Sale of Goods

4 Sale of goods: contract, property and risk
Contents
4 1 4 2 4 3 4 4 4 5 4 6 4 7 Introdu
ction

56 The Sale of Goods Act

57 What is a contract of sale
of goods?

59 Components of the sale contract

61 Passing of property

64 Risk

71 Perishing of goods and frustrat
ion of contract

72 Transfer of title

74 Reflect and review

81
page 5
University of London External Programme
Introduction
The contract for the sale of goods is at the centre of this course. Sale contrac
ts are a branch of the general law of contracts and the principles that you stud
ied in the Elements of the law of contract subject guide apply here. Indeed, man
y of the cases you studied as part of that course involve sale contracts. There
are, however, some special features of sale contracts. The most significant are
the terms implied into the sale contract by the Sale of Goods Act 1979. In this
chapter we look at the Sale of Goods Act, the definition of a sale contract, the
rules on the passing of property and risk, and transfer of title. Chapter 5 cons
iders delivery and acceptance of the goods and the implied terms in a sale contr
act. Chapter 6 deals with the remedies available to the parties where there has
been a breach of the contract. It is worth noting that in some aspects this Act
distinguishes between consumer and nonconsumer sale contracts. This part of the
course concentrates on the latter, that is, on sales between business people.
Note: the Sale of Goods Act 1979 is

referred to here as `the Act' or `SGA'. Referenc
es to sections from the Act are merely noted
by their section number: for example, `s.14(1)' refers to
section 14(1), Sale of Goods Act 1979.
Learning outcomes
By the end of this chapter and the relevant readings you should be able to:

discuss the approach taken to interpretation of the Sale of Goods Act analyse th
e components of the definition of a contract of sale explain the circumstances i
n which property in goods is passed identify how risk is passed understand the n
emo dat rule discuss and illustrate the exceptions to the nemo dat rule.
Essential reading
The main reading is Sealy and Hooley, but you should be aware that a number of b
ooks on contracts of sale are available and are worth consulting.
Atiyah, P.S., J. Adams and H. MacQueen The sale of goods. (London: Longmans, 200
5) [ISBN 9780582894085]. Bridge, M. The sale of goods. (Oxford, Oxford Universit
y Press, 1998) [ISBN 9780198765355]. McKendrick, E. (ed.), Sale of goods. (Londo
n: LLP Professional Publishing, 2000) [ISBN 9781859783058]. For the issues raise
d in this chapter of the subject guide you can also consult Bradgate, pp.21944, 3
65437.
Commercial law 4 Sale of goods: contract, property and risk

