This article is written by Souradh C. Valson, from Government Law College, Thiruvananthapuram, and discusses the conditions for the sale of unascertained goods and their appropriation under the Sale of Goods Act, 1930.
The sale of goods refers to the transfer of ownership from the seller to the buyer. The Sale of Goods Act, 1930 deals with the sale of goods in India. Two relevant provisions governing the sale of unascertained goods are Section 18 and Section 23.
Sale of unascertained goods
Under Section 18, the seller can only transfer his rights over ascertained goods, goods that are identified by the buyer. Transfer of ownership rights is not possible for unascertained goods. Section 23 contains two important conditions for the sale of unascertained goods:
- Section 23(1): In a contract for sale for future or unascertained goods by description, if either the buyer or the seller appropriates the goods by the description in the contract with the consent of the other party, the ownership of the property passes to the buyer. The parties may consent to the appropriation expressly or implied by, before, or after the contract.
- Section 23(2): If the seller, for transmission to the buyer, delivers the goods to the carrier, or the buyer, or the bailee (whether mentioned by the buyer or not), without the buyer reserving a right to dispose of the goods, the presumption is that the buyer has unconditionally appropriated the goods.
Thus, the first condition is the ascertainment and appropriation of the goods to contract. The second is the transfer of ownership to the buyer.
Definition of ascertained goods
Goods that are only described by the seller to the buyer are known as unascertained goods. The buyer has not yet seen or identified the good.
Section 18 clearly states that the ascertainment of goods doesn’t result in the transfer of ownership. The question of passing ownership arises only after the ascertainment by the parties.
After ascertainment, the important point to consider is the intention of the parties.
The consequence of this Section is that even if the parties intend to transfer the goods, ascertainment of goods is necessary. The buyer won’t receive an equitable title without ascertaining the goods to which the title relates.
For example, A enters into a contract for the sale of a car from company B, B goes insolvent before separating the car for A, there is no transfer of ownership to A. Mere contract of purchase does not transfer the title.
“Unascertained goods” are not defined under the Act. It usually refers to three categories of goods such as:
- Generic goods: These are goods of a general quantity. For example, 10 kilos of sugar.
- Future goods: The Act defines future goods as the goods that the seller acquires, manufactures or produces after entering into a contract of sale. For example, contracts with a bakery owner for selling a cake on a future date.
- Goods belonging to bulk, but keeping only a certain quantity of the bulk are for sale. For example, A sells 20 pens from his stock of 100 pens. This is a sale of unascertained goods. There is no valid transfer of ownership from the seller to the buyer in this case.
Separating the goods from bulk
Transfer of ownership is possible only after separating the specific goods from the bulk.
Separation by exhaustion
Separation by selling all the bulk of the stock except that the stock for a particular buyer is known as separation by exhaustion.
For example, In Karlshamns Oljefabriker v. Eastport Navigation Corporation. a company entered into four separate contracts with buyers for the sale of copra and shipped a bulk amount of 6000 tonnes of copra along with copra for other purposes. The ship already unloaded the copra for other purposes. Meanwhile, one of the buyers bought all the copra from the other buyers. The court held that there was a valid separation by exhaustion.
This process of separating is known as ascertainment.
Selecting goods to utilize them as a part of the performance of the contract with the consent of the buyer and the seller is known as appropriation.
For example, two parties entered into a contract for a sale of 20 kgs of sugar. The seller first filled 4 barrels of sugar, which the buyer took. Subsequently, the seller, after informing the buyer, filled another 16 barrels of sugar, which the buyer agreed to take. However, before the buyer could take them, the seller lost the barrels. In such a case, appropriation was complete when the buyer agreed to take the barrels. Therefore, at the time of loss, the buyer already had possession.
Let’s look at another example. The seller agreed to produce oil from his peppermint crop and subsequently, the seller filled oil into the bottles given by the buyer. It was a valid appropriation to transfer ownership.
An interesting question came before the court in London Wine Co (Shippers Ltd.) re, in which, a company had large quantities of wine in many different storehouses. Although they used to sell large quantities, in some cases, instead of selling wine, they gave a ‘certificate of title’ to the customer stating the amount they paid. The question before the court was whether this act of giving certificates was enough to constitute a transfer of ownership.
To explain this, the court reviewed three types of situations that may arise from this translation such as:
- If a single buyer purchased the entire stock of a particular wine.
- If several buyers with their collective purchase exhausted the entire stock of a particular wine.
- If several buyers with their collective purchase did not exhaust the entire stock of a particular wine.
The court held that there was no transfer of title due to the non-ascertainment of the wine, and the seller could satisfy the claims of the buyers either from the existing or non-existing stocks of wine. A mere sale will not result in the transfer of ownership.
