COMMERCIAL LAW – SALE OF GOODS

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Published On: 26th April, 2024

Authored By: Nirmala Bobby Panicker
De Montfort University

This article aims to discuss & provide a comprehensive analysis of the rules governing the precise moment in Passing of Property in Business to Business contracts in the UK, from the seller to the buyer, which is governed by the Sale of Goods Act 1979(SOGA)(as amended).[1] The distinction between specific and unascertained goods plays a crucial role in determining the application of these rules.

SOGA[2] sets out a number of rules explaining the precise time when property in the goods passes to the buyer. The crucial factor is determining whether the goods are specific or unascertained, as determining property transfer depends on this distinction.[3]

Property is defined as general property in goods(ownership), and not merely a special property. Passing of property as between seller and buyer is dealt within ss.16–19(SOGA),[4] with varying rules based on whether the sale involves specific, ascertained, or unascertained goods. 

Specific goods are goods identified and agreed on at the time a contract of sale is made(s.61(SOGA)).[5] Meaning, both buyer and seller identify and agree upon precisely on goods in the contract. At the time of making contract, goods are either specific or unascertained. Unascertained goods are goods not known and identified at the time of the contract and covers generic goods, goods to be made or acquired by seller and unidentified part of specified bulk or whole,[6] although this is not defined under(SOGA). [7]

Unascertained goods will become ‘ascertained’(but never specific) through ‘identification in accordance with agreement after the contract is made’ per Atkin LJ in Re Wait[8] or when goods are set aside for buyers A, B & C in one load.[9]  To determine intention of the parties, terms of contract, conduct of parties, and circumstances of the case are considered.[10] Thus, where the terms of contract expressly sets out when property in goods is to pass, only argument is one of construction.[11]

Per, s.16SOGA,[12] goods must be specific/ascertained for property to pass to the buyer. Exceptions to s.16[13]are; trust, estoppel, tenancy in common, s.20A & s.20B[14] and s.18 Rule5.[15]

Henceforth, classification of goods is fundamental in determining whether the property(ownership) has passed from seller to the buyer. This does not necessarily take place when possession or payment of goods is made.[16]

Once s.16[17] is satisfied, S.17[18] is considered to satisfy the criteria of intention,[19] which contains the primary rule governing property transfer:  property in goods is transferred at the time intended by parties, however, it does not override s.16.[20]

S.17(2)[21] adds that contract terms, parties’ conduct, and circumstances of the case must all be considered to determine parties’ intention. However, s.17(2)[22] commonly refers to trade custom & past course of dealings.[23] Henceforth, courts would simultaneously apply s.18 Rules 1-4[24] to ascertain intention.

S.18[25] is applied where no express intention is found and property is considered transferred when the parties intend it to be transferred. Although in practice very little is needed to give rise to the inference that property in specific goods is to pass only on delivery or payment.[26] Nevertheless, all rules in s.18[27] can be ousted by contrary intention,[28] they are not to be regarded as rules of law as they are no more than prima facie presumptions as to the intention of the parties.

s.18 Rule 1[29] deals with unconditional sale of specific/ascertained goods whereas s.18 Rule 2-4[30] deals with conditional sale of specific/ascertained goods. Here, s.18 Rule1(r1)[31] will be applied as it applies to unconditional contract for sale of specific goods in deliverable state.  

Per s.18(r1)[32] property in the goods passes to the buyer when the contract is made; and that it is immaterial whether the time of payment or the time of delivery, or both, are postponed as seen in Dennant v Skinner & Collom.[33] 

In the early cases of Varley v Whipp [34] and Ollett v Jordan,[35] contracts deemed ‘conditional’ because goods were defective, violating conditions of description(S.13)[36] and satisfactory quality(S.14(2)).[37]  Presently, this has been changed and the preferred perspective is that ‘unconditional’ means not contingent on any condition for property transfer.  Here, the used deck is not subject to any condition as there is nothing to be met or prevent the property from passing.

Goods are in a ‘deliverable state’ when they are in a state that the buyer would under the contract be bound to take delivery of them.[38] Property won’t transfer, and goods are not in a deliverable state if any action is required to comply with the contract or prepare them for delivery.[39] ‘Deliverable state’ extends beyond the movability of goods.[40]

S.18 Rule 3(SOGA) [41]pertains to the passing of property in specific or ascertained goods in the context of a contract that involves conditional sales. Specifically, Rule 3 [42]deals with a scenario where 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.

