Topic 4 – Passing of property and risk under sale of goods contracts Flashcards
1
Q
What determines when property in goods passes under the Sale of Goods Act 1979?
A
Property passes when the parties intend it to pass, as determined by s.17(1) of the SGA 1979.
2
Q
What factors are affected by the passing of property in a sale of goods contract?
A
Risk allocation, contract frustration, the seller’s right to claim payment, and possible insolvency of a party.
3
Q
When does risk pass to the buyer in B2B sales?
A
Risk follows property, meaning the buyer bears the risk once property passes, s.20(1) SGA 1979.
4
Q
What is the general rule for the passing of property in specific goods?
A
Property passes when an unconditional contract is made for specific goods and the goods are in a deliverable state, unless the parties agree otherwise (s.18, Rule 1).
5
Q
Under what circumstances does property pass under Rule 2 of s.18, SGA 1979?
A
Where something must be done to the goods to put them in deliverable state, property does not pass until that thing is done and the buyer has been notified.
6
Q
How does Rule 3 of s.18 SGA 1979 affect the passing of property?
A
If the price must be determined by the seller before property passes, it transfers once the price is determined and the buyer is notified.
7
Q
What happens if the seller delivers goods on ‘sale or return’?
A
Property passes when the buyer signifies approval, adopts the transaction, or fails to reject within a reasonable time (s.18, Rule 4).
8
Q
When does property in unascertained goods pass under the SGA 1979?
A
Property in unascertained goods passes only when they are ascertained (s.16, SGA 1979).
9
Q
What does s.18, Rule 5 of the SGA 1979 state about unascertained goods?
A
Property passes when goods are unconditionally appropriated to the contract.
10
Q
How can unascertained goods become ascertained under the SGA 1979?
A
By segregation, exhaustion, or specific appropriation to a contract.
11
Q
What is the impact of the Sale of Goods (Amendment) Act 1995 on bulk goods?
A
It introduced s.20A and s.20B, allowing buyers who have paid for part of a bulk to become owners in common.
12
Q
What conditions must be met for s.20A to apply?
A
The buyer must have paid for part of an identified bulk of goods. He acquires an undivided share and becomes an owner in common of the bulk.
13
Q
What is the default rule regarding risk in consumer sales under the CRA 2015?
A
Risk passes when goods come into the buyer’s physical possession, s.29(2), CRA 2015.
14
Q
What are the exceptions to the general rule that risk follows property?
A
Contractual agreements, fault-based liability, bailee negligence, and carriage contracts under s.32 SGA 1979.
15
Q
How does s.49 SGA 1979 affect the seller’s right to claim payment?
A
The seller can only sue for the price if property has passed to the buyer.
16
Q
Why is s.16 of the SGA 1979 significant for unascertained goods?
A
It prevents property from passing until the goods are ascertained, avoiding uncertainty in ownership.
17
Q
What principle was established in Wait & James v Midland Bank (1926)?
A
Unascertained goods can become ascertained by exhaustion.
18
Q
How does Re London Wine (1986) illustrate the importance of ascertainment?
A
Buyers could not claim ownership of wine they purchased because it was not segregated
19
Q
What reform did the Law Commission propose for consumer prepayments?
A
Ownership should pass at contract formation for specific goods, and at identification for unascertained goods.
20
Q
What effect does an agreement for retention of title have on the passing of property?
A
Property does not pass until the conditions specified in the agreement are met.
21
Q
How did Kulkarni v Manor Credit (2010) interpret ‘deliverable state’?
A
A car delivered without number plates was not in a ‘deliverable state. Thus, property had not passed.
22
Q
How does Underwood v Burgh Caste Brick (1922) apply to deliverable state?
A
A machine fixed to the floor was not in a deliverable state, so property had not passed.
23
Q
What is an example of unconditional appropriation under s.18, Rule 5?
A
Delivery ‘to the buyer or to a carrier or other bailee or custodier… for the purpose of transmission to the buyer’ where the seller ‘does not reserve the right of disposal…’, s.18, Rule 5(2).
24
Q
What is the key principle in Carlos Federspiel v Twigg (1957)?
A
Merely setting aside goods for a contract does not constitute unconditional appropriation.
25
How does Re Stapylton Fletcher (1995) modify Re London Wine?
Segregating the wine by moving the bottles to a different warehouse and storing them by type and vintage after being sold meant they were ascertained, even though not marked for individual customers. Thus, property passed to the buyers.
26
What is the relevance of Demby Hamilton v Barden (1949) to risk allocation?
A party at fault for loss bears the risk, even if property has not passed.
27
What does s.20B SGA 1979 state about shared bulk ownership?
Each owner in common consents to the other owners taking delivery of, or dealing with, their share.
28
What is the difference between 'sale or return' and conditional sales?
