How Effectively the Rules of Passing of Property and Transfer of Risk in the Sale Of Goods Act 1979 - Term Paper Example

Critically consider how effectively the rules relating to the passing of property and transfer of risk, contained in the Sale of Goods Act, 1979, ensure certainty and fairness in trade contracts, where the parties have been silent as to their intentions A contract for the sale of goods is defined by Section 2(1) of the Sale of Goods Act 1979 as ‘…a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.’1 The passing of any risk associated with preservation of the property sold or in the process of being sold is governed by Section 20(1) of the Sale of Goods Act 1979 which provides as follows:- ‘Unless otherwise agreed, the goods remain at the sellers risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyers risk whether delivery has been made or not.’2 In other words risk passes with the property in question. By virtue of Section 17 (1) property passes ‘…at such times as the parties to the contract intend it to be transferred.’3 Moreover, Section 16 requires that the goods which are the subject matter of the sales contract be ascertained. Section 16 provides that ‘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.’4 While the Sale of Goods Act fails to describe ‘ascertained’ goods common law maintains the position stated by Lord Atkin in Re Wait [1927] 1CH 606 where he said that ‘ascertained probably means identified in accordance with the agreement after the time a contract of sale is made.’5 Lord Atkin went on to say that goods are ascertained when they have been identified in accordance with the agreement after [the] contract. . . is made.6 Section 17 (2) provides that ‘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.’7 The rules for ascertaining the parties’ attention are contained in Section 18 of the 1979 Act. There are sometimes legal consequences which make the passing of property from one person to another important to the foregoing provisions of the Sale of Goods Act 1979. Some of the most important legal consequences are associated with the risk involved with damage to the goods and whether or not the buyer or the seller should assume responsibility for the damages incurred. Other legal consequences flow from third parties who might interfere with the goods in transit and therefore ownership at that time is important. Another important consideration is ascertaining at which time the buyer might resell or otherwise dispose of the goods. Sometimes the seller might become insolvent and whether or not the property has passed to the buyer will determine whether or not a lien might be placed on the goods. The buyer might become insolvent and this might affect the legal status of the seller who could become a creditor. Another matter for concern is determining when the seller is at liberty to demand payment in full for the goods.8 The Sale of Goods Act 1979 makes a valiant attempt to ensure certainty and fairness in the transfer of goods when the parties fail to express their intentions. Too much reliance is left to common law principle as manifested in Section 16 of the act which makes provision for the goods to be ascertained in order for property to pass but fails to define or set forth guidelines for defining the phrase ascertained goods. The remainder of this paper will examine the rules contained in Section 18 of the Sale of Goods Act 1979 and demonstrate the difficulty for the courts in determining the intention of the parties. Rule 1 of Section 18 provides that ‘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.’9 According to Dennant v Skinner & Collom [1948] 2 KB 164 the parties to a contract cannot make the sale of the property conditional upon any event once the contract is complete.10 The difficulty contained in Rule 1 is that by implication the goods are in a ‘deliverable state’ even if they are damaged and yet the buyer is bound to take possession of them. According to Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343, goods are deemed to be a ‘deliverable state’ provided the seller has completed all that he needs to complete under the contract for the purpose of bringing that contract to a conclusion.11 Section 61(5) of the Sale of Goods Act 1979 provides that goods are in ‘deliverable state’ when they are in such a state that the buyer would, under the contract, be bound to take delivery of them.’12 When Rule 1 is applicable, the property passes whether or not the seller retains possession of them. The fact is all that has to happen is the completion of the contract and the property passers from seller to buyer and this is so even if the buyer has yet to complete payment for them. The same is true even if delivery of the goods has not yet taken place. Section 18 Rule 2 applies when goods are not in a deliverable state. Rule 2 reads as follows:- ‘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, property does not pass until the thing is done and the buyer has notice that it has been done (emphasis supplied).’13 This provision is relatively straightforward. A good example is a computer which both parties agree will have to up-graded before it is delivered to the buyer. Similarly Section 18 Rule 3 applies to goods which are in a deliverable state but have to be evaluated for the purpose of fixing a sales’ price. Moreover, the property will only pass once the buyer has received notice that the evaluation has been carried out. Rule 3 provides that ‘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.’14 It appears from the ruling in Carlos Federspiel SA v Charles Twigg & Co. Ltd [1957] 1 Lloyds Rep 240 that once the buyer meets the condition of sale the property passes since the goods have been altered to a specific form and are of no use for the purpose of resale to another.15 As such the goods have been ‘unconditionally appropriated’ by the buyer.16 In Hendy Lennox Ltd v Graham Puttick Engines Ltd [1984] 1 WLR 485 the seller sent to the buyer an invoice which provided the serial numbers attached to engines that were designated for the buyer. It was held that the engines by virtue of this last act on the part of the seller rendered the engines ‘unconditionally appropriated’ to the terms of the buyer’s contract.17 By virtue of Section 18 Rule 5(2) if the seller dispatches the goods in question to a courier