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Published: Fri, 02 Feb 2018

Ascertainment Of The Contractual Goods

Until the year 1995, which is the year Sale of Goods (Amendment) Act 1995, came into force, the purchasers of goods forming a part of bulk cargoes or bulk storage were at a high risk if the seller became insolvent. This was an outcome of insufficient statutory protection given by the Sale of Goods Act 1979. [1] The rules about passing the property are set in s 16 -19 and s 20 A-B of the Sale of Goods Act 1979 under ‘Transfer of property as between seller and buyer’. [2] S 16 of the Act is about the ascertainment of the goods, where as s 17 contains the basic rule which provides that property does not pass until the parties intend it to pass, s 18 sets out rules of presumed intention and s 19 reinforces s 17. [3] 

Section 17 and s 18 are subject to s 16 which states that:

[Subject to section 20A below] 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.

Thus R.Bradgate argues that ‘subject to s 20A, the rule in s 16 is absolute and cannot be excluded, even by agreement of the parties’ [4] . “A contract to sell unascertained goods is not a contract of sale but a promise to sell” [5] According to Section 16 of the Sale of Goods Act 1979 [6] no goods can be transferred unless and until the goods have been ascertained. Hence the purchaser doesn’t have proprietary interest in the goods he paid for and was merely an unsecured creditor for the return of the price. [7] Surprisingly both the terms ascertained and unascertained are not defined under the 1979 Act [8] , however in Atkin LJ in Re Waite [9] said that ascertained goods are unascertained goods which later become identified as the goods to be delivered to the buyer as a result of those goods becoming separated out and irrevocably earmarked for the buyer in accordance with the arrangement made after the time the contract was concluded. Hence no property is passed until the part sold is segregated from the remainder of the bulk or at the least ensure that the part sold could be easily identified. Passing of property under contract of sale of unascertained goods is governed by the fifth rule in s 18, which says:

‘Where there is a contract for the sale of unascertained or future goods by description, and goods of that description 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’

The rules in s 18 can be varied or excluded by the parties. However, they cannot contract out of the fundamental rule in s 16 that no property can pass until the goods are ascertained. The importance of s 16 is best illustrated in the case of Re Goldcorp Exchange Ltd [10] A company invited public to buy gold and other bullion as investment. A customer would pay for the bullion and receive a certificate of ownership. The customers were told that their bullions would not be set aside but would be alongside rest of the companies general stock, however the customers were also promised that the company would at all times have sufficient stock. The company became insolvent and the bullion in stock was claimed by the bank which took charge of the company’s assets. The customers claimed that they are entitled a share in the bullion. But they failed. They could not have a share in the bullion because their contracts were for the sale of unascertained goods and the contract left the company free to supply them for any source. The above case shows how important ascertainment of goods is in today’s commercial world.

S 16 of the Act [11] gave effect to some complex concerns. The first problem is that, the transaction between the seller and the buyer is completed and even the money is paid by the buyer but the sellers is still in possession of the goods, if at this stage the goods are separated from the rest of the bulk then the property is passed and id the goods were an unidentified part of the bulk then property is not passed according to S 16. [12] This has been illustrated in the case of Healy v Howlett and Sons [13] ; in this case the Plaintiff a fish exporter entered into a contract with the defendant fish salesmen, to sell to them twenty boxes of hard, bright mackerel which were to be sent to the defendant at Billingsgate. On the same day the plaintiff consigned by railway from Valentia to the plaintiff’s order in Holyhead 190 boxes of mackerel, and telegraphed instructions to the railway company at Holyhead to deliver twenty of the 190 boxes to the defendants, and of the remaining 170 boxes 20 and 150 to two other consignees respectively. After which the defendant sent an invoice by post to the plaintiff with the words “At sole risk of purchaser after putting fish on rail here.” Unfortunately the train which carried the mackerel has been delayed as a result the mackerel was not in a merchantable condition. It was Held, further, that, as there had been no appropriation of the twenty boxes to the defendants at Valentia and hence the property did not pass and the plaintiff could not recover the price from the defendants. The case of Healy v Howlett [14] is such cases where the outcome seemed fortuitous to the buyer rather than the seller.

