and establishes a legal framework for the formation of contracts, transfer of ownership, and delivery of goods. One of the critical aspects of the Act is the distinction between ascertained and unascertained goods, which determines the point at which ownership passes from the seller to the buyer. This distinction has significant legal implications in terms of risk, liability, and rights of the parties involved in the transaction.
Unascertained goods are those that have not been specifically identified or separated from a larger bulk at the time of the contract of sale. The transfer of property in such goods requires the process of appropriation, where specific goods are earmarked and set aside for delivery to the buyer with the consent of both parties. The concept of appropriation, therefore, plays a pivotal role in determining when ownership and risk pass to the buyer.
This article provides an in-depth analysis of unascertained goods and the process of appropriation under the Indian Sale of Goods Act, 1930, with relevant case laws and illustrations to clarify these legal concepts.
Definition and Classification of Goods under the Sale of Goods Act, 1930
Section 2(7) of the Sale of Goods Act, 1930 defines "goods" as:
"Every kind of movable 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."
(a) Types of Goods
Under the Act, goods are classified into three categories:
Existing Goods – These are goods that are owned or possessed by the seller at the time of the contract.
Future Goods – These are goods that are yet to be manufactured or acquired by the seller after the contract of sale.
Contingent Goods – These are goods whose acquisition depends upon a contingency that may or may not happen.
(b) Specific and Unascertained Goods
Specific Goods – Section 2(14) defines specific goods as goods that are "identified and agreed upon at the time a contract of sale is made." For example, if A agrees to sell a particular car with a specific registration number to B, the car is treated as specific goods.
Unascertained Goods – These are goods that are not identified and agreed upon at the time of contract formation. They are part of a larger bulk or have not yet been separated or specified for delivery.
Example: If A agrees to sell 100 bags of rice from a stock of 500 bags in his warehouse, the 100 bags are unascertained until they are separated from the larger bulk.
Passing of Property in Unascertained Goods
(a) General Rule for Passing of Property
Section 18 of the Sale of Goods Act, 1930 lays down that property in unascertained goods does not pass to the buyer until the goods are ascertained:
"Where there is a contract for the sale of unascertained goods, the property in the goods does not pass to the buyer until the goods are ascertained."
(b) Ascertainment of Goods
Ascertainment refers to the process of identifying and setting apart the goods intended to be sold under the contract. The goods must be distinguished from a larger bulk and earmarked for delivery to the buyer.
Example: If A agrees to sell 500 kg of wheat from a stock of 2,000 kg in his warehouse, the property in the goods will not pass to B until the 500 kg are specifically separated and appropriated for delivery to B.
Appropriation of Goods
(a) Meaning of Appropriation
Appropriation refers to the act of selecting or setting aside specific goods from a larger bulk and earmarking them for delivery to the buyer. Appropriation requires:
- A clear intention to appropriate the goods to the contract.
- Mutual consent of both the buyer and the seller regarding the appropriation.
- Unconditional identification and separation of goods from the larger bulk.
(b) Legal Basis for Appropriation
Section 23 of the Sale of Goods Act, 1930 deals with the concept of appropriation:
"Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer."
(c) Methods of Appropriation
- By Seller – When the seller sets aside specific goods and the buyer consents to the appropriation, the goods become ascertained.
- By Buyer – When the buyer exercises control over specific goods, they become appropriate.
- By Delivery to Carrier – If the seller delivers the goods to a carrier for transmission to the buyer without reserving the right of disposal, the goods are deemed to have been appropriated.
Example: A agrees to sell 1,000 kg of sugar from a stock of 5,000 kg. A separates 1,000 kg, labels it for delivery, and informs B. When B accepts this, the goods become appropriated, and property passes to B.
Rules Regarding Passing of Property on Appropriation
The following rules govern the passing of property in unascertained goods upon appropriation:
(a) Delivery to Carrier
If the seller delivers the goods to a carrier without reserving the right of disposal, the goods are deemed to have been appropriated, and the property passes to the buyer [Section 23(2)].
(b) Right of Disposal
If the seller retains the right of disposal until certain conditions are met, the property does not pass until those conditions are satisfied (Section 25).
(c) Consent of Parties
Consent can be either express or implied. Acceptance by the buyer of the goods appropriated by the seller implies consent.
(d) Transfer of Risk
Under Section 26, the risk passes with the property unless otherwise agreed. Therefore, if the goods are appropriated and property passes to the buyer, the risk also passes to the buyer.
Case Laws on Unascertained Goods and Appropriation
- Wait and James v. Midland Bank Ltd. [(1926) AC 496]: In this case, it was held that the property in unascertained goods does not pass until they are specifically identified and appropriated with the consent of both parties.
- Aldridge v. Johnson [(1857) 7 E & B 885]: The court held that the property in a portion of barley in a warehouse did not pass until the portion was separated from the larger bulk.
- Carlos Federspiel v. Charles Twigg & Co. Ltd. [(1957) 1 Lloyd’s Rep. 240]: The court held that the mere intention to appropriate goods is not sufficient; there must be a clear act of separation and earmarking of goods for delivery.
Risk and Ownership in Appropriation
- When the goods are ascertained and appropriated, ownership passes to the buyer.
- Under Section 26, the risk of loss or damage passes with the property unless otherwise agreed.
- If the seller retains the right of disposal, the risk remains with the seller until the right is exercised or waived.
Practical Implications of Unascertained Goods and Appropriation
- In contracts involving bulk goods (e.g., grains, oil, minerals), ascertainment and appropriation are essential for the passing of property.
- Sellers and buyers need to be cautious in defining the terms of ascertainment and appropriation to avoid disputes over ownership and liability.
- If a contract specifies delivery in installments, each installment must be appropriated separately.
Conclusion
Unascertained goods and appropriation are fundamental concepts under the Sale of Goods Act, 1930 that determine the point at which property and risk in the goods pass from the seller to the buyer. The process of appropriation requires identification, separation, and mutual consent of the parties involved. The legal framework provided under Sections 18, 23, 25, and 26 ensures clarity and certainty in commercial transactions involving unascertained goods. Understanding these principles is essential for both buyers and sellers to safeguard their rights and obligations under Indian contract law.
References
[1] Sale of Goods Act, 1930
[2] Universal Guide to Judicial Service Examination (19th Edition), Lexis Nexis
[3] Transfer of Ownership and Delivery, Available Here
[4] ​Ajitabh Mishra, Notes on the Sale of Goods Act, 1930, Available Here
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