In essence, S.18 Rule 3[43] states that if the seller is required to perform an action such as weighing, measuring, or testing to determine the price of the specific goods, the property in those goods will not pass until such an act or thing is done, and the buyer has notice that it has been done. This rule underscores the conditionality of the property transfer in cases where certain actions are necessary to ascertain the final price of the goods.

S.18 Rule 4(SOGA)[44] addresses conditional sales where the buyer must perform an act to ascertain the price. It states that property in the goods won’t pass until the buyer performs the required act and receives notice that it’s done. This rule emphasizes the conditionality of property transfer in such cases.Top of Form

S.18-Rule5(r5)[45] is used as an exception s.16 when no intention is evident in unascertained goods.[46] s.18(r5(1))[47]  states 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 seller with the assent of buyer or by the buyer with the assent of seller, property in the goods then passes to the buyer. Thus, property in unascertained goods will pass, if it becomes ascertained.

Assent can be provided explicitly or implicitly, and it can happen before or after the appropriation is made. Where assent is given after the unconditional appropriation is made, property in the goods passes when the other party’s assent is given and not upon the appropriation of the goods.[48]

Principles aforementioned in s.18(r1) would apply in s.18(r5) when considering if goods are in ‘deliverable state’. Philip Head & Sons Ltd v Showfronts Ltd[49]  concerned s.18(r5(1)) and not s.18(r.1), requiring unconditional appropriation of goods ‘in a deliverable state’. Philip[50] established, ‘where conditions are to be met before goods could be considered in a deliverable state, property will not pass until those conditions are met’.

To constitute an unconditional appropriation of the goods to the contract, the parties must have had, or must be reasonably supposed to have had, an intention to attach the contract irrevocably to the goods, so that those goods and no others are the subject of the sale and become the property of the buyer.[51] ‘Appropriation’ has the connotation of a physical segregation or setting aside. Thus unconditional appropriation means, that the seller will not be able to change his mind and supply any other goods,[52] no matter how similar they are to those that have been allocated to the contract and is immaterial if payment is made or yet to be made.[53]

Re London Wine[54] illustrates goods will become unconditionally appropriated to the contract when they are irrevocably earmarked as the goods to be used to satisfy the contract. ‘Common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates’.[55] Essentially, appropriation is simply the corollary of the rule in s.16 [56]that property cannot pass in goods so long as those goods remain unascertained.

Moreover, S.20A(SOGA)[57] becomes relevant when dealing with undivided shares in goods forming part of an identified bulk. Conditions, such as the sale of a specified quantity of unascertained goods, the identification of the bulk, and payment by the buyer, must be met for s.20A [58]to apply.  S.16 provides, subject to(s.20A), where there is a contract for sale of unascertained goods, no property in them is transferred to buyer unless and until the goods are ascertained’.[59] 

s.20A[60] allows buyers, who has paid for some or all of the goods for a specified quantity of unascertained goods from an identified bulk, to become a co-owner of the bulk with other co-owners. While it doesn’t alter the requirement for property ascertainment before transfer, it provides protection to the buyer in case of seller insolvency(though not confined to it)[61] before ascertainment.

S.20A[62] applies if three conditions are met: 1) the contract involves the sale of a specified quantity of unascertained goods (excluding fractions or percentages), 2) the bulk must be identified, and 3) the buyer must have paid for some or all of the goods forming part of the identified bulk. [63]

“Identified bulk” refers to a mass of goods of the same kind in a defined space/area, where the goods are interchangeable within the bulk, but the bulk itself is not interchangeable(s.61(1)).[64] S.20A(1)(a)[65] permits identification in the contract or subsequent agreement. When conditions in(s.20A(1))[66] are met, property passes, and buyer becomes a common owner of the bulk under(s.20A(2)),[67] unless specified otherwise. If buyer takes part delivery, those goods are regarded as goods paid for, and any shortfall of goods is applied pro-rata to the remaining bulk(s. 20A(3),(5)&(6)).[68]

S.20A(4)[69] addresses the possibility that the aggregate of shares of multiple buyers surpass the entire bulk due to over-commitment by the seller or loss of part. In such cases, the undivided shares of all buyers are proportionately reduced.

