Agency and Domestic Sale of Goods

Passing of property is of vital importance in a contract of sale of goods. This is so since it has important consequences in terms of risk, the right to sue, the ability to pass a good title and the security of payment of a party as against an insolvent other party. The Law Commission Paper on rights of goods in bulk [1] and a Discussion Paper on bulk goods [2] reported in their consultation that ‘the need for reform is greatest in relation to sales of specified quantities of unascertained goods forming part of a bulk’ [3] thus this paper makes a recommendation in consideration with the commercial requirements of passing of property in relation to bulk goods. On examination of the consent principle in English law it will be observed that the rules governing the transfer of property, namely that goods be ascertained and the intention of the parties are paramount, are also prevalent in the delivery principle. It follows that conceptual approach in English law is unsophisticated to deal with the array of disputes of different kinds, thus it is a commercial inconvenience. It concludes that on balance property should pass on delivery.

The ‘Consent and Delivery Principle

It is fundamental principle across all legal systems that to transfer property is of vital importance in a contract of sale of goods. ‘This is so since it has important consequences in terms of risk, the right to sue, the ability to pass a good title and the security of payment of a party as against an insolvent other party. Further, in cases of international sales, problems with regard to passing of property arise most frequently in order to determine whether the goods can be treated as security for payment of the price’. [4] To transfer property it must be provided for under a sales contract, however the legal systems are differentiated on the basis that they either permit the transfer of property according to consent of the parties, i.e. (under their contract) or they require an act of delivery. Countries in the former category include England, France, Belgium, Luxembourg, Italy and Poland. In the latter category, the pre-requisite of the act of delivery is followed in Germany, Switzerland, Austria, Netherlands and Spain.

The Present Law

The Sale of Goods Act 1979 (SOGA) is concerned only with goods. “Goods” are defined as including “all personal chattels other than things in action and money”. [5] The Act distinguishes between specific goods and unascertained goods. Specific goods are “goods identified and agreed on at the time a contract of sale is made”. [6] Unascertained goods are those which are not identified and agreed on either at the time the contract is made or later. [7]

The general rule in English law on the passing of property under a contract for the sale of goods is that property passes from the seller to the buyer when the parties intend to pass. [8] However s16 SOGA [9] takes precedence over the intention of the parties and 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.” In deciding what the parties intended regard will be had to the terms of the contract, the conduct of the parties and the circumstances of the case. [10] To identify the intention s18 prescribes five Rules. Unless a different intention appears, the Rule 5 governs cases which are concern unascertained goods.

Rule 5 – (1) Where there is a contract of the sale of unascertained or future goods by description, the goods of that description and in the deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made.

(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of the transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract.

To appropriate goods in sale of goods law is particularly troublesome for cases are difficult to reconcile. [11]

The Legal Effect of Section 16

The notion that goods must be ascertained before property in them pass has been scrutinised because otherwise there is no method of identifying the goods. The adverse affect of ascertainment however are illustrated when goods are held in a warehouse. It is customary that an independent storekeeper holding goods on behalf of the seller will be presented a delivery order by the buyer, it will effect acknowledgment that the quantity in question is now held for the buyer, a personal right against the storekeeper and a delivery between the seller and buyer; [12] however it is not sufficient to pass property in the goods because pursuant to s16 SOGA the goods are still unascertained. On the seller’s insolvency the goods could still be taken by the liquidator or other office-holder in solvency.

To understand s16 literally suggests that where goods are pertained to separate contracts property is prevented from passing to the buyer until ascertainment of the goods associated to each contract. However Wait and James v Midland [13] Bank and Karlshans Oljefabriker v Eastport Navigation Corporation (The Elafi) [14] confirms that the courts are reluctant to impose this sanction where one purchaser can unite contracts relating to the whole bulk.

However this privilege is not applied where the whole of the bulk has been bought by different buyers under different contracts. Given that it is customary that an independent store keeper holds goods on behalf of the seller to be presented a delivery order by the buyer to effect acknowledgement that the quantity in question is now held for the buyer, pursuant to s16 SOGA there is an injustice to the pre-paid buyer if the goods pertaining to various contracts have been ascertained because the property in the goods cannot be transferred. [15] Despite the buyer possessing a personal right against the storekeeper and a delivery between the seller and the buyer [16] if the seller becomes insolvent the goods could still be taken by the office holder in insolvency because the whole of the bulk belongs to the seller, and the buyer is an unsecured creditor [17] therefore he acquires no proprietary interest in the goods that he had paid for.

