ABE Principles of Business Law 2008

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(The acknowledgement referred to by Lord Denning was a "tear-off" acknowledgement of order slip attached to the buyer's standard order form.)

(d)Unsolicited Goods

At common law if unsolicited goods are sent to a person, this constitutes an offer to sell. His/her use of them, or any conduct which renders the goods impossible to restore to the sender in substantially the same condition, amounts to an implied acceptance. The price must then be paid; however, the Unsolicited Goods and Services Act 1971 substantially amends the common law rules, as follows.

If the goods are sent to the recipient with the intention that she should acquire them, and the recipient has no reasonable cause to believe that they were sent for the purposes of her using them in a trade or business, and she has not agreed to either acquire or return them, then she may use and deal with them as if they were a gift. The rights of the sender are extinguished. Provided firstly, that for the six months from the date of receipt, the sender has not repossessed them, and the recipient did not unreasonably refuse to allow him to do so. Or secondly, that no less than 30 days before the six-month period expires, the recipient notifies the sender that the goods were unsolicited, and during the 30-day period after giving notice, the sender has not repossessed the goods, or been unreasonably prevented from doing so.

Remember the distinction between void and voidable (i.e. avoidable) contracts.

Formalities

There are no particular formalities required for a sale of goods. S.4 provides that "subject to [this and] any other Act, a contract of sale may be made in writing (either with or without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties".

Note the words "this and", which I have emphasised and put in brackets. They are redundant, and refer to a similar provision of the 1893 Act which was repealed in 1954. The draughtsmen of the Act have slipped up here!

"Other Acts" to which the provision is subject are, for example:

The Consumer Credit Act 1974, which requires certain credit agreements to be in writing and in a certain form.

The Merchant Shipping Acts 1894–1979, which require that a registered ship can be transferred only by means of a bill of sale, in prescribed form, and duly registered.

Parties

A contract for the sale of goods can be bilateral or multilateral. Throughout, the Act talks about only two parties, but there is no difficulty in applying the provisions to situations where there are three or more parties.

S.3(1) states that "the capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property". The section goes on to spell out the general law as relevant with regard to contracts with minors and others incompetent to contract.

S.3(2) states that "where necessaries are sold and delivered to a minor or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price for them".

In Sub-section (2) above, "necessaries" means "goods suitable to the condition in life of the minor or other person concerned and to his actual requirements at the time of the sale and delivery".

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You will recall that we discussed contracts with minors, and other people without full capacity, in a previous study unit.

Price

It is stated in S.2(1) of the Act that the price must be in money. S.8 goes on to provide that the parties may:

fix the price;

leave it to be fixed in a manner agreed in the contract, or determined by a course of dealing between the parties.

But where it is not fixed or agreed in any of these ways, then the buyer must pay a reasonable price. What is "reasonable" depends on the circumstances of each particular case.

In Acebal v. Levy (1834), it was held that a "reasonable price" may or may not be the current market price of the commodity in question.

If it so happens that the price is agreed to be fixed by the valuation of a third party, and the valuer cannot or does not do this, the agreement is avoided, but if all or part of the goods concerned have been delivered, the buyer is bound to pay a reasonable price for them (S.9).

D. PASSING OF PROPERTY

Goods – at least specific goods – are tangible things which you can physically handle. But the mere fact that I can handle something does not necessarily mean that I own it. I may have found it abandoned, or have been lent it, or have stolen it. In none of these instances am I the rightful owner.

There are then four definitions which are fundamental, and which occur throughout the subject. It is most important not to confuse them.

Property

The "property" in goods is the ownership of them – the highest right to those goods that a person can have.

Title

"Title" to goods is often used as being synonymous with "property". But strictly it is the "right" to a person's property in goods, or the means whereby the right has accrued to someone, and by which it is evidenced. Blackstone defined it over two centuries ago as: "the means whereby an owner has the just possession of his property".

Possession

This is the physical control of the goods, or possession of them. It has no necessary connection with the property in them. If I steal something, I have possession of it, but I do not have the property in it, nor any title to it. Indeed, I do not even have a right to possess, and the right to possess may be vested in X, neither in me nor in the owner.

Risk

The "risk" in goods is the responsibility for loss, damage or destruction of those goods. It is not necessarily coincident with either property in or possession of those goods. We shall be dealing with "risk" in the next study unit.

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The Title of the Seller

You will remember from the previous study unit that S.2(1) of the Act defines a contract of sale of goods as "a contract by which the seller transfers ... the property in goods ... for a money consideration, called the price".

Now if the seller does not in fact have the right to transfer the property, at common law the contract of sale is not necessarily void. It may be that the seller genuinely thought he had the right to transfer the property, or he may be transferring only such rights as he himself possesses.

