CT 2.5 TRANSFER OF GOODS AND RISK
THE PASSING OF PROPERTY.
By Section 1(1) of the Sale of Goods Act: ‘a contract whereby the seller transfers or agrees to transfer property in goods for a monetary consideration called price”. As such, the main aim of a contract for the sale for goods is the transfer of property. Section 1(3) then distinguished between an outright sale and an agreement to sell An agreement to sell shows an intention to transfer property at a later date upon the fulfilment of some conditions or event.
Contrary to popular beliefs, delivery or transfer of possession does NOT necessarily translate to transfer of property. Nor is transfer of property necessarily linked to payment of consideration.
There are situations where the parties intend that property should pass without the payment of a consideration.
The issue of transfer of property is important because:
- Risk passes with property.
- It affects the rights of the parties upon insolvency.
- The seller can sue for the price of goods when property has passed.
Section 16-19 deal with passing of property.
For specific goods, Section 17 provides that property is transferred WHEN THE PARTIES INTEND it to be transferred. Section 17(2) provides that the intention can be construed from the terms of the contract, conduct of the parties and facts and circumstances.
Section 16 provides that no property can pass in unascertained goods (Unascertained goods can be seen as goods which have not been identified out. Goods which form part of a larger bulk).
Where “the intention of the of the parties” cannot be read from the contract, we must have recourse to Section 18 (which provides sub rules) that can aid in the decision process.
Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property is transferred when the contract is made even though time of payment and (or) delivery are postponed.
- The Goods Must be Specific.
Specific goods are goods identified and agreed upon at the time the contract of sale is made (Section 62(1) of the Sale of Goods Act. Ajayi V Eburu). In Talabi V Mandilas Ltd, the plaintiff bought and registered a car in his name. the defendant however refused to release the vehicle on the ground that the price has become more costly. The court held that the property has already been transferred and failure to deliver to the plaintiff amounted to a breach of contract. In Fayose V Alalade, the plaintiff asked the defendant to import a car from England for her. She paid the customs duty for the car but not the cost of the car. The defendant then sold the car to a third party. The court held that property had already passed to the plaintiff.
- The Goods must be in a Deliverable State:
“Deliverable” ordinarily means “capable of being delivered”. Where the goods are in such a state that the buyer must take delivery of the goods as they are (See also Section 62 of the Sale of Goods Act).
Where the seller must do something to the goods before the buyer is to take delivery, then they are not in a deliverable state. In Underwood Ltd V Burgh Castle Brick and Cement Syndicate, the court held that where the machine (which the seller agreed to sell) was still bolted to a concrete floor it was not in a deliverable state and the seller should bear liability for the damage caused while dismantling.
- The contract must be Unconditional: Meaning that the passing of property is not subject to a condition- Section 62(4).
Where the contract is for the sale of specific goods but the seller has to do something to put them in a deliverable state, the property does not pass until such thing is done and the buyer has notice of it. for example alteration; The Underwood case is instructive to this effect.
Sale of specific goods in a deliverable state but the seller is bound to weigh, test, measure, or do some other act in order to ascertain the price. Property passes only when such thing (weighing, measuring and so on for ascertaining price) is done and intimated (communicated) to the buyer.
- The contract should be a sale of goods in a deliverable state.
- Applies only to acts to be done by the seller: where the buyer is the one to do the weighing and testing, this rule would not apply.
- Such “weighing and measuring” must be done only for the purpose of fixing the price.
In Boro of Yenoaoa V SA Kennedy and Norken Lumber, the contract provided that the plaintiffs would fell trees, cut them into logs and bring it to the defendant’s house for weighing in the presence of the plaintiff. When some logs were lost the court held that property had not passed until the measurement is made.
(Sale of goods “on approval” or “sale or return” basis).
This rule simply deals with a situation where the seller gives the buyer temporary possession of the goods to test and see if they fit his taste and approval. The buyer is then to get back to the seller within a specified period of time as to whether he approves of the goods (and wants to purchase them).
According to this rule, Property would be transferred ( in any of the following situations):
- When the buyer signifies his approval to the seller or does any act adopting the transaction. In Kirkham V Attenborough, the court held that by pledging goods sold to him on sale or return basis, property has passed to him (the buyer). In London Jewelleries ltd V Attenborough, pledging jewelleries given on sale or return basis amounted to adopting the transaction notwithstanding that they were obtained by fraud.
- Where the buyer retains the goods without communicating his rejection to the seller beyond the fixed time for the return of the goods. Where no time has been fixed, a reasonable time would be construed. In Poole V Smith’s Car Sales ltd, cars were supplied on sale or return basis on the condition that they must be returned by the end of October 1960 or accepted. The buyer did not return the cars until November 1960. This amounted to undue delay.
