Professional Documents
Culture Documents
Contents
4 1 4 2 4 3 4 4 4 5 4 6 4 7 Introduction 56 The Sale of Goods Act 57 What is a contract of sale of goods? 59 Components of the sale contract 61 Passing of property 64 Risk 71 Perishing of goods and frustration of contract 72 Transfer of title 74 Reflect and review 81
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Introduction
The contract for the sale of goods is at the centre of this course. Sale contracts are a branch of the general law of contracts and the principles that you studied in the Elements of the law of contract subject guide apply here. Indeed, many of the cases you studied as part of that course involve sale contracts. There are, however, some special features of sale contracts. The most significant are the terms implied into the sale contract by the Sale of Goods Act 1979. In this chapter we look at the Sale of Goods Act, the definition of a sale contract, the rules on the passing of property and risk, and transfer of title. Chapter 5 considers delivery and acceptance of the goods and the implied terms in a sale contract. Chapter 6 deals with the remedies available to the parties where there has been a breach of the contract. It is worth noting that in some aspects this Act distinguishes between consumer and nonconsumer sale contracts. This part of the course concentrates on the latter, that is, on sales between business people.
Note: the Sale of Goods Act 1979 is referred to here as the Act or SGA. References to sections from the Act are merely noted by their section number: for example, s.14(1) refers to section 14(1), Sale of Goods Act 1979.
Learning outcomes
By the end of this chapter and the relevant readings you should be able to:
discuss the approach taken to interpretation of the Sale of Goods Act analyse the components of the definition of a contract of sale explain the circumstances in which property in goods is passed identify how risk is passed understand the nemo dat rule discuss and illustrate the exceptions to the nemo dat rule.
Essential reading
The main reading is Sealy and Hooley, but you should be aware that a number of books on contracts of sale are available and are worth consulting.
Atiyah, P.S., J. Adams and H. MacQueen The sale of goods. (London: Longmans, 2005) [ISBN 9780582894085]. Bridge, M. The sale of goods. (Oxford, Oxford University Press, 1998) [ISBN 9780198765355]. McKendrick, E. (ed.), Sale of goods. (London: LLP Professional Publishing, 2000) [ISBN 9781859783058]. For the issues raised in this chapter of the subject guide you can also consult Bradgate, pp.21944, 365437.
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Sealy and Hooley, Part III: Domestic sales law, Chapter 7: Introduction and definitions, pp.24547. The Sale of Goods Act 1893 was meant to codify the common law on contracts for the sale of goods, although in truth it is only a partial code because key areas of contract law are not fully covered or are entirely omitted (for example, formation and misrepresentation). The general principles of contract law are, therefore, still relevant (see s.62(2)). The approach to interpreting codifying statutes was laid down by Lord Herschell in a case on the Bills of Exchange Act 1882: I think the proper course is in the first instance to examine the language of the statute and to ask what is its rational meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view. (Bank of England v Vagliano Brothers [1891] AC 107). Atkin LJ confirmed that this was the correct approach to the SGA: Inasmuch as we are now bound by the plain language of the Code I do not think that decisions in cases before 1893 are of much value (Re Wait [1927] 1 Ch 606; Sealy and Hooley, p.246). Yet, what this means
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Activity 4.1
What problems are posed by Lord Diplocks approach to interpreting the SGA?
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Sealy and Hooley, Chapter 7: Introduction and definitions, pp.25772. The SGA defines a contract of sale of goods as: a contract in which the seller transfers [called a sale: s.2(3)] or agrees to transfer [an agreement to sell: s.2(4)] the property in goods to the buyer for a money consideration, called the price (s.2(1)). It is worth noting that property refers to the title to the goods and not the goods themselves. Before looking more closely at this definition, it is worth considering some transactions that are excluded.
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Summary
A sale contract is defined by s.2(1) SGA. The components of that definition must be present, so where there is no transfer of property it is not a sale. The importance of the distinctions between sale contracts and other types of contracts involving goods has been reduced but has not entirely vanished because, in so far as is possible, the same principles are applied to different types of contracts involving the supply of goods.
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4.3.1 Price
Essential reading
Sealy and Hooley, Chapter 7: Introduction and definitions, pp.25861, 272. The price must be a money consideration. This includes payment by credit card, but excludes contracts of barter (for example, the exchange of goods involving no payment). If the parties have not fixed a price, they may not have reached agreement in which case there is no contract (but see s.8, 9).
Activity 4.2
a Jake wishes to buy a new car priced at 7,000 from Mary, a dealer. Mary agrees to take Jakes old car and to reduce the price of the new car by 1,000. How would you characterise the transaction? b If goods are sold for 10 pence plus three wrappers from a chocolate bar, does the transaction fall within SGA?