Consequently, S.12(1) of the Act lays down that "there is an implied condition on the part of the seller that in the case of a sale he has a 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". This is subject to Sub-section (3) of Section12, which "applies to a contract of sale in the case of which there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third party may have".

It is therefore a condition of the contract of sale that the seller has, or will have, a right to sell. Breach of a condition permits the injured party – in this case, the buyer – to rescind the contract, and not merely rely on damages. By the same token, as the seller has no right to sell the goods, the buyer acquires no title to them.

Rowland v. Divall (1923)

Divall bought a motor car in good faith from a thief. He sold it to Rowland, a car dealer, for £334. Rowland then put it in his showroom, and duly sold it to a third party for £400. A couple of months later the police seized the car and returned it to the true owner. Rowland repaid the £400 to the third party and sued Divall for the price he had paid.

HELD (in the Court of Appeal): He was entitled to succeed, even though both he and the third party had had use of the car for several months, and could not return it. The consideration for the payment had totally failed, as the buyer (Rowland) had not received any part of what he bargained for, that is the property and right to possession of the car.

There is now an exception to the rule in Rowland v. Divall by virtue of the Torts (Interference With Goods) Act 1977 which provides that in such cases, where "improvements" are made to the goods, or use has been made of them, then in any action by the buyer against the seller, an appropriate allowance is to be offset – provided, that is, he/she has acted in good faith.

Furthermore, "a right to sell the goods", as stated by S.12(1), is more than merely an ability to pass a good title.

In Niblett v. Confectioners' Materials Co. Ltd (1921) a consignment of tinned milk to be shipped from New York to London was bought. The milk arrived, carrying the label "Nissy" brand. At the instance of a third party, who claimed infringement of trade mark, the consignment was seized by Customs.

HELD: S.12(1) was breached, as the seller did not have the "right to sell". The fact that the buyers' rights over the goods could be curtailed by injunction as infringing the rights of third parties was sufficient to ensure that the sellers had no right to sell.

In the event of chain transactions where goods are sold many times over before being repossessed by the rightful owner, then if (as is usually the case) the original seller is insolvent or has disappeared, the first buyer from him/her is the one who has to bear the loss.

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Freedom from Encumbrance and Quiet Possession

S.12(2) of the Act provides firstly that the seller warrants that the goods are free, and will remain free, until property passes, from any charge or encumbrance not disclosed to the buyer before the contract is made.

Secondly, "that the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or known".

A charge or encumbrance is a right over the goods possessed by a person other than the owner. For instance, goods may be charged or mortgaged as security for a loan. The chargee or mortgagee then possesses rights with regard to the goods. The seller therefore warrants that no such charges exist, or only such as he/she has previously disclosed.

"Quiet" possession does not mean absence from noise. It means that it is warranted by the seller that nobody with any better rights to the goods will disturb the possession of them by the buyer; nor is the warranty confined to defects in title existing at the time of the sale.

In Microbeads AG v. Vinhurst Road Markings Ltd (1975), goods were sold which were not at the time subject to any patent rights. Subsequently a patent specification was published and a patent granted. The Court of Appeal held that S.12(1) was not breached (i.e. the right to sell) but that the seller was in breach of S.12(2).

The Effect of Passing of Property

The effect of passing the property in goods to the buyer is to transfer to him/her the title and full legal interest in the goods, subject only to any rights in the goods retained by the seller or by any third parties. It is a condition of the contract that any such retained rights are first disclosed to the buyer.

Before the property has passed, the seller can dispose of the goods to a third party, albeit in breach of contract with the buyer, and the third party will thereby acquire a good title to them. The reason is that the title is still vested in the seller until the property passes, hence he/she is at liberty to pass that title to someone other than the buyer. The disappointed buyer is, of course, entitled to damages for breach of contract, but not to the goods themselves.

The exact point in time when the property passes is most important in the event that either buyer or seller goes bankrupt (or, in the case of a company, into liquidation or receivership). In the event of the seller becoming insolvent while still in possession of the goods:

If the property has passed to the buyer, he/she can, on tendering the price, demand the goods themselves from the liquidator or trustee in bankruptcy.

If the property has not passed, all the buyer can do is to seek damages for breach of contract. If the seller is hopelessly insolvent, this right may be worthless.

The Sale of Goods Act 1979 provides rules as to when the property in goods sold passes.

Specific Goods

The cardinal principle is that the property passes when the parties to the contract intend it to pass. In the case of specific goods, this is enshrined in S.17(1) of the Act. Sub-section

(2) goes on to state:

"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".