This rule may not apply where default/failure to return is caused by forces beyond the buyer’s control. In Re Ferrier, the inability of B to return the goods was because they were seized by customs officials who retained them for four weeks.
RULE 5. FOR UNASCERTAINED GOODS.
The concept of “unconditional appropriation”.
As noted above, Section 16 provides that no property is transferred to the buyer until goods are ascertained. “Ascertained goods” has been defined by Lord Atkin in Re Wait as goods identified in accordance with the contract after the contract of sale is made.
If the goods are ascertained, section 17 provides that property would pass when the parties intend. If no intention appears, then Section 18 rule 5 applies.
Section 18 Rule 5(1) provides:
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, with the assent of both parties, the property in the goods thereupon passes to the buyer. Assent may be express or implied. The goods must be earmarked for the contract. For example, extracting the contract goods from the larger bulk.
Section 18 Rule 5(2) provides:
Where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier/bailee for the purpose of transmission to the buyer… without reserving the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.
In essence: (in addition to the above provisions of Section 18 Rule 5(1)
- The goods must be unconditionally appropriated to the contract and earmarked for the buyer. In Healey V Howlett and Sons, the defendant ordered 20 mackerel bones. The plaintiff dispatched 190 and instructed the railway official to extract 20 for the defendant. The train was delayed and the goods deteriorated. The court held that property had not passed since the goods had not been extracted for the defendant (buyer), the property still remained with the plaintiff (seller).
- The seller must do some further act which makes such appropriation irreversible. For example delivering the goods to the buyer/ a carrier without retaining the right of disposal. In Carlos Federspiel and Co SA V Charles Twigg and Co Ltd, although the plaintiff’s order (bicycles) had been set apart from the larger bulk and put in a container, Pearson J noted that mere “setting apart” does not amount to appropriation because the seller may change his mind and sell the extracted goods to another party. There must be some further act which irreversibly attaches the goods to the contract.
- There must be assent of the other party: both party must assent. Assent may come before or after appropriation. Assent may be express or implied. In Pignatory V Gilroy and Sons, assent was implied where the plaintiff neglected to reply (after receiving notice of appropriation of his order (of 15 bags of rice)) for a whole month. He bore the loss for theft notwithstanding that they were still in the seller’s possession.
RESERVATION OF RIGHT OF DISPOSAL
Right of disposal entails a situation where a seller (in order to protect his interest) stipulates that property in goods shall not pass until the buyer has paid the full contract price of the goods or fulfilled some other condition. This reservation is usually helpful where (for example) the goods are sold on credit and the buyer becomes bankrupt before full payment is made.
Section 19 provides that property shall not pass if the seller reserves the right of disposal. Until the condition is fulfilled. It goes further to provide that the seller shall reserve a right of disposal in the following situations;
- Where the goods are being shipped and the bill of lading provides that the goods are deliverable to the order of the seller or his agent.
- Where the bill of lading is sent along with a bill of exchange to the buyer for his acceptance.
It is immaterial that the goods have been delivered to the buyer or a carrier for the purpose of delivery to the buyer.
Your starting point should be Section 17 when dealing with Section 19.
ROMALPA CLAUSE: This clause, (in addition to enabling the seller retain the right of disposal), entitles the seller to trace and retrieve the goods where the buyer fails to pay regardless of whether the goods have been delivered, resold or transformed.
The case of Aluminium Industrie Vaassen BV V Romalpa Aluminium Ltd is instructive in this regard.
In this case, the plaintiffs sold some foil to the defendants. Clause 13 of the general selling terms and conditions provided: Until the defendants (buyer) had paid the full price of the goods:
- There shall be no transfer of property in the goods.
- They may be required to store the goods in a manner prescribed by the plaintiff (seller).
- Where the plaintiff’s foil has been mixed with any other material and “new objects” have been created, the new “objects” shall belong to the plaintiff as surety for full payment and until the full payment was made, the defendants were to keep the goods for the plaintiff as fiduciary owner.
- The defendants could sell the mixed goods but they shall account to the plaintiffs for the proceeds of the sale and benefits of claim against sub-purchasers shall be assigned to the plaintiffs.
The defendants subsequently became insolvent and a receiver was appointed by the debenture holders but they had not fully paid the plaintiffs. The plaintiffs, relying on Re Hallett’s Estate case claimed that by virtue of Clause 13 they were entitled to be paid in priority over the secured and unsecured creditors.
