The Sellers Duty to Pass a Good Title to the Goods

Among the most important terms implied by the Act in a contract of sale of goods are those relating to the seller’s duty to pass a good title to the goods. Section 12(1) SGA, [1] provides: ‘In a contract of sale, other than one to which subsection (3) below applies, there is an implied condition on the part of the seller that in the case of a sale, he has the right to sell the goods, and in the case of an agreement to sell, he will have such a right at the time when the property is to pass’. It can be seen from this that the main purpose and effect of the section is to require the seller to transfer the property or title to the goods to the buyer. Plainly, if the seller is himself the owner, and nobody else has any claim claims to the goods, the seller’s property in the goods will pass to the buyer under the contract and s 12(1) will be satisfied.

However s 12(1) SGA 1979 does not require the seller should himself be owner, or even that he should acquire a title to the goods before transferring them. ‘A contract of sale can perfectly be performed by a seller who never has title at any time, by causing a third party to transfer it directly to the buyer’. [2]

Section 12(1) SGA 1979 is not, however, drafted in terms of ‘property’ nor of ‘title’; what it requires is that the seller has, or should have, a ‘right to sell’, and this causes problems because of the inevitable ambiguity of the word right. In clear contrast the UCC, Article 2-312(1) place an emphasis on the issue of title and imposes an obligation on the seller to pass a good title. Furthermore, although in most cases the power to confer a title and the right to sell the goods will go together, there are some exceptional cases in which they may be separated (Lloyds & Scottish Finance Ltd v Modern Cars & Caravans (Kingston) Ltd [1966]). [3]

As in the SGA 1979, title to the goods under the UCC does not pass, according to Article 2-401(1) UCC, until the goods have been identified to the contract and unless the buyer acquires by such identification a ‘special property’ in the goods, as explained in Article 2-501 UCC. Once the conditions precedent of identification of the goods and acquisition of special property has been fulfilled, title may pass from the seller to the buyer in any manner agreed upon by the parties.

However where their intention is not expressed, Article 2-401(2) UCC provides a presumptive rule that title passes ‘at the time and place at which the seller completes his performance with reference to the physical delivery of the goods’. Title passes at that point even if the seller has reserved a security interest in the goods and even if a bill of lading will be delivered at a different time or place. [4] In relation to sale contracts concerning carriage of goods, when it requires the seller to send the goods to the buyer but not to deliver them to destination (as in CIF [5] or FOB (vessel) [6] ), title passes at the time and place of shipment: Article 2-401(2)(a). Furthermore, where the sales contract requires delivery at destination, title is said to pass upon tender at destination: Article 2-401(2)(b) UCC.

In contrast there are no provisions under CISG, [7] dealing specifically with the passing of title because the Convention concerns itself with risk rather than title. [8] Title is therefore left to national law and, when it is necessary to determine which national law applies one refers to the rules of private International law (art 7(2)). It is significant, moreover, that the CISG under Article 67(1) adds: ‘the fact that the seller is authorised to retain the documents controlling the disposition of the goods does not affect the passage of the risk’. [9]

The basic rule is that risk passes at the time agreed upon by the parties: s 20(1) SGA 1979, and Article 2-303, 2-509(4) UCC. The CISG, is silent on the role of the parties’ intention in the passing of the risk, nevertheless, the same rule emerges from the whole tenor of the Convention. [10]

The general rule laid down by s 20(1) SGA 1979 is that prima facie the risk passes with the property: ‘unless otherwise agreed, the goods remain at the seller’s 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 buyer’s risk whether the delivery has been made or not’.

The general rule however, is subject to several qualifications. First it is displaced by contrary agreement between the parties. [11] Secondly, even where risk is prima facie on one party, it may be shifted, wholly or partly, as the result of fault by the other (s 20(2) SGA 1979). [12] However, only as regards any loss which might not have occurred but for such fault. [13] Thirdly, where the seller is authorised to send the goods (for example to deliver them to an independent carrier for onward transmission to the buyer), the Act provides special rules for the risk of transit. [14] Fourthly where the buyer deals as consumer, [15] sub-ss (1) to (3) of s 20 (exceptions) are required to be ignored and goods remain at the seller’s risk until they are delivered to the consumer. [16] Finally, s 20 SGA does not in terms distinguish specific or ascertained goods from unascertained or quasi-specific goods. The distinctions are very material, for they influence the passing of the property, which in turn affects the incidence of risk.

