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What significance does the passing of property have in English law?
- Four points of significance
- Getting your goods in the event of insolvency
1) Generally arises where the seller is insolvent, and buyer has paid
If buyer can establish property in goods, they can take them
If not, they become another unsecured creditor
This happened in Carlos Federspiel
2) When buyer has taken delivery of the goods, but hasn't paid
Seller would much rather recover the goods themselves by asserting property right in the goods
This happened in Cheetham v Thornham Spinning
Sellers retained documents
For practical reasons it was more desirable for the buyers to store the goods in their warehouse, but Court held nevertheless they were still merely holding as bailees for the sellers
- 3) Bringing a tort claim
Depends usually on having some sort of proprietary interest in the goods at the relevant time
Either for damage to goods, or conversion
Relevant in Ciudad de Pasto and Filiatra Legacy
- 4) Seller's right to price
Can't bring an action for price if property hasn't passed
Will deal with this more fully in W8
Why do you want to claim for price?
Don't need to worry about remoteness, mitigation, don't need to establish loss
Colley v Overseas Exporters considered whether a seller could bring an action for price even though property had not passed
- Presumption that risk passes with property
Although this presumption is often rebutted
When does property pass?
- Property passes when parties intend for it to pass (S17 SGA)
o NOTE: most of our course concerns unascertained goods
For unascertained goods, property passes when goods matching contract description and in a deliverable state are unconditionally appropriated to the contract (S18 R5(1)
SGA) and ascertained (S16 SGA)
Unconditional appropriation = (1) appropriation and (2) payment
For specific goods, they are already appropriated (since they've been identified and appropriated by the contract of sale) (but not unconditionally, usually it'll be subject to the condition of payment)
o For both specific and unascertained goods, seller can reserve a right of disposal
1 -Why would seller reserve a right of disposal?
o (1) to secure payment and (2) finance (Smyth v Bailey, concerned CIF contracts, but can draw an analogy to FOB)
o General presumption that CIF seller will reserve right of disposal, until payment is made (Smyth v Bailey, The Delfini)
o S19(2): If by the bill of lading the goods are deliverable to the order of the seller or his agent, then there is a rebuttable presumption of a reserved right of disposal (Ciudad de Pasto)
Maybe use this for FOB contracts, and use Smyth v Bailey for CIF
Exceptions to right of disposal:
o (1) When buyer and seller are associated companies (Albazero)
No need to secure payment against each other
(2) When the buyers choose to give credit
E.g. Filiatra Legacy
Short voyage, payment was due 30 days from bill of lading date, so clearly parties had contemplated that the voyage would long be completed, and the oil used by the buyer, before payment obligation arose
Essentially the buyers gave credit
Thus the property passing prima facie rule was displaced by that
(3) When contract/parties' intention indicates otherwise
E.g. in the oil trade, common to say that property will pass on loading
In The Delfini, there was a common intention that delivery could be taken against a letter of indemnity from the buyer
So, even though there had been no payment against documents,
property still passedSUMMARY:
o For specific goods -
Property will generally pass when payment is made, even if this is before shipment (Benjamin's 19-099)
Although this is still subject to parties' intentions - there are good reasons why they may not want property to pass that early
For unascertained goods -
1) Goods must be ascertained (S16 SGA)
Subject to S20A exception for unascertained goods in an identified bulk
2) There must be unconditional appropriation (S18 R5(1) SGA) with the assent of the buyer
This requires appropriation + payment
Appropriation takes place at different times between FOB and CIF
contracts (see below)
Also payment is subject to exceptions noted above (e.g. associated companies)
Assent -> interpreted broadly, so long as the appropriation is done in a manner contemplated by the parties -> can be express or impliedWhen will there be appropriation?
