COMMERCIAL LAW

II
SRI LANKA LAW COLLEGE
(FINAL YEAR)

Mrs. Poornima Ranawaka

Attorney-at-Law, LLM-International Trade Law (University of Wales),CMA, Dip. in
International Compliance, PhD(Reading)
4. Transfer of Property-Ownership

 The phrase transfer of property in goods means transfer of

ownership of goods.

 The term property in the goods may be defined as the legal

ownership of the goods

 The expression transfer of property means the transfer of

ownership of the goods from seller to the buyer so as to
constitute the buyer the owner thereof.
According to Section 59 (1) of the SOGO,

 Property means the general property in goods and not merely a

special property.

 The rights and liabilities of the parties are linked with the transfer of
ownership.

1.Risk Follows ownership (Sec 21) (Risk passes with the ownership)-

Unless otherwise agreed the goods remain at the seller’s risk until the
property therein transferred to the buyer, but when the property
therein is transferred to the buyer the goods are at the buyer’s risk,
whether delivery has been made out or not.
 Risk passes to the buyer as the property in the goods passes to him.

 The risk of destruction or loss goods sold, falls on the buyer and not
on the seller though the goods may still be in the possession of seller.

 Accordingly, if after the contract, the goods are destroyed or

damaged, the question, who is to bear the loss is to be decided not
on the basis of possession of goods but on the basis of ownership of
goods. Because risk passes with transfer of ownership.
2.Action against third parties

If the goods are damaged by an action of a third party, it is only the

owner who can take action.
Right to proceed against a third party for destruction or damage to the
goods depends, not on possession but on the transfer of property.

3.Suit for price

The seller can sue for the price, unless otherwise agreed, only if the goods
have become the property of the buyer. That is the transfer of property
confers upon the seller the right to sue the buyer for the price.
The rules relating to the transfer of property are discussed in section 17-21
Section 17
Until goods are ascertained, no property of the goods can be transferred to the buyer. When
there is a contract for a sale of unascertained goods no property in the goods is transferred to
the buyer.

Property will not pass until goods are identified and specified after entering into the contract.

Section 18 (1)
When there is a contract for the sale of specific or ascertained goods…..>Property in them
transferred to the buyer at such time as parties to the contract intended them to be transferred.

Section 18 (2)
Intention can be ascertained by the ;
• Terms of the Contract
• Conduct of the Parties
• Circumstances of the case
Time when property passes/Rules of ascertaining the intention (Section 19)
Unless there is a different intention these are rules for ascertaining the intention of the parties
as to the time at which the property in the goods is to pass to the buyer.

Rule 1:
o Unconditional contract (No condition is imposed regarding the transfer of ownership of
goods)

o Sale of specific goods

o In a deliverable state (When the goods are in a deliverable state buyer would under the
contract be bound to take delivery of the goods immediately.) (Section 59 (4))

The property in the goods passes to the buyer when the contract is made.

**It is immaterial whether the time of payment or time of delivery or both postponed.
 Dennant vs Skinner & Collom (1948) 2 KB 164

Plaintiff sold a car to a swindler in an auction. Swindler gave a false name and address and asked to
allow the car to take away in return for his cheque. Plaintiff allowed him to take the car after obtaining
his signature to a document (signed certificate) which stated that the title of the vehicle will not pass
until the clearance of the cheque.

The cheque was dishonored and his identification has failed.

The court held that the plaintiffs mistake to establish swindler’s identity did not affect the validity of the
contract, which was concluded on the fall of the hammer.

The signed document had no effect on the contract as the contract was concluded before the execution of
the certificate.

Accordingly, property of the vehicle has passed from the plaintiff to the swindler as per the provisions
of section 19 Rule 1 irrespective of any delay in payment or delivery.
Philip Head and Sons Limited vs Show fronts Limited (1970) 1
Lloyd's report, 140
Underwood Limited vs Bough Castle Brick and Cement (1922)
1 KB 343
Tarling vs Baxter (1827)
Lake vs Simons (1927)
Kursell vs Timber Operators & Contractors Limited (1927)1
KB 298
Mohamed Mydin vs Ramiah (1965) MLJ 33 1965
Rule 2: ( Exception to Rule 1 )
Transfer of property is conditioned by the seller doing something.(i.e an act to put the goods in
deliverable state)

In such cases, the ownership is transferred as soon as the seller has put the goods in a deliverable
state and the buyer comes to know about this act of seller.

