Topic 6 Lecture Notes PDF

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Topic 6: Sale of Goods Act Part 2 Table of Contents

Overview of Topic 6 – Transfer of Property in Goods................................2 Right to Sell and Transfer of Ownership.................................................3 The Nemo Dat Principle......................................................................3 Types of Goods under the Sale of Goods Act 1923....................................3 Specific Goods.........................................................................................4 Future Goods...........................................................................................4 Unascertained/Ascertained Goods................................................................4

When does Property Pass in Specific Goods?...........................................5 Rule 1: Specific Goods in a Deliverable State...................................................5 Rule 1: Dennant v Skinner [1948] 2 KB 164...............................................................6 Rule 1: Bodlingo Pty Ltd v Webb Projects Pty Ltd (1990) ASC 56-001................................6 Rule 1: Minister for Supply and Development v Servicemen’s Cooperative Joinery Manufacturers Ltd (1951) 82 CLR 621.....................................................................7 Rule 1: “a deliverable state” Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] KB 343................................................................................................. 7

When does Property pass in Specific Goods – Rule 4 (Sale or Return).............8 When does Property pass in Unascertained Goods....................................8 When does Property pass in Unascertained Goods in Bulk..........................9 Reservation of Title Clauses (Romalpa Clauses).......................................9 Transfer of Title by Non-Owner.........................................................10 Exceptions to the nemo dat rule.................................................................11 Exception1: s 26 Conduct by the Owner.................................................................11 Exception 2: s 28(1): Seller in Posession................................................................11 Exception 3: s 28(2): Buyer in Possession...............................................................13 Exception 4: Sale by Mercantile Agents.................................................................14 Section 27: Voidable Title.................................................................................14

Overview of Topic 6 – Transfer of Property in Goods The essence of a transfer is the immediate transfer of legal ownership in goods from the seller to the buyer It’s important to remember that property in goods, as synonymous with title or ownership to goods, can pass independently of possession to the goods o The person who is holding goods at the time is not necessarily the person who has property in goods o This gives rise to issue in commercial dealings, importantly the time in which ownership passes in a sale transaction can be important for a number of different inquiries  Firstly, when goods are lost or destroyed prior to the delivery to the buyer, generally the person who will bear the risk of loss unless it is provided differently in the contract will be the owner of the goods, regardless of who holds possession at the time – critical to identify who is the owner of the goods  Secondly, insolvency where a company is in liquidation – where a company is unable to pay its debts, there will be a number of parties who will be interested in who owns particular property to satisfy their debts. The liquidator is going to be interested in what property the company owns, so that the liquidator can sell it and pool that property to distribute it to creditors. However, there will be some creditors or purchasers of property that will challenge the liquidator, you can’t take that property as property to sell because I have ownership of that property, alternatively a bank. Rights and remedies – depended on where the property had passed in goods or not (topic 5)

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The “transfer of property” in goods means the transfer of legal ownership from seller to the buyer. Remember: property (or ownership) in goods can pass independently of possession. The time at which ownership passes in a sale can be very important for a number of reasons including: o when goods are lost or destroyed prior to delivery, generally the party who bears the risk of loss will be the owner of the goods, regardless of who has possession of the goods; o In insolvency: so the trustee in bankruptcy, liquidator or receiver can determine the property of the company that can be sold; o Rights and remedies under the Act depend on whether property has passed or not; o In tort; knowing who the ownership of property is so as to know who may claim in conversion or detinue.

Right to Sell and Transfer of Ownership    

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A seller is somebody who sells or agrees to sell goods For the purposes of the operation of the act, the seller does not need to be owner of the goods at all times The act contemplates that there will be circumstances where goods will be sold by owner of goods and non-owner of goods, sometimes authorised sometimes not At all times the question is whether under a contract of a sale of goods, ownership has been passed to the buyer but remember the person who is seller in the transaction does not have to be the owner of the goods Under the Sale of Goods Act, “seller” is defined as a person who sells or agrees to sell goods.” The seller does NOT have to be the owner of the goods. The Act contemplates sale of goods by owners and non-owners. In either case, the object of a contract for sale of goods is to confer good title (that of ownership) to the buyer. This topic considers the statutory rules for determining when the buyer becomes the owner of different types of goods.