4.3.2 Goods
Essential reading
Sealy and Hooley, Chapter 7: Introduction and definitions, pp.24854. The word goods in s.2(1) includes: all personal chattels other than things in action and moneyand in particular goods includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; and includes an undivided share in goods (s.61(1)). The Act does not apply to land (real property), nor shares and cheques (choses or things in action) or bank notes (money). Computer software has caused some difficulties and may not be covered by the SGA. Glidewell J took the view that the SGA does not apply, but went on to imply terms into the contract, which resembled those implied by the SGA, and so imposed strict liability for a defective software programme (St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481). The sale of bank notes that are not legal tender would be subject to the Act since their value derives from the notes themselves and not from their role as legal tender (Moss v Hancock [1899] 2 QB 111). The Act does cover crops that are attached to the land, although these are also land within the meaning of the Law of Property Act 1925, s.205 (Kursell v Timber Operators and Contractors Ltd [1927] 1 KB 298; Sealy and Hooley, p.253). Under s.61(1) goods includes an undivided share in goods so that a contract of sale includes the sale of part of a larger, undivided bulk of goods. We will discover the significance of this when we come to discuss the passing of property in goods (see section 4.4 below).
Emblement = the profits of sown land, particularly annually harvested grass, grain or fruit, etc.
Sealy and Hooley, Chapter 7: Introduction and definitions, pp.25157. While the price is the benefit received by the seller, the buyer receives both the goods and property in the goods. If one party becomes insolvent the question of who owns the goods or, in the words of the Act, has property in them determines whether the other party joins the ordinary creditors or is able to claim the goods themselves. In addition, since risk usually runs with property (s.20(1); section 4.5 below), who has property will often settle the question of who bears the loss if goods are damaged or destroyed (see Sealy and Hooley, pp.27477).
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i transfers, or ii agrees to transfer property in goods. The Act covers two distinct aspects, the contract to transfer and the transfer itself: in (i) these occur simultaneously, while in (ii) they are separated. What is the property that is being transferred? According to s.61(1) it is the general property in goods, and not merely special property. This means the seller is transferring, or agreeing to transfer, the absolute legal interest in the goods, so the transfer of something less than the sellers full legal interest does not constitute a sale: for example, bailment does not come within the SGA because it does not transfer the owners absolute legal interest in the goods, it just transfers possession. But absolute legal interest does not mean the transfer of perfect legal title. Indeed, various parts of the Act are concerned with situations in which a buyer acquires title where the seller had a defective title or no title at all (for example, ss.12(3) and 2126, see 4.7 below). Categorisation of goods The passing of property is connected with the way the Act categorises goods as existing or future and as specific or unascertained. This categorisation occurs at the time of the contract. Existing goods are those owned or possessed by the seller at the time of the contract (s.5(1)). Future goods are to be manufactured or acquired by the seller after the making of the contract (s.5(1)). So, if the goods do not yet exist or exist but are the property of someone other than the seller, they are future goods: for example, the sale by Jake to Pugwash of a Bentley motor car is a sale of future goods if Jake does not own the car at the time of the contract, but intends to acquire it (Varley v Whipp [1900] 1 QB 513). There cannot be a sale of future goods, only an agreement to sell (s.5(3)), but this still falls within the SGA (s.2). Specific or unascertained goods Existing and future goods will also be specific or unascertained goods. Under s.16, property will not pass in goods that are not ascertained (Re Wait [1927] 1 Ch 606; Sealy and Hooley, p.246; but see s.20A discussed in section 4.4.8). The distinction between specific and unascertained goods depends on when they are identified:
if the goods are identified and agreed upon at the time of the contract they are specific goods (s.61(1)) if they are not identified at the time of the contract they are unascertained goods. The sale of my Bentley is a sale of existing and specific goods if I only have one Bentley. I cannot perform the contract by substituting another Bentley, even if it has precisely the same specifications.
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Bridge, M. Personal property law. (Oxford: Oxford University Press, 2002) [ISBN 0199254761] particularly, pp.1215, 2627, 2831, 8093. Goode (2004), pp.3145.
Summary
The passing of property is determined, in part, by the categorisation of the goods as either existing or future and as either specific or unascertained. Into which categories goods fall depends on the situation at the time of the contract. Existing goods are owned by the seller, while future goods are not. Specific goods are identified at the time of the contract, while unascertained goods are not. Unascertained goods become ascertained when they are appropriated to the contract with the consent of both parties. These rules are important because, normally, property will not pass in unascertained goods (subject to an exception dealt with in 4.4.8).
Go to your study pack and read The concepts of property, title and owner used in the Sale of Goods Act 1893 by G. Battersby and A.D. Preston and A reconsideration of property and title in the Sale of Goods Act by the same authors.
