March 22, 2018/in Sale of Goods /by Vivek Khanna LLB, LLM, Barrister at Law
When dealing with passing of property and risk, we have to keep in mind there are different categories of goods. There is a huge division made in the Sale of Goods Act 1979 between specific goods and ‘unascertained’goods. We can find out what the difference is between these by looking at s. 61Sale of Goods Act 1979 (the interpretation section), which says that specific goods are ‘goods identified and agreed on at the time a contract of sale is made’. If the goods are not specific they are ‘unascertained’. This means they have not been identified at the time the contract was concluded. When goods are identified they become ascertained. ‘Ascertainment is identification of the goods.’
Section 16 Sale of Goods Act 1979 is relevant here: this tells us that if the goods are unascertained, the property won’t pass unless and until they are ascertained (ascertainment is needed for the passing of property). It does not say that the property will pass when it is ascertained – it is a very negative provision. So, this is only one of the pre-conditions to the passing of ownership. But what does ascertained mean? This was explored in the case of Re Wait.Lord Atkin said that it was identified in accordance with the agreement after the agreement was made: post-contractual identification. If you could identify the subject matter of the contract pre-contractually the goods would have been specific anyway.
‘Ascertainment by deletion or by exhaustion’ is possible as in the case of the Elafi. For example if a seller buys bulk cargo, for which there are 4 buyers (A, B, C and D) and delivers to them in turn. It will not be possible to ascertain which part of the bulk belongs to whom. When A, B and C are delivered their share of the bulk becomes ascertained and then C’s share is ascertained by what is left from the bulk, this is termed ascertainment by deletion. This is now contained in s.18 Rule 5(3) Sale of Goods Act 1979.
Once we have ascertainment we then move to s.17 Sale of Goods Act 1979. This provision is very simple: ss.(1) deals with contracts with sales of specific or ascertained goods and the property is transferred to the buyer when the parties intend it to happen. The question here is about intention. We discover what they intended. One way to find out is to look at the contract. If it is a typical f.o.b. contract, it is usually the intention of the parties that the property (ownership) in the goods will pass to the buyer when the goods have passed the ships rail. If it is a c.i.f. contract the property in the goods will pass when the buyer receives the relevant documents, i.e. the Bill of Lading. The case of Mitsui & Co. Ltd v. Flota Mercante Crancolumbiana SAconcerned a strict f.o.b. contract where property would have passed on shipment, but the courts said looking at the intention of the parties to this contract it was the intention that property should pass at some later date, when full payment had been made for the goods.
If the intention of the parties cannot be determined by looking at the contract then s. 18 contains rules 1 –5 for determining when property passes. If the goods are specific, you look at rules 1-4. If they are unascertained, you look at the last rule, which is in two bits, 5(1) and 5(2).
Rule 1: Where there is a contract for the sale of specific goods in a deliverable state, the property passes when a contract is made. It is immaterial whether payment or delivery or both are postponed.
Rule 2: This essentially prevents property passing in specific goods where the goods are not in a deliverable state at the moment the contract is created. The seller is bound to do something to the goods for the purpose of putting them into a deliverable state.
Rule 3: The property does not pass initially because we don’t know how much the buyer has to pay. The seller has to do something to ascertain the price. It says that the ‘seller is bound to weigh, measure, test or do some other act or thing for the purpose of ascertaining the price’ – in this case, the property won’t pass until he’s done it.
Rule 4: This deals with goods that are on sale or return.
Rule 5: This deals with unascertained goods. For the passing of property in unascertained goods you need unconditional appropriation. Appropriation is attaching the goods to the contact and ascertaining goods is identifying them. In ascertained goods– it is the unilateral setting aside or marking of goods which the seller intends/proposes/has in mind to use with a contract for a particular buyer. There is no commitment this can be undone. Appropriation on the other hand is where both parties say that those goods are the contract goods; it is a bilateral agreement – they have allocated their contract to those particular goods and this cannot be undone.