'Sale or return' involves an offer that the buyer can reject, while conditional sales transfer ownership subject to conditions.
29
What determines a ‘reasonable time’ for rejection under Rule 4?
Market conditions, depreciation, and the nature of the agreement, as in Poole v Smith's Car Sales (1962).
30
How did Atari v Electronics Boutique (1998) clarify rejection rules?
Goods could still be rejected even if their identity and quantity were not immediately clear and even if they were not immediately available.
31
What is the ‘bulk’ definition under s.61 SGA 1979?
Bulk ” means a mass or collection of goods of the same kind which—
(a) is contained 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.
32
How does The Elafi (1982) extend Wait & James?
Bulk goods can be ascertained even if sold to multiple buyers through intermediaries. At common law, unascertained goods could be ascertained by exhaustion, Wait & James v Midland Bank (1926), now codified in s.18, Rule 5(3). The extension of Wait & James to situations where the buyer acquires through more than one contract from the bulk in The Elafi (1982) is codified in s.18, Rule 5(4).
33
What are the implications of s.18B CRA 2015 for consumer contracts?
Ownership transfers to the consumer once goods are physically labeled, set aside, or altered.
34
How does Quadra Commodities v XL Insurance (2022) interpret ‘bulk’?
A site with multiple warehouses may be a ‘defined area’ if agreed by parties.
35
Why was s.20A SGA introduced?
To protect buyers from seller insolvency by giving them an interest as owner in common in bulk goods.
36
What is the effect of Re Wait (1927) on equitable ownership?
Equity could not intervene in ownership disputes because the SGA is a complete code
37
What role does s.32 SGA 1979 play in risk transfer?
If the seller arranges carriage, risk transfers upon delivery to the carrier.
38
How did Hendy Lennox v Puttick (1984) establish appropriation?
Serial numbers on invoices and delivery notes showed an intent to appropriate goods.
39
How does s.18 Rule 5(3) protect buyers from bulk insolvency?
If a bulk of goods is reduced to (or to less than) a quantity under contract to some buyer, ownership passes automatically to that buyer since ascertainment occurs at the point of reduction.
40
How does mutual assent affect passing of property?
Assent can be inferred from silence, as in Pignatoro v Gilroy (1919).
41
What is the effect of s.20A(2) SGA 1979 on buyers of bulk goods?
Buyers who have paid for part of a bulk become owners in common of the bulk.
42
How does s.20A(3) determine a buyer’s undivided share in a bulk?
A buyer's share is proportional to the amount they have paid compared to the total bulk quantity.
43
How does Re Goldcorp Exchange Ltd (1995) relate to passing of property?
The court held that property does not pass unless goods are ascertained, reaffirming s.16 SGA 1979.
44
What is the relationship between s.20A and insolvency protection?
Buyers of a bulk gain a legal interest in the goods, offering some protection if the seller becomes insolvent.
45
How does s.5(3) SGA 1979 affect contracts for future goods?
A contract for the sale of future goods is treated as an agreement to sell, meaning property does not pass until the goods exist.
46
What is the significance of Healey v Howlett & Sons (1917) for risk allocation?
Risk remains with the seller if unascertained goods are damaged before being appropriated to a contract.
47
Under s.32 SGA 1979, when does risk pass in a contract requiring carriage?
Risk passes when the goods are delivered to the carrier, unless the seller has retained responsibility for them.
48
How did the Law Commission’s 2021 report propose to reform ownership transfer in consumer contracts?
It recommended that ownership pass when goods are physically labeled, set aside, or altered for the consumer.
49
What does s.18, Rule 5(4) state about bulk goods and ownership transfer?
If an entire bulk is sold to one buyer, property in the goods is treated as passed even if they move through intermediaries.
50
Why was the Sale of Goods (Amendment) Act 1995 introduced?
To address unfairness caused by s.16 SGA 1979, ensuring that buyers of bulk goods could claim an interest even if goods were unascertained.
51
What are rights in rem, rights in personam ad rem, and rights in personam ?
1. A right in rem is a right against an identifiable asset. 2. A right in personam ad rem is a right against a person that involves the potential acquisition of some property. 3. A right in personam is a right against a person.
52
What are the three main forms of real (in rem) rights?
Ownership, possession and equitable charge (hypothecation).
53
In this context, what is an equity?
A qualification of another's in rem right.
54
How has the distinction between real and personal rights been eroded?
By equitable remedies, such as the trust, and the principle that what ought to be done is done.
55
What is ownership?
The residue of legal rights in an asset remaining in a person after specific rights over the asset have been granted to others, Honore (1961). This residue of rights is an absolute interest.
56
What is an interest in an asset?
The set of rights enjoyed by one party over others.
57
What is title?
The strength of an interest relative to the interest of others.