Property passes only after appropriation
The ownership of the property passes only after appropriation. The seller is responsible for appropriating the property.
In Healy v. Howlett & Sons, the plaintiff was a fish exporter, and the defendants ordered a certain number of boxes of fish from the plaintiff. The plaintiff sent the boxes via train along with boxes for other buyers. There was a delay in the delivery which damaged the box of fishes. The plaintiff sued the buyers for the price.
The court held that, since only a portion of the boxes belonged to the defendants, there was no way to figure out which of the damaged boxes belonged to the defendant.
Looking at another example, A sold B, 10 kgs out of the 50kgs of rice in a warehouse and gave B the address of the warehouse. Subsequently, B sold the rice to the plaintiff and gave him the address of the warehouse. Since B did not pay the money, the warehouseman stopped the delivery. If this case goes to a court of law, the plaintiff will not be unable to recover the rice as A did not separate the rice.
Appropriation by mutual consent
The ownership of the property passes to the buyer once both parties appropriate the goods by mutual consent. The seller acts as a bailee until the transfer of the goods.
In Alridge v. Johnson, the plaintiff, after seeing and approving in bulk, bought 100 kilos of barley. The seller had to fill barley in the sacks sent by the plaintiff and deliver them to a carrier for delivery. The plaintiff sent 200 sacks, but the defendant only filled 155 sacks. Before the defendant could hand over the goods to the carrier, he became insolvent due to financial difficulties.
The court held that, since there was appropriation, the plaintiff is the owner of the 155 sacks of barley, and could recover them.
Appropriation without buyer’s assent
The appropriation of goods without the assent of the buyer is inoperable.
As per the facts of the case of Jenner v Smith, in a fair, the plaintiff orally agreed to sell to the defendant two toys on the spot and two toys at a future date, which were lying in a warehouse in London. The defendant paid the price for the two toys on the spot and directed the transfer of the other two toys. Subsequently, the plaintiff marked two toys in the warehouse and directed the warehouse manager to wait for the buyer’s order.
The court held that there was no transfer of ownership because there was no evidence to show that the plaintiff appropriated the property after the assent of the buyer.
Express and implied assent
The buyer can assent to the appropriation expressly, through words given orally or in writing or impliedly, through the conduct of the parties.
The absence of a reply from the buyer is an implied assent.
For example, A prepares certain goods according to the direction of B and informs him that the goods are ready for collection. B fails to reply for two months, and when B arrives, somebody stole the goods, without the sellers’ fault. B cannot claim delivery, as he was the owner of the property, and his assent was clear from his conduct.
Goods of contract quality and unconditional appropriation
For an effective appropriation, the goods must belong to the quality described in the contract. The seller must also unconditionally appropriate goods. Appropriation is the last act performed by the seller before handing over the property.
Delivering goods of unconditional quality is necessary for unconditional appropriation.
The intention of the parties
Although all the rules are subject to an express or implied agreement, the intention of the parties is the most important condition.
A valid transfer of ownership is possible even when the seller has to do something.
For example, an agreement between parties to transfer goods by rail contained a clause that the buyer can receive the goods after payment of the railway receipt and that the goods. In a separate letter, the seller conveyed that the goods are appropriated to the buyer. The buyer accepted this and held it as a valid transfer of property.
Delivery to carrier
It is a method of appropriation under Section 23(2) of the Act.
If the seller, to transmit the goods to the buyer, delivers the goods to the carrier, or the buyer, or the bailee (whether mentioned by the buyer or not), without the buyer reserving a right to dispose of the goods, the presumption is that the buyer has unconditionally appropriated the goods.
Further, the seller must inform the carrier about the particular buyer, or else there is no valid transfer of property.
Acknowledgement by the bailee
If the bailee acknowledges the fact that he holds the property on behalf of the seller, it amounts to an unconditional acknowledgement.
Goods in transit
If the buyer has bought the entire goods and it is already in transit, the sale amounts to unconditional appropriation.
For example, imagining a fictional case, the defendants entered into a contract for the sale of a certain number of tins of kerosene, which was on the way to the defendants. The defendants endorsed the railway ticket in favour of the buyer. A fire broke out and destroyed all the tins of kerosene. The loss was on the buyer as he already received the ownership.
Thus, the sale of unascertained goods is primarily contained in the Sale of Goods Act, 1930. Under the relevant provision of the Act, and summarizing to the crux, the sale of unascertained goods are valid only if the goods are ascertained and mutually appropriated by the seller and the buyer.
- Pollock and Mulla, the Sale of Goods Act, 1930
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