The Legal Transfer of Property in Sale of Goods Contracts
In our previous post, we examined what exactly a sale of goods contract is, differentiating it from other arrangements like bailment, hire-purchase, agency, or gifts. We explored essential legal concepts such as what counts as “goods,” the difference between a “sale” and an “agreement to sell,” and how legislation like the Sale of Goods Act (SGA) and the Consumer Rights Act (CRA) protect the parties involved.
Now, we’re taking it a step further.
To fully understand how sale contracts work—not just in theory but in real life—you need to understand when and how ownership (property) in the goods transfers from seller to buyer.
This moment has serious implications: it determines who bears the risk if goods are damaged, who owns the goods during transit, and who loses if one party becomes insolvent.
What Does “Transfer of Property” Really Mean?
In commercial law, “property” doesn’t mean physical possession. It means legal ownership—the right to control, sell, use, or dispose of the goods.
Under the SGA and equivalent commercial rules worldwide, a sale of goods occurs when the seller transfers or agrees to transfer the property in the goods to the buyer for money. The law sees this transfer of ownership as the core moment of the transaction.
Unlike contractual rights, which are enforceable only between the parties involved, ownership gives you rights that are universal—they are enforceable against everyone. This is why the legal moment when ownership passes matters so much.
Why the Transfer of Ownership Is Legally Distinct from Delivery
Many assume that ownership transfers as soon as the buyer receives the goods. But that’s not always the case. Delivery and transfer of ownership are not the same thing.
Let’s break it down:
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A contract of sale is the legal agreement.
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The passing of property is a legal consequence that may occur at the same time—or later.
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Even if the goods are in the buyer’s hands, the seller might still legally own them if the contract hasn’t made ownership pass.
This distinction is critical in many industries. For example:
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In retail, ownership often passes at the point of sale.
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In international trade, ownership might not pass until after the buyer has paid or accepted delivery.
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In B2B manufacturing, the parties may agree that ownership only passes after final inspection or payment in full.
How the Law Determines When Ownership Passes
Section 16 of the SGA states that ownership cannot pass until the goods are ascertained. That means the goods must be identified, designated, or set aside specifically for the buyer.
Think of it this way: you can’t transfer ownership of “some laptops in stock”—you can only transfer ownership of those specific laptops that are tagged, boxed, and reserved for the buyer.
So, if the goods are not yet made, or not yet identified within a bulk, then no property passes, even if the buyer paid in full.
This is a massive risk in business transactions if not properly managed.
Ascertainment and the Role of Bulk Goods
When a buyer agrees to purchase from a bulk—say, 1,000 bottles of olive oil from a tanker—the property won’t pass until the exact bottles or amount is measured, set aside, or delivered.
But there's more.
Under modern commercial law (including reforms added to the SGA in 1995), property can pass by “ascertainment through exhaustion”. That means:
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If a ship carries 10,000 kg of cocoa and the seller has already delivered 7,000 kg to other buyers,
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and you contracted for the remaining 3,000 kg,
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the goods become ascertained simply by process of elimination—your order is the only one left.
Once the cargo is reduced to the buyer’s portion, ownership can pass—even if no physical division took place.
Legal Protections in Co-Owned Bulk Sales (Modern Reforms)
The law has evolved to offer more flexibility.
When multiple buyers purchase undivided portions from an identified bulk (e.g., 500 liters each from a 10,000-liter tank), Section 20A and 20B of the SGA now allow buyers to become co-owners of that bulk. This protects buyers even before exact goods are separated.
In practical terms:
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You buy 5% of the wine in a bonded warehouse.
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The wine isn’t bottled yet, and there’s no individual label with your name on it.
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But under the law, you still acquire a share in the bulk, as long as conditions are met.
This means that if the seller goes bankrupt, you’re not just an unsecured creditor—you’re a legal co-owner. That changes everything.
Why It All Matters in the Real World
Let’s say you run a small sustainable skincare brand, and you place a large order for 10,000 glass containers from a manufacturer overseas.
If your contract is poorly written and doesn’t specify when property passes:
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You might pay upfront, but if the goods aren’t identified or set aside, and the seller collapses, you lose your money.
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On the other hand, if property passed to you once the goods were packaged, and a fire destroyed them before shipment, then you bear the loss—even though the goods never arrived.
These aren’t just legal details. They can determine whether your business survives or goes under.
But there's another critical aspect to consider:
Who bears the risk if something goes wrong?
Contrary to popular belief, ownership and risk do not always pass at the same time. In fact, one of the most dangerous assumptions in business is thinking that as soon as you pay, the goods are yours and the risk is gone.
In commercial law, that’s not how it works.