Activity 4.3
How would you categorise the following (put your answers into the grid): a 100 tons of wheat to be harvested from a particular field next summer. b A particular second-hand reaping machine owned by someone other than the seller. c A book ordered from an internet bookseller. d A bag of flour taken from the shelf in a supermarket by a customer. Specific Existing Unascertained
Future Think of other goods that you have bought recently and put them into the relevant parts of the grid.
Go to your study pack and read the extract from Personal property law by M. Bridge.
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Sealy and Hooley, Chapter 8: Passing of the property in the goods as between buyer and seller, pp.293327.
ii Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. (s.16) This is based on what Lord Mustill called a priori common sense, which dictates that the buyer cannot acquire title until it is known to what goods the title relates (Re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74). But this general principle is subject to an important exception in s.20A (discussed in 4.4.8 below). iii Where the goods are specific or ascertained property will pass when the parties intend it to be transferred (s.17(1)). To determine their intention regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case (s.17(2)). Property may still pass even though the time for payment or delivery has not arrived (but see the remarks of Diplock LJ quoted in section 4.4.2 below). iv If no such intention can be discerned, the Act provides rules in s.18 to resolve the issue of when the property is to pass (see section 4.4.2 below). With the exception of rule 5, these rules are concerned with the passing of property in specific goods. v The courts have always rejected the idea that under a sale contract the buyer may acquire an equitable interest in the goods. Atkin LJ said in Re Wait [1927] 1 Ch 606 (see also Lord Brandon in Leigh v Sillavan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785): It would have been futile in a code intended for commercial men to have created an elaborate structure of rules dealing with rights at law, if at the same time it was intended to leave, subsisting with the legal rights, equitable rights inconsistent with, more extensive, and coming into existence earlier than the rights so carefully set out in the various sections of the code. Nevertheless, he did go on to say that the provisions in the Act have: no relevance when one is considering rights, legal or equitable, which may come into existence dehors [outside] the contract for sale. A seller or a purchaser may, of course, create any equity he pleases by way of charge, equitable assignment or any other dealing with or disposition of goods, the subject matter of sale; and he may, of course, create such an equity as one of the terms expressed in the contract of sale. The parties may, therefore, agree in the sale contract that the goods are to be held by the seller on trust for the buyer. The parties must intend to create a trust and to limit the freedom of the seller to deal with the goods, and the goods must be clearly identified. An attempt to establish a trust in relation to unascertained goods would fail to satisfy the second of these criteria. See Re London Wine Co (Shippers) Ltd [1986] PCC 121, Sealy and Hooley, pp.29498; Re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74). But see also Re Stapylton Fletcher Ltd [1995] 1 WLR 1181 (section 4.4.8).
Activity 4.4
Why did the court not give full recognition to the apparent intention of the parties in Re Blyth Shipbuilding and Dry Docks Co Ltd [1926] Ch 494? Practise your spoken english We would advise you to make an oral answer in response to this activity.
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Activity 4.5
A farmer agrees to sell all of the trees on his land; the trees are to be cut down a month after the agreement and payment is to be made at that time. At what point does the property in the trees pass?
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signifies acceptance, or does an act adopting the transaction (rule 4(a)), or retains the goods beyond the time fixed by the agreement for a decision without giving notice of rejection, or, if no time is fixed, retains the goods beyond a reasonable time (rule 4(b)). This rule covers situations where goods are supplied on the understanding that the sale is dependent on the person in receipt of the goods adopting the transaction. Such agreements might be entered into because of a retailers uncertainty about demand for a product, which, in turn, may affect the ability to pay and, hence, the element of credit (Atari Corporation (UK) Ltd v Electronics Boutique Stores (UK) Ltd [1998] QB 539. Contrast with reservation of title clauses, discussed at 6.3 below). Strictly, there is no contract of sale or agreement to sell, but only an offer by the seller, which the buyer may accept or reject. Phillips LJ remarked that the notice of rejection referred to by the Act of 1979 is no more than the notice that an offeree can always give that a contractual offer is rejected. (Atari Corporation v Electronics Boutique Stores [1998] QB 539) What are the obligations of the buyer and the seller up to the point at which the sale is concluded? According to Phillips LJ:
The buyer holds the goods under a contract of bailment. This means that the risk of damage to the goods remains with the seller, although the buyer must take reasonable care of them. The seller may not withdraw the offer to sell. The sale or return must be distinguished from a contract of sale in which the buyer acquires property and risk in the goods but there is a term allowing their return (Elphick v Barnes [1880] 5 CPD 321). Other issues that have caused difficulty in sale or return agreements have been: (i) what is meant by an act adopting the transaction; (ii) what amounts to a reasonable time; (iii) what constitutes a notice of rejection and what effect does it have?