 Rugg vs Minnet (1809)

Rule 3: ( Exception to Rule 1 )

Passing of property is conditional upon the performance of some act with reference to the goods
for the purpose of ascertaining the price.

Accordingly, ownership is transferred to the buyer as soon as the seller has done such act and
the buyer comes to know about it.

 Zagury vs Furnell (1809)

 Lord Eldon vs Hedley Bros (1935) 2 KB 1

The seller sold haystacks for delivery at the buyer’s convenience and the price was paid at
once, though liable to adjustment when the hay was weighed on delivery. It was held that the
property passes at once and Rule 3 did not apply.

(Weighing was not to ascertain the price but to adjust the price)

 Nanka Bruce vs Commonwealth Trust Limited (1926) AC 77

A sold cocoa to B at an agreed price per 60 lb, it being arranged that B would resell the goods
and that the cocoa would then be weighed in order to ascertain the total amount due from B to
A. It was held that the weighing did not make the contract conditional and that the property
passed to B before the price was ascertained.
Rule 4

• When goods are delivered to the buyer on approval or on sale or return or other similar
terms…..the property therein passes to the buyer;

1. When he signifies his approval or acceptance to the seller or does any other act adopting
the transaction.

2. When he doesn’t signify his approval or acceptance to the seller without giving any
notice of rejection to the seller.,

property of the goods pass

When:
-If the time has been fixed for then return of goods on expiration such time and

- if no time has been fixed on the expiration of the reasonable time.

 Kirkham vs Attenborough (1897) 1 QB 201

Plaintiff sent jewelry to a third party on sale or return basis. That third party pledges the
jewelry with the defendant without informing the plaintiff that he has accepted his offer. The
plaintiff sued for the recovery of the jewellery on the ground that it was still his property. It
was held that the pledge was an act by the buyer adopting the transaction and therefore
property in jewelry passed to him and the sale was effective.

 Pool vs Smith’s car Sale (balham) Limited

The car was left by the plaintiff with the defendant (dealers) on “Sale or return” basis. The car
was returned nearly after 3 months in damaged state after several requests made by the
plaintiff. It was held that the car had not been returned within a reasonable time, the property
in the car had passed to the defendants. The defendant was therefore liable for the price
agreed.
Rule 5 (1)
-Property passes to the buyer;
• Unascertained/ future goods by description
• In a deliverable state
• Unconditionally appropriated to the contract.
• With the assent of the buyer/seller (implied or express)

Ascertainment--- establishing the identity of the goods

Appropriation --- selection/setting apart goods or any other act with the
intention of using the goods for the performance of the contract

Ascertainment of goods
Unconditional appropriation ………..are the two preconditions for the transfer of
property from seller to the buyer in case of unascertained goods

 Rhode vs Thwaites (1927)

Right of Disposal

Sometimes seller reserves the right of disposal of the goods till the fulfillment of certain
conditions. For example, if the buyer needs to make the price of the goods before delivery
as per the terms of the contract, it means the seller has reserved the right of disposal of the
goods.

Rule 5 (2):

Delivery to a carrier without reserving the right of disposal, is a delivery to the buyer.
Property passes at once at the time of the delivery to the carrier.

Unconditional appropriation means –Ascertained and identified goods must be

irrevocably attached or earmarked for the contract in question.

However, this sub rule must read with section 17 because it is clear that is the seller
delivers the goods to a carrier still mixed with other goods, no property can pass, because
the goods are still unascertained ,despite what would otherwise amount to an
unconditional appropriation.
 Healy vs Howlett and Sons

The defendant ordered 22 boxes of mackerel from fish exporter. The plaintiff dispatched 190
boxes and instructed to railway officials to earmark 20 boxes for the defendant and remaining
boxes for other 2 consignees. However, the train was delayed before the defendants boxes was
earmarked and by the time this was done the fish had deteriorated.