o FOB -> Goods are usually appropriated in a FOB contract on shipment (it's usually the final act of physical performance -> Carlos Federspiel)
2 oCIF -> Can be on shipment, but also can be when a notice of appropriation is given,
which identifies the vessel and says, for e.g., the wheat in this hold
Unlikely that shipment will count as appropriation, because this would mean the seller is BOUND at that point to deliver those particular goods to the buyer
Usually there is an intention to preserve the seller's flexibility (e.g. if the goods turn out to be unsuitable, they can still procure goods on another ship to fulfil the contract)
But if there is no contrary intention, then shipment could still be the moment of appropriation
General rule is that property will not pass before shipment
There are commercial reasons for this
1) One problem is that risk prima facie stays with property (S20)
If property passes, then risk passes to the buyers
Buyers are unlikely to be protected by insurance prior to shipment
Don't really want to take out an insurance contract that covers the risk in the seller's country
They also have less control of the goods before shipment
But you could circumvent this by separating risk and property! Leaving risk with seller and passing property to buyer.
o 2) But even then, the seller would lose standing to sue, e.g. in tort
So let's say they pass the goods to someone to bring it down to port, and the person damages it
They will suffer loss (due to risk staying with them) but they will have no title to bring a claim!
o Can discuss in PQ - to demonstrate that parties will not normally intend property to pass before shipment
Will property pass against payment other than cash?
- Acceptance of seller's draft
Seller has sent a documentary bill, or a bill of exchange to which the B/L is attached,
for the buyer to accept
Yes -> this is considered to give the seller sufficient security for property to pass
But the mechanism we tend to use nowadays is a letter of credit
- Irrevocable letter of credit
Is the opening of such a IL/C enough to trigger passing of property? Other things being equal (e.g. goods are ascertained)
o It's a pretty solid basis for the seller to think they're getting paid
- Unlikely to suffice
1) The bank might become insolvent, unlikely but might happen
2) Also the point about raising money on goods
You haven't been paid yet, so you still want to have the option of raising money on the goods before you're paid
3) ALSO, the bank also has to pay out against the L/C if they receive conforming documents
If documents are not conforming in some way, bank can refuse to pay out
- How much payment is required?
In Ciudad de Pasto, payment of 80% of the price in cash was insufficient
NOTE: Ciudad was an FOB case, but can draw an analogy to CIF cases as well
- Applies to sale of a specified quantity of unascertained goods forming part of an identified bulk
Exists as an exception to S16: that unascertained goods must be ascertained before property can pass
- 1) Specified quantity
Must be a specified quantity of unascertained goods
Benjamin's 18-342 cites the example of "half the cotton to be shipped on the Peerless in October"
o This would be unascertained goods, but would not be a specified quantity - since the quantity contained in the bulk is unspecified, a fraction of it cannot be a specified quantity
- 2) Unascertained goods
NOTE: cite S61(1) SGA for definitions
Fractions or percentages of a specific bulk is considered specific goods
Fractions or percentages of a non-specific bulk (e.g. see above) is unascertained, but likely not covered under S20A
- 3) The bulk must be identified
Either in the contract or by subsequent agreement (S20A(1)(a))
- 4) Payment must be made
NOTE: payment -> requires actual cash payment
Thus, acceptance of seller's draft will not suffice
Although if the bank has actually paid (e.g. under the bill of exchange or seller's draft) then this will count as payment
NOTE: Benjamin's has argued that acceptance of BoE is normally sufficient to pass property so we should take a purposive view of 20A and include BoE under payment
But on a literal approach, this would not constitute payment
There is argument both ways
- 5) Under S20A(2), operation of S20A is subject to contrary agreement of the parties!
o The difficulty with using that is that that's quite a strong requirement
Would be rare to find express contrary agreement, but if there were, it would be an easy case
Contrast with S15A: "unless a contrary intention appears in, or is to be implied from,
o So the drafters here have intentionally made it more a difficult hurdle under S20A
- Benjamin's has argued that usually parties don't intend property to pass unless there has been full payment against documents
Therefore the proviso "unless parties otherwise agreement" in S20A(2) should bar the operation of S20A!!In a PQ, consider two issues 1) Does S20A(4) apply?
o This depends on the meaning of "undivided shares of buyers in a bulk"
o If you read it literally, it means only the shares of the buyers are counted
So in a case where 25% of the cargo is lost, and the buyer's shares amount to 75%, S20(4) is not triggered at all
This would imply that, applying S20(3), the buyers now each own 33% share of the new bulk 4 But one alternative reading would be to read it as "undivided shares of buyers AND
sellers" -> that way you avoid the problem of the sellers insuring the buyers
It would seem unfair for the seller's position to change drastically (by potentially hundreds of tonnes) depending on whether 1 more ton of potatoes or 1 less ton of potatoes were lost, so as to trigger the threshold 2) If S20A(4) is triggered, then are the shares of sellers and buyers reduced rateably?
o Bridge and Benjamin seem to argue yes oTrust Receipt
What dangers confront the bank which releases the documents to the buyer to enable the buyer to dispose of them and repay the bank?
