The Nature of Goods.pptx

Lectures discusses the classification of goods and passing of property and risk.

1. The Nature of Goods Lyla Latif

2. Content Covered

3. Class Exercise 1 Spare owns 140 greyhounds. He has kept them all in a warehouse which he converted into a doghouse. Ronaldo wants to pursue a new hobby: hunting hares in Nottingham. He sees an advert where Spare has advertised his greyhounds for sale. Ronaldo books a meeting with Spare at the doghouse. While at the doghouse, Ronaldo goes round inspecting all the 140 greyhounds and an hour later, Spare and Ronaldo walk to the nearest Café Nero which is 15 mins from the doghouse to agree on the sale. At the Café, Ronaldo informs Spare that he wants to purchase 7 greyhounds. Spare indicated that he would sell them for $700 each. They agree and Spare takes out a standard contract, writes down the names of the parties to the sale and the purchase price. While at the Café negotiating the contract, there happened to be a gas leak in the warehouse next to the doghouse. All 140 greyhounds were exposed to the gas and died. Spare and Ronaldo sign the contract and Spare is to deliver the 7 greyhounds in the evening. The dogs are no more. Ronaldo threatens to sue. Advice Spare.

4. Class Exercise 2 Nemr and Jasmine on their way to Laikipia in Kenya spot a 1-acre farm. They decide to purchase it. When drafting the contract for sale, their lawyer refers to the terms implied under the Sale of Goods Act. Grace and Kante are traders. Kante sells timber. When inspecting the timber at Kante’s farm, Khadija spots a fountain and is interested in purchasing it. The fountain has not been detached from the land. Can they refer to the Sale of Goods Act to govern their transaction? Abe designs murals specific to the request of his clients. Wambua asks him to draw Van Gogh’s ‘Starry Night’. Before beginning the work, Abe and Wambua want to draft their terms and conditions. Can they use SOGA? If no, why not?

5. LEGAL FORMALITIES IN THE FORMATION OF A CONTRACT UNDER SOGA, 1979 These are the essentials: There must be a transfer of property in goods (sec 2) Money consideration must be paid (sec 2) Parties must have the capacity to buy and sell (sec 3) The contract must either be in (a) writing, (b) oral, (c) partly in writing and partly oral and (d) implied by conduct (sec 4) Terms must be agreed on

6. Examples of cases where contracts have been implied by conduct : Parker v Taswell (1861) - defendant had been in possession of the plaintiff's goods for several months, and had made use of them, with the understanding that he would pay for them at a later date: possession of goods and payment over time can create an implied conduct . Hancocks Cash & Carry Limited v First Quench Retailing Limited [2010] EWHC 3104 (Ch), First Quench Retailing had placed orders for goods with Hancocks and received the goods but argued that no contract existed because no written agreement had been signed and no terms and conditions were agreed upon. Hancocks argued that an implied contract existed as First Quench Retailing had ordered and received goods and made payments for them. The court found in favor of Hancocks , stating that an implied contract existed between the parties: The court noted that the parties (1) had been carrying out transactions for an extended period of time and that (2) First Quench Retailing had ordered and (3) received goods from Hancocks on the basis that it (4) would pay for them. The court also noted that First Quench Retailing had (5) not raised any objections to the existence of a contract during the transactions. This case demonstrates that even in absence of written contract, if one party has ordered goods, received them and made payment, it implies that they accept the contract and therefore an implied contract may be established under the Sale of Goods Act

7. SPECIFIC AND UNASCERTAINED GOODS

8. Let’s consider some case law: Routledge v Grant (1828) 4 Bing 653: In this case, the court held that a contract for the sale of "a quantity of hops" was a contract for the sale of unascertained goods. Why? Because the hops had not yet been identified or selected at the time the contract was made, and the buyer did not have the right to take possession until the hops had been appropriated to the contract Re Guaranty Trust Co of New York [1919] 1 KB 627: This case involved a contract for the sale of "a quantity of wheat stored in the ship 'S.S. Alinda .'" The court held that the wheat was specific goods. Why? Because it had been identified and agreed upon by the parties at the time the contract was made. The buyer had the right to take possession of the wheat, and the seller had the obligation to deliver it. The Helena (No 2) [1962] 2 Lloyd's Rep 169: This case involved a contract for the sale of "a shipment of steel coils." The court held that the steel coils were specific goods, as they had been identified and agreed upon by the parties at the time the contract was made.

9. Principles for the determination of whether goods are specific or unascertained: Under SOGA 1979, there are different rules that apply to specific and unascertained goods. With specific goods, the Act provides that the risk of loss or damage to the goods passes to the buyer when the goods are delivered to the buyer. The rules for unascertained goods are slightly different. The risk of loss or damage to the goods passes to the buyer when the goods are identified and agreed upon by the parties. The principles of specific and unascertained goods have been discussed in several cases. In the case of British Celanese Ltd v. Regency Motors Ltd [1970] 1 QB 462, the court held that the risk of loss or damage to the goods passes to the buyer when the goods are identified and agreed upon by the parties. In the case of Roffey Bros & Nicholls (Contractors) Ltd v. The Council of the Borough of Worthing [1992] 1 AC 185, the court held that the risk of loss or damage to the goods passes to the buyer when the goods are delivered to the buyer , regardless of whether the goods are identified or unascertained. In the case of Short v Rothenberg [1935] Ch 183, the court held that the risk of loss or damage to the goods passes to the buyer when the goods are identified and agreed upon by the parties, even if the goods are not delivered to the buyer .

