Lecture 10 – Sale of Goods (Part 2)
Transfer of property as between seller and buyer; risk; frustration; transfer of title
by a non-owner.
Reading:
Davidson and Others, Commercial Law in Scotland, 4th edn, p 9-23
Introduction
The provisions below apply to both non-consumer and consumer contracts unless expressly stated
otherwise.
Transfer of Property as Between Buyer and Seller
Under the 1979 Act the general rule is that property in goods (as ownership is described in the Act)
passes when the parties intend it to pass. s.17(1).
Establishing when property passes to the buyer maybe of the utmost importance especially where the
seller is declared bankrupt or goes into liquidation. If, at that moment in time, property has not passed
to the buyer, title will pass to the trustee in sequestration/ liquidator, even if the buyer has paid the
price, and the buyer will have to make a claim as an unsecured creditor.
If the goods are unascertained, subject to s 20A, no property in the goods passes to the buyer unless
and until the goods are ascertained (SoGA, s.16). although there is an exception to this rule in the case
of unascertained goods which are part of an identified bulk.
Where the goods are specific or ascertained, the property in the goods passes when the parties intend
the property to pass. For the purpose of ascertaining the intention of the parties the terms of the
contract, the conduct of the parties and the circumstances of the case will all be taken into account
(SoGA, s 17).
However, unless a different intention appears, s.18 sets out five rules which may be used to establish
the intention of the parties. For example, rule 1 says that where there is an unconditional contract for
the sale of specific goods in a deliverable state the property in the goods passes to the buyer when
the contract is made, and it is immaterial whether the time of payment or the time of delivery, or
both, be postponed.
These rules are discussed in Davidson et al, p 9-13.
Sales from an Identified Bulk
Undivided shares in goods forming part of a bulk
Section 20A applies where there is a sale of a specified quantity of unascertained goods from an
identified bulk. For example, 50,000 barrels of oil from a cargo of 500,000 barrels of oil in a particular
shipment.
The law has always proceeded on the basis that it is a logical impossibility to sell unascertained goods.
Thus, where for example, there is an agreement to buy a specified quantity of goods from a bulk cargo,
, no property could pass unless the goods being sold were removed from the bulk and thereby
appropriated to the contract, even where the goods were thereafter returned to the bulk.
The difficulty in transferring ownership in goods forming part of a bulk could cause problems in
insolvency situations, since if the seller went bankrupt or into liquidation if a company), the buyer
would lose out in a contest for the goods with a liquidator or trustee in bankruptcy. This would be the
case even if the buyer had actually paid for the goods. In such a case, the liquidator or trustee would
retain and resell the goods, leaving the buyer to pursue a claim as an ordinary creditor.
Thus, where the buyer has paid in advance for a specified quantity of goods which are part of a bulk
which has been identified by the parties, he acquires an undivided share in the bulk, and becomes an
owner in common property with the other buyers and/or seller.
For example, if the owner of a cargo of 3,000 tonnes of coal sells 1,000 tonnes to each of three buyers,
those buyers become owners in common of that cargo. Should the owner manage only to sell 1,000
tonnes to a single buyer before becoming insolvent, then he and the buyer become owners in common
of the cargo.
These provisions only apply where the parties do not provide otherwise. Also they only apply where
the parties have agreed that the goods are to be supplied from an identified bulk. A bulk is defined as
a mass or collection of goods of the same kind, which are contained in a defined space or area, and is
such that any goods on the bulk are interchangeable with any other goods therein of the same number
or quantity.
Moreover, they only apply when the buyer agrees to buy a specified quantity of goods from the bulk,
i.e. 1,000 tonnes from the bulk, but not one third or 20% of the bulk. A person purchasing a fraction
or percentage of an identified bulk would acquire an undivided share of the goods but would not be
subject to the provisions of ss.20A and 20B.
Finally, ss.20A and 20B only apply when the buyer has paid for the goods or at least some of them.
Part payment of the price for any goods is treated as payment for a corresponding part of the goods.
So if the buyer agrees to buy 1,000 tonnes of coal at £100 per tonne, and pays half the price in advance,
i.e. £50,000, he is treated as having paid for 500 tonnes.
Section 20A(3) states that the size of share which the buyer has at any time is such share as the
quantity he has paid for out of the bulk bears to the quantity of goods in the bulk at that time.
So, if the buyer has paid for 1,000 tonnes out of a 3,000-tonne cargo, he is entitled to a one third share
of the cargo. Equally, if the liquidator of the seller company has sold and removed a further 1,000
tonnes from the cargo leaving only 2,000 tonnes, then the buyer remains entitled to 1,000 tonnes.
Consequently, his shares oncrease to one-half.
On the other hand, s.20A(4) directs that if the aggregate of the shares of the buyer exceeds the size
of the bulk, the shares must be reduced proportionately. So if each of 3 buyers has bought and paid
for 1,000 tonnes out of a 3,000 tonne cargo, and it transpires that there are only 2,700 tonnes in the
cargo, the entitlement of each buyer, inter se, is reduced to 900 tonnes.
Ultimately, of course, a buyer will seek delivery of the goods due to him from the bulk. Where the
buyer has paid for only some of the goods due to him, and some are delivered to him, it is assumed
that the goods so delivered are goods for which he has paid.
