Passing OF Property - Essay sample for Commercial Law PDF

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PASSING OF PROPERTY***WHETHER PROPERTY AND RISK PASSED AT THE TIME OF CONTRACTRe Wait [1927] 1 Ch 606Case: W purchased 1,000 tons of wheat that was then loaded on a ship for delivery. The following day, he sold 500 tons of the bulk to a sub-purchaser (X) who paid W for the goods. By the date the shi...

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PASSING OF PROPERTY ***WHETHER PROPERTY AND RISK PASSED AT THE TIME OF CONTRACT Re Wait [1927] 1 Ch 606 Case: W purchased 1,000 tons of wheat that was then loaded on a ship for delivery. The following day, he sold 500 tons of the bulk to a sub-purchaser (X) who paid W for the goods. By the date the ship docked, W had been declared bankrupt and his trustee in bankruptcy claimed the entire consignment of 1,000 tons. Rule: 1. Goods are ascertained when they are identified as the goods to be used in the performance of the contract 2. An agreement for the sale of goods does not import any agreement to transfer property other than in accordance with the terms of the SGA, which are 'complete and exclusive statements of the legal relationships both in law and equity' Re London Wine Co (Shippers) Ltd [1986] PCC 121 Case: Customers order and pay for wine and receive certificate of title; when receiver appointed with charge of company assets, customers claim that wine in possession of company is now owned by them, i.e. property has passed from S to B Decision: Property had not massed as no ascertainment of the goods, LWC was free to supply any bottles of wine corresponding to contract description; despite references to 'beneficial interest' in company documentation, LWC was not holding goods on trust for customers; in third case no estoppel due to warehousemen representations, who are not party to proceedings, but may claim damages against warehousemen Distinct from Wait & James v Midland Bank, ascertainment by exhaustion as there was no way of obtaining more wheat, so the 850 stock were the only that could be available to fulfil the contract Rule: No property can pass in unascertained goods Re Goldcorp Exchange [1995] 1 AC 74 (PC) Case: 1. Company sold unascertained bullion to claimants for future delivery; each customer received an invoice or certificate verifying his ownership; the company's employees also told customers that the company would maintain a separate and sufficient stock of each type of bullion to meet their demands (they failed to do so) 2. Second respondent, having initially purchased specific gold maple coins from the company, agreed to buy a further 1,000 maples on a non-allocated basis and to store all the coins with the company; company subsequently acquired substantial quantity of maple coins but not expressly for him 3. Third respondent represented a category of claimants who had bought bullion from W (business later taken over by company); there was sufficient ascertainment and appropriation of bullion by W to transfer title to each of them, and thereafter they had a shared interest in the pooled bullion stored separately on their behalf