58
In what case did the Court of Appeal rule that a person has good possessory title even though the asset in their possession may possibly have been stolen?
Costello v Chief Constable of Derbyshire Constabulary (2001).
59
What is the maximum number of titles that can exist in a quantity of goods? And what are those?
Two. Title of ownership and possessory title.
60
What is absolute ownership?
Where an indefeasible title to an absolute interest exists?
61
What is an example of an indefeasible title to a less than absolute interest, i.e. a limited interest.
Where an asset is held under a rental agreement, i.e. the renter (a bailee) has legal possession of the goods, which is an indefeasible title to a limited interest.
62
What is an example of relative title to an absolute interest.
A bailee who unlawfully assumes ownership by offering goods for sale. His title is ineffective against the bailor but effective against others.
63
Can legal title to chattels be split, i.e. can a lesser title be carved out of a legal title?
No. Under English law, legal title to chattels (i.e. personal property or goods) is indivisible. Unlike land, where legal estates such as leaseholds can be carved out of a freehold, only one legal title can exist in a chattel at any given time. You cannot create a lesser proprietary estate in goods akin to a leasehold interest in land.
64
But what about a person who rents or hires goods — don’t they have some kind of title?
A person who hires goods has a possessory title, which is a right to possess the goods lawfully under a contract of bailment. This gives them a legal right to possession that is enforceable against third parties (except the true owner), but it is not a proprietary interest carved out of the owner's title. Legal ownership remains undivided and with the bailor (the owner).
65
So is possessory title a form of ownership?
Not in the strict proprietary sense. Possessory title is a right recognized at law, based on lawful possession rather than ownership. The bailee (e.g. a renter) can even sue for wrongful interference with the goods (as seen in The Winkfield [1902]), but this does not mean they hold a split or derivative legal estate in the chattel.
66
How does a tenancy in common of chattels differ from a tenancy in common of land?
A tenancy in common of goods can be a legal tenancy, while in land law a legal tenancy in common cannot exist.
67
Can there be any divided ownership in property?
Yes. Equitable title to property, both land and chattels, allows divided ownership. One party holds the legal title; the other has a beneficial interest.
68
How are interest and title to be distinguished?
An interest is the quantum of rights to an asset; title is the strength of that right against others.
69
Bill owns goods that are held by Benny, a warehouseman. Benny physically stores the goods and confirms in writing that he holds them on behalf of Bill. Who has actual possession, who has constructive possession, and what would be required to transfer constructive possession to a third party like Paul?
Benny has actual possession, as he physically stores the goods. Bill has constructive possession, as Benny acknowledges holding the goods on his behalf.
To transfer constructive possession to Paul, two steps are needed:
Bill must sell or assign the goods to Paul.
Benny must attorn to Paul—i.e., acknowledge that he now holds the goods on Paul’s behalf.
This creates constructive delivery without the need to physically move the goods.
70
Benny transfers physical custody of goods to Tom. Bill claims to have bought the goods and demands that Tom hold them for him. Tom refuses to acknowledge Bill. Does Bill have constructive possession? Explain.
No, Bill does not have constructive possession.
Although Benny transferred the goods to Tom, constructive possession requires the bailee (Tom) to attorn—i.e., to expressly or impliedly acknowledge that he holds the goods on Bill’s behalf.
Since Tom refuses to attorn, there is no effective constructive delivery and thus no constructive possession in Bill.
Tom retains actual and exclusive possession, and Bill’s rights may remain unperfected until Tom acknowledges him or possession is otherwise transferred.
71
In what three ways may goods be dealt with?
1. An outright disposition of the absolute interest. 2. A disposition of the absolute interest by way of mortgage. 3. The creation of a limited interest.
72
Does an agreement to transfer goods convey any proprietary interest as an agreement to transfer land would?
An agreement to transfer goods does not convey a proprietary interest in the goods in the same way that an agreement to transfer land does.
73
At law, what is the only way that a limited interest in goods can be created?
By possession, e.g. by pledge, rental, lease, other bailment, or in exercise of a lien.
74
What would be the status of a limited interest in goods that does not arise through possession?
An equitable interest.
75
What are the three kinds of documentary intangible?
1. Instruments, which are documents of title (DoT) to payment of money. 2. DoT to negotiable securities, e.g. bearer bonds and notes. 3. DoT to goods.
76
Does a document of title to goods, e.g. bill of lading, convey ownership of the goods?
No. A document of title to goods grants control that gives constructive possession.
77
What interests does a document of title to goods transfer?
A document of title to goods—such as a bill of lading or warehouse receipt—can transfer constructive possession of the goods and, depending on the context, may also transfer proprietary interests (ownership rights) in the goods.
78
What is the essential feature of a documentary intangible?
The debt or obligation is 'considered in law to be locked up in the document'.
79
What feature distinguishes a documentary intangible from a pure intangible?
