Transfer of Property in Sale of Goods Contract (Kenya)

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Section 3(1) of sales of goods act defines a sales of goods contract as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.

Property is defined as ownership and title. Section 2(1) of Sales of Goods Act defines property as general property in goods and not special property.

However, Professor Atiyah was of the opinion that property rights are rights in rem and not rights in persona. This means that they not only bind the immediate parties to that contract but also third parties.

Moreover, property may also mean the collective rights to use, enjoy, possess and or dispose goods.

Contract for sale of goods can either be absolute or unconditional. Where both parties (the seller and the buyer) have not specified when the property is to pass, this contract will be said to be unconditional.

For the formation of a contract of sale of goods, there must be an offer and acceptance. This is an agreement which signifies the meeting of minds.

Where consensus ad idem is established, the risk of goods passes to the buyer. The goods may not be in the possession of the buyer or consideration may not be present, but ownership and title has passed to the buyer.

In the case of Pignatoro vs Gilvor 1919 1 KB 337, a seller of bags to be delivered at the seller’s place of business notified the buyer they were ready. The buyer took no action for about 3 weeks during which the goods were stolen. The court held that the buyer was liable to pay the price of the rice even though he was not in possession of it because property had passed.

Risk is defined as anything which may have happened to those goods for example perishing. Section 22 of the Sale of Goods Act Cap 31 states that unless otherwise, goods remain at the seller’s risk until the property therein is transferred to the buyer.

These goods must be either specific or ascertained. Section 19 states that 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.

Even when the parties have not specified when the goods should be passed, the goods cannot pass when in unascertained state. According to Section 18 “Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer until the goods are ascertained.”

Therefore, the goods have to be converted to ascertained or specific goods. Such acts are collectively and technically called ‘appropriation’.

Where there is a contract of sale of specific or ascertained goods, the property in them shall pass from the seller to the buyer when the parties have intended it to pass.

In order to find out the intention of parties in this regard, consideration is to be given to the terms of the contract, conduct of the parties and circumstances of the case.

Rules for ascertaining intention as to time when property passes is stated in Section 20. Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made.

It is immaterial whether the time of payment or the time of delivery or both are postponed.

Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, Section 20(b) states that property does not pass until that thing be done and the buyers ascertains the thing to be done, has been done.

In the case of Underwood vs Cement Syndicate, the Plaintiff agreed to sell to the Defendant a 30 tone condensing machine to be delivered “free on rail in London. At the time of sale, the machine was embedded on a floor of a factory. Seller dismantled it and proceeded to load it. While doing so, parts of the machine were accidentally broken. The defendant was not entitled to accept the goods because no property had passed since goods were not in a deliverable state.

For property to pass, the goods shall correspond with the description. Section 15 states that this is an implied condition which also applies so sales by sample.

In the case of Valey vs Whip, Whip agreed to sell a 2nd hand reaping machine. He represented it to be new, having cut 50-60 acres. The machine didn’t fit the description. It was neither new nor in good shape. The court held that property hadn’t passed since the contract was conditional and the specified conditions had not been fulfilled.

Although the parties may not have specified when the goods are to be delivered, the description and goods of that description as well as in deliverable state are unconditionally appropriated to the contract.

The description is either by the seller with the consent of the buyer or by the buyer with the consent of the seller. The property in the goods shall be transferred from the seller to the buyer, as soon as such appropriation is made, the consent of the buyer or the seller as the case may be obtained either before or after appropriation.

Where there is a contract for the sale of specific goods in a deliverable state Section 20(c) but the seller is bound to measure, weigh, test or do some other act for the purpose of ascertaining the price, the property does not pass until that act be done and the buyer must have notice thereof.

In the case of Mbugua s/o Gakahu v Mwangi Mugwe, it deals with the interpretation of ‘some other act or thing’ in reference to goods. This case involved a sale of a lorry whose price could not be brought within the meaning of section 20 since it deals in cases where passing property was conditional upon performance of some act with reference to the goods. So that in so far as the interpretation of that section is concerned it could only follow ejusdem generis rule.

In the instant a buyer takes goods but will only buy it after they approve it, the title is till with the seller.Section 20(d) states when goods are delivered to the buyer on approval/return the property passes to the buyer when he signifies approval.

In the case of Poole vs Smith car sales a vauxhalll car was sent to D by P for storage. It was agreed that D would sell it provided that P received 325 for it .It remained unsold for 3months then D returned it in a damaged condition where upon P refused to accept it and sued for the price. It was held that both parties had treated the contract as one of sale. The court held that D had retained the car beyond reasonable time so that the property in the car had passed and were liable to pay the prize.