Decision: 1/2. Since the non-allocated claimants and the second respondent had contract to purchase unascertained generic goods, no property in any bullion passed to them in law or in equity immediately upon the making of the purchases by virtue of the contracts (see rule); it was not estopped from denying their title as no fixed/identified bulk in existence which could be created by deemed appropriation; since no separate and sufficient stock of bullion there was nothing which any proprietary interest could be related; that despite the company's failure to fulfil its contractual obligations, since it was not required by any express or implied contractual term to set aside all the bullion which it had purchased for the fulfilment of unallocated sale contracts, it had not acted wrongfully in acquiring, maintaining and using its own stock of bullion; no quistclose trust as not express/implied agreement to trace money or that company fiduciary for purchase moneys or provision preventing company from spending purchase moneys 3. The bullion belonging to W claimants which was held by the company comprised bullion equal to the lowest balance thereof held by the company at any time; that in all the circumstances it would be inequitable to impose a lien in favour of those claimants on all the company's assets at the date of receivership to enable them to recover the value of their bullion unlawful misappropriated by the company; remedies available as given by judge. Rule: A purchaser cannot acquire title until it was known to what goods that title related and collateral promises made by a seller do not constitute a declaration of trust in favour of a buyer. Quote: 'As Lord Blackburn wrote in his treatise on The Effect of the Contract of Sale (1845) … a principal inspiration of the Sale of Goods Act 1893: “The first of [the rules] that the parties must be agreed as to the specific goods on which the contract is to attach before there can be a bargain and sale, is one that is founded on the very nature of things.”' per Lord Mustill Re Stapylton Feltcher Ltd [1994] 1 WLR 1181 Case: ESV and SFL were wine merchants who held stocks of wine for customers 1. When a customer purchased wine from ESV it was physically removed from the company's trading stock and placed in the company's reserve; it was then stored by type and master index which showed the names of customers and the number of wine allocated; the individual cases of wine were not however marked wit ha particular customer's name 2. Some wines were also ordered for customers 'en primeur' directly from the producers and stored for them in bonded warehouses; individually allocated to customers and details in master index 3. By contrast, SFL made no attempt to allocate the wines either to specific customers or as between the company and its customers generally; a number of customers had ordered and paid for en primeur wine and were waiting for the French producers to dispatch their orders Decision: 1. For goods forming part of a bulk, ascertainment for the purposes of s.16 SGA did not occur until those goods were separated from the bulk, usually immediately prior to delivery ; however, the segregation of the stock from the company's trading assets on purchase identified goods to be handed over for the performance of the contract, making the purchasers tenants in common of the entire stock in the proportion that his goods bore to the total in store for the time being; wines stored in a warehouse that had not been marked or by inventory were not ascertained

2/3. En primeur wines which had been ordered and paid for in full but had not left France at the time of the receivers' appointment remained part of the generic stock of the vineyards, albeit subject to a contract for its sale to ESV or SFL, and no proprietary interest passed at all in law or equity cf Re London Wine Co (Shippers) Ltd The Elafi [1982] 1 All ER 208 Case: Buyers purchased, under 4 identical contract, a total of 6,000 metric tons of copra being shipped for the Philippines to Sweden; consignment was part of a cargo of 22,000 tons of copra, the balance of 16,000 tons being off-loaded at Hamburg and Rotterdam; after the vessel sailed from the Philippines it was discovered more copra had been loaded onto that for which BoL had been issued; no additional BoL issued for the quantity but a parcel of 500 tons of it was sold to an intermediary who resold it to the buyers; during the buyers' consignment in Sweden 825 tons were damaged by water as a result of the shipowner's negligence; the buyers accepted the total consignment, including the damaged copra, and then claimed from the shipowners in respect of the damage. Decision: 1. S.16 SGA is to be interpreted broadly where there were parallel contracts between the parties encompassing the whole of a consignment of unascertained goods passing from a seller to a buyer of from different sellers to the buyer the goods where 'ascertained', enabling property to pass to the buyer; the goods were ascertained by a process of exhaustion (without necessity of goods to be physically allocated between separate contracts or for buyer to nominate which particular goods came from which particular source) after prior deliveries to others completed at Hamburg 2. On the issue of appropriation, rule 5 (1) in section 18 of the 1893 Act did not make appropriation of the goods to the contract a precondition of the passing of property in the goods but merely created a presumption to that effect which was rebuttable if ‘a different intention appears’; since the parties had a different intention that property would pass on transfer of shipping documents during the voyage in accordance with usual practice relating to cif contracts, the intermediary intended that on completion of discharge at Hamburg the property in whatever surplus copra remained on board should then pass to the buyers; it followed that the buyers had title to the copra at the time it was damaged and were entitled to sue the shipowners in tort Rule: This case was brought into statutory footing by Rules 5(3) and 5(4) that were a buyer agrees to buy goods out of a specified bulk they may be appropriated by exhaustion. Phillip Head & Sons Ltd v Showfronts Ltd [1970] 1 Lloyd's Rep 140 Case: S agrees to supply carpets for premises refurbished by P; one carpet intended for room (very large so several sections provided to be stitched together); carpet delivered and assembled by S and left on premises with work to be completed; carpet stolen Decision: S should bear the risk as the goods are not in a deliverable state; there was a condition for the seller so not unconditionally appropriated to the contract Rule: Deliverable state where they are in such a state the buyer would under the contract be bound to take delivery of them... 'Things remain to be done' (per Lord Blackburn in Seath & Co v Moore); test of common sense