With a documentary intangible, the obligor's performance is owed to the current holder of the document in exchange for its surrender.
80
What are the four elements of a consensual transfer of real rights in both tangible and intangible property?
1. The transferor must have title or the power to dispose. 2. He must intend to transfer. 3. The intention must be given effect by an act of transfer or agreement to transfer. 4. The property must be clearly identified in the transfer agreement.
81
What is an example of a conflict where two parties both claim an indefeasible title to an absolute interest? Who would be the two parties?
A HP agreement where the hirer sells the goods. The two parties would be the finance company and the buyer.
82
What is an example of a conflict where two parties both claim a defeasible title to an absolute interest? Who would be the two parties?
The owner mortgages the asset to two parties, first one and then the other.
83
What is an example of a conflict where one party claims title to the absolute interest and the other claims title to a limited interest? Who would be the two parties?
Where goods are deposited with a repairman. The owner has an absolute interest; the repairman has a limited interest: a lien on the goods for the cost of repairs.
84
What is “sheltering” in the context of English sale of goods law?
Sheltering refers to the principle that once a person acquires good title to goods—whether through full ownership or under an exception to the nemo dat rule—they can pass that good title to others, even if those others would not independently qualify under that exception.
85
What is the purpose of the sheltering principle?
It promotes commercial certainty and facilitates the free movement of goods. Once good title enters the chain, downstream purchasers can rely on it without having to investigate or qualify under exceptions themselves.
86
Is sheltering an exception to the nemo dat rule?
Not directly. It's not a standalone exception, but rather a consequence of someone having already acquired good title under an exception (like s.23 or estoppel). It allows that good title to be passed onward in normal commercial dealings.
87
Can a buyer shelter if the person they buy from didn’t have good title?
No. Sheltering only applies if the seller had good title. If the seller never acquired good title, then the buyer is subject to the nemo dat rule unless they qualify under an exception themselves.
88
How is the validity of a transfer of property affected by priority?
Since a transferee can acquire good title from a transferor without title, the issue becomes which of the parties has the stronger claim by virtue of priority.
89
If Jack sells goods to Jill and then, retaining possession, sells the goods to Jenny, what title does Jenny acquire?
Jenny acquires legal title, which overrides the title previously held by Jill.
90
Does Jenny acquire title from Jack or Jill or does some new interest arise?
Jenny acquires Jack's title.
91
Why is identification of the contract goods important?
Because property, possession, specific performance, conversion claims, and frustration all hinge on the goods being clearly identified.
92
What are “specific goods” under the Sale of Goods Act 1979?
Goods identified and agreed on at the time the contract is made, s.61(1) SGA.
93
What is the difference between specific and ascertained goods?
Specific goods are identified at contract formation; ascertained goods are identified later through appropriation.
94
Can quasi-specific goods be considered specific?
No, but they are treated similarly in many respects and are partially identified from an agreed source.
95
What are wholly unascertained goods?
Goods that are not linked to any agreed source at the time of the contract.
96
How are goods typically identified in contracts for unascertained goods?
By verbal description, samples, grades, or other specifications.
97
What is “appropriation”?
The act of setting aside goods to the contract with the other party’s assent.
98
Does appropriation always transfer ownership?
Not necessarily—it depends on the parties' intention.
99
What happens if excess goods are delivered?
Ownership depends on intent—either whole property passes with right to reject excess or only when buyer separates the correct quantity.
100
Can goods become quasi-specific after the contract is made?
Yes, by agreement or designation of the source of supply.
101
What is the core of a contract of sale in English law?
The transfer of property from seller to buyer, s.2(1) SGA.
102
What did Rowland v Divall establish?
That a buyer who receives no title means there has been a total failure of consideration, even where he has used the goods for a prolonged period.
103
Why is quiet possession not enough to protect a buyer in good faith?
Because possession does not shield a buyer from claims in conversion by a true owner.
104
What rights does a buyer have before property passes?
Only contractual rights, not proprietary or possessory ones.
105
When does risk usually pass to the buyer?
When property passes, unless agreed otherwise.
106
Can the seller sue for the price if property hasn’t passed?
Only if the price is payable on a day certain regardless of delivery.
107
How does a seller's insolvency affect the passing of property?
Without property passing, the seller retains title, and the buyer becomes merely an unsecured creditor.
108
Can a buyer sue a third party for conversion?
Only if the buyer had the right to possession—often linked to ownership.
109
What does “nemo dat quod non habet” mean?
One cannot transfer what they do not own.
110
What rights does a seller have if the buyer resells unpaid goods?
Potential tracing rights in common law or equity.
111
What was the issue addressed by the Sale of Goods (Amendment) Act 1995?
The prepaying buyer’s lack of property rights in unascertained bulk goods, which is now addressed by s.20A SGA
112
