Ownership Transfer In Commercial Transactions

Ownership of goods passes when the parties intend to pass, but when does ownership pass in a business to business sales of goods contract if no intention of the parties is evident? Critically explain and support your discussion with reference to relevant sources.

Goods is categorised into ascertain or specific goods and unascertained goods for understanding the transfer of goods in property. For unascertained goods, sale of unascertained goods, property in goods passes when the goods are ascertained. In case of sale of specific or ascertained goods, property in goods is transferred when intended by the parties. For ascertaining parties’ intention, the contractual terms, parties’ conduct and the circumstances of the case must be considered. However, the real issue is to determine when ownership passes in sales of goods contract between businesses if there is no evident intention of the parties. The rule of ownership transfer on delivery or payment, which is applicable to specific property, cannot be applied in modern times as was observed by Lord Diplock in Ward v Bignall. The time the ownership of property passes differ based on whether the sale is of specific or unascertained goods. Section 18 of the Sales of Good Act, 1979 could give answers in this aspect. It provides five rules. The first three rules cover specific goods. The fourth rule covers goods delivered upon approval or on sale or return, and the fifth rule covers unascertained or future goods. It needs to be determined whether these rules are sufficient to govern every situation in a modern commercial transaction.

The element of ascertainment plays a decisive role in deciding the time the ownership passes to the buyer. Rule 1 states that ownership passes to the buyer when the contract for the sale of specific goods in a deliverable state was made. This is irrespective of whether the time of payment or delivery, or both, be postponed. In Tarling, where the subject matter of the contract, haystack was destroyed on 20th January fourteen days after the contract was made on 6th January, it was held that ownership was transferred to the buyer when contract was formed, even though the price was to be paid on 4th February, and the subject matter of the contract, haystack was to be removed on 1st May. Such provision holds in case of a different intention as in the case of Aluminium Industrie Vaassen BV, where clauses of sale provide the transfer of ownership of the material upon full payment for those materials.

For unconditional contract, it must not be subject to any conditions upon their fulfilment the transfer takes place. For goods to be in deliverable state, it is not subject to the mere completeness of the subject matter in totality, but on the actual state of the goods at the time of the contract and also .at the time the goods are to be delivered according to the terms of the contract. Rule 1 is arguably not commercially realistic, for example as it has the potential of exposing the seller to buyer’s insolvency, and as such it calls for a contrary intention to rebut this Rule 1. Rule 1 definitely gives a confusing scenario in terms of the role of the respective parties and responsible party to risk arising out of the sale. This ownership of risk is validated by Section 29(2), that states that “goods remain at the trader’s risk until they come into the physical possession of” the consumer. The buyer can reject the goods as well by invoking Section 9 that requires quality of goods must be satisfactory. A relevant question would be whether by creating an agreement to sale instead of contract to sale would solve this confusion and risk arising out of Rule 1. The creation of agreement to sale of goods in deliverable states as is evident in Rules 2, 3, 4 and 5. The test is to determine whether or not the making of the contract alone passes the property.

Rule 2 governs sale of specific goods where seller is obligated to put the goods into deliverable state for the property in the goods to pass to the buyer. The buyer must have notice of that the seller has done what he is bound to put the goods in deliverable state. This Rule 2 fits the requirement of deliverable state is provided under Rule 1. The buyer must have actual knowledge and not constructive knowledge, as is required in commercial transaction. Rule 3, like Rule 2, similarly fits with the principle of deliverable state provided under Rule 1. Rule 3 also governs sale of specific goods in deliverable state and according to which property in goods must not pass until the seller has completed his duty to “weigh, measure, test or do some other act or thing with reference to the goods” for ascertaining the goods’ price.

Rue 4 governs delivery of sale on approval, sale, return or other similar terms. In such terms, the property in goods passes when: a) buyer signifies the seller his approval, acceptance or acts to adopt the transaction; or b) otherwise, he retains the goods but without notifying the seller of his rejection, the property passes on expiry of a designated time of return of the goods or expiration of a reasonable time to reject. The sale or return transaction involved the seller offering the buyer to sell and is therefore operated with a view of resale of the goods to a sub-buyer. The sale on approval is on the similar line, except that there is no contemplation of resale. What is reasonable in respect of the time to reject is decided by the courts on a case to case basis. A simple example would be Poole case where it was held that after two months a reasonable time period would be considered expired given the circumstance of the case, including failure of the buyer to reply to demands of the seller for return of the car.

Rule 5 governs transfer of goods in unascertained or future goods. Property in the goods passes to the buyer when goods of the contract description and in a deliverable state are unconditionally appropriated to the contract by the seller or the buyer and the other party provides assent, expressly or impliedly to that appropriation either before or after it is made. The seller is said to have unconditionally appropriated where in pursuance of the contract, the seller, without reserving the right of disposal, delivers the goods to the buyer or to a carrier for the purpose of transmission to the buyer. Goods must be irrevocably identified to remove the possibilities of substituting goods. The term of “Unconditional appropriation” presumes a challenging requirement of an intention to irrevocable attach the sale contract to goods in order that the goods and no other are subject to the sale contract and the buyer becomes the owner. In such case, the act of appropriation is the final act of the seller. Also, there is evidently a wide discretion to parties to decide appropriation as could be seen in the case of Healy. The requirement of ascertainment, as is provided under Section 16, involves seller’s identifying the goods that form the subject matter of the sale contract. It does not necessarily pass the property but definitely removes any impediment to transfer. As shown above, this difficulty of the principle is seen in cases like Re Wait where the payment has been already made and the seller become insolvent before the transfer of the property in goods. The answer to the difficulty could be found under Section 20, which provides that risk passes with property in goods. So, in case a party becomes insolvent, the official assignee has to determine whether the insolvent is the owner at the time of his becoming insolvent to further decide who has the risk. But, this rule is only a prima facie and the contractual terms can modify it. This difficulty finds some solution in Section 20A of the Act where a buyer can obtain the property in the identified, undivided and proportionate share of the bulk of unascertained goods where he has paid for specified quantity of unascertained goods an indentified bulk. Section 19, however, entitled the seller the reserve the right of disposal of the goods until certain conditions are fulfilled. This means there cannot be unconditional appropriation in case where the seller has this right. A seller in modern commercial transaction wishes this right which is more than his right of lien or stoppage in transit in case where he takes a bill of lading to the order of the buyer but retains it in his possession. Pearson, J. in Carlos case validates the right to dispose goods to be the important and decisive act of the seller and unless this is done, property is not passed. Thus, this is an act of putting the goods in deliverable state and unless this is done, the property in gods is not passed.

Section 18 presents presumptive rules as they are ideational conditions to be met before a transfer. They may not be sufficient or justifiable to meet the demands of contemporary commercial transactions. as such, contractual terms within the limits of law precede other interests. Court may, despite being reluctant, apply certain extent of good faith amongst the parties to reflect commercially acceptable conduct. This also presents problem in understanding the applicability and extent of its applicability in certain situations.

Bibliography

Books

• Atiyah PS and Adams JN, Atiyah’s Sale of goods (Harlow: Longman 2010).
• Bridge MG, Benjamin’s Sale of Goods (Sweet & Maxwell 2014).
• Bridge MG, Benjamin's sale of goods (Sweet & Maxwell 2012).
• Burrows A, English Private Law (Oxford University Press 2013).
• Burrows A, Principles of English Commercial Law (Oxford University Press 2015).

Journals

Faber W and Lurger B, National Reports on the Transfer of Movables in Europe: England and Wales, Ireland, Scotland, Cyprus (sellier europeal law publishers 2009).