The more worrying consequence of s 16 is that even though the buyer had thought that he had paid for the property and had obtained the property but in reality the property has not passed and he remains vulnerable to the risk of the sellers insolvency because the goods have not been ascertained. [15] This problem is probably most acute where part of a large cargo of goods was sold while they were at sea. [16] In Karlshamns Oljefabriker v Eastport Navigation Corp, [17] the plaintiff purchases 6,000 tons of copra. He received bills of landing for the 6,000 tonnes. The sellers shipped 22,000 tons of copra part of which was intended to the plaintiff and the rest of which was for other buyers. During the discharge about 825 tonnes of copra were damaged by water. It was held that the property could not have passed on shipment or on the transfer of bills of landing. The ship first stopped at Rotterdam and then at Hamburg, discharging the copra meant for other buyers. And hence it was clear that the copra left on board was destined for the plaintiffs. Mustill J in the above case said the at this point the property has been ascertained by the process of ‘exhaustion’. According to P.S.Atiya the problems at sea are more common in today’s world then they used to be, as the ships are bigger, cargoes bigger and buyers are buying proportionately smaller quantities. The buyers are ready to pay good money in exchange of bills of landing in the confident belief that bills give an unqualified right to the possession of the goods. [18] Re London Wine Co (Shippers) Ltd [19] is a case which is rather complicated because separate claims were made on behalf of different groups of buyers. This is a case where company which sold wine and retained the possession of the wine. The customers paid for the wine as well as the storage charges. The buyers were given a ‘certificate of title’ by the sellers but there was no physical segregation or actual earmarking of the wine which has been sold to different buyers. The wine company became insolvent and the receiver claimed that all the wine in the storage still belonged to the wine company. There re have been there groups of buyers and all three claims have failed because there has been no appropriation or ascertainment of the goods.

There have been a few possible solutions for the above discussed problems. The first s is when two or more buyers enter into separate contracts with the same seller. It can be said that the buyer of unascertained goods from a bulk is in a better position than of a buyer of a wholly unascertained goods, a buyer is better off to buy a specified share of the goods held in a bulk rather than a particular quantity, such an agreement would give rise to a ‘tenancy in common’. [20] In the case of Re Stapylton Fletcher Ltd [21] Wine merchants sold wine to the customers but retained in the store for the customers, the merchants maintained detailed records of wine bought by each customers and the customers wine was kept totally separate from the merchants own stock. The customers wine was not marked individually with the customers names but were stored in stacks by type and vintage. It was held that the wine was sufficiently ascertained for the property to pass when it was separated from the companies trading stock for storage. The above case appears to offer some innovative solutions for buyers in such situations. [22] The next one is that a buyer of the bulk could acquire a title by estoppel, where a person contracts to sell goods from the bulk represents that the goods have been set aside and the buyer relies on that representation then the seller may be estopped from denying the truth of his representation. [23] However the effect of estoppel will not gain the buyer a proprietary interest in the goods. Lastly it is possible for the goods to be ascertained by exhaustion, this has been seen in the case Karlshamns Oljefabriker v Eastport Navigation Corp [1983] 1 ALL ER 208(The Elafi) which has been discussed above. Mustill J says:

“Goods are sufficiently ascertained for the purpose of s 16 if one buyer agrees to buy the whole of a particular bulk, even though he acquires it through separate contracts or from different sellers: What is needed for ascertainment is that the buyer should be able to say ‘Those are my goods’; this requirement is satisfied if he can say; ‘All those are my goods’ ” [24] 

S 16 has proven to be problematic even in the case of agency, especially if it is case of undisclosed principal (P) instructs an agent (A) to buy goods on his behalf, difficulties may arise if the agent becomes insolvent. The buyer (B) believes that he is contracting with A, who intends the title to pass to B, who will become the owner of the goods. If it is a case where A is buying for P and makes sure that he does some act appropriating the goods to his contract with P like endorsing a bill of landing in P’s favour then the title passes immediately. Alternatively, if P has given A funds to make a purchase, P has an equitable interest, but in the absence of equitable interest, if A buys and intends the goods for himself, P would have no interest in the goods and his only option would be to sue A for breach of his Agency duties. If A is insolvent, this right may be worthless. [25] 