What constitutes an act adopting the transaction? If an act indicates personal use by the buyer, which goes beyond what is contemplated by the arrangement, this might amount to an act adopting the transaction (Poole v Smiths Car Sales (Balham) Ltd [1962] 1 WLR 744; Sealy and Hooley, pp.31415. Also, Kirkham v Attenborough [1897] 1 QB 201).
ii What amounts to a reasonable time? This depends on the agreement and the nature of the goods (Poole v Smiths Car Sales (Balham) Ltd [1962] 1 WLR 744; Sealy and Hooley, pp.31415). iii What constitutes a notice of rejection and what effect does it have? Often contracts for sale or return do not address the issues of how the buyer is to signify rejection of the goods, or what is the responsibility of the buyer once the goods have been rejected. Subject to any agreement to the contrary, rejection can be notified in any form. Such notice is only effective if given before property has passed, that is, before acceptance after acceptance the buyer will have the normal remedies that any buyer under a sale contract would have if the goods are defective. Subject to any agreement to the contrary, if the buyer wishes to reject the goods, a notice of rejection will be sufficient without return of the goods. The buyer must make the goods available to the seller within a reasonable period of time after rejection.
Activity 4.6
a Jake has expressed an interest in buying for 1000 a particular horse owned by Mary, if it is suitable for his young daughter to ride. Mary agrees that Jake can take the horse for 10 days in order to determine its suitability. After a week the horse becomes ill and dies. Is Jake liable for the price? b How might your answer to (a) have differed if Jake had used the horse himself on a number of occasions and had ridden it in a race?
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there is a contract for the sale of unascertained goods 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 (assent may be given before or after the appropriation). The chief difficulty lies in the means by which goods are unconditionally appropriated. Appropriation requires (Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyds Rep 240):
an irrevocable identification of the goods that are the subject of the contract (Sealy and Hooley, pp.31724) the assent of both parties. The contract can specify what amounts to appropriation, but often the identification and assent will be by the seller physically taking the goods to the buyer and the buyer accepting them, or the buyer going to the seller who hands over the goods. It is not sufficient for the seller merely to label goods or to store them separately (unless this is specified in the contract) since this leaves the possibility of the seller changing their mind and substituting other goods. The seller must unconditionally appropriate the goods to the contract. This action is, usually, the last act of the seller, that is, delivery of the goods. This does not necessarily make matters straightforward because under the SGA the sellers act of delivery is presumed to be merely making goods available for collection by the buyer (see section 5.2.2). There are some troublesome cases. In Aldridge v Johnson [1857] 7 E & B 885, there was appropriation before delivery when the seller placed the goods in containers supplied by the buyer, even though the seller could have unpacked the goods and replaced them with other goods. Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyds Rep 240, is more rigorous. There was no appropriation even though the seller packed the bicycles in crates marked with the buyers name. The only substantial distinction between this case and Aldridge is that in the latter the containers were supplied by the buyer, but that would not seem to go to the core of the matter, which should be that there is no appropriation until it is beyond the power of the seller to substitute goods. Handing goods to a carrier for transmission to the buyer, without reserving the right of disposal, may amount to unconditional appropriation by the seller (rule 5(2); Wardars (Import & Export) Co Ltd v W Norwood & Sons Ltd [1968] 2 QB 663; Sealy and Hooley, pp.32224). Such an action is also presumed to constitute delivery (s.32(1); see section 5.2.2). If the seller attaches conditions to the appropriation, property will not pass even though the goods are ascertained: for example, if the contract stipulates that the seller retains property in the goods until the buyer has paid, property will only pass when the condition has been met (see s.19 and also 6.3). Appropriation is only complete if the buyer signifies assent by, for instance, agreeing to take delivery of the goods. Unless the parties agree otherwise, the assent of the buyer does not have to take a particular form and can be implied. Where goods of the correct quality and description are appropriated by the seller to the knowledge of the buyer, the buyer cannot delay the passing of property by inaction (Pignataro v Gilroy [1919] 1 KB 459; Sealy and Hooley, p.320).
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Activity 4.7
Acme agrees to sell to Ecma 100 tons of wheat to be delivered on 31 August. On 31 August, Acme notifies Ecma that 100 tons of wheat have been set aside in Acmes warehouse and urges them to collect the wheat. The wheat is stolen from the warehouse on 10 September. Advise Acme.
