THE SALE OF GOODS

TRANSFER OF PROPERTY

INTRODUCTION

The Act contains, within sections 16-19, detailed provisions in respect of the transfer of property from seller to buyer. However, under these provisions, property in the goods does not necessarily pass either when the goods are delivered or indeed when they are paid for: property can pass at some other time. It is by reference to the concept of property that a number of important practical matters are determined. Therefore it is often vital to know when property has been transferred for the following reasons:

Unless otherwise agreed, the risk of accidental loss or damage passes to the buyer when property passes: s. 20 (1). The buyer will therefore have to pay the price if the goods are damaged or destroyed through no fault of the seller after property, and so risk, have passed. The buyer should therefore consider insuring the goods. (nb. s.20(4) in respect of consumer buyers)

If the seller becomes insolvent before property has passed to the buyer then the buyer will not be able to claim the goods and will simply be an unsecured creditor; but see now ss. 20A and 20B).

If the buyer becomes insolvent before paying for the goods then provided property has not passed to the buyer, the seller may be able to repossess the goods even if delivery has taken place. If property has passed the seller will simply be an unsecured creditor. Use of retention of title clauses (see later) has therefore become common in order to protect the position of the seller.

Until property passes to the buyer, the seller cannot sue for the price of the goods: s. 49. The seller can sue for damages should the buyer refuse to accept the goods (see s.50), but the seller must then mitigate any loss.

Until property passes to the buyer he is not normally entitled to pass property to a subbuyer in a resale of the goods. (However, you will discover later that there are a number of exceptions to this general rule which may enable the sub-buyer to acquire property in such circumstances).

Only if the buyer has property or a right to possession of the goods will the buyer have the right to sue a third party in tort if the goods are wrongly detained, stolen or damaged.

1. THE CLASSIFICATION OF GOODS The classification of the goods as existing/future and as specific/unascertained is of vital importance in determining when property passes from seller to buyer. Remember also the distinction between a sale and an agreement to sell. Note that the classification is determined at the time when the contract of sale is made. Unascertained goods may become ascertained but they can never become specific. Goods can only be specific if identified and agreed upon when the contract of sale is made.

2. THE RULES RELATING TO THE TRANSFER OF PROPERTY The main rules are contained in sections 16 to 18 of the Act. Note the hierarchy of the sections: section 16 overrides section 17 and section 17 overrides section 18. As regards contracts for unascertained goods, s.16 states that property in unascertained goods cannot be transferred to the buyer until they are ascertained (but note the impact of sections 20A and 20B). Subject to this, s.17 provides that it is a matter of looking at the parties' intentions, whether express or implied. Thus s.17(2) provides: For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (Who bears the risk? Who is required to insure the goods?) The problem is that parties do not usually consider when property is to pass unless they

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have special reason to do so. An obvious situation when it would be considered is where the seller is selling goods on credit and wishes to reserve property: see s.19 which provides a specific example of party intention. The courts are only concerned with evidence relating to the parties' intentions at the time of the contract; see Dennant v Skinner and Collom [1948] 2 KB 164 If the parties intentions are not clear then s. 18 provides presumptive rules for ascertaining the intention of the parties unless a different intention appears. Section 18, Rule 1 "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 whether the time of payment or the time of delivery, or both, be postponed." Tarling v Baxter (1827) 108 E.R. 484 (But see Ward (RV) Ltd v Bignall [1967] 1 QB 534 and Lacis v Cashmarts [1969] 2 QB 400). "in a deliverable state" a restricted meaning Defined in section 61 (5) as meaning when goods are "in such a state that the buyer would under the contract be bound to take delivery of them." Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343 I do not mean deliverable in the sense that it is properly packed or anything of that kind. It must have everything done to it that the sellers had to do to it as an article. Per Rowlatt J. For more recent consideration see Rohit Kulkarni v Manor Credit Ltd [2010] EWCA Civ 69. (See also Philip Head v Showfronts [1970] 1 Lloyds Rep 140)

What are the consequences of s.18 rule1?

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(But in the case of consumer buyers, see now s.20(4) and s.32(4), as introduced by the Sale and Supply of Goods to Consumers Regulations 2002) Section 18, Rule 2 "Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until the thing is done and the buyer has notice that it has been done." The requirement as to notice (not necessarily by the seller) provides the buyer with an opportunity to arrange insurance. A contract to purchase a painting, the seller to frame it as required by the buyer? Section 18, Rule 3 "Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until the act or thing is done and the buyer has notice that it has been done". This rule has a fairly narrow application since in most situations any such goods will be unascertained. Section 18, Rule 4 "When goods are delivered to the buyer on approval or on sale or return or other similar terms the property in the goods passes to the buyer: when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;

a)

b) if he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection then, if a time has been fixed for the return of the goods on the expiration of that time, and, if no time has been fixed on the expiration of a reasonable time".

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Do such arrangements constitute sales or agreements to sell at the time of delivery? Section 18, Rule 5 "Where there is a contract for the sale of unascertained or future goods by description, and goods of that description 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, and assent may be express or implied, and may be given either before or after the appropriation is made." ascertainment Before s. 18 rule 5 can be applied, the goods must first become ascertained as required by section 16. Goods must be identified in accordance with the agreement after the time a contract of sale is made per Atkin LJ in Re Wait [1927] 1 Ch 606. Re London Wine Co (Shippers) Ltd [1986] PCC121 (See also Re Goldcorp Exchange Ltd [1994] 2 All ER 806 and compare the very particular facts of Re Stapylton Fletcher Ltd [1995] 1 All ER 192; contrast also Everwine Ltd v Commissioners of Custom and Excise [2003] EWCA Civ 953) ascertainment by exhaustion Karlshamms Oljefabriker v Eastport Navigation, The Elafi [1982] 1 All ER 208 For statutory recognition of these principles see now section18, rule5, sub-sections (3) & (4). There are now special rules relating to the sale of goods forming part of a bulk; see later sections 20A and 20B. unconditionally appropriated Appropriation requires particular goods to be irrevocably earmarked for the performance of the contract. Once so appropriated the seller cannot tender other goods without the consent of the buyer.

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Carlos Federspiel v Twigg and Co [1957] 1 Lloyd`s Rep. 240 Per Pearson J : : : : : an element of common intention an agreement to a change of ownership an actual or constructive delivery the association with risk ordinarily the last act to be performed by the seller

For a more recent discussion and endorsement of these principles see Rohit Kulkarni v Manor Credit Ltd [2010] EWCA Civ 69.

Contrast the decision in Aldridge v Johnson (1857) 7 E & B 885.

Section 18, rule 5, sub-section 2 provides a particular example of unconditional appropriation: where the seller delivers the goods to the buyer or to a carrier or other bailee for transmission to the buyer, and does not reserve a right of disposal.

Wardar's (Import and Export) Co. Ltd v W. Norwood and Sons Ltd [1968] 2 QB 663

It is perfectly possible for the same act to both ascertain and unconditionally appropriate the goods.

Note that the appropriation must be unconditional if property is to pass. Assent is also required although this may be either express or implied and may be given in advance of the appropriation. (See Pignataro v Gilroy [1919] 1 KB 459).

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Further reading: Campbell, Passing of property in contracts for the sale of unascertained goods, J.B.L. 1996, Mar, 199-205

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