Even though s 16 has proven to be problematic for so long it makes one wonder why the government has not taken a move toward reform until the 1980’s. A lot has changed during the 1980’s in the commercial world. Speculative buying and selling of goods in bulk has increased drastically as a result the goods may have changed hands many times before the cargo ship reached its destination. These factors increased the sale of goods in undivided bulk also increased the chances of more buyers suffering losses as a result of the unreformed law. [26] It is obvious that the sale of Goods Act 1979 was not protecting the buyer who paid money for unascertained goods. Hence the Commercial Community developed a few precautionary measures. The buyers could contract to acquire risk of damage or loss of unascertained goods. This seems like a very unusual precaution at first but this could prove to be advantageous to the buyer in the following way if the buyer gain an insurable interest in the goods and if he takes out an appropriate insurance cover, if the seller now doesn’t deliver or becomes insolvent the buyer to recover his losses. [27] This happened in the case of Sterns Ltd v Vickers Ltd [28] .Another precaution is that the buyers could use the law of trusts to protect them. In the case of Re Kayford Ltd (In liquidation) [29] , in this case it was established that if the goods are paid for in advance and not appropriated to the contract the contract could be place in trust in a separate bank, if the buyer specified this in the contract. Tom Burns in his journal [30] mentions that these could be very expensive and time consuming processes. They would also require careful drafting and the contracts would be more complex and this would disrupt the rapid and efficient procedures to conclude bargains in the markets where there is fluctuating supply and demand and volatile price movements. Hence many traders did not follow the protective measures, thus there were not much significant case law and the flexible fashion in which the court interpreted the statues to helped reduce the calls for reform up until the 1980’s. [31] 

One of the first cases which caused concerns to the buyers was The Gosforth Case [32] . In this case a merchant ship called ‘The Gosforth’ was carrying a bulk cargo of citrus pellets to Rotterdam. The first buyer agreed to buy the cargo from the seller in order to resell them to a number of sub-buyers. The buyer even received a bill of landing for the unascertained goods but he did not pay for the goods in advance, the sub-buyers paid the buyer for their share each of them were given a delivery order. Even though this was a Dutch case the judges applied the Sale of Goods Act 1979 because English law was chosen as the choice of Law clause in the contract, and as a result gained great amount of publicity in Britain. After this case one of the trade associations asked the Law Commission for a reform.

The Law Commission came up with ‘Sale of Goods forming part of a bulk’ in which several recommendations were given. The Law Commission concluded that the English Law was far behind the commercial expectations and was thus to the law of other jurisdictions. The Commissions’ main recommendation is that where there is a contract for the sale of a specified quantity of unascertained goods, and the goods form part of an identified bulk, a pre-paying buyer should be able to acquire an undivided proprietary share in the bulk, notwithstanding section 16 of the Sale of Goods Act 1979, before ascertainment of the actual goods covered by the contract. They dint want to impose administrative burdens on insolvency practitioners responsible for administering property in the event of insolvency. [33] The essence of the Commission’s proposals was that a person who contracts to buy a specified quantity of goods from specified quantity of goods from a designated bulk source and who pays some or the entire price should become a tenant in common of the bulk. [34] The commission’s recommendations were accepted and were implemented by the sale of Goods (Amendment) Act 1995.