However, if the sum of shares of multiple buyers exceeds the entire bulk due to over-commitment by the seller or loss of part,  20A(4) will apply(if buyer’s name is written). In such cases, the undivided shares of all buyers are proportionately reduced to accommodate the situation where the aggregate surpasses the available goods and if some of the share belongs to the seller that would be disregarded and the proportion of the share of the buyer would increase.[70]

In conclusion, the rules governing the passing of property in business-to-business contracts under the Sale of Goods Act 1979 are intricate and multifaceted. The nuances between specific and unascertained goods, unconditional sales, deliverable states, and undivided shares in goods contribute to a comprehensive framework that requires careful consideration in each unique transaction. The application of these principles to the presented case underscores the importance of legal clarity and attention to detail in commercial transactions.

Bibliography

Primary Sources

Table of Cases

Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 (QB)

Dennant v Skinner & Collom [1948] 2 KB 164

Edwards v Ddin [1976] 1 WLR 942

Hendy Lennox (Industrial Engineers) Ltd v Graham Puttick [1984] 1 WLR 485

Karlshamns Oljefabriker v Eastport Navigation Corp [1982] 1 All ER 208

Kulkarni v Manor Credit (Devanham) Ltd [2010] EWCA Civ. 69

Kursell v Timber Operators & Contractors Ltd [1927] 1 KB 298

Ollett v Jordan [1918] 2 KB 41

Philip Head & Sons Ltd v Showfronts Ltd [1969] 11 WLUK 74

Pignataro v Gilroy [1919] 1 KB 459 (KB)

Re Anchor Line (Henderson Brothers) Ltd [1937] Ch 1 (CA)

Re Goldcorp Ltd [1995] 1 AC 74

Re London Wine Co (Shippers) Ltd [1986] PCC 121 (QB)

Re Stapylton Fletcher Ltd [1994] 1 WLR 1181

Re Wait [1927] 1 Ch 606

RV Ward Ltd v Bignall [1967] 1 QB 534

Santer-Automation Ltd v H C Goodman [1986] 2 FTLR 239

Seath & Co v Moore (1886) 11 App Cas 350

Underwood Ltd v Burgh Castle Brick & Cement Syndicate [1922] 1 KB 343 (CA)

Varley v Whipp [1900] 1 QB 513

Table of Statutes 

Sale of Goods Act 1979

Sale of Goods(Amendment) Act 1995

Secondary Sources

Books

 B Eric, Commercial Law Concentrate (6th edn, OUP 2022)

  B Eric and O Greg and R Lee, Commercial Law (4th edn, OUP 2022)

  C Rick, T Christian, A Patrick, Atiyah & Adams’ Sale of Goods (14th edn, Pearson Education 2020)

  F David and others, Sealy and Hooley’s Commercial Law (6th edn, OUP 2020)

  F Michael and C Jason, Commercial Law (2nd edn, Pearson Education 2013)

  J Lucy, Introduction to Business Law (5th edn, OUP 2019)

Journals

B Tom, ‘Better Late than Never: The Reform of the Law on the Sale of Goods Forming Part of a Bulk’ 59 MLR 260

Iwan Davies, ‘Continuing dilemmas with passing of property in part of a bulk’ (1991) JBL 111

 

[1] Sale of Goods Act 1979.

[2] Sale of Goods Act 1979.

[3] Eric Baskind and Greg Osborne and Lee Roach, Commercial Law (4th edn, OUP 2022).

[4] Sale of Goods Act 1979.

[5] Sale of Goods Act 1979, s 61.

[6] Rick CanavanChristian Twigg-FlesnerPatrick Atiyah, Atiyah & Adams’ Sale of Goods (14th edn, Pearson Education 2020).

[7] Sale of Goods Act 1979.

[8] Re Wait [1927] 1 Ch 606.

[9] Re Stapylton Fletcher Ltd [1994] 1 WLR 1181.

[10] Sale of Goods Act 1979, s 17.

[11] Re Anchor Line (Henderson Brothers) Ltd [1937] Ch 1 (CA).