It was held that the property (fish) had not passed to the defendant before the boxes were
earmarked and therefore they were stills at the seller’s risk when they deteriorated. Because it
was not possible to say which of the boxes belonged to the buyer until the earmarking had been
done.

Assent

The assent which Rule 5 requires for the appropriation may be express or implied.

 Pignatoro vs Gilroy & Sons (1919) 1 KB 459

Reservation of Right of Disposal (Section 20)

Section (20 (1))

• Reservation of the right of disposal means reserving a right to

dispose of the goods until conditions imposed by the seller
are fulfilled. (eg: Price)

• The ownership is transferred to the buyer only when the

conditions imposed by the seller are fulfilled.
 Re Shipton Anderson & Co Limited vs Harrison Brothers & Co Limited (1915) 3 KB
676

The owner of specific parcel of wheat in a warehouse sold it on the terms “payment cash
within seven days against transfer order.”

The goods were requisitioned by the government under emergency powers before
delivery to the buyer. It was held by the court of appeal that the express term quoted
above was in effect a right of disposal reserved by the seller, as he was not bound to hand
over a delivery order until payment. Consequently, the property had not yet passed and
the contract was frustrated by the seizure of the goods.
The seller is deemed to reserve the right of disposal in following
circumstances.

Section 20 (2)-When the goods are shipped, and by the BOL the
goods are deliverable to the order of the seller or his agent

Section 20 (3) –When the seller transmits the BOL and BOE to the
buyer together, to secure acceptance or payment of the BOE, the
buyer is bound to return the BOL if he doesn’t honour the BOE.
However, if he wrongfully retains the BOL, the property in the goods
doesn’t not pass to him.
Passing of Risk (Section 21)

• Risk prima facie passes with ownership.

• The risk and the ownership of the goods go together
• This means in case of loss of the goods the loss need to be borne by the
party who has the ownership of the goods at the time of the loss.

But, in exceptional circumstances, the goods may be at the risk of one party
and the ownership may be with the other.
Exceptions

1.Agreement-The risk and the ownership may be separated by an agreement

between the seller and the buyer, as to when the ownership shall be transferred
and who shall suffer the loss

 Consolidated Coffee Limited vs Coffee Board AIR 1981 SC 162

In this case one of the terms of the auction sale of coffee was that the property
will not pass until the payment of the full price and in the mean time the goods
would remain with the seller but at the risk and responsibility of the buyer.
This clause was held to be valid and effective.
2.Delay-If delivery has been delayed through the fault of the buyer/seller, the
goods are at the risk of the party in fault as regards any loss which might not
have occurred but for such fault.

 Denby Hamilton & Co Ltd vs Barden (1949) 1 All ER 435

The seller contracted to sell 30 tons of apple juice to be delivered to the buyer in
weekly loads. The seller crushed the apples and put the juice in casks pending
delivery. The buyer was late in taking delivery and some juice went bad. The
risk would ordinarily have been with seller but as the delay was a fault of buyer,
the buyer had to bear the loss.

(The party in fault is not liable for all risks, but only for those which might not
have occurred but for such fault.)
3.Trade custom-Trade custom is the customary rule prevailing in a
particular trade which is generally followed by the parties. Eg: the trade
custom may proved that the goods shall be at the risk of the buyer whether
or not the ownership has been transferred to him.

4.Section 32 (2) (Delivery)-Where the seller undertakes to deliver the

goods, he is required to make a “reasonable contract of carriage” with the
carrier on behalf of the buyer having regard to the nature of the goods and
circumstances of the case. If he omits to do so and the goods are lost or
damaged in the transit, the buyer can decline to treat the delivery to the
carrier as a delivery to himself.
5.Section 32 (3) (Insurance)- Where goods are sent through a route
involving sea transit under circumstances in which it is used to insure,
the seller is required to give such notice to the buyer enable him to insure
the goods during sea transit. And if the seller fails to do so, the goods are
deems to be at the sellers risk during sea transit.