In the case of Colley v. Overseas Exportersa seller contracted to sell a shipment of bicycles under an f.o.b. contract. The bicycles were put into a crate and taken down to the port but did not put on the ship. It was held that property in the goods had not passed to the buyer and the seller could not obtain the price of the goods.
In Carlos Faderspiel & Co. SA v. Charles Twigg & Co. Ltdthere was a distinction given by the judge between the seller merely ‘setting aside’ goods he intends to use in performance of a contract (ascertainable, s.16), and where both parties agree that those goods are the contract goods (appropriation). The court said for unconditional appropriation you need that last act which cannot be undone.
Section 19 of the Sale of Goods Act 1979 gives the seller the right to reserve ownership. Under s.19 (2) it states if the Bill of Lading is made out to the seller order the seller is reserving ownership and retaining title. The property of that order will not pass until the seller passes it over to the seller.
Section 19(3) deals with the situation where there is a bill of exchange (a unconditional order to pay) and a bill of lading are given to the buyer and the bill of exchange is not honoured (paid against) then the buyer must return the bill of lading. If the buyer wrongfully retains the bill of lading, property will not pass to the buyer.
Section 20 deals with the passing of risk in the goods. Under s.20(1) risk passes prima facia passes with property, property and risk pass at the same time. This is true for the usual type of f.o.b. contracts. When the goods are put on the ship by the seller the property in the goods, along with the risk will pass to the buyer, at that moment. This is not true with c.i.f. contracts, because when the goods are put on-board a ship by the seller the risk will pass on that day but the property will not pass until the seller receives the documents. The c.i.f. contract is done in two stages. The risk passes when the goods are shipped. The documents may be forwarded in four days time. When the documents are received this is when payment is made for the goods against the documents, this is the point where the property passes. If the ship sinks with the goods the risk has already passed and the seller can still claim payment for the documents. The very nature of the c.i.f. contract is the separation of risk and property.
Under s. 20(2) if delivery is delayed through the fault of one of the parties to the contract risk will usually be with that party. In the case of Sterns Ltd v. Vickers Ltd a purchaser bought 120,000 gallons of white spirit from the Seller. This was part of a larger quantity in a tank belonging to a storage company. Seller gave the purchaser a delivery warrant whereby the storage company undertook to deliver to the purchaser or their assignees. The purchaser was to make their own arrangements with the storage company in relation to “storage insurance etc after the end of this month”. The sub-purchasers who did not want immediate delivery and arranged to pay storage rent to the storage company. Some months later it was found that the spirit had deteriorated in quality (partly through natural evaporation of the more volatile elements) since the date of the sale. The sub-purchasers claimed damages from the purchaser who sought to recover damages from the seller. The Court of Appeal held that, even if property in the goods had not passed, the risk of deterioration plainly had passed to the purchaser when they obtained the delivery warrant.
Section 20 A and B was inserted by the amendments to the Sale of Goods Act 1979. This came in to deal with the problem that arose in Re Wait. In this case the buyer was purchasing 500 tonnes of wheat, which was part of an unascertained bulk. The buyer paid for 500 tonnes and the seller went into liquidation. The buyer wanted to recover the 500 tonnes paid for, but the court held that the goods were not ascertained from the bulk. The buyer could only claim the money back through liquidation as a creditor. s.20A was inserted to deal with this problem, if the buyer has paid for a specific quantity out of an indefinable bulk the buyer will have rights in common with other buyers. They will ultimately have rights in the goods.
 this section is subject to s.20A Sale of Goods Act 1979
  1 Ch 606
  1 All ER 208
 (the Ciudad de Pasto)  1 All ER 951
 It is ‘those goods and no other goods’ that become the contract goods – Pearson.
  3 K.B. 302
  1 Lloyd’s Rep 240
  1 KB 7
  1 Ch 606