We need to consider two types of “goods” :
- Specific Goods
- Unascertained Goods.
Specific goods are those goods, which are readily identifiable at the time the contract is made, for example ‘the 1,000 New Zealand lamb carcasses numbered Y20,001 to Y21,000’.
Unascertained goods, on the other hand, are goods that have yet to be produced by the seller or are part of a larger bulk and have not yet been set aside for a specific contract. e.g. If I offer to sell you 50 tons of wheat from a stock of 200 tons in my warehouse, we are talking of unascertained goods. We do not know which of the 200 tons will be the 50, which you receive.
The next element in the sale of goods is the passing of property. By ‘property’ we mean the ownership. When the ‘property passes’ the right of ownership is transferred to the buyer. Be careful to distinguish property from possession. The latter signifies mere physical control. Thus I may have in my warehouse goods which I have sold to you and for which you have paid. I would have the possession, but you would have the property. In common parlance, they are ‘your’ goods. To summarise – when the property passes to the buyer he becomes the owner of the goods. The passing of the property has the following specific consequences: –
- The buyer must then pay the price to the seller (the passing of property and payment of the price are concurrent conditions).
- The risk passes to the buyer.
- Certain specific remedies become available to the seller if the buyer breaches the contract by refusing to take the goods.
The important question must therefore be – when does property pass? The English Sale of Goods Act provides that ‘Property passes when the parties intend it to.’ However, there are more helpful specific rules than this, which depend upon the distinction between specific and unascertained goods that we noted earlier.
Specific goods: Property in specific goods will usually pass at the time the contract is made. This is so notwithstanding that the goods are not delivered straight away. Unascertained goods: property cannot pass at the same stage in unascertained goods. For property to pass there must be what is known as ‘appropriation’, that is, out of the unascertained goods a parcel of goods must be specified for the particular buyer. The goods thereby become specific and at that moment the property will pass. Thus if I have a warehouse full of grain and I sell you 50 metric tons – property will not pass until I irrevocably earmark and set aside the 50 metric tons which will be delivered to you.
Generally, therefore, property (ownership) passes when the contract is made or, in the case of unascertained goods, when the particular parcel to be delivered is set aside. However, it is always possible for the passing of property to be delayed by the parties. This is frequently the case in International Sales. The risk is the danger of damage to the goods. Whoever bears the risk will bear the burden of such damage. Example: A sells goods to B, and the property and risk pass to B. The goods remain for the time being in A’s warehouse. A fire for which A is not to blame destroys the warehouse and its contents – B will bear the loss as the risk is on him. Alternatively, A sells goods to B, who takes them away. Due to a peculiar arrangement, probably because B has not yet paid for them, property and risk remain with A. Whilst the goods are in B’s possession, they are damaged. It is A who must bear the loss. The passing of property and risk is of great importance.