In other words, you must first look at the agreement that has been made, whether it be written or oral, to see if it has specifically agreed as to when the property in the goods shall

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pass, and, if not, whether the intention can reasonably be inferred from the terms or the surrounding circumstances.

However, if this cannot be done, S.18 sets out the rules for ascertaining the presumed intention of the parties.

(a)Rule 1

"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."

So, under this Rule property passes when the contract is made. There is no necessary requirement for the buyer to have possession, or to have paid the price. The passing of property is quite separate from the buyer's right to get possession of the goods, or the seller's right to be paid for them.

This is not as illogical as it sounds, for S.28 states that:

"Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods".

The effect, therefore, is that in the ordinary simple transaction of buying something, Rule 1 and S.28 taken in conjunction ensure that although the ownership of the goods may pass to the buyer, she won't get possession of them until she has paid. However, the parties are perfectly free to make whatever arrangements they like as to credit or time of delivery without necessarily affecting the time at which the property passes.

But Rule 1 is not quite as simple as that. In the first place, it is stated to apply only to an "unconditional contract".

There is some doubt as to what the Act means by this phrase.

Can any contract be unconditional? The literal meaning of the word is probably not intended, as S.2(3) of the Act states that "a contract of sale may be absolute or conditional". Hence the learned authors of a leading textbook, Benjamin's Sale of Goods, suggest that "unconditional" means "not subject to any condition suspensive of the passing of the property".

Secondly, the goods must be "specific". S.61(1) defines these: "'specific goods' means goods identified and agreed on at the time a contract of sale is made".

In Kinsell v. Timber Operators and Contractors Ltd (1927), it was agreed that all timber of a given height in a specific Latvian forest be sold. The buyer had 15 years in which to cut the timber. Shortly after the contract was made, the forest was expropriated by the state.

HELD: The timber sold was not "specific goods" as some of it had not at the time reached the minimum height, so could not be identified at the date of the contract. As a result, the property in the timber had not passed under Rule 1. This case shows the difference between ascertained and specific goods.

Thirdly, the goods must be in a "deliverable state".

S.61(5) defines this as follows:

"Goods are in a deliverable state within the meaning of this Act when they are in such a state that the buyer would under the contract be bound to take delivery of them".

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Underwood Ltd v. Burgh Castle Brick and Cement Syndicate (1922)

A stationary engine was contracted to be sold "free on rail" (for) London. At the time of the contract, the engine was bolted on to a concrete bed at the seller's premises. During the process of unbolting and dismantling for delivery to the railways, it was damaged.

HELD: The property had not passed at the time of the accident, as it was not in a "deliverable state".

However, remember that the presumption in Rule 1 as to when the property passes is subject to any contrary intention, express or implied, in the contract (Re Anchor Line (Henderson Bros) Ltd (1937)).

(b)Rule 2

"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, the property does not pass until the thing is done and the buyer has notice that it has been done."

Under this Rule it must be a requirement of the contract that the seller is bound to do what is necessary. Only if this is the case will the passing of property be suspended until it is done and the buyer has received notice of the fact. Notice does not necessarily have to be given by the seller, but any circumstances under which the buyer can be shown to be aware or have knowledge that the necessary thing has been duly done will suffice to give him/her notice.

Note also that this Rule applies only if the work to be done upon the goods is to be accomplished before delivery, e.g. it will not apply if a seller agrees to do certain repairs after delivery.

(c)Rule 3

"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, the property does not pass until the act or thing is done and the buyer has notice that it has been done."

General Points

The essential point of this Rule is that the thing to be done must be for the purposes of ascertaining the price, and it must be an obligation of the seller to do it. This requirement was clearly brought out by the Privy Council in the following case.

Nanka-Bruce v. Commonwealth Trust Ltd (1926)

Cocoa was sold at a price per 60 lb load. It was known to the seller that the buyer would resell the cocoa to sub-buyers, who would only then weigh it at their premises.

HELD: The weighing by the sub-buyers was not a condition of the contract, and therefore it had no effect on the passing of property in the goods as between seller and buyer. Lord Shaw said:

"To effect such suspension (on the passing of property) or impose such a condition would require a clear contract between vendor and vendee to that effect. In this case there was no contract whatsoever to carry into effect the weighing, which was simply a means to satisfy the purchaser that he

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The next problem is what happens if the buyer under such a contract cannot return the goods. If the buyer has parted with the goods by his own voluntary act, he will be deemed to have adopted the transaction. But in Re Ferrier (1944) goods held on sale or return were seized by the sheriff in execution of a judgment debt. It was held that they were not "retained by the buyer", so no property passed, and the seller could recover them.