6. Section 33- Where seller agrees to deliver the goods at seller’s own risk
at a place other than the place where they are when sold, buyer must
unless otherwise agreed to take any risk of deterioration, necessarily
incidental to the course of transit.

 Scottish and Newcastle International vs Othan Ghalanos (2008)

UKHL 11

 Marsh and Murrel vs Joseph Emanuel Ltd (1961) 1 All ER 485

7.By the effect FOB and CIF ,risk and property passes independently risk
passes when the goods crossed ships rail.

8. When property passes before risk

 Head vs Tattersall
In the case of Head v Tattersall (1871), the plaintiff brought a horse. It was warranted that the
horse has been hunted with the Bicester hounds. According to the contract, the plaintiff was
entitled to return the horse if it did not match the description. Before taking the horse, the
plaintiff was told that the horse had not been hunted with the Bicester hounds. The plaintiff,
nevertheless, took the horse away. After taking possession of the horse, it accidentally sustained
an injury during the first week. As a result, the injury reduced the horse’s value. The plaintiff
returned the horse and brought an action against the seller to recover the price he had paid for
the horse.

It was held that the plaintiff was entitled to return the horse and recover the price. The risk was
with the seller although property had passed to the plaintiff.
9.When risk passes before property

 Stern vs Vickers Limited

In the case of Sterns v Vickers [1923], the sellers, the defendants, had some 200,000
gallons of white spirit in a tank belonging to a storage company. They sold to the
buyer plaintiffs 120,000 gallons of white spirit. Also, the sellers handed to the buyers
a delivery warrant. According to the warrant, the defendant seller undertook to
deliver the agreed quantity of the goods to the plaintiffs’ order. After the plaintiffs’
acceptance of the above-noted warrant and eventually took the delivery, the bulk of
the spirit in the tank became deteriorated in quality.

The Court of Appeal found that the defendant sellers had done all they could on their
part. The plaintiff buyer had the right to request the delivery of goods at any time.
Notably, if the plaintiffs had taken delivery in a timely manner, they would have got
what the sellers had promised. Thus, in these circumstances, upon the acceptance of
the delivery warrant the risk passed to the buyers.
The Doctrine of Frustration

A contract can be totally frustrated by an extraordinary or unforeseeable event. It

can also occur where goods are accidentally lost or damaged.

It is something not contemplated by the parties and provided for by a term of the
contract. Hence both parties relieved from the obligation.

Risk and frustration may conveniently be treated in proximity since the operation
of frustration is bounded by the transfer of risk. Risk is associated with the price. It
determines when the buyer must pay for goods accidently damaged, lost or
destroyed. Where a contract is frustrated, it is automatically discharged. The
primary effect of this is to excuse the party, usually the seller whose performance is
affected by the frustrating event from liability for breach of contract.
Section 7 applies to contract to sell and 8 applies to agreement to sell.

 Barrow Lane & Ballard Limited vs Philip Philp & Co Limited (1928)
 Hr & Sainsbury vs street 1972
Section 3

Capacity to contract is governed by the general law

concerning capacity to contract, and to transfer and acquire
property.
Section 4
No particular form is necessary when making a contract of
sale and accordingly a contract for sale of goods can occur
in the following ways.

1.It can be inwriting

2.By word of mouth
3.Partly in writing and partly by word of mouth
4.Implied from the conduct of the parties
Section 5
A contract for sale will not be enforceable by action unless,

1. the buyer shall accept the part of the goods sold and actually receive the
same.

2. Pay the price or part thereof

3. Some note or memo in writing of the contract be made and signed by the
party to be charged or his agent in that behalf.
Exclusions
1.Gift
2.Loan
3.Hire Purchase
4.Lease etc….
***Important
This is not a complete note and only a guideline
to study. Many other examples and cases (which
are not listed in this ppt) have been discussed
during lectures. In addition, you are advised to
go through relevant recommended books,
articles and cases for further knowledge.