#13886 - Ownership In Sale Of Goods - Commercial Law

Ownership in Sales of Goods

Introduction to the sale of goods

• Section 12 SGA, In a contract of sale…there is an implied condition on the part of the seller that, in the case of a sale, he has the right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass…’.

• So s.12 gives us the implied condition that the seller in the case of the sale has the right to sell the goods. In other words that the seller is the owner.

• If we have an agreement to sell, then the seller has to be the owner by time the sale is preformed

• So you could agree to sell something, and then later acquire ownership – linked to the right to sell

• So s.12 presumes that the seller has the good title

• In the relationship between seller and buyer, the seller can have many roles

  • Initially the seller is the owner of the goods and therefore s is selling the goods to the buyer

  • But as we will see quite often the buyer will pay for the goods and property will pass to him - he is now is the owner of the goods - but the goods continue to be in the possession of the seller

  • And as such the seller becomes the buyer’s bailee – and so the seller owes a duty to take reasonable care of the goods, and whatever is authorised by the buyer

What are the important results, which generally follow from the passing of property?

1. The first of these is that the risk in the goods prima facie passes with property

2. The second consequence is that generally speaking the seller is not entitled to sue for the price of the goods unless the property has passed

The classification of goods

• Existing goods – s. 5(1) SGA

  • Goods that exist at the time of contract e.g. in a warehouse

• Future goods - s. 5(3) ‘agreement to sell’

  • Something that is going to be manufactured, or something that is simply that you don’t have yet

• Specific goods - If the goods are identified and agreed upon at the time of the contract then they are specific goods s.61 (1)

• Unascertained goods – simply means goods which are not identified. In other words if the goods are not identified at the time of contract then they will fall under unascertained goods. There are three kinds of unascertainable goods:

  • Generic goods – goods referred to only as fitting a particular kind of description e.g. 100 tonnes of barley

    • It doesn’t matter there the barley came from, it just matters that the seller provides the correct amount

  • Goods not yet in existence – that still have yet to be manufactured or produced. For instance the sale of a reaping machine owned by a third party at the time of the sale. Well of course as yet it is kind of an agreement to sell, you have to wait until the first buyer acquires good title to it to sell it onto the second buyer. Seller owns it, buyer is waiting to own it, but in the mean time sells it to second buyer so a resale

  • Or where we have a part which is as yet unidentified of a specified bulk e.g. 500 tons out of 1000 tons of wheat aboard a vessel.

    • This is closer to being ascertainable. The goods must come from the specific vehicle stated. Almost quasi-generic.

When does property pass from the seller to buyer?

• The exact moment at which the property passes depends upon whether the goods are specific or unascertained. This is a fundamental caveat to the subject.

• Specific goods – look at the intention of the parties, when the parties intend it to pass: SGA, ss 17(1) and (2). Discern intention from conduct or express terms.

• Unascertained goods – property passes when parties intend it to pass (SGA, s17), but first the goods have to be ascertained (SGA. 16)

  • Key distinction between specific and unascertained goods: once ascertained goods are treated as specific goods

Unascertained goods

Where parties do not clearly evince their intention on when property shall pass in unascertained goods, then the s.18 rules apply:

• The rules are of the greatest importance, for the parties often do not have any clear intention, still less express any, as to the passing of the property

  1. In a deliverable state

  2. Seller bound to put into deliverable state

  3. In a deliverable state but seller must weigh/measure/test re: price

  4. Delivered by seller on ‘approval’ or ‘sale or return’ terms

  5. Sale by description

Serve to guide us when property passes for specific goods. 1-4 is for specific goods, and rule 5 is for unascertained goods.

s.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.’

• So in other words where we have specific goods in a deliverable state, property passes when the contract is made.

• Unconditional usually meaning without a condition precedent – something that has to happen before the contract is preformed

(i) Goods must be specific (under rule 1)

• s.61 gives us a definition of specific goods

• The common law also gives us insight into what specific goods means, the case of :

Kursell v Timber Operators [1927]

• In this case the seller sold to the buyer, and this is from the contract “all the trees in a Latvian forest conforming to 15 meters tall by a particular date”

• 15 years to remove the trees. The forest was confiscated before the sale took place

• The C of A held that property had not passed as the goods were not sufficiently identified. Why? Because in order for the them to be identified something had to be done (measure & cut the trees down). Not enough certainty

(ii) Goods must be unconditional (under rule 1)

• A contract not subject to a condition precedent or subsequent

• But every contract must at least contain at least some essential stipulations and most contracts contain a great many

(ii) Goods must be in a deliverable state

Philip Head v Showfronts

• This contract involved the sale of a carpet, and it was held that the carpet was not in a deliverable state, as importance was attached to the fact that the carpet had to be laid by the sellers

• The carpet was delivered to the buyers premises but was stolen before installation, and it was held that the property had not passed to the buyer

• Crucially when property does not pass to the buyer then risk does not pass to the buyer. The caveat here is that the buyer will not then be liable for the stolen carpet, the seller is.

• Note s.20(1) – res perit domino – which effectively says that he who is the owner has the risk. Seems to suggest a general rule that property and risk will pass together to the buyer. And so when property passes to the buyer and becomes the owner this is when the risk passes to the buyer.

• So this section is quite useful to this case as:

  • (1) To say that the goods were not in a deliverable state and had to be installed.

  • (2) Because they were not in a deliverable state, and risk did not pass, and so the buyer is not liable.

Underwood v Burgh

• A massive condensing machine, 30 tonnes. Obviously seems difficult to put this into a deliverable sate, 30 tonnes being extremely heavy. The court said here that clearly that it was not in a deliverable state, because it had to be detached and disassembled in order to facilitate the buyer to take the machine away.

• Although the general position is that the buyer must take delivery of the goods from the seller, or come to collect the goods, the seller has to ensure that they are in a deliverable state to facilitate the buyer. If he has not done that then surely the property has not passed to the buyer.

(iiii) Subject to contrary intention

Dennant v Skinner

• Auction sale of a car, and a blank cheque was presented in exchange for taking the property away.

• The buyer then sold the car to another buyer who sold to a fourth party. It turned out that the cheque bounced. Question for the court was whether property had passed? Because if property had passed here then clearly buyer 3 can keep the car. And then the dispute will be between buyer 1 and the auction house. Rather than auction house and buyer 3

• The court here said that property had passed, (unusual, but this is an auction situation), on the fall of the hammer. The document came later after the hammer, which came later. The court said it was immaterial that payment came after the fall of the hammer.

• Auction house should be put on notice, not innocent parties who buy the car

• Parties have not agreed otherwise – the auction house would have needed to say that property does not pass to you until the cheque clears

• Contract is made with the fall of the hammer

N.B. rules 2, 3 and 3 deal with the conditional sale of specific goods

s.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…’

• Alluding to the case of Underwood v Burgh Philip Head v Showfronts.

• If the goods are in a deliverable state, then deal with in rule 1.

• If the goods have to be put in a deliverable state then the property will not pass until then, this is what the 2^nd rule deals with.

• In Underwood v Burgh – once disassembled, then it is in a deliverable state.

s.18 rule 3

‘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 buy has notice that it has been done.’

• At all events Rule 3 only applies to acts to be done by the seller

• The seller must do something to the goods in order...