page 5
4.1 The Sale of Goods Act
4.1.1 The Act
The original Sale of Goods Act 1893 was an attempt to codify much of the common
law on sale contracts. The Act, therefore, was shaped by the fact that the case
law on sales was mainly concerned with sale for the purpose of trading (for exam
ple, a manufacturer of goods selling to a retailer of goods) rather than for con
sumption (for example, a sale by a retailer to a consumer). By the late twentiet
h century there was recognition that the principles derived from such contracts
might not serve the needs of consumers. In providing greater protection for the
consumer, the Sale of Goods Act 1979 was part of a shift from the general princi
ple of caveat emptor, according to which it was for the buyer to ensure goods di
d not suffer from any defects (see s.14(1), discussed in 5.5 below), to a positi
on where the seller is obliged to ensure that goods do not suffer from certain t
ypes of defects, or that the buyer is made aware of such defects before the sale
. This shift affects all buyers, including business people. The change of emphas
is from sale for trade to sale for consumption is also illustrated by the change
in the main implied term as to quality. In the 1893 Act goods were required to
be of `merchantable quality', which assessed quality according to their value in tra
de. This has been replaced by a requirement that goods be of satisfactory qualit
y (s.14(2)), which emphasises issues of consumption. This shift in the Act has b
een reinforced by the Unfair Contract Terms Act 1977 and by the Sale and Supply
of Goods to Consumers Regulations 2002, which restrict the ability of sellers to
contract out of their obligations and which give greater protection to consumer
s (as opposed to commercial buyers, who are, however, not ignored by the 1977 Ac
t). Yet it would be wrong to characterise the recent history of sales law as sim
ply concerned with the problems of buyers. For instance, there has been some rel
axation of the rules in the context of sales between business people: for exampl
e, s.15A (introduced into the SGA in 1994) has made it more difficult for the no
n-consumer buyer to reject defective goods (see Chapter 6). In spite of the deve
lopment of distinctions between the law applying to commercial (business-to-busi
ness sales) and the law applying to consumer sales (business-to-privatebuyer sal
es), the rules remain mixed together in the same legislation: the SGA and relate
d statutes, such as the Unfair Contract Terms Act 1977. This has led to confusio
n and to calls for separate codes for the different types of sale.
4.1.2 Interpreting the Sale of Goods Act 1979
Essential reading
Sealy and Hooley, Part III: `Domestic sales law', Chapter 7: Ìntroduction and definit
ions', pp.24547. The Sale of Goods Act 1893 was meant to codify the common law on c
ontracts for the sale of goods, although in truth it is only a partial code beca
use key areas of contract law are not fully covered or are entirely omitted (for
example, formation and misrepresentation). The general principles of contract l
aw are, therefore, still relevant (see s.62(2)). The approach to interpreting co
difying statutes was laid down by Lord Herschell in a case on the Bills of Excha
nge Act 1882: I think the proper course is in the first
instance to examine the language of the statute
and to ask what is its rational meaning,
uninfluenced by any considerations derived from the previou
s state of the law, and not to start with
inquiring how the law previously stood, and then,
assuming that it was probably intended to
leave it unaltered, to see if the words of
the enactment will bear an interpretation in conformi
ty with this view. (Bank of England v Vagliano Brothe
rs [1891] AC 107). Atkin LJ confirmed that this was the correct appro
ach to the SGA: Ìnasmuch as we are now bound by the plain language of the Code I
do not think that decisions in cases before 1893 are of much value' (Re Wait [1927
] 1 Ch 606; Sealy and Hooley, p.246). Yet, what this means
page 5
is not always clear. Indeed, Atkin LJ followed the statement quoted above by ref
erring to two pre-1893 cases. In Young & Marten Ltd v McManus Childs Ltd [1969]
1 AC 454, Lord Upjohn explained, `Your Lordships were properly referred to authori
ties in the nineteenth century, for section 14(2) only put the common law as it
had been established into a statutory code.' (Also Carlos Federspiel & Co SA v Cha
rles Twigg & Co Ltd [1957] 1 Lloyd's Rep 240; Sealy and Hooley, pp.32022.) The most
recent version of the Act was passed in 1979 and that Act has been amended in 1
994, 1995 and 2002. Interpreting the legislation rests on the pretence that the
Act, including provisions drawn from the 1893 Act, was written at one time. Pott
er LJ explained (Stevenson v Rogers [1999] QB 1028): The [Sale of
Goods] Act of 1979 forms a single code; however,
that is upon the basis simply that it consolidates
and enacts within one statute and without material amendmen
t a number of disparate statutes previously
governing the field of sale of goods. While, in
the first instance, a consolidating Act is to
be construed in the same way as any other,
if real doubt as to its legal meaning arises, its
words are to be construed as if they remained
in the earlier Act. Thus, in terms of the proper
construction of its provisions, the Act of 1979
is not to be regarded as more than the
sum of its parts. Lord Diplock (Ashington Piggeries Ltd v Christoph
er Hill Ltd [1972] AC 441) proposed a different method of interpretation. He dre
w attention to the danger of not allowing the law to develop and so restrict the
freedom of the parties to engage in more sophisticated agreements than were env
isaged by the courts in the nineteenth century. He urged that, the Act
ought not to be construed so narrowly as
to force upon parties to contracts for the sale
of goods promises and consequences different from
what they must reasonably have intended. Instead,
[its provisions] should be treated as illustrations of
the application to simple types of contract of
general principles for ascertaining the common intention
of the parties as to their mutual promises and
their consequences, which ought to be applied by analogy
in cases arising out of contracts which do not
appear to have been within the immediate contemplation
of the draftsman of the Act in 1893I believe
that the basic principle of the English common law
of contract, including that part of it which
is codified in the Sale of Goods Act 1893,
is to give effect to the common intention of
the parties as to their mutual promises in the
sense that I have just described, I prefer to
deal with each appeal by considering first the transact
ion between the buyer and the seller in the light
of common sense and good faith in business, before
examining the particular provisions of the code
upon which the parties rely. Go to your study pack and read the extract
from Ashington Piggeries Ltd v Christopher Hill Ltd.
Activity 4.1
What problems are posed by Lord Diplock's approach to interpreting the SGA?
`Giving your own views'
In response to Activity 4.1, we expect you to make your own judgment as to what
the problems are in Lord Diplock's approach. You should make your own analysis and
give your opinion. Universities want their students to be independent thinkers
who can express their own opinions based on the material they have studied. This
means making up your own mind about the principles and objectives that ought to
guide legal processes. Perhaps you are not sure what your views are? If so: not
e down the main issues and see how they relate together; ask other students what
they think; discuss and argue your views with them. Students who simply list al
l their knowledge, or repeat `model answers' will not receive good marks in the exam
inations. Higher education is about thinking as well as learning. You do not hav
e to accept the standard views and explanations of any subject. For example, alt
hough the LLB degree explains and supports the common law, you may take the view
that civil law systems are superior to common law systems. You may decide that
there are few, or no problems in Lord Diplock's approach. This is perfectly accept
able, if you can support this view with reasoned arguments. No-one will object t
o that provided that you can produce logical arguments and evidence for your vie
ws. The only requirement is that you must be able to argue your position with su
pportive evidence and reasons. See `being an independent learner' and critical think
ing in the Learning skills for law guide.
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4.2 What is a contract of sale of goods?
Essential reading
Sealy and Hooley, Chapter 7: Ìntroduction and definitions', pp.25772. The SGA define
s a contract of sale of goods as: a contract in which the
seller transfers [called a sale: s.2(3)] or agrees to
transfer [an agreement to sell: s.2(4)] the property
in goods to the buyer for a money consideration,
called the price (s.2(1)). It is worth noting that `property' refers t
o the title to the goods and not the goods themselves. Before looking more close
ly at this definition, it is worth considering some transactions that are exclud
ed.
Transactions that are not sales
Contract of bailment This is where goods are delivered on terms requiring their
return to the owner or to another party. Although the person holding the goods u
nder such a contract has certain rights and obligations, there is no intention t
hat property will pass. Contract of hire purchase Typically, this is a means by
which someone can buy goods by making payments over a period of time. However, i
t is not a sale because, while the intention is that the buyer will own the good
s when all the payments have been made, the passing of property will only occur
if the buyer chooses to exercise an option under the contract to that effect. Th
ere is no obligation on the buyer to exercise this option (Helby v Matthews [189
5] AC 471; Sealy and Hooley, pp.26364). This does mean that there will be a sale
if the contract stipulates that property will pass at some specified time in the
future (Forthright Finance Ltd v Carlyle Finance Ltd [1997] 4 All ER 490; Sealy
and Hooley, p.264). This will be an agreement to sell (s.2(5)) as opposed to a
contract of sale where the property passes at the time of the contract (s.2(4)),
but both are within the SGA (see section 4.3.3, below). See the criticism of th
e distinction between hire-purchase and sale contracts made by Sealy and Hooley,
p.265. Security interests Where someone (the chargor) grants an interest in goo
ds in favour of another (the chargee) as security for a loan or some other form
of credit, the chargor retains property in the goods. The chargee does acquire a
proprietary interest in the goods, which will cease when the debt is paid (Seal
y and Hooley, p.266). Agency contracts Where A buys goods from T on behalf of P
and P has authorised or later ratifies the purchase, there is an agency contract
between P and A and a sale contract between P and T. Contrast this with the sit
uation where A acts as a principal so that there a sale contract between T and A
and another between A and P. (See Chapter 2 above.) Contract for work and mater
ials This is a contract involving skill and labour as well as the transfer of pr
operty in goods, such as the painting of a portrait by an artist (Sealy and Hool
ey, pp.26670). Where the work element can be separated from the goods, as where a
gas fitter installs a new central heating boiler, one might be able to suggest
there are two contracts, one for the labour (contract for work) and one for the
boiler (contract of sale). The problem arises where the work done by the fitter
is very defective and the householder wishes to reject the boiler. This may not
be possible because the boiler is not defective and there is, therefore, no brea
ch of the sale contract, only a breach of the contract for labour. Where the goo
ds and labour are mixed together, the test applied to decide if it is a contract
of sale or a contract for skill and labour is to look at its substance. If an a
rtist is commissioned to paint a portrait, the fact that materials, such as pain
t and canvas, will also pass under the contract does not make it a contract of s
ale of goods. Greer LJ thought the test involved determining if the skill is ònly
ancillary' or if `the substance of the contract is the skill and experience of the
artist in producing the picture.' (Robinson v Graves [1935] 1 KB 579; Sealy and Ho
oley, pp.26869). The distinction in that case was between the portrait painter an
d the maker of a set of dentures: it was concluded that in the latter situation
there is a sale of goods because `the principal part of that which the parties are
dealing with is the chattel which will come into existence when such skill as m
ay be necessary to produce it has been applied'.
page 0
This makes it seem as though the distinction rests on an assessment of what is a
nd is not skill or art. The test might be, `do the goods in question acquire the b
ulk of their value from the work applied in making them so that the goods are in
creased to an extent that substantially exceeds their value in a raw state?' But t
his is too vague: dentures are made up from cheap raw materials and it is the pr
ocess of forming these into dentures that adds value. Moreover, such a general r
ule contradicts some of the things said in one leading case (Lee v Griffin [1861
] 30 LJQB 591). In truth, the judgments in Robinson were, perhaps, too loose to
be able to discern any clear principle. Problems have resulted from attempts in
some cases to work up a specific set of facts into a general rule so as to legit
imise an outcome when really the distinction between these types of contract `depe
nds on the particular nature of each individual contract' (Young & Marten Ltd v Mc
Manus Childs Ltd [1969] 1 AC 454, Lord Upjohn). The significance of the distinct
ions between some of these contracts has diminished, although not entirely vanis
hed. In Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 (but contrast Lo
rd Upjohn's approach with that of Lord Wilberforce), the House of Lords took the v
iew that, as far as possible, the same principles should be applied whether good
s were supplied under a sale contract or a contract for work and materials. This
has been reinforced by the Supply of Goods and Services Act 1982, which implies
terms with respect to the goods supplied that largely match those implied into
a contract for the sale of goods. That Act also imposes on the supplier the duty
to exercise reasonable care and skill in respect of the service that is supplie
d (Supply of Goods and Services Act 1982, s.13). Similar terms are implied into
hire purchase contracts by the Supply of Goods (Implied Terms) Act 1973, althoug
h significant differences remain between sale and hire-purchase contracts.
Summary
A sale contract is defined by s.2(1) SGA. The components of that definition must
be present, so where there is no transfer of property it is not a sale. The imp
ortance of the distinctions between sale contracts and other types of contracts
involving goods has been reduced but has not entirely vanished because, in so fa
r as is possible, the same principles are applied to different types of contract
s involving the supply of goods.
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4.3 Components of the sale contract
The components of the definition in s.2(1) (see 4.2, above) are examined in this
section.
4.3.1 Price
Essential reading
Sealy and Hooley, Chapter 7: Ìntroduction and definitions', pp.25861, 272. The price
must be a money consideration. This includes payment by credit card, but exclud
es contracts of barter (for example, the exchange of goods involving no payment)
. If the parties have not fixed a price, they may not have reached agreement in
which case there is no contract (but see s.8, 9).
Activity 4.2
a Jake wishes to buy a new car priced at 7,000 from Mary, a dealer. Mary agrees t
o take Jake's old car and to reduce the price of the new car by 1,000. How would yo
u characterise the transaction? b If goods are sold for 10 pence plus three wrap
pers from a chocolate bar, does the transaction fall within SGA?
4.3.2 `Goods'
Essential reading
Sealy and Hooley, Chapter 7: Ìntroduction and definitions', pp.24854. The word `goods' i
n s.2(1) includes: all personal chattels other than things
in action and moneyand in particular `goods' includes
emblements, industrial growing crops, and things attached
to or forming part of the land which are agreed
to be severed before sale or under the contract
of sale; and includes an undivided share in
goods (s.61(1)). The Act does not apply to land (real property), nor shares an
d cheques (choses or things in action) or bank notes (money). Computer software
has caused some difficulties and may not be covered by the SGA. Glidewell J took
the view that the SGA does not apply, but went on to imply terms into the contr
act, which resembled those implied by the SGA, and so imposed strict liability f
or a defective software programme (St Albans City and District Council v Interna
tional Computers Ltd [1996] 4 All ER 481). The sale of bank notes that are not l
egal tender would be subject to the Act since their value derives from the notes
themselves and not from their role as legal tender (Moss v Hancock [1899] 2 QB
111). The Act does cover crops that are attached to the land, although these are
also land within the meaning of the Law of Property Act 1925, s.205 (Kursell v
Timber Operators and Contractors Ltd [1927] 1 KB 298; Sealy and Hooley, p.253).
Under s.61(1) `goods' includes an undivided share in goods so that a contract of sal
e includes the sale of part of a larger, undivided bulk of goods. We will discov
er the significance of this when we come to discuss the passing of property in g
oods (see section 4.4 below).
Emblement = `the profits of sown land', particul