The Nemo Dat Principle    

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If the seller has good title, then the buyer will become the legal owner once property in the goods have passed on to them If the seller does not have good title, the nemo dat principle provides that a person cannot convey what they do not have A person at common law, this principle means that a person that doesn’t have title cant convey title Consequence is that under a purported sale under a person who doesn’t have title, the buyer will not obtain title to the goods (Rowland and Diver case) o There are certain exceptions If the seller has good title, the buyer becomes the legal owner once property in the goods has passed to him (regardless of possession). If the seller does not have good title (like a thief) the nemo dat principle applies – a person cannot convey what they do not have. A purported sale by someone who does not have good title means that the buyer does not obtain good title to the goods. However, the Sale of Goods Act provides for certain exceptions to the nemo dat rule in ss 26-28.

Types of Goods under the Sale of Goods Act 1923

Specific Goods

Unascertained Goods ’

Ascertained Goods

Future Goods

Specific Goods  

Section 5: ‘Specific goods’ means goods identified and agreed upon at the time a contract of sale is made.’ These are existing goods that can be specifically identified at the time of sale o E.g. a particular vase or painting in a shop

Future Goods 

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Section 5: ‘Future goods means goods to be manufactured or acquired by the seller after the making of a contract of sale o The starting point for the inquiry is the date of the contract of sale, and if the goods do not exist at that point then by definition after acquired or goods yet to be manufactured are future goods Section 10 also deals with future goods o Notes that goods that form the subject of a contract of sale can be either existing or future goods o Under a contract of sale the seller purports to give effect to the sale of future goods, it operates as an agreement to sell Makes sense coming from the common law understanding of a transfer – immediate assignment of title in existing goods from the seller to the buyer o There can be no immediate transfer of a title that does not exist in that moment o Since it cannot be transferred immediately, the act says it can be construed as to believe the parties have come into agreement to assign it when it comes into existence

Section 10: Existing or future goods 1. The goods which form the subject of a contract of sale may be either existing goods owned or possessed by the seller or future goods. 3. Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.’ i. Eg: crops not yet grown

Unascertained/Ascertained Goods 

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There is no definition in the act – in essence they are goods which are not specific (not identified or agreed upon at the time of making the contract, the actual good that is at the subject of the sale) Two different ways of understanding this: o Generic goods, sold on terms that preserve the freedom of the seller to decide how and from where they are going to source those goods. E.g. may order the supply of fruit and vegetables once a week, at the time they hadn’t been identified so you leave it up to the sellers discretion as to where it will be sourced from

Bulk goods, from a source within which the seller makes a selection. E.g. 50 of 100 cows, or 10 tonnes of 100 tonnes I will be harvesting Unascertained goods become ascertained goods once identified the contract is made o

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Unascertained goods - There is no definition in s 5 of unascertained goods, but they

W are goods which are not specific – ie not identified or agreed upon at the time of

making the contract: Re Goldcorp Exchange Ltd (in rec) [1995] 1 AC 74, 89. the sale of specific goods or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred  The act recognises and respects the intention of the parties for when property is to be transferred  The party can make express provision for when title is to be transferred Section 22: Property passes when intended to pass 

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Section 22(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Section 22(2) 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. Where there is no intention expressed or unless there is a different intention expressed, section 23 provides rules for ascertaining what the intention is deemed to be These are rules that don’t override intention, these are rules that apply under the act where there is no intention or where there is no intention or a different intention has not been expressed Section 23 Rules for ascertaining intention – in bold are the elements

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. 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 in a deliverable state, the property does not pass until such thing be done and the buyer has notice thereof. 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 such act or thing be done and the buyer has notice thereof.

Rule 1: Specific Goods in a Deliverable State  

Enacts the common law as it was at the time in the late 19th century. Requires: 1. An unconditional contract: in other words, the contract does not suspend passing of title by its provisions: McPherson, Thom, Kettle & Co v Dench Bros [1921] VLR 437; 2. Sale of specific goods: as defined in s 5; 3 I d li bl t t 5(4) G d i d li bl

Rule 1: Dennant v Skinner [1948] 2 KB 164  

Case that illustrates the operation of rule 1 in section 23 Held that rule 1 applied o Immaterial on whether the time of payment or delivery was postponed o Contract was made the time when the hammer fell o Certificate did not form part of the contract that was made, so the auctioneer did not have any basis for demanding the return of the vehicle from Skinner who obtained good title

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Fact: An auctioneer (Dennant) sold a number of cars to a person (King) who identified himself as George Albert King from King’s Motors of Oxford, which was a highly reputable firm in the industry. Before arranging delivery, Dennant accepted a cheque from King and a signed certificate which stated that ownership of the vehicles would not pass until the cheque was honoured. The cheque was dishonoured, and it was subsequently discovered that King had no connection with King’s Motors. Some time later, King sold the relevant vehicle to a third party who sold it to the defendant (Skinner), who refused to return the vehicle. Dennant sued Skinner for return of the vehicle. Held: the contract was formed at the time the hammer fell and the certificate entered into subsequently did not form part of that contract as it was made.