[12] Sale of Goods Act 1979, s 16.

[13] Sale of Goods Act 1979, s 16.

[14] Sale of Goods Act 1979, s 20.

[15] Sale of Goods Act 1979, s 18(r5).

[16] Lucy Jones, Introduction to Business Law (5th edn, OUP 2019).

[17]Sale of Goods Act 1979, s 17.

[18] Sale of Goods Act 1979, s 17.

[19] Karlshamns Oljefabriker v Eastport Navigation Corp [1982] 1 All ER 208.

[20] Sale of Goods Act 1979, s 16.

[21] Sale of Goods Act 1979, s 17(2).

[22] Sale of Goods Act 1979, s 17(2).

[23] Santer-Automation Ltd v H C Goodman [1986] 2 FTLR 239.

[24] Sale of Goods Act 1979, s 18.

[25] Sale of Goods Act 1979, s 18.

[26] RV Ward Ltd v Bignall. [1967] 1 QB 534. 

[27] Sale of Goods Act 1979, s 18.

[28]Iwan Davies, ‘Continuing dilemmas with passing of property in part of a bulk’ (1991) JBL 111.

[29] Sale of Goods Act 1979, s 18(r1).

[30] Sale of Goods Act 1979, s 18.

[31] Sale of Goods Act 1979, s 18(r1).

[32] Sale of Goods Act 1979, s 18(r1).

[33] Dennant v Skinner & Collom [1948] 2 KB 164.

[34] Varley v Whipp [1900] 1 QB 513.

[35] Ollett v Jordan [1918] 2 KB 41.

[36] Sale of Goods Act 1979, s 13.

[37] Sale of Goods Act 1979, s 14(2).

[38] Sale of Goods Act 1979, s 61(5).

[39] Seath & Co v Moore (1886) 11 App Cas 350; Underwood Ltd v Burgh Castle Brick & Cement Syndicate [1922] 1 KB 343 (CA).

[40] Kulkarni v Manor Credit (Devanham) Ltd [2010] EWCA Civ. 69.

[41] Sale of Goods Act 1979, s 18(r3).

[42] Sale of Goods Act 1979, s 18(r3).

[43] Sale of Goods Act 1979, s 18(r3).

[44] Sale of Goods Act 1979, s 18(r4).

[45] Sale of Goods Act 1979, s 18(r5).

[46] Lucy Jones, Introduction to Business Law (5th edn, OUP 2019).

[47] Sale of Goods Act 1979, s 18(r5(1)).

[48] Pignataro v Gilroy [1919] 1 KB 459 (KB).

[49] Philip Head & Sons Ltd v Showfronts Ltd [1969] 11 WLUK 74.

[50] Philip Head & Sons Ltd v Showfronts Ltd [1969] 11 WLUK 74.

[51] Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 (QB).

[52] Hendy Lennox (Industrial Engineers) Ltd v Graham Puttick [1984] 1 WLR 485.

[53] Edwards v Ddin [1976] 1 WLR 942.

[54] Re London Wine Co (Shippers) Ltd [1986] PCC 121 (QB).

[55] Re Goldcorp Ltd [1995] 1 AC 74.

[56] Sale of Goods Act 1979, s 16.

[57] Sale of Goods Act 1979, s 20A.

[58] Sale of Goods Act 1979, s 20A.

[59] Tom Burns, ‘Better Late than Never: The Reform of the Law on the Sale of Goods Forming Part of a Bulk’ 59 MLR 260.

[60] Sale of Goods Act 1979, s 20A.

[61] Re Wait [1927] 1 Ch 606.

[62] Sale of Goods Act 1979, s 20A.

[63] Sale of Goods Act 1979, s 20A (1).

[64] Sale of Goods Act 1979, s 61(1).

[65] Sale of Goods Act 1979, s 20A (1)(a).

[66] Sale of Goods Act 1979, s 20A (1).

[67] Sale of Goods Act 1979, s 20A (2).

[68] Sale of Goods Act 1979, s 20A.

[69] Sale of Goods Act 1979, s 20A (4).

[70] Michael Bridge, ‘Risk, Property & Bulk Goods in International Sales’ [2019] LMCLQ 57.

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