arly annually harvested grass, grain or fruit, etc.
4.3.3 `Transfers or agrees to transfer the property'
Essential reading
Sealy and Hooley, Chapter 7: Ìntroduction and definitions', pp.25157. While the pric
e is the benefit received by the seller, the buyer receives both the goods and p
roperty in the goods. If one party becomes insolvent the question of who owns th
e goods or, in the words of the Act, has property in them determines whether the
other party joins the ordinary creditors or is able to claim the goods themselv
es. In addition, since risk usually runs with property (s.20(1); section 4.5 bel
ow), who has property will often settle the question of who bears the loss if go
ods are damaged or destroyed (see Sealy and Hooley, pp.27477).
page
Property The concept of property in English law is elusive and there is not suff
icient space in this guide to consider all its nuances. Nevertheless, it is wort
h making one or two observations. A property right is the connection between an
individual and a thing: The touchstone of a property
right is its universality: it can be asserted
against the world at large and not, for example,
only against another individual such as the contracting
partner. If, under a contract of sale, I
acquire the ownership of a chattel, my property
right to the chattel may be asserted not just
against the seller but against the whole world. (M. Bridge
Personal Property Law. (Oxford: Oxford University Press, 2002),
p.12. If A sells her car to B, B can assert the property right acquired, not
only against A, but also against others even though they are not parties to the
contract. Contrast this with contractual rights, which have only a limited impac
t on third parties because of the doctrine of privity. But what does it mean to
own goods? With a few exceptions, such as ships and aircraft, there is no regist
er for the ownership of goods, so how does someone establish ownership? It is es
tablished through possession: the owner is the person with the best possessory t
itle to the goods. Property in SGA Section 2 refers to sales as contrac
ts where the seller:
i transfers, or ii agrees to transfer property in goods. The Act covers two dist
inct aspects, the contract to transfer and the transfer itself: in (i) these occ
ur simultaneously, while in (ii) they are separated. What is the `property' that is
being transferred? According to s.61(1) it is `the general property in goods, and
not merely special property'. This means the seller is transferring, or agreeing t
o transfer, the absolute legal interest in the goods, so the transfer of somethi
ng less than the seller's full legal interest does not constitute a sale: for exam
ple, bailment does not come within the SGA because it does not transfer the owne
r's absolute legal interest in the goods, it just transfers possession. But absolu
te legal interest does not mean the transfer of perfect legal title. Indeed, var
ious parts of the Act are concerned with situations in which a buyer acquires ti
tle where the seller had a defective title or no title at all (for example, ss.1
2(3) and 2126, see 4.7 below). Categorisation of goods The passing of pro
perty is connected with the way the Act categorises goods as existing or future
and as specific or unascertained. This categorisation occurs at the time of the
contract. Existing goods are those owned or possessed by the seller at the time
of the contract (s.5(1)). Future goods are to be manufactured or acquired by the
seller after the making of the contract (s.5(1)). So, if the goods do not yet e
xist or exist but are the property of someone other than the seller, they are fu
ture goods: for example, the sale by Jake to Pugwash of a Bentley motor car is a
sale of future goods if Jake does not own the car at the time of the contract,
but intends to acquire it (Varley v Whipp [1900] 1 QB 513). There cannot be a sa
le of future goods, only an agreement to sell (s.5(3)), but this still falls wit
hin the SGA (s.2). Specific or unascertained goods Existing and future goods wil
l also be specific or unascertained goods. Under s.16, property will not pass in
goods that are not ascertained (Re Wait [1927] 1 Ch 606; Sealy and Hooley, p.24
6; but see s.20A discussed in section 4.4.8). The distinction between specific a
nd unascertained goods depends on when they are identified:
if the goods are identified and agreed upon at the time of the contract they are
specific goods (s.61(1)) if they are not identified at the time of the contract
they are unascertained goods. The sale of `my Bentley' is a sale of existing and sp
ecific goods if I only have one Bentley. I cannot perform the contract by substi
tuting another Bentley, even if it has precisely the same specifications.

Typically, future goods will be unascertained. If the buyer agrees to buy a new
Bentley from a dealer, who does not have what is required in stock, this is a sa
le of future and unascertained goods. However, goods that exist and are identifi
ed in the contract, but are owned by a third party, are both future goods (becau
se the seller has not acquired them) and specific goods (because they are identi
fied at the time of the contract) (Varley v Whipp [1900] 1 QB 513): for example,
the sale by Jake to Pugwash of the Bentley, which is at the time of the contrac
t owned by Mary from whom Jake intends to acquire it, is a sale of future, speci
fic goods. Ascertained goods Where there is a contract for the sale of unascerta
ined goods, once the goods are identified and connected by consent of the partie
s to the contract (àppropriated': section 4.4.6 below), they become ascertained goo
ds. The significance of this is that while goods are unascertained no property i
n them can pass to the buyer and the buyer has, therefore, only a contractual ri
ght against the seller and has no rights in any goods (see section 4.4.1). Prope
rty can only pass when the goods become ascertained. The rules on passing of pro
perty are discussed below (see 4.4). For the moment it is worth noting one of th
e problems with the rule that property cannot pass in unascertained goods. In Re
Wait [1927] 1 Ch 606 (Sealy and Hooley, p.246), 500 tons of wheat were sold fro
m a cargo of 1000 tons that was on board a ship, Challenger. When the seller wen
t into liquidation, the court held that the sale was of unascertained goods and
so under s.16 property had not passed to the buyer at the time of the contract.
The buyer could not, therefore, claim the goods and merely joined the other gene
ral creditors. Similarly, in Re Goldcorp Exchange Ltd (in receivership) [1995] 1
AC 74, customers of a company purchased bullion for future delivery on terms th
at they were buying `non-allocated metal', which meant it was not set aside but was
stored as part of the company's general stock. Under the agreement, an investor ha
d the right to take physical delivery of bullion from that stock. The company be
came insolvent. The Privy Council held that the goods were unascertained and pro
perty had not passed because the company was free to decide what bullion to allo
cate to a particular investor.
page
Useful further reading
Bridge, M. Personal property law. (Oxford: Oxford University Press, 2002) [ISBN
0199254761] particularly, pp.1215, 2627, 2831, 8093. Goode (2004), pp.3145.
Summary
The passing of property is determined, in part, by the categorisation of the goo
ds as either existing or future and as either specific or unascertained. Into wh
ich categories goods fall depends on the situation at the time of the contract.
Existing goods are owned by the seller, while future goods are not. Specific goo
ds are identified at the time of the contract, while unascertained goods are not
. Unascertained goods become ascertained when they are appropriated to the contr
act with the consent of both parties. These rules are important because, normall
y, property will not pass in unascertained goods (subject to an exception dealt
with in 4.4.8).
Go to your study pack and read `The concepts of property, title and owner used in the Sa
le of Goods Act 1893' by G. Battersby and A.D. Preston and À reconsideration of prop
erty and title in the Sale of Goods Act' by the same authors.
Activity 4.3
How would you categorise the following (put your answers into the grid): a 100 t
ons of wheat to be harvested from a particular field next summer. b A particular
second-hand reaping machine owned by someone other than the seller. c A book or
dered from an internet bookseller. d A bag of flour taken from the shelf in a su
permarket by a customer. Specific Existing Unascertained
Future Think of other goods that you have bought recently and put them into the
relevant parts of the grid.
Go to your study pack and read the extract from Personal property law by M. Brid
ge.
page
4.4 Passing of property
Essential reading
Sealy and Hooley, Chapter 8: `Passing of the property in the goods as between buye
r and seller', pp.293327.
4.4.1 General principles
i `The right of property and the right of possession are distinct from each other;
the right of possession may be in one person, the right of property in another.'
(Tarling v Baxter [1827] 6 B & C 360, Sealy and Hooley, p.303, Bayley J). The di
stinction is demonstrated by the facts of Dennant v Skinner and Collom [1948] 2
KB 164 (Sealy and Holley, pp.303304), in which Roche J also notes that a seller,
who, while not having property, remains in possession of the goods, has rights a
gainst a buyer who fails to pay (see 6.2).
ii `Where there is a contract for the sale of unascertained goods no property in t
he goods is transferred to the buyer unless and until the goods are ascertained.'
(s.16) This is based on what Lord Mustill called à priori common sense', which `dicta
tes that the buyer cannot acquire title until it is known to what goods the titl
e relates' (Re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74). But this g
eneral principle is subject to an important exception in s.20A (discussed in 4.4
.8 below). iii Where the goods are specific or ascertained property will pass wh
en the parties ìntend it to be transferred' (s.17(1)). To determine their intention
`regard shall be had to the terms of the contract, the conduct of the parties and
the circumstances of the case' (s.17(2)). Property may still pass even though the
time for payment or delivery has not arrived (but see the remarks of Diplock LJ
quoted in section 4.4.2 below). iv If no such intention can be discerned, the A
ct provides rules in s.18 to resolve the issue of when the property is to pass (
see section 4.4.2 below). With the exception of rule 5, these rules are concerne
d with the passing of property in specific goods. v The courts have always rejec
ted the idea that under a sale contract the buyer may acquire an equitable inter
est in the goods. Atkin LJ said in Re Wait [1927] 1 Ch 606 (see also Lord Brando
n in Leigh v Sillavan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785
): It would have been futile in a code intended
for commercial men to have created an elaborate
structure of rules dealing with rights at law, if
at the same time it was intended to leave,
subsisting with the legal rights, equitable rights inconsis
tent with, more extensive, and coming into existence
earlier than the rights so carefully set out in
the various sections of the code. Nevertheless, he did go
on to say that the provisions in the Act have: no relevance when
one is considering rights, legal or equitable, which
may come into existence dehors [outside] the contract
for sale. A seller or a purchaser may, of
course, create any equity he pleases by way of charge,
equitable assignment or any other dealing with or
disposition of goods, the subject matter of sale; and
he may, of course, create such an equity as one
of the terms expressed in the contract of
sale. The parties may, therefore, agree in the sale contract that the goods a
re to be held by the seller on trust for the buyer. The parties must intend to c
reate a trust and to limit the freedom of the seller to deal with the goods, and
the goods must be clearly identified. An attempt to establish a trust in relati
on to unascertained goods would fail to satisfy the second of these criteria. Se
e Re London Wine Co (Shippers) Ltd [1986] PCC 121, Sealy and Hooley, pp.29498; Re
Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74). But see also Re Stapyl
ton Fletcher Ltd [1995] 1 WLR 1181 (section 4.4.8).
Activity 4.4
Why did the court not give full recognition to the apparent intention of the par
ties in Re Blyth Shipbuilding and Dry Docks Co Ltd [1926] Ch 494? Practise your
spoken english We would advise you to make an oral answer in response to this ac
tivity.
page 5
4.4.2 Section 18, rule 1: goods in a delivera
ble state
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 immater
ial whether the time of payment or the time of
delivery, or both, be postponed. In spite of its wording
, Diplock LJ remarked of this rule: `the governing rule is in s.17, and in modern
times very little is needed to give rise to the inference that property in speci
fic goods is to pass only on delivery or payment' (RV Ward Ltd v Bignall [1967] 1
QB 534). The phrase ùnconditional contract' cannot mean that a contract must not ha
ve conditions of any sort because all contracts of sale have conditions, such as
that the buyer will pay and the seller will deliver and the goods will be of sa
tisfactory quality. Ùnconditional' must refer to something in the contract of sale
that prevents the operation of rule 1, and this would include the situations in
rules 2 and 3. Goods are ìn a deliverable state', `when they are in such a state that
the buyer would under the contract be bound to take delivery of them' (s.61(5)).
In Underwood Ltd v Burgh Castle Brick & Cement [1922] 1 KB 123 (Sealy and Hooley
, pp.306307), a machine was attached to a factory floor and, therefore, was not i
n a `deliverable state' until detached. It is only when the seller must do something
that this rule may prevent property from passing and not if, for example, a con
tract term requires the buyer to detach the machine. There is a difficulty with
future, specific goods, which would seem to come within rule 1. This is resolved
by s.5(3), which states that a contract to effect a present sale of future good
s is treated as an agreement to sell goods so that property will not pass until
the seller acquires title or the buyer acquires title through an exception to th
e nemo dat rule (Goode (2004), p.232. On the meaning of the nemo dat rule see se
ction 4.7 below).
Activity 4.5
A farmer agrees to sell all of the trees on his land; the trees are to be cut do
wn a month after the agreement and payment is to be made at that time. At what p
oint does the property in the trees pass?
4.4.3 Section 18, rule 2: goods not in delivera
ble state
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 not
ice that it has been done. This covers the situation where the goods are not in
a deliverable state at the time of the contract and so property does not pass un
der rule 1, but they are later put into a deliverable state. Once the seller has
undertaken the work necessary to render the goods deliverable, property will pa
ss when the buyer has been given such notice as the contract specifies or, faili
ng that, such notice as a reasonable person would require. The rule does not cov
er the situation where the contract requires the buyer to put the goods into a d
eliverable state and so in that situation property may pass, unless there is a c
ontrary intention in the agreement.
4.4.4 Section 18, rule 3: price to be ascertai
ned
If the seller of specific goods in a deliverable state is required to carry out
some procedure to ascertain the price, such as weighing or measuring, property w
ill not pass until that has been done and the buyer notified. If the contract st
ipulates that someone other than the seller is to undertake this task, rule 3 wi
ll not apply and property will pass under rule 1 (Nanka-Bruce v Commonwealth Tru
st [1926] AC 77; Sealy and Hooley, p.310).
page
4.4.5 Section 18, rule 4: sale or return
Where goods are `delivered to the buyer on approval or sale or return', property pas
ses when the buyer:

signifies acceptance, or does an act adopting the transaction (rule 4(a)), or re
tains the goods beyond the time fixed by the agreement for a decision without `giv
ing notice of rejection', or, if no time is fixed, retains the goods beyond a reas
onable time (rule 4(b)). This rule covers situations where goods are supplied on
the understanding that the sale is dependent on the person in receipt of the go
ods adopting the transaction. Such agreements might be entered into because of a
retailer's uncertainty about demand for a product, which, in turn, may affect the
ability to pay and, hence, the element of credit (Atari Corporation (UK) Ltd v
Electronics Boutique Stores (UK) Ltd [1998] QB 539. Contrast with reservation of
title clauses, discussed at 6.3 below). Strictly, there is no contract of sale
or agreement to sell, but only an offer by the `seller', which the `buyer' may accept or
reject. Phillips LJ remarked that `the notice of rejection referred to by the Act
of 1979 is no more than the notice that an offeree can always give that a contr
actual offer is rejected.' (Atari Corporation v Electronics Boutique Stores [1998]
QB 539) What are the obligations of the `buyer' and the `seller' up to the point at whi
ch the sale is concluded? According to Phillips LJ:
The `buyer' holds the goods under a contract of bailment. This means that the risk o
f damage to the goods remains with the `seller', although the `buyer' must take reasonab
le care of them. The `seller' may not withdraw the offer to sell. The sale or return
must be distinguished from a contract of sale in which the buyer acquires prope
rty and risk in the goods but there is a term allowing their return (Elphick v B
arnes [1880] 5 CPD 321). Other issues that have caused difficulty in sale or ret
urn agreements have been: (i) what is meant by àn act adopting the transaction'; (i
i) what amounts to a reasonable time; (iii) what constitutes a notice of rejecti
on and what effect does it have?
i
What constitutes àn act adopting the transaction'? If an act indicates personal use
by the `buyer', which goes beyond what is contemplated by the arrangement, this mig
ht amount to àn act adopting the transaction' (Poole v Smith's Car Sales (Balham) Ltd
[1962] 1 WLR 744; Sealy and Hooley, pp.31415. Also, Kirkham v Attenborough [1897
] 1 QB 201).
ii What amounts to a reasonable time? This depends on the agreement and the natu
re of the goods (Poole v Smith's Car Sales (Balham) Ltd [1962] 1 WLR 744; Sealy an
d Hooley, pp.31415). iii What constitutes a notice of rejection and what effect d
oes it have? Often contracts for sale or return do not address the issues of how
the `buyer' is to signify rejection of the goods, or what is the responsibility of
the `buyer' once the goods have been rejected. Subject to any agreement to the contr
ary, rejection can be notified in any form. Such notice is only effective if giv
en before property has passed, that is, before acceptance after acceptance the b
uyer will have the normal remedies that any buyer under a sale contract would ha
ve if the goods are defective. Subject to any agreement to the contrary, if the `b
uyer' wishes to reject the goods, a notice of rejection will be sufficient without
return of the goods. The `buyer' must make the goods available to the `seller' within a
reasonable period of time after rejection.
Activity 4.6
a Jake has expressed an interest in buying for 1000 a particular horse owned by M
ary, if it is suitable for his young daughter to ride. Mary agrees that Jake can
take the horse for 10 days in order to determine its suitability. After a week
the horse becomes ill and dies. Is Jake liable for the price? b How might your a
nswer to (a) have differed if Jake had used the horse himself on a number of occ
asions and had ridden it in a race?
page
4.4.6 Section 18, rule 5: unascertained goods and
appropriation
While rules 1 to 4 are concerned with specific goods, rule 5 concerns unascertai
ned goods. No matter what the parties may wish property does not pass ùntil the g
oods are ascertained' (s.16, but see s.20A in 4.4.8 below). Once the goods are asc
ertained property passes when the parties intend (s.17). If no such intention ca
n be determined, rule 5 applies. Property in the goods passes to the buyer where
(rule 5(1)):