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Rule 1: Bodlingo Pty Ltd v Webb Projects Pty Ltd (1990) ASC 56-001  

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The liquidator said that these goods now belong to the company and can now be put into the pool to be distributed to its creditors Property had passed to the purchaser so it remained apart of the company’s property, regardless of the fact that the supplier did not get paid and had no basis for seeking the return of the goods Facts: Webb sold its business to the plaintiff and the sale included identified office equipment and supplies worth $360,000 with the price was to be paid in 10 equal monthly instalments. Bodlingo defaulted after 5 instalments becoming insolvent. Webb claimed that property in the goods had not passed and demanded their return. Held: (per Handley JA) “In my opinion … the appeal can be decided by reference to broader considerations. Under r 1 of s 23, and subject to a different intention appearing, 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. The agreement was unconditional. … the goods were clearly specific and .. Were in a deliverable state. Consequently, subject to any contrary intention, the property in the equipment passed to the purchaser when the contract was made even though the time for payment was postponed…. I am unable to discern any contrary intention.”

Rule 1: Minister for Supply and Development v Servicemen’s Cooperative Joinery Manufacturers Ltd (1951) 82 CLR 621 

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Facts: (taken from CLR headnote)The Commonwealth let to S. Ltd. premises which contained machinery the property of the Commonwealth and permitted the tenant to use the machinery while negotiations for its purchase by the tenant were proceeding. Subsequently a contract for the sale of the machinery to S. Ltd. was entered into in terms of a document dated 3rd October 1946 which stated : “ Net cash before delivery. £3,243 Is. 8d. . . . Delivery obtainable from ” the leased premises. The purchase price was never paid. The Common wealth, by letter, demanded payment of the price and stated that, if it was not paid, legal proceedings would be taken for its recovery. Thereafter the Commonwealth obtained possession of the machinery by resuming possession of the leased premises. S. Ltd. proceeded against the Commonwealth for detinue and alternatively conversion of the machinery, claiming that the property therein had passed to it on 3rd October 1946 by virtue of rule 1 of s. 18 of the Sale of Goods Act 1895-1943 (S.A.) and, in the alternative, that the Commonwealth’s demand for payment of the purchase price acknowledged that the property had passed. Held: The effect of the term of the contract, “Net cash before delivery”, was that the property in the machinery was not to pass to S. Ltd. until the price had been paid.

Rule 1: “a deliverable state” Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] KB 343 

Property did not pass, it was to the buyer’s advantage so the risk was with the seller who had to bear the loss

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Facts: the parties had contracted for the sale of a “horizontal tandem condensing engine”, a machine weighing 30 tons that had been cemented to the seller’s floor. The seller was in the process of loading the machine onto a railway truck when it was badly damaged. The buyer refused delivery of the machine, and the seller sued for the purchase price. It was held that as it was the seller’s responsibility to deliver the machine in a ‘deliverable state’, property remained with the seller who had to bear the loss. Held: It was held that as it was the seller’s responsibility to deliver the machine in a ‘deliverable state’, property remained with the seller up until the goods were placed safely on rail for delivery, so the seller had to bear the loss.

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When does Property pass in Specific Goods – Rule 4 (Sale or Return)  

A sale or return agreement gives the buyer an election to buy or the right to return the goods. Property in the goods remains with the seller and there is no contract for sale until the buyer elects to buy them: buyer has complete discretion.

S 23 Rules for ascertaining intention …. 

Rule 4. Where goods are delivered to the buyer on approval or on “sale or return” or other similar terms, the property therein passes to the buyer: o (a) when the buyer signifies approval or acceptance to the seller, or does any other Act adopting the transaction, o (b) if the buyer does not signify approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact.  A sale or return agreement gives the buyer an election to buy or the right to return the goods.  Property in the goods remains with the seller and there is no contract for sale until the buyer elects to buy them: buyer has complete discretion.

When does Property pass in Unascertained Goods 

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Where the seller selects the goods and puts them on the truck to be delivered to the buyer, the process of doing this, the goods in that truck to be transported becomes ascertained. Ascent by the buyer in this process can be implied or expressed

Section 21: Goods must be ascertained 

Subject to section 25A, 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.

Section 23: Rules for ascertaining intention … Rule 5: Unascertained goods or future goods by description, property passes when goods are unconditionally appropriated to the contract with the assent of the other. Unconditional appropriation: where the contract becomes attached to the goods – the selection by one party (us...