At the trial court, Mocatta J held that by virtue of Clause 13 of the agreement, property never passed to the defendants and a bailment relationship had been created between the plaintiff and defendant. The plaintiff was entitled to trace the proceeds of the sale in priority over the secured and unsecured creditors.
Similarly On Appeal: The court noted that since the defendants were still indebted to the plaintiffs, they were accountable for sub-sales. Lord Goff LJ further noted that the defendant must be seen as agents of the plaintiff (for the sales they made) until the full contract price had been paid.
The Romalpa case was applied In Borden (UK) Ltd V Scottish Timber Products Ltd, although the seller’s claim failed because the reservation clause did include situations where the goods have been mixed with other materials or products.
The Romalpa case has been criticised.
- The mere fact that a seller reserves the right to dispose goods does not transform a contract of sale to bailment. In AM Bisley V Gore Engineering and Retail Sales, on similar facts, the court held that a debtor-creditor relationship was created rather than a fiduciary relationship.
- Reservation of title clauses not only gives the wide powers to treat goods already sold as his own but also the power to claim any other goods mixed with his as his own. This was the case in Clough Mill Ltd V Martin, where the seller reserved the right of disposal over the yarn sold and materials made from the yarn.
TRANSFER OF RISK.
Generally, “risk/loss falls where property lies” (i.e. on the person that owns the property) res perit domino. This is reflected in Section 20 of the Sale of Goods Act which provides that: Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer. Meaning that risk is linked to property.
In Pignatory V. Gilroy, the court held that since property had passed to the buyer, he must bear the loss for the stolen bags of rice notwithstanding the fact that they were stolen while in the seller’s possession.
The following situations constitute exceptions to the general rule that risk is linked to property:
- Where the parties agree to the contrary: Section 20 starts with; “unless otherwise agreed”.
- By usage and custom.
- In certain international sales contract like CIF contracts, risk in the goods (NOT property) pass when the goods are shipped whether or not the buyer has gotten the goods or documents. Property passes when the documents are handed over to the buyer. C.I.F., or “cost, insurance andfreight“, is a term of the contract of sale of goods being shipped where the seller pays the cost of the insurance and transport of the goods to the destination; legal delivery occurs when the goods cross the ship’s rail in the port of shipment. I.e. when the goods are loaded on the ship.
- Exceptional situations- In Sterns Ltd V Vickers Ltd, the plaintiff ordered 120,000 gallons of spirit which was part of a larger quantity of 200,000 gallons in a tank. The plaintiff for convenience sake decided to leave the spirit in the tank. When it deteriorated, the court held that property had already passed notwithstanding that the 120,000 gallons had not been extracted.
- Where delivery of the goods are delayed, the goods are at the risk of the defaulting party (the party causing the delay)-Section 20. In Demby V Hamilton and Co Ltd V Burden, where a consignment of apple juice went bad as a result of the buyer’s delay in taking delivery, the court held that risk has passed.
- Liability as bailee: A bailee in possession of the goods is expected to take reasonable care of the goods-Section 20. Thus where there is loss or damage, the bailee would be liable (notwithstanding that property is in another person) except he can show that he was not negligent.
TRANSFER OF TITLE WHERE THE SELLER IS NOT THE OWNER.
Poser: Where an innocent purchaser buys goods from a person who has no right to sell (maybe a thief), does he acquire a valid title over the goods? If yes, is this “valid title” superior to that of the real/initial owner?
Lord Denning in Bishopgate Motor Finance Corp Ltd V Transport Brakes Ltd: noted that in situations like this, the law tries to strike a balance between the competing interests of the original owner and ultimate buyer and determine who loses out… “protection of property on the one hand and protection of commercial transaction on the other hand”.
In this regard, certain rules have been formulated by statutes and case law. They shall be discussed briefly.
Section 21 preserves the basic Nemo Dat Quod Non Habet rule. Except the owner is precluded from denying. However, In order to encourage confidence in transactions, there are certain exceptions contained in Section 21-25 which entail exceptional situations where a valid title can be transferred (from a person who does not have title/ownership) to an innocent purchaser.
- Sale by an agent/Disposition by a mercantile agent.
- Sale in market overt.
- Sale by a person with voidable title.
- Sale by a seller in possession.
- Sale by a buyer in possession.
- Sale under various common-law and statutory provisions.