The Gosforth case [18] was the first of a line of cases to highlight that he Act prejudiced against the pre-paid buyer. In particular it ‘identified the problem with the statutory regime governing commodity sales in Britain. Section 1 Bills of Lading Act 1855 prevented a person to whom the goods were to be delivered under a contract for the carriage of goods by sea from suing the carrier under a bill of lading because property in the goods forming part of a bulk could not pass the buyer. [19] Following this, cases arose that drew attention to the restrictive property rules in that there was a risk to buyers of goods from a bulk source. [20]

In addition party autonomy was weakened because the Act defied the commercial expectations for the parties in that they were deprived from suing in tort for damage to goods because they could not acquire a legal title or an interest before ascertainment of goods. [21]

Reform of Section 16

The Law Commission Working Paper No112 published that some buyers have suffered because of the problems with insolvent sellers. The Law Commission decided at that time to take no action but subsequent Reports led to two significant changes in statutory provisions impacting upon international trade.’

The 1885 Act provided that rights against the carrier were transferred to the consignee of goods named in the bill of lading and every endorse ‘to whom the property in the goods therein mentioned shall pass upon by reason of such consignment or indoresement’. ‘The preamble to the Bills of Lading Act 1855, while stating that it is expedient that the shipper’s rights should pass with the property, makes no mention of liabilities. Section 1 refers to the transfer to, and vesting in, the consignee/indorsee of all rights of suit. Whilst not referring to the transfer of liabilities, it provides that the consignee/indorsee will be subject to the same liabilities in respect of the goods as if the contract contained in the bill of lading had been made with himself’ [22] thus it was unclear whether these liabilities included those before consignment and endorsement. [23] ‘The Delfini [24] accepted the view which allowed the indorsee to sue even though the indorsement was not the immediate cause of the passing of property, as long as the indorsement played an essential causal role in its transfer. Thus, if property passed before, or independently of, consignment or indorsement, section 1 could not apply. Similarly, no right of action could arise if, as in The Aramis, [25] a buyer of goods forming part of a bulk cargo received no goods at all.’ [26]

Subsequently, banks that took bills of lading as security might never acquire property by consignment or endorsement. With regards to bulk cargoes, the buyer would have no right to claim under the bill of lading against the carrier in respect of shortage because by virtue of s16 as no property in undelivered property could be ascertained. In addition, section 5(4) provides that rights of suit are still transferred by section 2 notwithstanding that the goods have ceased to exist after issue of the relevant document or where the goods cannot be identified, for instance because they are carried in bulk.

The Carriage of Goods Act1992 (COGA) was enacted to overcome the problems of the 1855 Act by breaking the link between the transfer of contract rights and the transfer of property. [27] It provided that a buyer of goods shipped under a bill as part of a larger bulk can sue, as can the bank which takes a pledge of the goods but never acquires ‘the property.’ This is also applicable to the holder of a ship’s delivery order and the person nominated to receive the delivery under a waybill. Section 2(2) mitigates the problem highlighted in Delfini for it provides that a person who becomes holder of a bill of lading when the bill no longer gives aright against the carrier to possession of the goods nevertheless succeeds to the rights under the contract of carriage. To guard against the possibility that bills might be transferred merely to transfer rights of suit, such rights are only transferred to a person who becomes holder of the bill by virtue of a transaction effected in pursuance of contractual o r other arrangements made before the time when a right to possession ceased to attach to possession of the bill” [28]

Bradgate and White [29] are opined that the solutions proposed in the Act creates its own difficulties, ‘not all of which have been convincingly resolved.’ For instance, in s2(1) stipulating that the “lawful holder” of the bill of lading, the holder being described in s5 must take the bill ‘on good faith’ creates an area of uncertainty as no definition of the concept of good faith is described. Although, in Aegean Sea [30] , Thomas J referred to the concept in narrow means: ‘In the commercial context of the bill of lading the meaning of the term good faith should be clear, capable of unambiguous application and be consistent with the usage in other contexts and countries”, it will be exposed to judicial scrutiny should a wider interpretation arise.