Rule of Thumb: Risk Follows Ownership — Unless the Contract Says Otherwise
The general principle under Section 20 of the Sale of Goods Act (SGA) is this:
Unless otherwise agreed, the goods remain at the seller’s risk until the property is transferred to the buyer.
Once ownership passes, risk passes too—meaning if the goods are damaged, stolen, or lost after that point, the buyer suffers the consequences, even if the goods haven’t yet been delivered.
Let’s see how this works with a real-world business example.
Business Example – Who Bears the Loss?
You’re a small business in Sweden importing 5,000 hand-crafted ceramic mugs from a supplier in Vietnam. You’ve paid in advance, but the contract doesn’t say exactly when ownership passes.
The mugs are damaged at the port in Vietnam, just days before shipment.
Now the big question: who bears the financial loss?
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If ownership had passed before the accident (e.g., once the mugs were packaged and set aside for you), you bear the risk—even if you never received the goods.
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If ownership had not yet passed (e.g., because the mugs were not in a deliverable state), the seller bears the risk and must replace or refund the order.
The answer depends on how the contract defines ownership—and if it’s silent, the SGA rules apply by default.
When Are Goods in a “Deliverable State”?
A key rule is found in Section 18, Rule 2 of the SGA:
If goods are not in a deliverable state at the time of the contract, and the seller must do something to put them in that state (e.g. package, assemble, test), ownership does not pass until: (1) the thing is done, and (2) the buyer is notified.
This makes sense from a fairness point of view.
Why should you bear the risk of items that weren’t even finished or ready?
So in our ceramic mugs example, if they still needed final glazing or packaging, ownership had not passed, and the seller bears the loss.
Section 18, Rule 3 – Ownership Waits Until the Price Is Determined
What if the goods are already in deliverable state, but the price depends on a final task like weighing, measuring, or testing?
In this case, ownership doesn’t pass until that task is done and the buyer is notified.
This applies, for instance, when you buy “500 kg of almonds at market price per kg.” Even if the goods exist and are ready, the exact price isn’t known until the final weighing.
So again, property and risk remain with the seller until the process is completed and the buyer is informed.
But if the contract says someone other than the seller will do the measuring (e.g., an independent lab), then this rule doesn’t apply and ownership may pass earlier.
Practical Contract Tip: Always Define When Property Passes
Business professionals—especially in B2B transactions—must be proactive about ownership and risk.
You can’t afford to rely on automatic legal rules. Instead:
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Specify in the contract when ownership passes. For example:
“Property shall pass upon full payment and written confirmation of shipment.”
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Separate risk from ownership if necessary. For instance:
“Risk shall pass to the buyer upon delivery at the port of origin, regardless of property.”
These clauses help protect your business when goods are lost in transit, destroyed in a warehouse fire, or delayed by customs.
Courts Step In When Contracts Are Silent or Unclear
When a dispute arises and the contract doesn’t make things clear, courts turn to the default rules under the SGA to decide:
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Was the item in a deliverable state?
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Did the buyer know the goods were ready?
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Was the price determined?
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Had the buyer accepted the goods or started using them?
These questions help judges decide when ownership actually passed, and who should bear the consequences of loss or damage.
This is why ambiguous clauses are dangerous—especially when cross-border transactions, customs delays, or insolvency are involved.
Real-World Business Case: Clothing Retailer Bankruptcy
Imagine this scenario:
A UK-based online fashion retailer places a large order of branded jackets from a manufacturing partner in Portugal. The order is worth £250,000.
The contract says nothing about when property passes.
Before the jackets are shipped, the UK company goes bankrupt.
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If ownership had passed before bankruptcy, the jackets form part of the company’s assets and will be claimed by creditors.
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If ownership had not yet passed, the goods still belong to the seller, who can resell them and avoid the loss.
The seller argues the goods were not yet in a deliverable state because final branding and packaging were not completed.
The court agrees. Ownership never passed, so the seller keeps the goods.
Moral of the story? The right legal wording can save your business from losing your products—or from losing your money.
When does ownership (property) in goods typically pass to the buyer under the Sale of Goods Act?
Ownership passes when the goods are ascertained, in a deliverable state, and any conditions like price determination are fulfilled
Ownership passes immediately once the contract is signed, regardless of the goods’ state
Ownership never passes until the goods are delivered to the buyer
Ownership passes only after the buyer pays in full, even if the goods are ready for delivery
What is the key legal difference between ownership (property) and possession (delivery)?
Ownership gives universal legal rights enforceable against anyone; possession only gives physical control, not legal ownership
Possession automatically transfers ownership by law
Ownership only matters for international sales; domestically possession is enough