Where the buyer is holding the goods on behalf of the seller as an agent, the buyer can appropriate the goods for the purpose of the contract, inform the seller regarding the same, obtain his consent only then the property shall be transferred to the buyer.

Where the seller sends the goods and has responsibility of delivering the goods, property in goods remain with the seller until the goods are delivered.

On the other hand, if the buyer specifies the mode of delivery, the buyer assumes the risk of the goods.

Where delivery is delayed, the party that caused the delay assumes the risk of loss due to the delay.

Where property has passed to the buyer, he cannot validly reject the goods. He cannot treat the contract as repudiated. This is a breach of warranty and can only sue for damages.

In the formation of the contract for sale, they are basically found in part 3-11. However, there are some slight differences between contract law and contract of sale.

They include Auction. Where goods are sold in auction, in lots, every lot is subject of contract of sale of that auction as in Section 58. Ordinarily, the sale is complete when offer is duly accepted, but in an auction sale the property in goods passes at the point when the auctioneer announces completion by the fall of a hammer.

Where the bidder has not retracted by the fall of the hammer, the property passes to the buyer.

In Dennant vs Skinner and Cotton (1948), the Plaintiff a swindler bid for a car at an auction and it was knocked down to him. He gave a false name and address and was allowed to take the car in return for a cheque. He signed a form that no property in the car would pass until the cheque was honored. He sold the car which was the resold to D. When the cheque was dishonored the original owners sought to recover the car. The car was not recoverable because at an auction the sale was unconditional and at the time he signed the form, the property in the car had already passed. The third party had acquired a good title and was entered to retain it. In such instances, it must be proven that the contract for sale was unconditional and it related to ascertained goods.

In section 21(1) sale by reservation, where there is contract for sale of specific goods or where the goods are appropriated to the contract the seller may by terms of contract or appropriation reserve the right of disposal of goods until certain conditions are fulfilled. Delivery of goods to the buyer or carrier or bailee for purpose of transmission of goods, the property in those goods does not pass until those conditions are fulfilled and the seller can dispose them.

The most important consequence of a contract of sale of goods is the transfer of property in the goods from the seller to the buyer because risk always follows such a transfer of ownership and the time of payment as well as the time of delivery of the goods is not an essential consequence of such a contract.

The most important consequence of the transfer of property under a contract of sale goods is the risk passes with the property. According to section 26, where the property in the goods remains with the seller, the seller bears the risk and when the property passes to the buyer, the risk devolves on the buyer whether the delivery has been made or not. But if there is any deal in the transfer of property due to the fault of any one of the parties to the contract, the risk shall remain with the party but for whose fault the property would have been transferred.

In other words there can be conditions under which there may be divorce between risk and ownership.

Illustration 1 : There was a contract between A & B for the sale of 814 tons of kerosene oil B, the purchaser, paid Rs. 1000 as part payment of the price. The seller A was himself to receive the consignment from A third party. On the receipt of the Railway receipt, A endorsed the same to the buyer B. The consignment was destroyed in transit, held that B is liable for the loss and cannot get back the refund of part payment made by him because as the R/R was endorsed in his name, he became the owner of the good and therefore shall have to bear the risk of loss.

But where the goods have been dispatched by the seller “on the risk and on account of the buyer” but the railway receipt was taken in the name of the seller or it was taken in the name of the buyer but was sent to the seller’s agent with the instructions to part with the same upon the fulfillment of certain conditions by the buyer, the risk shall remain with the seller because he has reserved the right of disposal.

According to section 24 where the goods are sent to the buyer “on approval or on sale or return” or similar other terms the property in them shall pass to the buyer:

When the buyer expresses his approval or acceptance to the buyer or does any other act adopting the transaction:

Where the goods were sent to the buyer on sale or return with a fixed period of time within which he is to express his approval, the property shall pass to the buyer as soon as that period of time expires although the buyer does not give his approval or acceptance and if no such time is fixed upon the expiry of reasonable time.

Where the seller is a company, the buyer will generally have a good title against the liquidator in the event the company is wound up while it is still in possession of goods which it has sold to the buyer and have passed to the buyer the event of liquidation.

Further, only the original owner can pass title. This maxim is known as Nemo Dat Quod Non Habet.

In our opinion, where there is a sale of contract in specific goods property in goods will pass from the seller to the buyer but in instances where there is no ascertainment property in goods will not pass from the seller to the buyer.