In contrast the UCC provides a clear set of rules in relation to the passing of risk, which may, however, be ousted by the agreement of the parties: Article 2-509(4) (similar to s 20(1) SGA 1979). [17]

When the sale requires shipment by the carrier but does not require delivery by the seller at a particular destination, risk of loss passes to the buyer when the goods are delivered to the carrier: Article 2-509(1)(a). This rule can be seen to be similar in effect to s 32(1) read together with rule 5(2) of s 18 and s 20(1) of the SGA 1979. When the delivery of the goods does not require shipment, as for example when the goods are to remain stored in a warehouse, risk is said to pass to the buyer when he receives a negotiable bill of lading (Article 2-503(4)(a) and 2-509(2)(a) or a non negotiable bill, as provided by Article 2-503(4)(b) and 2-509(2)(c) or when the bailee acknowledges the buyer’s right to possession: Article 2-509(2)(b).

The provisions for the passing of risk under CISG, are very similar to the corresponding sections in the UCC. The CISG provides that the risk is transferred to the buyer when the goods are handed over to the first carrier for transmission to the buyer or, if there is a specific place where the delivery is to occur, at the time the goods are handed over at that place: Article 67(1). There are furthermore, three interesting features in this article: firstly, it specifically covers sales involving carriage of goods; secondly it disregards the fact that the seller may still have documents pertaining the goods; thirdly, it emphasizes physical delivery through the use of the words ‘handing over’.

The CISG further provides that risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings, shipping documents, notice to the buyer or otherwise (Article 67(2)).

Where the goods are sold in transit, risk ordinarily passes on the conclusion of the contract, but may pass instead when the goods are handed over to the carrier who issues the shipping documents, ‘if the circumstances so indicate’ (Article 68). The seller, however, retains the risk where, at the time the contract was concluded, he knew or ought to have known the goods were lost or damaged, if he did not disclose this to the buyer (Article 68). In other cases, risk passes when the buyer takes over the goods or, if he does not do so in due time, from the time they are placed at his disposal (Article 69(1) CISG).

The rules for delivery in the SGA 1979 apply equally to international sales as they do to domestic contracts. It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale (s 27 SGA). Similarly Article 30 CISG, requires the seller to deliver the right goods and documents at the right time and place as required by the contract. The buyer can reject the tender if it is late only if time is of the essence. Furthermore, where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time (s 29 SGA 1979, similarly under Article 33 CISG and UCC 2-309(1)). Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour; and what is a reasonable hour is a question of fact (s 29(5)).

In relation to the absence of specified place for delivery under the sales contract, the place for delivery is the seller’s place of business or, if he has none, her residence (UCC Article 2-308(a)). Similarly the express absence of delivery is dealt by Article 31 CISG. The only exception to this rule is that if at the time of contracting the goods are known by the parties to be some where other than at the seller’s business or residence, that place will be designated as the place of delivery (Article 2-308(b)). In other words, where the contract is silent, the court will construe the contract so as to require the buyer to pick up the goods.

Article 18(1) CISG defines an acceptance as ‘a statement made by or other conduct of the offeree indicating assent to the offer is an acceptance. Silence or inactivity does not in itself amount to acceptance’. In relation to an acceptance being identical to the offer, the CISG adopts the ‘mirror image rule’, but adds a restriction by specifying that the contract can be concluded if the additions included do not modify the fundamental elements of the offer. In contrast in English law the mirror image rule requires an unconditional acceptance which corresponds in a non-equivocal way to the offer. In the opposite case, this response only constitutes a counter-offer or a mere rejection.

Article 18(1) CISG, first sentence, also permits acceptance by ‘other conduct’ and except in so far as Article 18(3) applies, the declaration indicated by the conduct expressing acceptance must, in principle, reach the offeror because Article 18(2) CISG, providing that the ‘indication of assent’ becomes effective only when it reaches the offeror, makes it clear for both forms of assent indicated in Article 18(1) CISG. For example the opening of a letter of credit for the purchase price as the District Court of Illinois held in Magellan International Corporation v. Salzgitter Handel GMBH [18] and a letter of confirmation sent by the seller after buyer’s taking delivery of the goods, [19] constituted an implied acceptance.