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ii The bulk is identified in the contract or by subsequent agreement (s.20A(1)(a)). The bulk is a mass or collection of goods of the same kind which (a) is contained in a defined space or area; and (b) is such that any goods in the bulk are interchangeable with any other goods therein of the same number or quantity (s.61(1)). Examples given by the Law Commission of a bulk included wheat on a named ship, oil in a specified tank, or a specified roll of carpet from which a particular length is to be cut. iii The buyer has paid all or part of the price (s.20A(6)). Note that s.16 still applies to those goods for which the buyer has not paid so that property in them cannot pass until they become ascertained. The size of the buyers share of the bulk depends on the ratio that the quantity of goods paid for and due to the buyer bears to the bulk (s.20A(3)). This means that if the buyer has agreed to buy 100 litres of oil from a specified tank containing 1,000 litres and has paid, the buyer becomes a co-owner of the bulk in the ratio of 100:900. If a second buyer pays for 100 litres and a third buyer pays for 800 litres the co-ownership ratio is 100 (first buyer): 100 (second buyer): 800 (third buyer). The three parties are co-owners of the entire bulk and not owners of a particular part of the bulk. Where the bulk has diminished through, for example, natural wastage, or where the seller has sold more goods than are in the bulk, the total shares will exceed the size of the bulk. Here each co-owner will have the same interest in the reduced bulk (s.20A(4)). Taking our oil tank, if half of the bulk has been lost, the ratio will be 50:50:400. Goode (2004, p.227) suggests that where part of the bulk is not sold any diminution of the bulk should be borne first by the seller: for example, if the seller had made only one sale of 100 litres (for which the buyer paid) and the bulk is diminished to 980 litres, the loss should be entirely borne by the seller, so that the buyers interest in the bulk would be 100:880. Under s.20B(1), all the co-owners are deemed to consent to any delivery from the bulk to another co-owner. A co-owner, who receives no more than is due to that person under the contract, is not liable to any other co-owner for taking delivery and is not liable to compensate where there is a shortfall in the delivery to another co-owner (s.20B(2), (3)). If the seller has oversold and delivery of the entire bulk has been made to the other co-owners, a disappointed co-owner will only have a remedy against the seller.
Reflection point
Think about the difficulties explained in the paragraph above. Can you suggest any ways in which the rules might be improved? Record your thoughts in your Skills portfolio. If part of the price has been paid by the buyer, any part delivery to the buyer is ascribed in the first place to the goods in respect of which payment has been made (s.20A(5)). If the buyer of 2000 litres from a bulk of 10,000 litres has paid half the price and subsequently 500 litres are delivered, that buyers interest in the remaining bulk is calculated as follows: the 500 litres delivered are ascribed to the payment so the buyers interest in the bulk is now 500:9500. This maintains the principle that the buyers interest under s.20A is related to the payment made. Finally, under s.20B(1), all the co-owners are deemed to consent to any disposition of the goods by a co-owner and a sale by the co-owner is a contract of sale of goods because goods includes an undivided share in goods (s.61(1)), which is what a co-owner has under s.20B. This provision allows buyers to deal in goods while they are in transit.
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Summary
Where the goods are specific property will pass when the parties intend it to be transferred. If no intention is evident, the Act sets out the rules in s.18 for determining when property will pass. If the contract is for the sale of unascertained goods, no property in the goods is transferred to the buyer until the goods are ascertained (s.16). However, the parties may be tenants in common at common law or co-owners under s.20A.
Activity 4.8
a Fred agrees to buy all the hay in Janes barn at 100 per ton. Fred agrees to take the hay to a neighbouring farm where it can be weighed. Has property passed to Fred? b Mary agrees to buy 100 bags of hay from John. The price is fixed at 1,000 on the understanding that the bags contain in total 10 tons of hay. Mary later weighs the bags and discovers that they contain 9 tons. Has the property in the hay passed to Mary? c Jake goes into Marys furniture shop. He agrees to buy a set of kitchen units, which will be delivered on Monday. It is also agreed that workers employed by Mary will construct and fit the units on Tuesday. The units are delivered and placed in Jakes garage, which he locks. Someone breaks into the garage and steals the units on Monday night. Mary refuses to replace the units and demands payment from Jake. Did property pass to Jake before the theft? d Would Re Goldcorp Exchange Ltd be decidedly differently in the light of s.20A?
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4.5 Risk
Essential reading
Sealy and Hooley, Chapter 2: Basic concepts of personal property, pp.7782. Which party bears the consequences of loss or damage to the goods? The general rule is that risk follows property: the owner of the goods bears any loss. Under s.20(1), the goods remain at the sellers risk until property is transferred to the buyer. This rule applies irrespective of which party has possession of the goods. (In passing we may note that the Sale and Supply of Goods to Consumers Regulations 2002, regulation 4, introduced s.20(4) to the Act, which provides that where someone buys as a consumer the goods remain at the sellers risk until delivery.) The general rule will not apply where:
The parties have agreed that risk should pass (for example, Head v Tattersall (1871) LR 7 Exch 7; Sealy and Hooley, p.278). The parties may agree that risk will pass even though the goods are unascertained (Sterns Ltd v Vickers Ltd [1923] 1 KB 78; Sealy and Hooley, pp.28081). The loss was caused by the fault of one party, in which case that party bears the loss (s.20(2); Demby Hamilton & Co Ltd v Barden [1949] 1 All ER 435, Sealy and Hooley, pp.27980). One party is the bailee of the goods and the loss occurs through their lack of reasonable care, in which case that party will be liable (s.20(3); Wiehe v Dennis Bros [1913] 29 TLR 250). The seller is required by the contract to send goods to the buyer, in which case delivery to a carrier is presumed to constitute delivery to the buyer, who, therefore, bears the risk of loss in transit (s.32. See also s.33).