10. PASSING OF PROPERTY AND RISK Property is important because it determines who is the legal owner of the goods and who bears the risk of damage and loss of the goods. It is crucial to identify when during the performance of the contract of sale property is transferred to the buyer and also when risk is transferred to the buyer. When does property pass? Section 16: where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. Re Goldcorp Exchange Ltd: ‘buyer cannot acquire title until it is known to what goods the title relates.’ Property in goods only passes when goods are characterised as specific goods . Relatedly, risk passes with property. Therefore, it is important to understand the exact moment when property passes so as to establish with whom its risk also lies. When do unascertained goods become ascertained? Re Wait: when the goods are identified as the goods to be used in the performance of the contract. When they become specific. So at what point does property in the specific goods pass?

11. Class Reflection Exercises 1/2 Mariya walks into Abdul’s warehouse and picks up a vaccum cleaner which she can digitally control. She does not have the full amount to make the payment but promises Abdul that she will pay him in two weeks. Abdul agrees and allows her to take the vaccum on condition that if she doesn’t pay within two weeks, he will take away the vaccum and charge her user fees. On day 16 Abdul sells the vaccum to Thomas and rings Mariya to return the vaccum and charges her £180. Mariya comes with the purchase price and refuses to release the vaccum . To whom does the property in the vaccum belong to? And why?

12. Class Reflection Exercises 2/2 Tobias is a distributor of grain. He telephones Martha and asks her to deliver 200 bags of grain. Martha has a shipment due to depart for the port of Liverpool where Tobias will collect his 200 bags of grain. Martha dispatches 500 bags to Asli with instructions to release 200 bags to Tobias, 100 to Lily and 200 to Sainsbury Ltd. The grain arrive and are stored at a warehouse. Overnight, thieves break in and steal 300 bags of grain. In the morning Tobias, Lily and Sainsbury Ltd arrive and demand that the grain be released to them. Tobias argues that the 200 bags belong to him and him alone as he paid for the goods. Is Tobias correct?

13. When does property pass in ascertained goods

14. Rule 1:

15. Rule 1: case law Varley v Whipp : rule 1 applies to unconditional contract of sale - so when at the time of making a contract, S had not yet acquired ownership in the goods himself, it prevented the contract from being deemed as an unconditional contract of sale - where there is a retention of title clause, rule 1 cannot apply Underwood Ltd v Burgh Castle Brick & Cement Syndicate (1922): U sold an engine to B. It was to be delivered via rail. To transport the engine to the rail, it was bolted to a concrete flooring. At the rail before loading it was detached from the flooring and in the process the engine was damaged and B refused to accept it. U sued B. B argued that property in the engine had not at the date of the accident passed to B. CA: rule 1 not applicable, property had not passed - because U was bound to do something to put the engine in a deliverable state and he did not (place the engine safely on the rail) Re Anchor Line (Henderson Brothers) Ltd (1937): B wanted to buy a crane. He wanted its possession and control but was to pay its purchase price much later - 4-5 years later. In the meantime, he was to pay interest and depreciation. In the third year the buyer became insolvent. Purchase price had not been paid. Liquidator then sought to transfer B’s assets to a new company - this included the crane. S disputed this. He argued that the property in the crane had not passed to B and therefore liquidator could not transfer it to the new company. Court of first instance: property in crane passed from S to B under sec 18 rule 1 On appeal: sec 18 applied unless a different intention appeared - a different intention did appear: that property in the crane should not pass until the purchase was completed by payment of the entire price. Liquidator was bound to pay.

16. Rule 2:

17. Rule 3:

18. Rule 4:

19. Rule 4: case law Kirkham v Attenborough (1897): K was a jeweller. He delivered jewellery to B. B pledged some of it to A - pawnbroker. K sought return of the jewellery or its value. B by virtue of his act in pledging the jewellery, adopted the transaction within the meaning of rule 4. K could not recover from A since property had passed to B. Poole v Smith’s Car Sales Ltd (1962): Both were care dealers. Poole asked Smith to keep a car at its premises on a sale or return basis in August. P told S to sell if he could get £325. In Oct and Nov P asked S to return the car. S returned the car in Nov, damaged. P refused to accept and sued S for £325. CA: S was liable. Contract was of delivery on sale on return and there was no rejection of the property, it passed to S. Reasonable time had lapsed. Re Ferrier (ex p Trustee v Donald) (1944): D delivered furniture to F on a sale or return basis. D gave 1 week for returning goods if unwanted. F was in debt so 2 days after delivery, his creditors seized the goods. F was declared bankrupt and D recovered possession of the goods. F’s trustee in bankruptcy sought to reclaim the goods. Held: F had not retained the goods so property did not pass. D could retain the goods.