Furthermore, Article 18(1) CISG indicates also that silence or inactivity can in principle also express an intention to accept and there is no question of its reaching the addressee. However the wording of the provision ‘in itself’ clearly shows that there must be additional factors associated with the silence or inactivity to indicate assent. [20] The possibility that silence may indicate assent does not mean that an offeror can insert a term to that effect in the offer as a way of binding the offeree if he fails to reply to the offer. [21]

Parallel to Article 18 CISG, UCC Article 2-206 permits acceptance by actions where appropriate, providing that unless unambiguously indicated by the language or circumstances, acceptance is permitted ‘in any reasonable manner and by any medium reasonable under the circumstances’. Thus taking, consequently, like CISG, a flexible approach in the offeree’s mode of acceptance. UCC, moreover, recognizing under UCC Article 2-204 any manner of expression of agreement, oral, written or otherwise, as sufficient to establish it, states that acceptance of an offer may be inferred from the offeree’s conduct. UCC Article 2-206, like the CISG, provides that a promise to ship or actual shipment constitutes acceptance; however, UCC, unlike the CISG, requires that an unambiguous act of acceptance must be communicated to the offeror within a reasonable time, recognizing, consequently, the beginning of a performance as effective acceptance but only if the offeree gives notice of acceptance within a reasonable time.

If the buyer has not accepted the goods and he finds that they do not conform to the contract, his remedy to reject the goods depend upon whether the breach was one of a condition of the contract. This is known as the perfect tender rule. Under it a buyer may generally subject to good faith reject goods and cancel the contract. Section 35A (inserted by the SSGA 1994) provides for the right of partial rejection. Under this section, if the buyer has the right to reject the goods by reason of a breach on the part of a seller, but he accepts some of the goods, he does not lose the right to reject the rest. This can be seen to correspond to the right of rejection under UCC Article 2-601, 2A-509.

Furthermore, the rejection of the goods must be within a reasonable amount of time after delivery or tender of delivery, and the seller must be notified seasonably that is, in a timely fashion or at the proper time (UCC 2-602(1), 2A-509(2)). Similarly under s 35(4) SGA 1979, it is provided that the goods must be rejected within a reasonable time, and in determining what is reasonable it is important to consider the interests of the seller as well as those of the buyer. [22]

In contrast the CISG departs from the perfect tender rule and makes rejection much more difficult. Under the CISG, a buyer may declare the contract avoided only if the failure by the seller to deliver the goods constitutes a fundamental breach of the contract (Articles 49(1) and 64 CISG). Furthermore, Article 50 of the CISG, unlike the UCC, allows for a price reduction remedy for non-conforming goods.

There are a number of contractual terms which are implied into every contract for the sale of goods by the SGA 1979. There are conditions as to title (s 12 SGA), correspondence with description [23] (s 13 SGA) and to provide satisfactory quality [24] (s 14(2) (as amended by SSGA 1994)). Similarly the quality requirement is also provided for under Article 35 CISG. The obligations imposed by these conditions must be complied with by the seller, otherwise the seller may be liable and the buyer will be entitled to reject the goods. The SGA 1979 also implies into every contact for the sale of goods certain warranties (s 12(2)) the breach of which entitles the seller to damages. In relation to non delivery, the measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract (s 51(2)).

Where under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects the goods or refuses to pay for them according to the terms of the contract, the seller may maintain an action against him for the price of the goods (s 49(1)). Similarly Article 62 CISG provides for the seller’s recovery of the price. It provides: ‘the seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement’. The recovery of the price is not therefore conditioned on the property having passed to the buyer as it is under s 49 SGA 1979, nor is it conditioned on the seller making a reasonable effort to resell the goods as it is under Article 2-709(1)

The provisions in the CISG attempt to facilitate the successful completion of an exchange of international goods by discouraging contractual breakdowns, even when events go awry. In this respect, the CISG goes far beyond the legal architecture of the UCC. Many provisions encourage, or even require, communication and reasonable conduct between the parties to resolve problems before a total contractual breakdown. In this respect, the CISG promotes freedom of contract over the regulation of private international behavior. In doing so, it allows businesspersons to operate more efficiently in the growing international marketplace by replacing potentially litigious legal regimes, such as the UCC, with a set of laws that allows for self-regulation.