#20306 - L2. Passing Of Property & Risk - Commercial Sales Law Lecture Notes

L2. Passing of Property & Risk

I. Classification of Goods

Understanding the type of goods is essential because it determines when legal ownership (property) and risk transfer from the seller to the buyer.

1. Existing vs. Future Goods

• Existing Goods: Goods owned or possessed by the seller at the time the contract is made.

• Future Goods: Goods to be manufactured or acquired by the seller after the contract is made (e.g., a ship yet to be built).

• Legal Consequence: Existing goods involve a "contract of sale" (executed), giving the buyer rightsin rem(against the item). Future goods involve an "agreement to sell" (executory), giving the buyer rightsin personam(against the person, such as for non-delivery).

2. Specific, Unascertained, and Ascertained Goods

• Specific Goods: Identified and agreed upon at the time the contract is made (e.g., "that specific laptop on the desk").

• Unascertained Goods: Generic goods not yet specified (e.g., "100 tonnes of wheat").

• Ascertained Goods: Goods that were unascertained at the time of the contract but are identified and agreed upon after the contract is made.

II. Passing of Property

The primary goal of a sales contract is to transfer "property" (legal ownership) from the seller to the buyer.

The General Rule: Intention

Property in specific or ascertained goods passes when the partiesintendit to pass. Intention is determined by looking at the contract terms, the conduct of the parties, and the circumstances. If intention is unclear, theSection 18 Rulesapply.

SGA Section 18: Default Rules for Passing Property

• Rule 1 (Specific Goods in Deliverable State): Property passes when the contract is made, even if delivery or payment is delayed. The contract must be unconditional.

• Rule 2 (Specific Goods requiring Work): If the seller must do something to put goods into a deliverable state (e.g., bagging coffee beans), property passes only when that act is doneandthe buyer has notice.

• Rule 3 (Specific Goods requiring Pricing): If the seller must weigh, measure, or test the goods to determine the price, property passes only when this is doneandthe buyer has notice.

• Rule 4 (Approval or Sale/Return): Property passes when the buyer signifies approval, performs an act adopting the transaction (like pledging the goods), or retains the goods beyond a fixed or "reasonable" time.

• Rule 5 (Unascertained or Future Goods): Property cannot pass until the goods areascertained. It passes when goods matching the description are "unconditionally appropriated" to the contract (irrevocably earmarked for the buyer) by one party with the assent of the other.

  • Delivery to a Carrier: Handing goods to an independent carrier for transmission to the buyer is usually considered unconditional appropriation.

  • Appropriation by Exhaustion: If a buyer purchases a portion of a bulk and the rest of the bulk is sold to others or destroyed, leaving only the buyer's portion, property passes by exhaustion.

Special Case: Co-ownership of Bulk (Section 20A)

Previously, buyers of goods in an identified bulk (e.g., 500 tonnes of wheat from a specific 1,000-tonne shipment) faced injustice if the seller went bankrupt before the goods were separated. Section 20A now allows a buyer who has paid for a portion of an identified bulk to become aco-ownerof that bulk.

III. Passing of Risk

"Risk" refers to the...