Quote: ‘I think one is entitled to apply everyday common sense to the matter; a householder, for example, purchasing carpeting under a contract providing that it should be delivered and laid in his house would be very surprised to be told that carpeting, which was in bales which he could hardly move deposited by his contractor in his garage, was then in a deliverable state and his property.’ per Mocatta J Carlos Federspiel & Co SA v Charles Twig & Co Ltd [1957] 1 Lloyd's Rep 240 Concerned with unconditional appropriation: Rule 5 Case: CF agrees to buy bicycles from CT and pays the price; goods to be loaded on ship in Liverpool; CT manufactures the goods, which are then packed into crates with name of buyer; arrangements made to have goods sent to Liverpool; CT in receivership Decision: Goods not appropriated to the contract; this was a contract for sale of unascertained goods by description – for the sale of future goods probably still to be manufactured; there must have been a common intention that these goods will be used, in this case the seller could have changed his mind (actual or constructive delivery, see: Aldridge v Johnson) Rule: For goods to be unconditionally appropriated to the contract, they must be irrevocably earmarked as THE goods to be used to satisfy the contracts. Once those goods have been irrevocably appropriated to the contract then those goods, and no others, become the property of the buyer. [Then discuss Rule 5(1), that either the buyer or seller may unconditionally appropriate goods but this must be with the other's assent, express or implied, either before or after appropriation is made.] Applying these principles: • Firstly, intention was that the ownership should pass on shipment as emphasis is throughout on shipment as the decisive act to be done by the seller in performance of the contract • Secondly, it is impossible to find in this correspondence an agreement to change of ownership before the time of shipment • Thirdly, there is no actual or constructive delivery, no suggestion of the seller becoming bailee for the buyer • Fourthly, there is no suggestion of the goods being at the buyer’s risk at any time before shipment • Fifthly, the last two acts to be performed by the seller, namely, sending the goods to Liverpool and having the goods shipped on board, where no performed Therefore, prima facie inference from the contract is that property was not to pass at any time before shipment – and this is not displaced by subsequent correspondence by the parties Sterns Vickers Ltd [1923] 1 KB 78 Case: V owned 200,000 galloons of spirit and sold to S 120,000 gallons of white spirit, being part of a larger quantity then lying in a certain tank belonging to a storage company, and handed to S a delivery warrant, whereby the company undertook to delivery that quantity of the spirit to S; subsequently to S's acceptance of that warrant and before the quantity purchased had been severed from the bulk, the spirit in the tank became deteriorated in quality Held: Whether the property in the undivided portion of the larger bulk had passed or not, upon the acceptance of the delivery warrant the risk (in undivided share) passed to the buyers, and the loss must be borne by them N.B. Distinguished from Re Wait