Reflection point
Is this arrangement fair? Could the rules be improved? Where risk has passed before the buyer acquires the property in the goods or possession of them, and the goods are damaged through the negligence of the carrier, the buyer will not be able to sue the carrier (The Aliakmon [1986] AC 785). This rule has been effectively reversed where goods are carried by sea (Carriage of Goods by Sea Act 1992), but remains in other forms of transit.
Activity 4.9
a What risks do the seller and buyer run and which risks are dealt with under s.20(1) of the Act? b Acme contracts to buy 1,000 tons of wheat from a bulk of 10,000 tons held by Ecma in its warehouse and has paid. The warehouse burns down before any of the wheat is delivered. Who bears the loss?
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Sealy and Hooley, Chapter 8: Passing of the property in the goods as between seller and buyer, pp.28293.
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4.6.3 Frustration
Aside from those situations already dealt with in which the goods are lost, the doctrine of frustration arises in sale contracts in the same way as in other types of contract: for example, through supervening illegality or impossibility caused by an unforeseen event. But it should be remembered that the courts are reluctant to invoke this doctrine and, in particular, have shown a disinclination to do so in sale contracts involving unascertained goods. Moreover, the doctrine of frustration will not apply where one party has agreed to run the risk of a particular loss or is responsible for that loss occurring.
Activity 4.10
Why is it more useful to resolve cases like Howell v Coupland by the use of an implied term than to use the doctrine of frustration?
Summary
The general rule is that risk of loss passes with property, but the parties may agree otherwise. Where there is a contract for the sale of specific goods and the goods perished before the contract without the knowledge of the seller, the contract is void. Where there is an agreement to sell specific goods and, without any fault on the part of either party, the goods perish subsequent to the agreement and before the risk has passed to the buyer, the agreement is avoided. In a contract for the sale of unascertained goods, the seller will not be excused from performance, unless the contract requires the goods to be drawn from a specified source when the courts may imply a term removing or modifying the obligation to perform in the event that this source is not available.
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Sealy and Hooley, Chapter 9: Transfer of title, pp.32831. Here we are concerned with situations in which someone, who has either no property or their rights are defective, disposes of the goods in circumstances that enable the buyer to acquire rights to the exclusion of the true owner. A thief sells a stolen car to an innocent purchaser, a rogue deceives the owner of goods into parting with them and then sells them to an innocent buyer, or a person misguidedly sells to an innocent buyer a car that is the subject of a hire purchase contract and is, therefore, the property of the finance company. In each of these cases the question is, who has title to the goods? At the outset it must be emphasised that the general rule is: where the goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had (s.21(1)). This is known as the nemo dat quod non habet rule (or simply nemo dat). The owner can bring an action under the Torts (Interference with Goods) Act 1977 against anyone who has wrongful possession of the goods. Nevertheless there are exceptions to this general rule. Denning LJ explained: In the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is for the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title. (Bishopsgate Motor Finance Corporation Ltd v Transport Brakes Ltd [1949] 1 KB 322; Sealy and Hooley, pp.33031.) While the first principle (nemo dat) can be overridden by the second, the courts have, for the most part, clung to its fundamental importance. Lord Goff, after referring to the nemo dat rule in s.21(1), pointed out, The succeeding sections enact what appear to be minor exceptions to that fundamental principle (National Employers Mutual General Insurance Assocn Ltd v Jones [1990] 1 AC 24). Remembering this, we turn to consider the nature of the exceptions.
Nemo dat quod non habet (Latin): No-one (can) give what he or she has not got.