20. Rule 5:

21. Rule 5: case law Carlos Federspiel v Charles Twigg: Pearson J - it is not enough that the goods are set apart or selected by the seller - they must be unconditionally appropriated to the contract - bicycles had been packed and labelled but it was observed that the seller could still have changed his mind about which goods to use in performing the contract. ComCorp Ltd: CC ordered 20 bags of coal to be delivered to its office. Driver loads his van with 100 bags, 20 which are for CC and 80 for others. The 20 bags are placed together near the rear of the van. Property has not passed. It only passed when the 20 bags were placed in CC’s cellar. Re London Wine Co (1986): there must be an apparent intention to attach the goods irrevocably to the contract. This case concerned the purchase of wine for investment. Buyers bought wine and stored with seller for sale and profit. The seller made entries in his stock book and allocated each buyer an identification number. Seller then went into liquidation. Question arose on the ownership of wine, which belonged to whom? Held: impossible to determine this. No apparent intention to attach the goods irrevocably to the contract.

22. Unconditional appropriation What does unconditional appropriation mean? Section 18 gives us two instances of when goods are unconditionally appropriated to the contract: If seller delivers the goods to the buyer or a carrier for purposes of delivering to the buyer and the seller does not reserve the right of disposal - the seller is then taken to have unconditionally appropriated the goods to the contract. Sec 19 explains what reservation of right of disposal is. It basically means that property in goods will not pass until seller’s conditions are met by the buyer - even if goods have been delivered to the buyer . 2. Where there is a contract for the sale of: specified quantity of unascertained goods in a deliverable state forming part of a bulk which is identified in the contract or by subsequent agreement between the parties and the bulk is reduced to that quantity and if the buyer is the only buyer to whom the goods are then due out of the bulk the remaining goods are to be taken as appropriated to that contract at the time when the bulk is so reduced the property in those goods then passes to that buyer

23. Unconditional appropriation: case law Re Blyth shipbuilding and Dry Docks Company (1926) This was a contract for the building of a ship. Payment was to be made in instalments. First payment to be made at the signing of the contract, and thereafter as the construction progressed. Some payments were made and then the seller was declared bankrupt, and a receiver was appointed. The purchaser argued that property in the goods (materials for shipbuilding) had passed to him and sought their delivery from the receiver. He based his argument on a clause in the contract. Clause: once the purchaser makes the first payment to the builders, all materials and things appropriated for the construction of the ship becomes the absolute property of the purchases - subject to the lien of the builders of the unpaid purchase money. Court: Property in the partly constructed ship had passed to the purchasers BUT the property in the materials intended to be used to complete the construction of the ship had NOT passed - why? Even if the intention of the shipbuilders was to use those materials and those materials had been approved by the purchasers surveyor it had not been ascertained that those specific materials were to be used to the EXCLUSION of any others such that it could be said that those materials had been unconditionally appropriated to the contract. Pollock MR: when goods have been appropriated and brought to the site to be used in the vessel and NO OTHERS CAN BE SUBSTITUTED for them any change in those goods comes with an increased cost on the buyer they are the only goods which are to be used and if any misfortune happens, it falls on the purchaser Aldridge v Johnson: by putting the grain into the buyer’s sack, the seller had constructively delivered the goods   Hendy Lennox v Grahame Puttick Ltd: the fact that the buyer’s name had been put on the goods and the goods had been put aside was not enough to appropriate the good to the contract. What made them appropriated was the fact that the seller had sent to the buyer invoices with the serial number of the goods written on them.

24. Key points Sec 18: Rule 1-3 deal with passing of property in specific goods Sec 18: Rule 4 deals with goods supplied on approval Sec 18: Rule 5 deals with unascertained goods Sec 18 contain rules of presumed intention. If the parties intended that property should pass at a different time than under these rules then the parties intention prevail (sec 17).

25. Risk Joy contracts to sell a box of pomegranates to Lyla. After the contract is made, but before the pomegranates are delivered to Lyla, Tom steals the box and eats all the pomegranates. Does Lyla have to pay Joy? If Lyla has already paid Joy, will she be able to claim her money?

26. Risk The answer lies in the notion of risk. If the goods are at the buyer’s risk, he has to pay the seller. If the goods were at the seller’s risk, the seller bears the loss. He will also be required to find substitute goods to fulfil his contract with the buyer. Sec 20 (1): unless otherwise agreed , goods remain at the seller’s risk until the property in them is transferred to the buyer. When property is transferred to the buyer, the goods are at the buyer’s risk regardless of whether delivery is made or not. If delivery is delayed through the fault of either the buyer or seller, the goods are at the risk of the party at fault as regards the loss.

27. Next: Terms of the Contract