there is a contract for the sale of unascertained goods or future goods by descr
iption, and goods of that description and in a deliverable state are uncondition
ally appropriated to the contract, either by the seller with the assent of the b
uyer or by the buyer with the assent of the seller (assent may be given before o
r after the appropriation). The chief difficulty lies in the means by which good
s are unconditionally appropriated. Appropriation requires (Carlos Federspiel &
Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd's Rep 240):
an irrevocable identification of the goods that are the subject of the contract
(Sealy and Hooley, pp.31724) the assent of both parties. The contract can specify
what amounts to appropriation, but often the identification and assent will be
by the seller physically taking the goods to the buyer and the buyer accepting t
hem, or the buyer going to the seller who hands over the goods. It is not suffic
ient for the seller merely to label goods or to store them separately (unless th
is is specified in the contract) since this leaves the possibility of the seller
changing their mind and substituting other goods. The seller must unconditional
ly appropriate the goods to the contract. This action is, usually, the last act
of the seller, that is, delivery of the goods. This does not necessarily make ma
tters straightforward because under the SGA the seller's act of delivery is presum
ed to be merely making goods available for collection by the buyer (see section
5.2.2). There are some troublesome cases. In Aldridge v Johnson [1857] 7 E & B 8
85, there was appropriation before delivery when the seller placed the goods in
containers supplied by the buyer, even though the seller could have unpacked the
goods and replaced them with other goods. Carlos Federspiel & Co SA v Charles T
wigg & Co Ltd [1957] 1 Lloyd's Rep 240, is more rigorous. There was no appropriati
on even though the seller packed the bicycles in crates marked with the buyer's na
me. The only substantial distinction between this case and Aldridge is that in t
he latter the containers were supplied by the buyer, but that would not seem to
go to the core of the matter, which should be that there is no appropriation unt
il it is beyond the power of the seller to substitute goods. Handing goods to a
carrier for transmission to the buyer, without reserving the right of disposal,
may amount to unconditional appropriation by the seller (rule 5(2); Wardar's (Impo
rt & Export) Co Ltd v W Norwood & Sons Ltd [1968] 2 QB 663; Sealy and Hooley, pp
.32224). Such an action is also presumed to constitute delivery (s.32(1); see sec
tion 5.2.2). If the seller attaches conditions to the appropriation, property wi
ll not pass even though the goods are ascertained: for example, if the contract
stipulates that the seller retains property in the goods until the buyer has pai
d, property will only pass when the condition has been met (see s.19 and also 6.
3). Appropriation is only complete if the buyer signifies assent by, for instanc
e, agreeing to take delivery of the goods. Unless the parties agree otherwise, t
he assent of the buyer does not have to take a particular form and can be implie
d. Where goods of the correct quality and description are appropriated by the se
ller to the knowledge of the buyer, the buyer cannot delay the passing of proper
ty by inaction (Pignataro v Gilroy [1919] 1 KB 459; Sealy and Hooley, p.320).
page
Activity 4.7
Acme agrees to sell to Ecma 100 tons of wheat to be delivered on 31 August. On 3
1 August, Acme notifies Ecma that 100 tons of wheat have been set aside in Acme's
warehouse and urges them to collect the wheat. The wheat is stolen from the ware
house on 10 September. Advise Acme.
4.4.7 Section 18, rules 5(3) and 5(4): ascertainment
by exhaustion
Mustill J pointed out that ascertainment can be achieved by a method other than
that in rule 5(1) (Karlshamns Oljefabriker v Eastport Navigation Corp: The Elafi
[1981] 2 Lloyd's Rep 679; Wait & James v Midland Bank [1926] 31 Com Cas 172; Seal
y and Hooley, pp.300301). All that is necessary is that the goods should be ascer
tained and the parties intend property to pass. Where there is a sale of part of
a ship's cargo, the goods can be ascertained where the cargo is reduced by prior
deliveries to the amount for which the buyer contracted, or where a single buyer
purchases the whole cargo in different lots, and the parties intend property to
pass. A agrees to buy 100 tons, which is part of a cargo of 1,000 tons on board
MV Challenger. The rest of the cargo is bought by other purchasers. The ship de
livers 900 tons to those other buyers. At that point A acquires property in the
remaining 100 tons (assuming there is no contrary intention expressed in the sal
e contract). Mustill J's idea of ascertainment by exhaustion has been confirmed by
rules 5(3) and 5(4), which were added to s.18 in 1995. Under rule 5(3): Where
there is a contract for the sale of a
specified quantity of unascertained goods in a
deliverable state forming part of a bulk which is
identified either in the contract or by subsequ
ent agreement between the parties and the bulk is
reduced to (or to less than) that quantity, then,
if the buyer under that contract is the only
buyer to whom goods are then due out of the
bulk: a the remaining goods shall be taken as
appropriated to that contract at the time when
the bulk is so reduced, and b the property
in those goods then passes to the buyer. Rule 5(4) states
that: Paragraph (3) above applies also (with the necessary
modifications) where a bulk is reduced to (or
less than) the aggregate of the quantities due
to a single buyer under separate contracts relating
to that bulk and he is the only buyer to
whom goods are then due out of that bulk.
4.4.8 Section 20A: unidentified part of identified
bulk
Rule 5(3) does not deal with the situation where the buyer has bought an unident
ified part of a specified bulk and the rest of the bulk remains intact: for exam
ple, 500 tons of wheat from a cargo of 1,000 tons on board the MV Challenger (Re
Wait [1927] 1 Ch 606). The goods are unascertained and property cannot pass (s.
16). A buyer, who has paid for the goods, will merely rank among the unsecured c
reditors if the seller becomes insolvent. On the other hand, the buyer is not at
risk if the goods are lost (although see section 4.5 below). It makes no differ
ence if two buyers together bought the entire 1,000 tons, although it is possibl
e to create a tenancy in common. In Re Stapylton Fletcher Ltd [1995] 1 WLR 1181,
wine was sold to customers and, although held by the seller, it was kept separa
tely from the seller's own wine. It was not possible to identify which customer ow
ned which wine, but it was held that the customers were tenants in common: the w
ine was ascertained by the transfer from the merchant's own stock to storage for t
he customers. The Law Commission was asked to look into these issues. Its report
led to ss.20A, 20B, which created a new species of property interest. The buyer
, who has paid, can acquire co-ownership of the bulk with any other buyers, who
have paid.
The buyer will be an owner in common of the bulk (unless the parties agree other
wise s.20A(2)) if all the following circumstances are present: i There is a sale
of à specified quantity of unascertained goods' that form part of a bulk. A specif
ied quantity is `500 tons of wheat' and not `half the cargo of wheat'. In the latter cas
e the buyer does not come within s.20A, but might be a tenant in common at commo
n law.
page
ii The bulk is identified in the contract or by subsequent agreement (s.20A(1)(a
)). The bulk is à mass or collection of goods of the same kind which (a) is conta
ined in a defined space or area; and (b) is such that any goods in the bulk are
interchangeable with any other goods therein of the same number or quantity' (s.61
(1)). Examples given by the Law Commission of a bulk included wheat on a named s
hip, oil in a specified tank, or a specified roll of carpet from which a particu
lar length is to be cut. iii The buyer has paid all or part of the price (s.20A(
6)). Note that s.16 still applies to those goods for which the buyer has not pai
d so that property in them cannot pass until they become ascertained. The size o
f the buyer's share of the bulk depends on the ratio that the quantity of goods pa
id for and due to the buyer bears to the bulk (s.20A(3)). This means that if the
buyer has agreed to buy 100 litres of oil from a specified tank containing 1,00
0 litres and has paid, the buyer becomes a co-owner of the bulk in the ratio of
100:900. If a second buyer pays for 100 litres and a third buyer pays for 800 li
tres the co-ownership ratio is 100 (first buyer): 100 (second buyer): 800 (third
buyer). The three parties are co-owners of the entire bulk and not owners of a
particular part of the bulk. Where the bulk has diminished through, for example,
natural wastage, or where the seller has sold more goods than are in the bulk,
the total shares will exceed the size of the bulk. Here each co-owner will have
the same interest in the reduced bulk (s.20A(4)). Taking our oil tank, if half o
f the bulk has been lost, the ratio will be 50:50:400. Goode (2004, p.227) sugge
sts that where part of the bulk is not sold any diminution of the bulk should be
borne first by the seller: for example, if the seller had made only one sale of
100 litres (for which the buyer paid) and the bulk is diminished to 980 litres,
the loss should be entirely borne by the seller, so that the buyer's interest in
the bulk would be 100:880. Under s.20B(1), all the co-owners are deemed to conse
nt to any delivery from the bulk to another co-owner. A co-owner, who receives n
o more than is due to that person under the contract, is not liable to any other
co-owner for taking delivery and is not liable to compensate where there is a s
hortfall in the delivery to another co-owner (s.20B(2), (3)). If the seller has
oversold and delivery of the entire bulk has been made to the other co-owners, a
disappointed co-owner will only have a remedy against the seller.
Reflection point
Think about the difficulties explained in the paragraph above. Can you suggest a
ny ways in which the rules might be improved? Record your thoughts in your Skill
s portfolio. If part of the price has been paid by the buyer, any part delivery
to the buyer is àscribed in the first place to the goods in respect of which paym
ent has been made' (s.20A(5)). If the buyer of 2000 litres from a bulk of 10,000 l
itres has paid half the price and subsequently 500 litres are delivered, that bu
yer's interest in the remaining bulk is calculated as follows: the 500 litres deli
vered are ascribed to the payment so the buyer's interest in the bulk is now 500:9
500. This maintains the principle that the buyer's interest under s.20A is related
to the payment made. Finally, under s.20B(1), all the co-owners are deemed to c
onsent to any disposition of the goods by a co-owner and a sale by the co-owner
is a contract of sale of goods because `goods' includes an undivided share in goods
(s.61(1)), which is what a co-owner has under s.20B. This provision allows buyer
s to deal in goods while they are in transit.
page 0
Summary
Where the goods are specific property will pass when the parties intend it to be
transferred. If no intention is evident, the Act sets out the rules in s.18 for
determining when property will pass. If the contract is for the sale of unascer
tained goods, no property in the goods is transferred to the buyer until the goo
ds are ascertained (s.16). However, the parties may be tenants in common at comm
on law or co-owners under s.20A.
Activity 4.8
a Fred agrees to buy àll the hay' in Jane's barn at 100 per ton. Fred agrees to take t
he hay to a neighbouring farm where it can be weighed. Has property passed to Fr
ed? b Mary agrees to buy 100 bags of hay from John. The price is fixed at 1,000 o
n the understanding that the bags contain in total 10 tons of hay. Mary later we
ighs the bags and discovers that they contain 9 tons. Has the property in the ha
y passed to Mary? c Jake goes into Mary's furniture shop. He agrees to buy a set o
f kitchen units, which will be delivered on Monday. It is also agreed that worke
rs employed by Mary will construct and fit the units on Tuesday. The units are d
elivered and placed in Jake's garage, which he locks. Someone breaks into the gara
ge and steals the units on Monday night. Mary refuses to replace the units and d
emands payment from Jake. Did property pass to Jake before the theft? d Would Re
Goldcorp Exchange Ltd be decidedly differently in the light of s.20A?
page 1
4.5 Risk
Essential reading
Sealy and Hooley, Chapter 2: `Basic concepts of personal property', pp.7782. Which pa
rty bears the consequences of loss or damage to the goods? The general rule is t
hat risk follows property: the owner of the goods bears any loss. Under s.20(1),
the goods remain at the seller's risk until property is transferred to the buyer.
This rule applies irrespective of which party has possession of the goods. (In
passing we may note that the Sale and Supply of Goods to Consumers Regulations 2
002, regulation 4, introduced s.20(4) to the Act, which provides that where some
one buys as a consumer the goods remain at the seller's risk until delivery.) The
general rule will not apply where:
The parties have agreed that risk should pass (for example, Head v Tattersall (1
871) LR 7 Exch 7; Sealy and Hooley, p.278). The parties may agree that risk will
pass even though the goods are unascertained (Sterns Ltd v Vickers Ltd [1923] 1
KB 78; Sealy and Hooley, pp.28081). The loss was caused by the fault of one part
y, in which case that party bears the loss (s.20(2); Demby Hamilton & Co Ltd v B
arden [1949] 1 All ER 435, Sealy and Hooley, pp.27980). One party is the bailee o
f the goods and the loss occurs through their lack of reasonable care, in which
case that party will be liable (s.20(3); Wiehe v Dennis Bros [1913] 29 TLR 250).
The seller is required by the contract to send goods to the buyer, in which cas
e delivery to a carrier is presumed to constitute delivery to the buyer, who, th
erefore, bears the risk of loss in transit (s.32. See also s.33).
Reflection point
Is this arrangement fair? Could the rules be improved? Where risk has passed bef
ore the buyer acquires the property in the goods or possession of them, and the
goods are damaged through the negligence of the carrier, the buyer will not be a
ble to sue the carrier (The Aliakmon [1986] AC 785). This rule has been effectiv
ely reversed where goods are carried by sea (Carriage of Goods by Sea Act 1992),
but remains in other forms of transit.
Activity 4.9
a What risks do the seller and buyer run and which risks are dealt with under s.
20(1) of the Act? b Acme contracts to buy 1,000 tons of wheat from a bulk of 10,
000 tons held by Ecma in its warehouse and has paid. The warehouse burns down be
fore any of the wheat is delivered. Who bears the loss?
page
4.6 Perishing of goods and frustration of contract
Essential reading
Sealy and Hooley, Chapter 8: `Passing of the property in the goods as between sell
er and buyer', pp.28293.
4.6.1 Specific goods perishing
Where there is a contract for the sale of specific goods, but the goods perished
before the contract without the knowledge of the seller, the contract is void (
s.6). Section 6 may apply even if only part of the goods has perished (Barrow, L
ane & Ballard Ltd v Phillip Phillips & Co [1929] 1 KB 574; Sealy and Hooley, p.2
85). Under the contract one party (the seller or the buyer) may have agreed to t
ake the risk that the goods do not exist at the time of the contract; in which c
ase that party will be liable should the risk arise. Section 6 might seem to res
emble the doctrine of common mistake in the general law of contract, but goods t
hat have never existed cannot be said to have perished (as to whether s.6 reprod
uces the decision in Courturier v Hastie [1856] 5 HL Cas 673, see Sealy and Hool
ey, p.28384). The goods will have perished where they exist but have lost their c
ommercial character: for example, dates perished where underwater for 2 days and
impregnated with sewage (Asfar v Blundell [1896] 1 QB 123. The problem with thi
s case is that it was not a decision under the Sale of Goods Act and there is a
contrary if rather dubious authority, Horn v Minister of Food [1948] 2 All ER 10
36). Under s.7, where there is an agreement to sell specific goods and, without
any fault on the part of either party, the goods perish subsequent to the agreem
ent and before the risk has passed to the buyer, the agreement is avoided. Note
that this section does not apply where there is a contract of sale (for the diff
erence between an agreement to sell and a contract of sale, see 4.2 above).
4.6.2 Unascertained goods perishing
Sections 67 do not apply to contracts for the sale of unascertained goods. If una
scertained goods are sold by description (for example, `500 tons of wheat'), the sel
ler is obliged to deliver. The seller cannot seek to excuse non-delivery by show
ing that goods of that description were not available at the time of delivery. T
he seller takes the risk of this eventuality and must pay damages in the event o
f their being unable to deliver (Blackburn Bobbin Co Ltd v TW Allen & Sons Ltd [
1918] 2 KB 467; Sealy and Hooley, p.287). The parties may, however, include a te
rm (a force majeure clause) to excuse failure to deliver that is the result of c
ertain events, such as war. Moreover, they may agree that the contract is to sel
l goods drawn from an identified source, such as from the cargo on a named ship.
Where there was a contract of sale for `200 tons of regent potatoes grown on land
belonging to [the farmer] in Whaplode', and, through no fault of the farmer, dise
ase prevented the land from producing more than 80 tons, it was held that there
was no breach. Ìt was not an absolute contract of delivery under all circumstance
s, but a contract to deliver so many potatoes, of a particular kind, grown on a
specific place, if deliverable from that place.' (Howell v Coupland [1876] 1 QBD 2
58; Sealy and Hooley, p.289, Lord Coleridge CJ.) Note that, although the court h
eld that this was a contract for specific goods, they were not identified and ag
reed on at the time of the contract and so are not specific goods under the subs
equent Sale of Goods Act. If they are not specific goods, ss.67 do not apply and
we must fall back on the common law. In other words, this decision might be trea
ted as outside the framework of the Act and, therefore, as a rule of common law
that has survived under s.62(2). (For an explanation of this decision, see HR &
S Sainsbury Ltd v Street [1972] 1 WLR 834; Sealy and Hooley, pp.29092.)
There is an obvious difficulty with treating as different those goods that are d
rawn from an identified source (sometimes called quasi-specific goods). To some
degree all contracts for unascertained goods involve an identified source: the s
ale of à Bentley motor car' restricts the pool of goods from which the appropriatio
n can be made; the sale of a certain number of lengths of `Norwegian timber' identif
ies the only eligible source so that Swedish timber will not meet the obligation
under the contract. It can, therefore, be said that all unascertained goods are
drawn from an identified and limited source.
page
4.6.3 Frustration
Aside from those situations already dealt with in which the goods are lost, the
doctrine of frustration arises in sale contracts in the same way as in other typ
es of contract: for example, through supervening illegality or impossibility cau
sed by an unforeseen event. But it should be remembered that the courts are relu
ctant to invoke this doctrine and, in particular, have shown a disinclination to
do so in sale contracts involving unascertained goods. Moreover, the doctrine o
f frustration will not apply where one party has agreed to run the risk of a par
ticular loss or is responsible for that loss occurring.
Activity 4.10
Why is it more useful to resolve cases like Howell v Coupland by the use of an i
mplied term than to use the doctrine of frustration?
Summary
The general rule is that risk of loss passes with property, but the parties may
agree otherwise. Where there is a contract for the sale of specific goods and th
e goods perished before the contract without the knowledge of the seller, the co
ntract is void. Where there is an agreement to sell specific goods and, without
any fault on the part of either party, the goods perish subsequent to the agreem
ent and before the risk has passed to the buyer, the agreement is avoided. In a
contract for the sale of unascertained goods, the seller will not be excused fro
m performance, unless the contract requires the goods to be drawn from a specifi
ed source when the courts may imply a term removing or modifying the obligation
to perform in the event that this source is not available.
page
4.7 Transfer of title
4.7.1 The nemo dat rule
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.32831. Here we are concerned wit
h situations in which someone, who has either no property or their rights are de
fective, disposes of the goods in circumstances that enable the buyer to acquire
rights to the exclusion of the true owner. A thief sells a stolen car to an inn
ocent purchaser, a rogue deceives the owner of goods into parting with them and
then sells them to an innocent buyer, or a person misguidedly sells to an innoce
nt buyer a car that is the subject of a hire purchase contract and is, therefore
, the property of the finance company. In each of these cases the question is, w
ho has title to the goods? At the outset it must be emphasised that the general
rule is: `where the goods are sold by a person who is not their owner, and who doe
s not sell them under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had' (s.21(1)). This is know
n as the nemo dat quod non habet rule (or simply nemo dat). The owner can bring a
n action under the Torts (Interference with Goods) Act 1977 against anyone who h
as wrongful possession of the goods. Nevertheless there are exceptions to this g
eneral rule. Denning LJ explained: In the development of our
law, two principles have striven for mastery. The
first is for the protection of property: no
one can give a better title than he himself possesse
s. The second is for the protection of commerci
al transactions: the person who takes in good faith
and for value without notice should get a good title.
(Bishopsgate Motor Finance Corporation Ltd v Transport Brakes Ltd
[1949] 1 KB 322; Sealy and Hooley, pp.33031.) While the firs
t principle (nemo dat) can be overridden by the second, the courts have, for the
most part, clung to its fundamental importance. Lord Goff, after referring to t
he nemo dat rule in s.21(1), pointed out, `The succeeding sections enact what appe
ar to be minor exceptions to that fundamental principle' (National Employers' Mutual
General Insurance Assocn Ltd v Jones [1990] 1 AC 24). Remembering this, we turn
to consider the nature of the exceptions.
Nemo dat quod non habet (Latin): `No-one (can) give