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4.7.2 Estoppel
Essential reading
Sealy and Hooley, Chapter 9: Transfer of title, pp.33142. The first exception to the nemo dat rule is contained in s.21(1) itself. The part of that section quoted above (section 4.7.1) is immediately followed by the words unless the owner of the goods is by his conduct precluded from denying the sellers authority to sell. Where the true owner of the goods represents to the buyer that the person selling is acting as an agent with authority to sell or is the owner, the owner may be estopped from denying that authority to sell and the buyer acquires good title (Henderson & Co v Williams [1895] 1 QB 521; Sealy and Hooley, pp.33435). A car owner, who wished to raise money on his car without selling it, was estopped when he colluded in a transaction with a car dealer under which the car was represented to a finance company as belonging to the dealer (Eastern Distributors Ltd v Goldring [1957] 2 QB 600; Sealy and Hooley, pp.33234). Merely handing possession of goods to another is usually not sufficient for this estoppel to arise because it will not amount to a representation. Carelessness in handing over possession of goods or documents of title is not enough because, a man who owns property is not under any general duty to safeguard it and he may sue for its recovery any person into whose hands it has come (Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890, Lord Wilberforce; Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371; Sealy and Hooley, pp.33738). It may be otherwise if it can be shown that the owner has breached a duty of reasonable care owed to the third party and that this induced the third party to buy the goods so that the negligence was the proximate cause of the buyers loss. In Mercantile Credit Co Ltd v Hamblin [1965] 2 QB 242 (Sealy and Hooley, pp.33940), the owner of a car signed forms in blank, without reading them, in the belief that they would enable a car dealer, who appeared to be respectable, to raise money on the security of the car. In fact, the dealer fraudulently used the forms to sell the car to a finance company. The Court of Appeal held that a duty of care existed between the owner and the finance company, but that there was no breach of that duty because she knew the dealer and reasonably believed him to be respectable, so that it was not negligent for her to sign the forms in blank. Moreover, two of the judges thought that, even if there had been negligence, it was not the negligence of the owner but the fraud of the dealer which caused the loss. On the other hand, by analogy with a case on the sale of land (Spiro v Lintern [1973] 1 WLR 1002), unreasonable behaviour by the owner in failing to correct a misrepresentation that the owner knows has been made to the seller could create an estoppel, if the seller acts on the basis of the misrepresentation and suffers loss as a consequence. In Shaw v Metropolitan Police Commissioner [1987] 1 WLR 1332, the Court of Appeal took a rather narrow view of the use in s.21(1) of the word sold as meaning that the estoppel principle did not apply where there was only an agreement to sell.
Activity 4.11
Why were Farquharson Bros not estopped from denying the title of the third party in Farquharson Bros & Co v C King & Co [1902] AC 325 (Sealy and Hooley, pp.33536)?
Sealy and Hooley, Chapter 9: Transfer of title, pp.35355. By s.23, the buyer, who buys in good faith and without notice of any defect in the title of the seller, will acquire good title if the goods are bought from a seller whose title is voidable but, at the time of the sale, it has not been avoided (Cundy v Lindsay [1878] 3 App Cas 459; Sealy and Hooley, pp.32829).
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Sealy and Hooley, Chapter 9: Transfer of title, pp.35559. This is where A, the seller, having sold the goods to B, then sells the same goods to C. If property has passed to B, but the seller is still in possession of the goods or documents of title to the goods, and the seller sells them to C, who purchases in good faith and without notice of the sale to B, this second transaction passes title to C. B has only an action for breach of contract against the seller (s.24. Section 8 of the Factors Act 1889 is almost identical). Possession includes where goods are not in the physical possession of the seller, but are under their control: for example, goods held by a warehouse owner to the order of the seller. The sellers possession does not have to be in any particular capacity or even lawful: It is sufficient if he remains continuously in possession of the goods that he has sold to the purchaser (Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972] 1 QB 210, Lord Denning MR). Lord Denning thought the section might not apply where the sellers possession had not been continuous (also, Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867; Sealy and Hooley, pp.35658. But Bridge (1998), pp.45759). For the second buyer to acquire good title, the seller must deliver possession of the goods or documents of title: merely contracting a second sale is not sufficient to give title to the second buyer. In Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514, machinery was sold to a finance company and leased back to the seller, who then sold it to a second finance company and leased back; at all times the machinery remained in the possession of the seller, but it was held that the sellers acknowledgement to the finance company that the machines were being held on its behalf amounted to a delivery.
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Sealy and Hooley, Chapter 9: Transfer of title, pp.35968. In this situation it is the buyer who has acquired possession of the goods and sells to a second buyer. Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner. (s.25(1)) Section 9 of the Factors Act 1889 is similar (but see DF Mount Ltd v Jay & Jay (Provisions) Co Ltd [1960] 1 QB 159; Sealy and Hooley, pp.36567). The goods or documents of title (4.7.4 above) must have been obtained under a sale or agreement to sell (bought or agreed to buy), so a void contract is insufficient, as is acquisition as a bailee or under a hire-purchase contract or under a sale or return agreement (s.18, rule 4). The provision that the transaction will have the same effect as if the person making the deliverywere a mercantile agent means that the buyer in possession is placed in the position of a mercantile agent and the second buyer must show that the sale was in the ordinary course of business of a mercantile agent (Newtons of Wembley Ltd v Williams [1965] 1 QB 560; Sealy and Hooley, pp.36163. On mercantile agents see section 2.2.2 above). The words with the consent of the owner at the end of s.25(1) prevent the nonsense of a thief starting the whole chain of events and still passing good title. There can only be a buyer in possession where possession of the goods or documents of title has been obtained with the consent of the owner (National Employers Mutual General Insurance Assocn Ltd v Jones [1990] 1 AC 24; Sealy and Hooley, pp.36364). Yet, it matters not how that consent was obtained fraud is enough even though this may amount to theft (Pearson v Rose & Young Ltd [1951] 1 KB 275; Sealy and Hooley, p.346). On the meaning of disposition in s.25(1), see P4 Ltd v Unite Integrated Solutions plc [2006] EWHC 2640 (TCC).