- Sale by an Agent/ Disposition by a Mercantile Agent
An agent is a person who acts on behalf another (principal) in transactions. By Section 21 If an agent has actual or apparent authority from his principal to sell goods, an innocent purchaser can acquire valid title to the goods- Section 21 of the act. Section 1 of the Factors Act 1889 defines a mercantile agent as a person (having in the customary course of his business) authority to sell or buy or raise money on goods. For a good title in the goods to be passed (Folks V king. Pearson V Rose Young, Oppenheim V Attenborough), Section 2 of the Factors Act provides that;
- The agent must have gotten possession of the goods with the owner’s consent.
- The goods so gotten must have been entrusted for sale.
- The agent must have sold in the ordinary course of his business.
- The buyer must have purchased the goods in good faith (without notice of the agent’s lack of authority).
Estoppel is an equitable doctrine which precludes a person from denying the state of things which he by his conduct or negligence omission created. From the ending of Section 21, “unless the owner is by his conduct precluded from denying the seller’s authority”. In Eastern Distributors Ltd V Goldering, the plaintiff was estopped where he impliedly represented the fraudster as having his authority to sell the car to the defendant. The equitable doctrine of estoppel was also applied in; Shaw V Metropolitan Police commissioner, and the case of CNC Auctions V Unity Finance.
- Sale in Market Overt.
Section 22 provides that a good title can be transferred to an innocent purchaser where goods are sold in market overt, according to the usage of the market.
“Overt” ordinarily means “unconcealed”. In Lee V Bayes, the court stated that “market overt” means open, public and legally constituted market. Thus, Alaba market, Computer village market, and so on would be market overt. However, Shoprite, Lush mall and other private supermarkets and malls would not amount to market overt.
For a sale to qualify as that done in market overt (As noted in cases like; Reid V COP, Bishopsgate Motor Finance Co Ltd V Transport Brakes);
- The sale must be public and open.
- The goods must be publicly displayed for sale.
- Sale must be In accordance with the market usage.
- The goods must be normally dealt with in the market
- The sale must take place in the open and glaring part of the shop.
- The sale must be by the shopkeeper and not to him.
- It must be within sunset and sunrise. (The normal opening hours of the market).
- The buyer must have bought in good faith without notice of the defect in the seller’s title.
Section 24(1) however provides that if the goods were STOLEN and the thief has been prosecuted and convicted, the property in the goods revert to the initial owner (whether it was sold in market overt or not). The market overt rule is losing its relevance in modern time. With the evolution of online shopping, ordering, information technology and communication. Britain has repealed the market overt rule.
- Sale by a person with voidable title (Section 23)
Where property in the goods were acquired through fraud or misrepresentation, the contract is voidable. Meaning it can be set aside. If the goods are sold before the transaction is set aside by the initial owner, an innocent purchaser can acquire valid title over the goods if he buys them in good faith. The case of Car and Universal Finance Ltd V Caldwell explains this principle. In this case, the plaintiff (owner) sold his car to a rogue who presented a forged cheque. When the cheque was dishonoured, the owner reported to the police. The court held that such act (of reporting to the police) amounted to an avoidance of the contract. Take for instance that (before the owner reported the incident or avoided the contract) the car had already been sold to an innocent third party, the third party can acquire a valid title under this principle.
- Sale by Seller in Possession.
In this case, the seller has power to sell but not authority to sell. Section 25 of the Sale of Goods Act provides that where goods have been sold but the seller still has continuous possession of the goods or document of title, he can transfer a valid title to an innocent purchaser. The cases of Staffordshire Motor Guarantee V British Wagon Co and: Pacific Motors Auctions V Motors Credit ltd are instructive to this effect.
Note that the buyer can sue the seller for conversion/damages if the property has passed.
- Sale by Buyer in Possession: This situation may occur where the seller reserves the right of disposal.
From the interpretation of Section 25(2) of the act.
- The buyer must have bought or agreed to buy the goods in question. As such, hire purchase sales or sale on return basis are not protected.
- He must have obtained actual possession of the goods or the document of title with the consent of the seller. In Cahn V Pockett’s Bristol Channels ltd, the court held that, possessing bill of lading with the consent of the seller was sufficient to pass good title to a third party.
- The innocent purchaser must have bought in good faith.
- Sale under various common-law and statutory powers.
Section 21. A pledgee is allowed to sell if the pledge is not redeemed. The Lagos state Pawn Broker Law provides that such a sale must be by public auction and the value of the goods be more than N1. The Hotel Proprietors Law of Lagos state provides that the hotel can sell goods left behind by a lodger if he is indebted for boarding.
Courts have wide powers to sell goods of a judgment debtor in the execution of a court order. It could be by the writ of attachment fieri facias or sale as was done in Mbanugo and others V UAC.
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