what he or she has not got.'
page 5
4.7.2 Estoppel
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.33142. The first exception to th
e nemo dat rule is contained in s.21(1) itself. The part of that section quoted
above (section 4.7.1) is immediately followed by the words ùnless the owner of th
e goods is by his conduct precluded from denying the seller's authority to sell'. Wh
ere the true owner of the goods represents to the buyer that the person selling
is acting as an agent with authority to sell or is the owner, the owner may be e
stopped from denying that authority to sell and the buyer acquires good title (H
enderson & Co v Williams [1895] 1 QB 521; Sealy and Hooley, pp.33435). A car owne
r, who wished to raise money on his car without selling it, was estopped when he
colluded in a transaction with a car dealer under which the car was represented
to a finance company as belonging to the dealer (Eastern Distributors Ltd v Gol
dring [1957] 2 QB 600; Sealy and Hooley, pp.33234). Merely handing possession of
goods to another is usually not sufficient for this estoppel to arise because it
will not amount to a representation. Carelessness in handing over possession of
goods or documents of title is not enough because, à man who owns property is no
t under any general duty to safeguard it and he may sue for its recovery any pers
on into whose hands it has come' (Moorgate Mercantile Co Ltd v Twitchings [1977] A
C 890, Lord Wilberforce; Central Newbury Car Auctions Ltd v Unity Finance Ltd [1
957] 1 QB 371; Sealy and Hooley, pp.33738). It may be otherwise if it can be show
n that the owner has breached a duty of reasonable care owed to the third party
and that this induced the third party to buy the goods so that the negligence wa
s the proximate cause of the buyer's loss. In Mercantile Credit Co Ltd v Hamblin [
1965] 2 QB 242 (Sealy and Hooley, pp.33940), the owner of a car signed forms in b
lank, without reading them, in the belief that they would enable a car dealer, w
ho appeared to be respectable, to raise money on the security of the car. In fac
t, the dealer fraudulently used the forms to sell the car to a finance company.
The Court of Appeal held that a duty of care existed between the owner and the f
inance company, but that there was no breach of that duty because she knew the d
ealer and reasonably believed him to be respectable, so that it was not negligen
t for her to sign the forms in blank. Moreover, two of the judges thought that,
even if there had been negligence, it was not the negligence of the owner but th
e fraud of the dealer which caused the loss. On the other hand, by analogy with
a case on the sale of land (Spiro v Lintern [1973] 1 WLR 1002), unreasonable beh
aviour by the owner in failing to correct a misrepresentation that the owner kno
ws has been made to the seller could create an estoppel, if the seller acts on t
he basis of the misrepresentation and suffers loss as a consequence. In Shaw v M
etropolitan Police Commissioner [1987] 1 WLR 1332, the Court of Appeal took a ra
ther narrow view of the use in s.21(1) of the word `sold' as meaning that the estopp
el principle did not apply where there was only an agreement to sell.
Activity 4.11
Why were Farquharson Bros not estopped from denying the title of the third party
in Farquharson Bros & Co v C King & Co [1902] AC 325 (Sealy and Hooley, pp.33536
)?
4.7.3 Sale under a voidable title
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.35355. By s.23, the buyer, who b
uys in good faith and without notice of any defect in the title of the seller, w
ill acquire good title if the goods are bought from a seller whose title is void
able but, at the time of the sale, it has not been avoided (Cundy v Lindsay [187
8] 3 App Cas 459; Sealy and Hooley, pp.32829).
page
There are many illustrations of a voidable contract familiar to students of the
law of contract. To take one example, in Kings Norton Metal Co Ltd v Edridge, Me
rrett & Co Ltd [1897] 14 TLR 98, a manufacturer of metal received an order from `H
allam & Co' and in consequence sent goods. It turned out that `Hallam & Co' did not ex
ist. The rogue resold the goods. It was held that the intention had been to cont
ract with the writer of the order, and, although this intention had been induced
by a fraudulent misrepresentation, that only made the contract voidable. Since
it had not been avoided before the goods were resold to a third party, title pas
sed to the latter. The first issue is whether property has passed from A (the or
iginal seller) to B (the rogue, who later sells the goods to C, the innocent buy
er). If it has not s.23 will not operate. Where property has passed to B, A is l
ikely to face some difficulty in avoiding the contract before title passes to a
third party. This can be done by notifying B, but where B is a rogue this may no
t be possible. In Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 (S
ealy and Hooley, pp.35455), it was held that if the rogue renders it impossible t
o make contact, the true owner need merely take such steps as the reasonable own
er would take to recover the goods. Caldwell, a car owner who had been the victi
m of fraud, informed the police and the Automobile Association. After doing thes
e things, the car was sold by the rogue to a car dealer. The dealer had had prev
ious dealings with the rogue, which ought to have enabled them to infer that thi
s transaction was fraudulent. The dealer then sold the car to a finance company,
who bought in good faith and without notice. The Court of Appeal concluded that
the dealer was not an agent of the finance company so that the latter did not h
ave the dealer's knowledge, but that Caldwell had done sufficient to avoid the con
tract by informing the police before the sale to the dealer. The value of this d
ecision has been restricted by Newtons of Wembley Ltd v Williams [1965] 1 QB 560
(Sealy and Hooley, pp.36263. Two of the judges who sat in Caldwell also heard th
is appeal), where it was held that, even if the owner avoided the contract befor
e the resale, title passed because the rogue was a buyer in possession and the s
ale was made in the ordinary course of business of a mercantile agent, that is,
at a market for used cars (see s.25(1); section 4.7.5 below).
4.7.4 Seller in possession
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.35559. This is where A, the sell
er, having sold the goods to B, then sells the same goods to C. If property has
passed to B, but the seller is still in possession of the goods or documents of
title to the goods, and the seller sells them to C, who purchases in good faith
and without notice of the sale to B, this second transaction passes title to C.
B has only an action for breach of contract against the seller (s.24. Section 8
of the Factors Act 1889 is almost identical). Possession includes where goods ar
e not in the physical possession of the seller, but are under their control: for
example, goods held by a warehouse owner to the order of the seller. The seller's
possession does not have to be in any particular capacity or even lawful: Ìt is
sufficient if he remains continuously in possession of the goods that he has sol
d to the purchaser' (Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972
] 1 QB 210, Lord Denning MR). Lord Denning thought the section might not apply w
here the seller's possession had not been continuous (also, Pacific Motor Auctions
Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867; Sealy and Hooley, pp.
35658. But Bridge (1998), pp.45759). For the second buyer to acquire good title, t
he seller must deliver possession of the goods or documents of title: merely con
tracting a second sale is not sufficient to give title to the second buyer. In M
ichael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514, machinery was sold to a f
inance company and leased back to the seller, who then sold it to a second finan
ce company and leased back; at all times the machinery remained in the possessio
n of the seller, but it was held that the seller's acknowledgement to the finance
company that the machines were being held on its behalf amounted to a delivery.
By `documents of title' is meant those documents ùsed in the ordinary course of busin
ess as proof of the possession or control of goods, or authorising or purporting
to authorise, either by indorsement or delivery, the possessor of the document
to transfer or receive goods' (s.61(1), see also Factors Act 1889, s.1(4). See Sea
ly and Hooley, pp.35859). Note SGA gives the seller the right to resell goods and
pass property to the new buyer where the seller retained possession and the pri
ce has not been paid by the original buyer (see 6.2).
page
4.7.5 Buyer in possession
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.35968. In this situation it is t