The reforms led to the enactment of the Sale of Goods Act (Amendment) 1995 to strengthen the concept of ‘property’ in commercial law. Section 1 of the new Act has made amendments to s16, 18 and 20 of the Sale of Goods Act 1979. Section 16 is no longer an impediment to buyers acquiring property in goods forming part of a bulk. Now s20A provides that such buyers obtain title to an undivided share in the bulk so as to become an owner-in-common of that bulk where the price has been paid and s20B provides that the buyer is deemed to consent to deliveries out of the bulk to the other owners-in-common. [31]

Section 18 has inserted new sub-rules, namely Rules (3) and (4) which govern the passing of property in goods from a bulk source from a seller to a single buyer. It entails that the to occasion a passing of property the goods must have paid for in advance and the source of the goods themselves must have paid for the goods in advance and the source of the goods themselves must been identified either at the time of the contract, or by agreement between the parties. The new sub-rules give statutory recognition to the principle of ascertainment by exhaustion as developed by the courts in cases like Wait and James and The Elfafi.

Burns, however is opined that the reforms do not go far enough; firstly ‘they do not resolve all of the difficulties that may arise under statutory ownership in common. The Act does not provide any specific rules on the insolvency implications for the buyer of undivided goods. Where there is a shortfall and the seller is insolvent, leaving the last co-owner with the burden of absorbing the losses, there is no statutory provision to spread that burden more evenly amongst the co-owners. ‘ Secondly, ‘the new Act may protect buyers from a seller’s insolvency before the appointment of the bulk goods, but is silent on the issue of what is to happen if one of the co-owning buyers becomes insolvent or is otherwise unable to pay a debt.’ [32] Moreover, by following the notion that goods are at the buyer’s risk during transit, it does not seem fair that the seller’s interests are protected should stoppage in transit rights be exercised yet the pre-paid buyers’ protection in the case of an insolvent seller is inadequate thus a proposal to transfer property on delivery will ideally strike a fair balance.

In the light of the drawbacks of COGA and SOGA 1995 one is inclined to examine whether in English law the transfer of property should depend upon delivery rather than the present rules as is the case in Germany.

Art 929 of civil code provides that:

“For the transfer of the ownership of a moveable thing, it is necessary that the owner of the thing deliver it to the acquirer and that both agree that the ownership be transferred. If the acquirer is in possession of the thing, the agreement on the transfer of ownership is sufficient.”

Generally, risk passes with property. [33] Thus, the goods agreed to be sold remain at the seller’s risk until the property in goods passes to the buyer. However, this presumptive rule can be modified if property were to pass on delivery in the sense that the passing of property and passing of risk may be separated by agreement between the parties. In this case the risk cannot pass until the goods have been delivered to the carrier for shipment. Once this is done, the parties intend that the seller’s responsibility ceases although he may still be obliged to tender the correct documents to the buyer; summarily the paramountcy of intention continues. [34]

The delivery principle appears to simplify those reforms provided for by the SOGA (Amendment) 1995; for instance the inadequacy of the title tenancy in common can be rectified by passing property on delivery because ‘only after delivery, can the buyer’s property right become amount to a proprietary interest. In stressing the importance of delivery and possession an interest can be asserted against third parties, the effect of which will bar the insolvency officers from claiming the goods sold by the insolvent seller. [35] With regards to the initial problems of appropriation, given that it is obvious that delivery is the best example for an appropriation, property should in fact pass on delivery. Chalmers even concluded that, “If the term ‘delivery’ had been substituted for ‘appropriation’, probably less difficulty would have arisen,” however this notion does not account for an actual delivery. [36] The fact that the Act provides that there is an attournment which amounts to a delivery in law where a third person in possession of goods sold acknowledges them as the buyer’s as was the case in Wardar’s (Import and Export) Co Ltd v W Norwood & Sons [37] Ltd prima facie it will seem unjust that goods should pass on delivery. In this case, the buyer’s carrier collecting frozen goods left on the pavement outside of the coldstore constituted a delivery, however the buyer acquired goods unfit for human consumption. However, the statutory remedies, that is the buyer having the reasonable opportunity to examine the good in this circumstance would be sufficient [38] . Moreover in the case of a short delivery, s30(1) SOGA 1995the buyer may reject them.