The Aliakmon [1986] AC 785 (HL) Case: L&S agreed to buy a quantity of steel coins from K to be shipped to Korea, contract on C&F terms, meaning that at the relevant time the goods where at the buyer's risk; but the property had not passed to them as, under the contract, this was not to take place until payment of the price ' steel damaged on vessel. Decision: Since the goods were not the buyer's property at the time when the damage was caused, their only claim was for economic loss, in respect of which the defendants owed them no duty of care Rule: The buyer has only rights in personam against the seller: the seller can exercise proprietary rights in relation to the goods (e.g. sue a third party in tort if the goods are wrongly detained, stolen or damage), but the buyer cannot Howell v Coupland (1876) 1 QBD 258 Frustration at common law [discuss if section 7 fails]: Case: S only able to supply 80 tons of potatoes from a particular field, rather than agreed 200 tons, due to disease Decision: S not liable for damages for 120 tons not delivered; there was an implied condition that the potatoes should be in existence at the time of performance but they were destroyed by causes over which the defendants had no control Quote: "It was not an absolute contract of delivery under all circumstances, but a contract to deliver so many potatoes, of a particular kind, grown on a specific place, if deliverable from that place" per Lord Coleridge CJ Rule: For quasi-specific goods, frustration of the contract is a much stronger possibility if the agreed source perishes Castle v plyford Under a contract for sale of freshwater ice to be shipped to UK, it was agreed that the buyer to take the risk and dangers of the sea upon receipt of the bill of lading. However, payment was to be on delivery.Bill of lading was received and then the ship was lost. Held : Property passed after receipt of bill of lading and normally risk passes with the property. In any event, parties agreed that the risk would pass on the receipt of the document irrespective of time of payment or the passing of property. Therefore the ice was at the buyer’s risk when the ship was lost. (Sec 20(1) SOGA is the GR of risk pass with property) Stein, Forbes and Co v County Tailoring In this case, Forbes agreed to sell a quantity of sheepskins to the defendant. The payment terms were set as “net cash against documents on arrival of the steamer”. The steamer arrived but the Buyer / defendant then refused to accept the documents and refused to make payment. It was held in this case that the defendant was guilty of breach of contract and the question then moved on to the remedies available to the Seller. The Seller was only suing for the price of the goods, with its legal team arguing that it was entitled to the price of the goods despite the fact that the goods had not exactly been passed to the Buyer. It was the Buyer that

prevented delivery and therefore the payment had become due, at the point at which the documents were made available to the purchaser. This indicates the willingness of the courts to offer this remedy to the Seller where the Buyer has prevented the delivery and the monies would otherwise have become due. Martineau v Kitching 1872 his Lordship Blackburn J expressed that “when you can shew that the property passed the risk of the loss, primâ facie, is in the person in whom the property is”. One must therefore determine when property passes to a buyer (See also Sterns v Vickers 1923). Stearns Ltd v Vickers Ltd [1923] 1 KB 78 exception to s20 - Plaintiffs owned 200,000 gallons of white spirits held in a storage tank by a third party bailee. They agreed to sell 120,000 gallons to defendant buyers and gave them a warranty or order addressed to the buyer allowing them to collect it. The buyers delayed in collecting the spirit and during that time the spirit deteriorated. Held : CA : The risk had been transferred to the buyers from the moment they obtained the means to obtain delivery (Company’s warrant) even though property had not passed to buyer. Inglis v Stock A bulk consignment of sugar was shipped FOB from Hamburg to Bristol. The property was unascertained and therefore property in the goods did not pass to the buyer when they were shipped. The ship and the sugar were subsequently lost. The buyers claimed under the insurance policy. The insurers contended that the buyers had not suffered any loss because they were not the owners of the goods. The court held that although the property had not passed to the buyers, the risk had. The case therefore provides that risk does pass on shipment, regardless of when property passes. WHETHER PROPERTY AND RISK PASSED AT THE TIME GOODS WERE SEGREGATED AND DESIGNATED S18 R1-property could not have passed at the time when contract was being negotiated - goods were not ascertained Underwood v Burgh Castle Court held that the engine was not in a deliverable state since it was not yet detached from the floor and hence the property has not passed. (however,) Philip Head & Sons Ltd v Showfronts Ltd Court held that the carpet was not in a deliverable state apparently because it was a heavy bundle and difficult to move. Re Anchorline Ltd An electric crane was bought from Ocean ss Co Ltd. Annual payments where to be made and Anchor was to have full responsibility in the mean time. Payments were made regularly but it went into liquidation. It was held that the property was still under Ocean because all the payments had not been made ( intention of parties) – s17(1) & (2) SOGA Wiehe v Dennis Bros Where the seller is the bailee of the goods, he is under a duty to use such care as a reasonably prudent owner would take of his own property. (if not, may sue in tort of negligence)

WHETHER SELLER CAN CLAIM FOR PRICE OF GOODS Seller’s remedy – s49(1) SOGA – if property passed Ward Ltd v Bignall A car was sold but the seller retained the possession pending payment. The judge said that it is arguable that the buyer and the seller treated the car belongs to the seller until full payment for the car was made or was allowed to take delivery....