he buyer who has acquired possession of the goods and sells to a second buyer. W
here a person having bought or agreed to buy goods
obtains, with the consent of the seller, possessi
on of the goods or the documents of title
to the goods, the delivery or transfer by
that person, or by a mercantile agent acting for
him, of the goods or documents of title, under
any sale, pledge, or other disposition thereof, to
any person receiving the same in good faith and
without notice of any lien or other right of the
original seller in respect of the goods, has
the same effect as if the person making the delivery
or transfer were a mercantile agent in possessi
on of the goods or documents of title with
the consent of the owner. (s.25(1)) Section 9 of the Factors Act 1
889 is similar (but see DF Mount Ltd v Jay & Jay (Provisions) Co Ltd [1960] 1 QB
159; Sealy and Hooley, pp.36567). The goods or documents of title (4.7.4 above)
must have been obtained under a sale or agreement to sell (`bought or agreed to bu
y'), so a void contract is insufficient, as is acquisition as a bailee or under a
hire-purchase contract or under a sale or return agreement (s.18, rule 4). The p
rovision that the transaction will have `the same effect as if the person making t
he deliverywere a mercantile agent' means that the buyer in possession is placed in
the position of a mercantile agent and the second buyer must show that the sale
was in the ordinary course of business of a mercantile agent (Newtons of Wemble
y Ltd v Williams [1965] 1 QB 560; Sealy and Hooley, pp.36163. On mercantile agent
s see section 2.2.2 above). The words `with the consent of the owner' at the end of
s.25(1) prevent the nonsense of a thief starting the whole chain of events and s
till passing good title. There can only be a buyer in possession where possessio
n of the goods or documents of title has been obtained with the consent of the o
wner (National Employers' Mutual General Insurance Assocn Ltd v Jones [1990] 1 AC
24; Sealy and Hooley, pp.36364). Yet, it matters not how that consent was obtaine
d fraud is enough even though this may amount to theft (Pearson v Rose & Young L
td [1951] 1 KB 275; Sealy and Hooley, p.346). On the meaning of `disposition' in s.2
5(1), see P4 Ltd v Unite Integrated Solutions plc [2006] EWHC 2640 (TCC).
page
4.7.6 Sale under the Factors Act 1889, s.2
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.34252. Merely being in possessio
n of goods or documents of title does not, in itself, amount to a representation
that the possessor has authority to sell those goods and to pass good title (se
e 4.7.2 above). However, where the person in possession is a factor (now normall
y called a mercantile agent), the buyer may acquire good title. A mercantile age
nt is an agent who is entrusted with the possession of goods or documents of tit
le to goods and who is allowed to dispose of them, either in the agent's own name
or as a principal (see 2.2.2 above). Under Factors Act 1889, s.2(1), a sale, ple
dge, or other disposition shall be as valid as if expressly authorised by the ow
ner of the goods where all the following are present:
The disposition is by a mercantile agent (Jerome v Bentley [1952] 2 All ER 114;