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Sealy and Hooley, Chapter 9: Transfer of title, pp.34252. Merely being in possession of goods or documents of title does not, in itself, amount to a representation that the possessor has authority to sell those goods and to pass good title (see 4.7.2 above). However, where the person in possession is a factor (now normally called a mercantile agent), the buyer may acquire good title. A mercantile agent is an agent who is entrusted with the possession of goods or documents of title to goods and who is allowed to dispose of them, either in the agents own name or as a principal (see 2.2.2 above). Under Factors Act 1889, s.2(1), a sale, pledge, or other disposition shall be as valid as if expressly authorised by the owner of the goods where all the following are present:
The disposition is by a mercantile agent (Jerome v Bentley [1952] 2 All ER 114; Sealy and Hooley, p.330). The mercantile agent is in possession of goods or of the documents of title to goods with the consent of the owner (see s.2(2), (3)). The owner must have specifically consented to the person having possession in their capacity as mercantile agent and not in some other capacity (for example, handing over goods for repair). Consent is given even though obtained by deception (Folkes v King [1923] 1 KB 282; Sealy and Hooley, p.349). It might plausibly be suggested that such consent is not consent at all, but the courts have tended to protect the innocent third party in such situations (but Pearson v Rose & Young Ltd [1951] 1 KB 275). Once consent has been given it continues, in spite of the owner terminating such consent, unless the person dealing with the agent has notice of that termination (s.2(2)). The problem for the buyer is to know in what capacity the agent received possession of the goods. As in this whole area of nemo dat, we are confronted with Denning LJs competing principles of public policy outlined in Bishopsgate Motor Finance Corporation (4.7.1 above). The disposition is made when acting in the ordinary course of business of a mercantile agent. The person taking under the disposition must have acted in good faith and that at the time of disposition must not have had notice of the mercantile agents lack of authority (Heap v Motorists Advisory Agency Ltd [1923] 1 KB 577; Sealy and Hooley, pp.35152).
Activity 4.12
Why did the buyer in Pearson v Rose & Young Ltd [1951] 1 KB 275 not acquire good title to the car? Note: you will need to read the case to answer the question.
Sealy and Hooley, Chapter 9: Transfer of title, pp.36869. Part III of this act (substantially re-enacted by the Consumer Credit Act 1974, schedule 4) means that a private purchaser obtains title where they acquire a motor vehicle for value and without notice from someone who is in possession under a hire-purchase or conditional sale agreement.
Sealy and Hooley, Chapter 9: Transfer of title, pp.352 and 368. Section 21(2)(b) provides that nothing in the Act affects the validity of any contract of sale under any special common law or statutory power of sale or under the order of a court of competent jurisdiction. This retains powers of sale granted to pledgees, bailees, innkeepers, pawnbrokers, liquidators and others, which enable them to pass title to the buyer. See Chapter 6 section 6.2.6, which discusses the sellers rights of resale where the buyer has failed to pay.
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Activity 4.13
What general principle applies where someone acquires goods from a person who is not their owner?
Bridge, M. Personal property law. (Oxford: Oxford University Press, 2002), pp.11536.
Summary
The general rule is that a buyer cannot acquire a better title than that of the seller. This rule can be overridden in particular situations where someone, who takes in good faith and for value without notice, will acquire good title and will, therefore, be able to resist the claims of the original owner. It must be emphasised that these are narrow exceptions and that, on the whole, the courts have had greater regard for the general rule.
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discuss the approach taken to interpretation of the Sale of Goods Act analyse the components of the definition of a contract of sale explain the circumstances in which property in goods is passed identify how risk is passed understand the nemo dat rule discuss and illustrate the exceptions to the nemo dat rule.
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If you ticked need to revise first, which sections of the chapter are you going to revise? Must revise 4.1 4.2 4.3 4.4 4.5 4.6 4.7 The Sale of Goods Act What is a contract of sale of goods? Components of the sale contract Passing of property Risk Perishing of goods and frustration of contract Transfer of title Revision done