The Act does two main things, puts into statutory form the doctrine of ‘Ascertainment by exhaustion’ and it also enables the property of an undivided bulk to pass before ascertainment of the goods relating to the specific sale contract. [35] The doctrine of ‘Ascertainment by exhaustion’ is now confirmed by s1 of Sale of Goods (Amendment) Act 1995. The changes to s 20 of the Sale of Goods Act by adding the sections 20A and 20B are the most significant changes introduced by the 1995 Act. S 20A provides the rule for the passing of property undivided bulk where there is more than one buyer involved. For this section to apply three conditions must be satisfied, there must be a sale of specific quantity, the bulk must be identified and the buyer must have paid for some or all of the goods. Unless otherwise agreed the property in an undivided share passes as soon as the buyer paid for all or some of the goods, the buyer thus becomes an owner in common. [36] S 20B modifies the legal consequence of owning goods in common so as to enable trading in bulk. S 20B (1) (b) states that a deemed consent by co-owner to dealing in bulk goods is not required by another co-owner. The purpose in s 20B (2) is to protect liquidators and other persons who step into the buyers shoes on his insolvency. This section also states that delivery is deemed to be made on first come first serve basis.

T.Burns argues that that rules however don not alter the basic premise of the old Sale of Goods Act, namely the property only passes only when the parties intend it to pass [37] . Under s 20A (2) it is possible for the parties to agree that the property in the identified source shall not pass on payment. The parties may also disapply the new rules on ownership in common and regulate their obligations as co-owners in the event of a shortfall. This could be done by a creation of a mutual agreement scheme under s 20B 3 (b). [38] 

The question here is have the amendments made much of a difference to the commercial transactions? Have these amendments proved to provide sufficient protection to the buyers? Clearly s 20A and s 20B provide some protection to the buyers but R.Bradgate argues that its scope is limited, there is no protection for contracts for wholly ascertained goods and hence the buyers in Re Goldcorp would not be protected by these provisions. Since a sale from stock is generally not a sale from bulk there provisions hardly protect consumers. Taking into account the developments in distance selling, which rapidly developed due to e-commerce, there is pressing need to protect the consumers who pay prior to delivery. [39] These provisions also left a lot of questions unanswered like there is no solution when some of the goods in a bulk are damaged. The amendment Act doesn’t provide any specific rules on insolvency for buyers of undivided goods. If due to some unfortunate reason the seller goes insolvent leaving the last co-owner to absorb the losses, there is no statutory provision to spread the losses more evenly. The law Commission came up with three options, first was to provide prorate appropriation of goods to be administered by the office holder in insolvency of the seller, secondly a statutory monetary adjustment scheme between co-owning buyers and thirdly giving the courts wide discretionary powers to make equitable adjustments among the co-owners. [40] Once many insolvency practitioners and traders were concluded that these are expensive measures could cause difficulties in the trading community. There would also be uncertainty if the courts were left to decide the complex issues of equitable apportionment of losses. The commission therefore abandoned the proposals. [41] 

The new Act protects the buyers from a seller’s insolvency before the apportionment of bulk goods, but it does not talk about the consequences of what would happen if one of the co-buyers becomes insolvent or is unable to pay the debt. In English Law if the goods are in the hands of a third party or a debtor the goods may be seized under the writ of fiery ficias. In the case of Malcolm v Cook [42] it was held that the ship could be seized in order to secure the payment of the debt. Hence if the co-owned bulk is seized a creditor, then the remaining g co-owners are bound to suffer. The more the delay the more costly it is to the other co-owning buyers. The co-owners may also have to become involved in court proceedings to claim their goods. This shows that the buyer of undivided share in bilk goods may still face risks as a co-owner until the goods are appropriated and he receives his share in full. [43] 

One can now see how important it is to ascertain goods for the property to pass. The significance of s 16 is clearly seen in this essay. It is also evident that s 16 proved to be inadequate to meet the demands of the modern trade, which was causing several problems to the buyers and there had been serious pressure for reform, which gave birth to Sale of Goods (Amendment) Act 1995. The protection provided by this Act is not as effective as it should be. But then again one could argue that some protection is better than no protection at all. Commercial traders are quite happy that the Sale of Goods (Amendment) Act 1995 has modernised United Kingdom law and brought it into line with other jurisdictions. In conclusion, the Act has been criticised by many academics as it has proved to be inadequate to provide enough protection. There is a need for improvement as it been fifteen years since it has come into force and in today’s commercial market; especially with the rapid growth of e-commerce the consumers require more protection now than ever.

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