Sealy and Hooley, p.330). The mercantile agent is in possession of goods or of t
he documents of title to goods with the consent of the owner (see s.2(2), (3)).
The owner must have specifically consented to the person having possession in th
eir capacity as mercantile agent and not in some other capacity (for example, ha
nding over goods for repair). Consent is given even though obtained by deception
(Folkes v King [1923] 1 KB 282; Sealy and Hooley, p.349). It might plausibly be
suggested that such consent is not consent at all, but the courts have tended t
o protect the innocent third party in such situations (but Pearson v Rose & Youn
g Ltd [1951] 1 KB 275). Once consent has been given it continues, in spite of th
e owner terminating such consent, unless the person dealing with the agent has n
otice of that termination (s.2(2)). The problem for the buyer is to know in what
capacity the agent received possession of the goods. As in this whole area of n
emo dat, we are confronted with Denning LJ's competing principles of public policy
outlined in Bishopsgate Motor Finance Corporation (4.7.1 above). The dispositio
n is made when acting in the ordinary course of business of a mercantile agent.
The person taking under the disposition must have acted in good faith and that a
t the time of disposition must not have had notice of the mercantile agent's lack
of authority (Heap v Motorists' Advisory Agency Ltd [1923] 1 KB 577; Sealy and Hoo
ley, pp.35152).

Activity 4.12
Why did the buyer in Pearson v Rose & Young Ltd [1951] 1 KB 275 not acquire good
title to the car? Note: you will need to read the case to answer the question.
4.7.7 Motor vehicles let under hire purchase
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.36869. Part III of this act (sub
stantially re-enacted by the Consumer Credit Act 1974, schedule 4) means that a
private purchaser obtains title where they acquire a motor vehicle for value and
without notice from someone who is in possession under a hire-purchase or condi
tional sale agreement.
4.7.8 Powers of sale and resale
Essential reading
Sealy and Hooley, Chapter 9: `Transfer of title', pp.352 and 368. Section 21(2)(b) p
rovides that nothing in the Act affects `the validity of any contract of sale unde
r any special common law or statutory power of sale or under the order of a cour
t of competent jurisdiction.' This retains powers of sale granted to pledgees, bai
lees, innkeepers, pawnbrokers, liquidators and others, which enable them to pass
title to the buyer. See Chapter 6 section 6.2.6, which discusses the seller's rig
hts of resale where the buyer has failed to pay.
page
Activity 4.13
What general principle applies where someone acquires goods from a person who is
not their owner?
Useful further reading
Bridge, M. Personal property law. (Oxford: Oxford University Press, 2002), pp.11
536.
Summary
The general rule is that a buyer cannot acquire a better title than that of the
seller. This rule can be overridden in particular situations where someone, who
takes in good faith and for value without notice, will acquire good title and wi
ll, therefore, be able to resist the claims of the original owner. It must be em
phasised that these are narrow exceptions and that, on the whole, the courts hav
e had greater regard for the general rule.
page 0
Reminder of learning outcomes
By this stage you should be able to:

discuss the approach taken to interpretation of the Sale of Goods Act analyse th
e components of the definition of a contract of sale explain the circumstances i
n which property in goods is passed identify how risk is passed understand the n
emo dat rule discuss and illustrate the exceptions to the nemo dat rule.
Sample examination question
Ìn the development of our law, two principles have striven for mastery. The first
is for the protection of property: no one can give a better title than he himse
lf possesses. The second is for the protection of commercial transactions: the p
erson who takes in good faith and for value without notice should get a good tit
le.' (Denning LJ) Discuss. Advice on answering the question Many st
udents would tackle such a question by explaining the nemo dat rule in s.21(1) a
nd then listing the exceptions in the Act and the Factors Act. While you would c
ertainly get credit for this, it is important always to address the question ask
ed and here the question does not ask for a straightforward list. What is being
sought is a discussion of Denning LJ's view that there is a battle between these `tw
o principles'. Thus, better candidates will go beyond a mere list of the rule and
its exceptions and consider other matters. You need to show an understanding of
the issues underlying this area of law. What is the law seeking to achieve? Why
do these rules exist in this form? Do they achieve their objective(s)? It is by
engaging in analysis that you will demonstrate the thorough understanding of the
law which will enable you to obtain higher marks. You might tackle this questio
n by looking at the following questions. What are the two principles? Is Denning's
view of the relationship correct, or was Lord Goff closer to the truth when he
said that those sections in the Act that followed s.21(1) àppear to be minor exce
ptions to that fundamental principle' (National Employers' Mutual General Insurance
Assocn Ltd v Jones [1990] 1 AC 24)? Do the exceptions undermine the nemo dat pri
nciple too much? Is the nemo dat principle too rigid? Why has parliament (and th
e courts?) given protection to (a) the owner and (b) the interests of innocent t
hird parties? Has there been a shift in favour of the latter and, if so, why has
this happened (again see Denning LJ)? How is the balance to be struck between t
he interests of the owner of the goods and those of the innocent third party? Wh
at problems exist in this area and what reforms might be suggested? What do we m
ean by `discuss'? A discussion between two friends is different to the meaning of th
e word in an exam questions. Write down your thoughts in your Skills portfolio.
page 1
Reflect and review
Look through the points listed below: Are you ready to move on to the next chapt
er? Ready to move on = I am satisfied that I have sufficient understanding of th
e principles outlined in this chapter to enable me to go on to the next chapter.
Need to revise first = There are one or two areas I am unsure about and need to
revise before I go on to the next chapter. Need to study again = I found many o
r all of the principles outlined in this chapter very difficult and need to go o
ver them again before I move on. Tick a box for each topic. Ready to move on I c
an discuss the approach taken to interpretation of the Sale of Goods Act. I can
analyse the components of the definition of a contract of sale. I can explain th
e circumstances in which property in goods is passed. I can identify how risk is
passed. I can understand the nemo dat rule. I can discuss and illustrate the ex
ceptions to nemo dat rule. Need to revise first Need to study again
If you ticked `need to revise first', which sections of the chapter are you going to
revise? Must revise 4.1 4.2 4.3 4.4 4.5 4.6 4.7 The Sale of Goods Act What is a
contract of sale of goods? Components of the sale contract Passing of property
Risk Perishing of goods and frustration of contract Transfer of title Revision d
one

Sale of Goods

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4 Sale of goods: contract, property and risk

Note: the Sale of Goods Act 1979 is

Commercial law 4 Sale of goods: contract, property and risk

Emblement = `the profits of sown land', particul

Commercial law 4 Sale of goods: contract, property and risk

Nemo dat quod non habet (Latin): `No-one (can) give

Sealy and Hooley, Chapter 9: `Transfer of title', pp.35968. In this situation it is t

The disposition is by a mercantile agent (Jerome v Bentley [1952] 2 All ER 114;

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