- Insolvency risk
If you release the documetns to the buyer and the buyer goes bust, the you can't get money back
- Thus the answer of the bank is to use a trust receipt
Which you came across in Lloyds Bank v Bank of America
It basically makes the buyer hold the document on trust for the bank, with the bank authorising him to sell it for funds
Thus he holds the proceeds of the sale on trust
Thus even if the buyer goes insolvent, bank can assert its proprietary rights over the proceeds
- But there's another problem with this solution!
o It doesn't protect against the buyer's dishonesty
The buyer can, as in Lloyds Bank, re-pledge the B/L to a third party, that will then trigger a title conflict between the third party and our bank
Danger that the third party might win that title conflict, because that scenario might fall within S2(1) of the Factors Act
Sale by mercantile agent (since buyer is now acting as a mercantile agent of the bank, since the bank has authorised the buyer to sell the B/L on their behalf)
Provided, of course, that the 3P is acting in good faith and without notice
Although will be questionable whether this is in the ordinary course of business of the buyer to re-pledge B/Ls
Thus the bank in this scenario is subject to a new risk of the buyer dishonestly repledging the B/L
Is there anything the bank can do against this risk?
No - they can only insist on payment upfront
But it might be the case that the buyer needs to sell the goods before they can repay!5 S.G.A. ss. 16-20B, 21-26, 38-49
S16-20B (Transfer of property as between seller and buyer)
S16 - Goods must be ascertained
[Subject to section 20A below] (concerning unascertained goods forming part of a bulk) 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.
S17 - Property passes when intended to pass
(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.
S18 - Rules for ascertaining intention
(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made.
(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract.
(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 subsequent 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 are to 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 that buyer.
(4) Paragraph (3) above applies also (with the necessary modifications) where a bulk is reduced to (or to 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
S19 - Reservation of right of disposal
(1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are 6 fulfilled; and in such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.
(2) Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie to be taken to reserve the right of disposal.
(3) Where the seller of goods draws on the buyer for the price, and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange, and if he wrongfully retains the bill of lading the property in the goods does not pass to him.
S20 - Passing of risk
(1) Unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer's risk whether delivery has been made or not.
(2) But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault.
(3) Nothing in this section affects the duties or liabilities of either seller or buyer as a bailee or custodier of the goods of the other party.
S20A - Undivided shares in goods forming part of a bulk
(1)This section applies to a contract for the sale of a specified quantity of unascertained goods if the following conditions are met—
(a)the goods or some of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties; and
(b)the buyer has paid the price for some or all of the goods which are the subject of the contract and which form part of the bulk.
(3)Subject to subsection (4) below, for the purposes of this section, the undivided share of a buyer in a bulk at any time shall be such share as the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time.
(4)Where the aggregate of the undivided shares of buyers in a bulk determined under subsection (3) above would at any time exceed the whole of the bulk at that time, the undivided share in the bulk of each buyer shall be reduced proportionately so that the aggregate of the undivided shares is equal to the whole bulk.
S20B - Deemed consent by co-owner to dealings in bulk goods
(1)A person who has become an owner in common of a bulk by virtue of section 20A above shall be deemed to have consented to—
(a)any delivery of goods out of the bulk to any other owner in common of the bulk, being goods which are due to him under his contract;
(b)any dealing with or removal, delivery or disposal of goods in the bulk by any other person who is an owner in common of the bulk in so far as the goods fall within that co-owner's undivided share in the bulk at the time of the dealing, removal, delivery or disposal.
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