The Sale of Goods Act 1995 can be commended in upholding greater contractual freedom in agreeing the timing and the manner of transfer and respecting the parties intentions, particularly in comparison with South Africa [39] , however its ‘root cause was the over reliance on the concept of property’ in the sense that it served to determine the rights and obligations of parties in many different kinds of disputes.’ The Act was not sophisticated enough for it envisaged that this one concept could defeat the anomalies that it instigated, the classic example being the rule that property cannot pass to the buyer where he purchases goods in an undivided bulk; [40] thus transferring property on delivery is preferable option, however it does not go without its difficulties.

Encouragement for this delivery principle can be garnered from Article 67(1) of United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG) which provides that the risk of loss passes to the buyer when the goods are handed to the first carrier for shipment to the buyer, unless the contract is specific about where the goods are to be handed over to a carrier, in which case, risk of loss passes when the goods are delivered to the carrier at that specific place. Further, Article 69 of CISG provides that if the buyer fails to take delivery of the goods, risk of loss is still deemed to have passed on to him when the goods are placed at his disposal.

However, the application of Article 67(2) of CISG creates some problems in cases of bulk shipments. Article 67(2) provides that risk will not pass to the buyer until the goods are identified to the contract. Now, if identification means ascertainment as understood under the Act, it has mischievous effects on cases of bulk shipment for the goods would not be identified in such cases until separation in a discharge port. It is here, that Section 20-A of the (English) Sale of Goods Act, 1979, which provides that in cases of bulk shipments the buyer obtains an undivided share in the bulk to become an owner-in-common, comes to our aid.’ [41]

Rather than to make the transfer of property mandatory, the ‘borderline’ approaches should be recommended as is the case in US law [42] by virtue of the Uniform Commercial Code (UCC). The step-by-step approach in Article 2 (section 2-101) is innovative because it allows issues of different kinds, such as the allocation of risk and reservation of title etc. to be dealt with logically. By not making delivery a compulsory requirement it can be likened to the consent principle as it maintains party autonomy by allowing the parties to decide the time in the passing of property.

British statutory rules on the passing of property in the nineteenth century were inadequate to meet the demands of modem commerce. S16 of the Sale of Goods Act 1979 was troublesome in that it was prejudiced against the pre-paid buyer. The approach taken by the in the Sale of Goods (Amendment) Act 1995 has been much too cautious for the piecemeal attempts lack coherence. The delivery principle reinstates the importance of possession for it permits the pre-paid buyer to acquire a proprietary interest will prohibit the insolvency officers from claiming all should the seller become insolvent. In addition it simplifies the solutions that the Sale of Goods Act 1995 sought to address however when likened to CISG problems emerge in cases of bulk shipment. Given that the delivery principle invokes the same rules in English law to pass property, changes would not be radical thus on balance property should pass on delivery.

Table of Cases

Aldridge v Johnson (1857) 26 LJQB 296

Aegean Sea [1998] 2 Lloyd’s Rep. 39

Aramis, The [1989] 1 Lloyd’s Rep 213

Bank and Karlshans Oljefabriker v Eastport Navigation Corporation (The Elafi) [1981] 2 Delfini, The [1990] 1 Lloyd’s Rep 252.

Federspiel v Twigg Ltd [1957]1 Lloyd’s Rep 240

Hayman v Mclintock 1907 SC 936; Re Wait [1927] 1 CH 606

Healey v Howlett & Sons [1917] 1 KB 337

Leigh & Sullivan Ltd v Aliakmon Shipping Co Ltd [1988] 1 Lloyd’s Rep 128

Perkins v Bell [1893] 1 QB 193 CA

Re London Wine Co (Shippers) Ltd (1986) PCC 121

Wait and James v Midland (1926) 24 L1 L Rep 313; (1926) 31 Com Cas 172

Wardar’s (Import and Export) Co Ltd v W Norwood & Sons [1968] 2 QB 663

Table of Statues

Sale of Goods Act 1979

Sale of Goods Act (Amendment) 1995