for the purpose of delivering the goods to the buyer, the goods have been ‘unconditionally appropriated’ to the contract.18 The rationale behind this rule is that once the goods have been dispatched by the seller to an independent courier he has surrendered control of the goods and therefore he has ‘unconditionally appropriated’ them pursuant to the contract for the sale of them. However, if the courier is an agent of the seller the goods will not have been ‘unconditionally appropriated’ to the contract since the seller still retains control over them until they are ultimately delivered to the buyer. The property will not pass by virtue of appropriation unless there is evidence that the appropriation was conducted by one party with other’s approval. The necessary approval can be made either expressly or implicitly.19 In a majority of cases one act will have the affect of both ascertaining and appropriating the goods in question. For instance in a situation where the goods are acquired from a bulk provider the goods will become ascertained when they are quantified in conformity with the sales’ contract.20 The difficulty with Section 18 Rule 5(3) is that this is not always so since the goods can be ascertained before they are appropriated if there are outstanding conditions attached to the goods. As noted previously, property does not pass to the buyer unless and until the property is ascertained.21 Moreover unascertained goods are goods that originate from a bulk source.22 However the Sale of Goods (Amendment) Act 1995 makes provision for an exception to the Section 16 general rule relating to unascertained goods passing to the buyer. By virtue of Section 20A the buyer might share an interest in the property with the seller to the extent that he holds the same as a tenant in common.23 There are three conditions that are required to be met before the buyer can hold an interest in the unascertained property. They are 1- The quantity of the goods must be identified, 2- the provider must also be identified and 3-the buyer must have made at least partial or full payment for the goods in question.24 The purpose of Section 20A of the Sale of Goods (Amendment) Act 1995 is to vest dual ownership in the property rather than to vest in him title specific goods. Only after the buyer receives the specified quantify of goods will the property be ascertained and pass to him. Moreover Section 18 Rule 5(3) arises when there is only one buyer of goods originating from a bulk source which has been tailored to the specific order pursuant to the contract in which case the contract is said to have been appropriated to the contract.25 The provisions contained in Section 20A of the Sale of Goods (Amendment) Act 1995 and Section 18 Rule 5(3) (together with the remaining rules in Section 18) of the Sale of Goods Act 1979 are rules of intention where the relevant sales’ contract is silent as to the parties’ intentions. The overall result of these provisions is that unless expressly provided for in the contract property passes to the buyer once the property is ascertained and unconditionally appropriated to the terms of the contract.26 The impact of these presumed intentions is that if the seller inserts a condition for instance that unless and until the property in question is paid for the property will not be delivered, then the property is not appropriated and will not pass.27 Section 18 Rule 5 of the Sale of Goods Act 1979 will also apply to contracts for the sale of future goods and arise to imply the intentions of the parties where their intentions are not expressed in the contract. ‘Future goods’ is a term used to describe goods that are ordered to be manufactured and supplied at some agreed date.28 As it turns out goods can also be delivered to the buyer for the purpose of passing some sort of evaluation test by the buyer before the goods are ascertained. In this case unless the contract of sale provides for the passing of property when goods are subject to a return condition, Section 18 Rule 4 of the Sale of Goods Act 1979 will arise to imply the parties’ intention.29 By virtue of Section 18 Rule 4 the title to property will pass once the buyer acknowledges his acceptance of the goods in question or if by his conduct he accepts the goods in question or fails to give notice that he rejects the goods and keeps them for an unreasonable time if no time is fixed for return, or keeps them past the dead line fixed for return.30 According to the ruling in Atari Carp (UK) Ltd v Electronics Boutique Stores (UK) Ltd [1998] 1 All ER 1010 a buyer is liable in damages for the wrongful interference with goods if he rejects the goods and fails to return them or notify the seller.31 The application of the provisions contained in the rules under Section 18 of the Sale of Goods Act 1979 can be unpredictable. As previously stated the insertion of presumed intentions can be unhelpful and perhaps detrimental to both a buyer and a seller in the event one party becomes insolvent or the property is damaged in transit. In such cases the application of presumed intentions is unwise. Be that as it may, when goods have been set aside pursuant to a sales’ contract title to that property can not remain in suspension. When parties do not make specific provision for the title to pass the status of the property becomes very important in the event they are damaged or creditors are seeking redress against one or both of the parties. Whether or not the Sale of Goods Act 1979 is desirable is no longer important when one of these difficulties arise the application of the rules under Section 18 are a necessary evil. To avoid the unpleasant legal consequences of the application of these rules parties to contracts for the sale of goods are best advised to make specific provisions for the passing of property in their contracts. Bibliography Atari Carp (UK) Ltd v Electronics Boutique Stores (UK) Ltd [1998] 1 All ER 1010 Bradgate, Robert. Sale of Goods. (2000) Oxford University Press Carlos Federspiel SA v Charles Twigg & Co. Ltd [1957] 1 Lloyds Rep 240 Dennant v Skinner & Collom [1948] 2 KB 164 Hendy Lennox Ltd v Graham Puttick Engines Ltd [1984] 1 WLR 485 Re Wait [1927] 1CH 606 Sale of Goods Act 1979 Sale of Goods (Amendment) Act 1995 The Elafi [1982] 1 All ER 208 Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343 Read More