If the goods are destroyed or lost without default by the buyer, either before any fixed time has expired (or if none, before a reasonable time) then, as the property has not passed, the buyer is not liable for the price.

In Elphick v. Barnes (1880), a potential buyer took possession of a horse on condition that he could try it for eight days, and if it was not suitable, he could return it. On the third day, the horse died through no fault of the buyer.

HELD: He was not liable for the price. But if the buyer is unable to return goods held on approval or sale or return because they have been lost or destroyed through some act or default of his own, or of those for whom he is responsible, then he will be liable for the price (Poole v. Smith's Cars (Balham) Ltd (1962)).

Similar considerations apply if the goods are returned damaged.

Unascertained Goods

The last categories of goods to which the rules for the passing of property apply (in the event that the intention of the parties is not expressed or implied) are unascertained and future goods.

Rule 5

"(1) 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, either by the seller with the assent of the buyer or by 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 bailer or custodier (whether named by the buyer or not) for the purpose of 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."

A contract for the sale of unascertained goods or future goods is not in reality a contract of sale, but an "agreement to sell". Hence, obviously, no property in such goods can pass until (in the first instance) the goods have become specific, or (in the second), they have been produced and also become specific.

The point in time at which unascertained goods (and also future goods which when produced are still unascertained) become specific, and so capable of having the property in them transferred is often difficult to ascertain. In the first place, the Act requires that the goods must be "appropriated" to the contract. This can mean either that the seller or the buyer has selected the particular articles to which the contract will apply, or it is the act of separating out from bulk goods the actual goods which will be sold. Secondly, the appropriation must be unconditional.

In National Coal Board v. Gamble (1959), the NCB supplied coal under a contract by loading it from a hopper on to a lorry. The lorry was then driven to a weighbridge to ascertain the precise weight.

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HELD: The property in the coal did not pass until it had been weighed, and a ticket given to, and accepted by, the buyer.

The point was that although the coal was appropriated to the contract when discharged from the hopper into the lorry, it was not "unconditional" until weighed. The quantity might have been more or less than that contracted for.

Furthermore, there can be no appropriation until the actual goods to be sold are separated from the bulk. In Laurie & Morewood v. John Dudin & Sons (1926), a warehouseman was in possession of maize belonging to A. A sold some of it to B who resold it to C. B did not pay, so A stopped delivery.

HELD: As the bulk had not been severed, property in the maize had not passed to C.

Again, in Aldridge v. Johnson (1857), Aldridge agreed to buy a quantity of barley out of a particular parcel that he had inspected. He also sent some sacks for the purpose.

HELD: The property passed as soon as the seller filled the sacks.

However, the appropriation must actually have been carried out, not merely ordered.

In Healey v. Howlett & Sons (1917), P was a fish exporter in Ireland; D ordered 20 boxes of mackerel, whereupon P sent them with others by rail, and instructed the railway to earmark 20 boxes for D, and the remainder for other customers. Before the boxes were actually earmarked the train was delayed, and the fish deteriorated.

HELD: It was still at seller's risk, as the property had not passed to D.

Goods can be ascertained and appropriated to a contract by a process of exhaustion of the rest of the bulk. If all that finally remains of the bulk is the amount required under the particular contract, then that remainder becomes specific (Wait and Janes v. Midland Bank (1926)).

In relation to unascertained goods there are new rules introduced by the Sale of Goods (Amendment) Act 1995 (see below). Section 20A inserted by the Act provides that where a purchaser buys a specific quantity of goods from an identified bulk source and has paid for some, or all, of the goods forming part of the bulk, the buyer becomes co-owner of the bulk. This provides some protection in the event of the seller becoming insolvent. Property in the goods, however, does not pass until the goods become ascertained.

Ascertained means unequivocally and unconditionally appropriated to the contract.

Carlos Federspiel & Co. SA v. Charles Twigg & Co. Ltd (1957)

A manufacturer of bicycles was contracted to despatch the goods to the buyer in Costa Rica. The goods were packaged and crated and delivered to the dockside at Liverpool for shipment to Costa Rica, and labelled with the buyer's name. The contract was stated to be free on board, a term which implies that the property and risk in the goods transfer when the goods pass over the ship's rail, and not before unless agreed otherwise. Thus the court decided that the goods had not been appropriated to the contract in the circumstances of this case.

As Pearson J said in the case:

"A mere setting apart or selection by the seller of the goods which he expects to use in performance of the contract is not enough. If that is all, he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract. To constitute an appropriation of the goods to the contract the parties must have had, or be reasonably supposed to have had, an intention to attach the contract irrevocably to those goods, so that those goods and no others are the subject of the sale and become the property of the buyer."

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