The United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG) does not deal directly with the question of who has title to the goods. ‘Title’ to the goods is another way of saying the legal right or legal liability in relation to the goods. It is an apparently simple term that masks a plethora of complex legal issues. We tend to think of title as synonymous with ownership, which to some extent it is. However, it is a concept that is quite complex.
Critically analyze this statement in relation to the provisions of CISG with a local sale of goods act in another country of your choice with decided case laws.
This scenario focuses on the interesting fact that the ‘United Nations Convention on Contracts for the International Sale of Goods’ (hereafter; the Convention) has, in a manner, sidestepped the important issue of identifying the exact point where the Title to the goods transfer from the Seller to the Buyer.
Does the Title to the goods pass over to the Buyer at the point when goods are shipped by the Seller? Or does it happen only after the goods reach the Buyer? Or is it after the Buyer makes the payment and Seller receives it? The exact point when the transfer of the title takes place is a questionable one.
Although the word ‘Title’ has not been specifically mentioned, one of the provisions that indirectly comes into contact with this situation can be found in Part III of the Convention i.e. Sale of Goods.
In Part III, Chapter II (Obligation of the Seller), Section II (Conformity of the Goods and Third Party claims), Article 38 says:
(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or re-dispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or re-dispatch, examination may be deferred until after the goods have arrived at the new destination.
This provision makes it clear that shipping of the goods by the Seller alone does not satisfy the requirements of the Buyer.
The Buyer should be able to examine the goods and satisfy himself about the quantity and / or quality of the goods. If the goods are not up to his satisfaction he will not grant his consent to pay for the goods received.
The Title to the goods will not pass over from the Seller to the Buyer if the Buyer is not satisfied with the goods he received.
So it can be pointed out that it is a compulsory requirement that the goods should reach the buyer and should be examined by him before the title of the goods pass over to him from the Seller.
However, unlike the Convention, Sale of Goods Ordinance 11 of 1896 is very clear and precise at this point.
It is mentioned in the Part II of the Ordinance (Effects of the Contract) which deals with ‘Transfer of Property as between Seller and Buyer’;
16. 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.
18. (1) where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) 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.
This means that the property in the goods is passed over to the Buyer from the Seller only when the goods are ascertained – or in other words, verified or confirmed about their authenticity – by the Buyer. Until then goods are considered as the property of the Seller.
Sale of Goods Ordinance 11 of 1896 further notes five rules where there can be exceptional situations to the above:
19. Unless a different intention appears, the following 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 — 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, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.
Rule 1 applies to situations where the property of the goods of the Seller is passed over to the Buyer at the time of the formation of the contract. The time when the goods are shipped by the Seller, the time when the goods are delivered to the Buyer, time when the Buyer makes payment or the time when the Seller receives payment, etc. does not determine the passing of the property in the goods.
Rule 2 —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, the property does not pass until such thing be done and the buyer has notice thereof.
Rule 2 states that the Seller should perform all tasks relating to the goods to make them deliverable to the Buyer. Or else the property does not pass from the Seller to the Buyer.
Rule 3 —Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing be done and the buyer has notice thereof.
Rule 3 states that the Seller should perform all tasks relating to the goods to ascertain the price of the goods. Or else the property does not pass from the Seller to the Buyer.
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—
(a) When he signifies his approval or acceptance to the seller, or does any other act adopting the transaction;
(b) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact’.
Rule 4 signifies the acceptance and / or approval of the goods by the Buyer. If not, the property of the goods does not pass from the Seller to the Buyer.
Rule 5 —
(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and 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 thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made.
(2)Where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.
Rule 5 if the goods are appropriated to meet the requirements in the contract by the Seller with the agreement of the Buyer (or by the Buyer with the agreement of the Seller) the property of the goods pass over to the Buyer from the Seller.
Although these five rules have been listed as applicable to exceptional situation, it can be understood that in all circumstances that the satisfaction of the Buyer with regard to the expected standards of the goods have been attached much importance.
Sale of Goods Ordinance 11 of 1896 makes it clear that if the Buyer is not satisfied with the goods, the property of the goods does not pass over to him from the Seller.
The same situation is highlighted in the In Part III, Chapter II (Obligation of the Seller), Section II (Conformity of the Goods and Third Party claims), Article 38 of the Convention.
Hence, it is safe to assume that the Convention and the Ordinance both agrees at this one point with regard to the Title of the goods. Which is, that until the Buyer is satisfied with the goods he / she received the title will not pass over to him / her from the Seller.
This means the Title to the goods remain on the Seller until the Buyer expresses his satisfaction about the goods he receives. Accordingly, the Title to the goods pass over to the Buyer at some point only after the Buyer expresses his satisfaction about the goods he receives.
That exact point when the Title to the goods pass over to the Buyer from the Seller – after the Buyer expresses his satisfaction on the goods he received – has yet to be identified.
In Greenwood v. Bennet (1973) decided that if the true owner stands by and allows an innocent vendee to pay over money to a third party, the true owner will be estopped from denying the third party’s right to sell.
And in Folkes v. King (1923) the bench of judges held that the purchaser obtained good title to the car from the mercantile agent because he has possessing the car with the owner’s consent for the purpose of sale.
According to Hunt v Silk (1804), if a party has received any part of the benefit that he contracted for, there cannot be a total failure of consideration. If therefore, the vendor has no title to the goods, he is liable in damages to the vendee.
In the case of Rowland v Divall (1922), Rowland bought a motor-car from Divall and used it for four months. Divall had no title to the car, and consequently Rowland had to surrender it to the true owner. Rowland sued to recover the total purchase money he had paid to Divall.
The Court held that Rowland was entitled to recover in full, notwithstanding that he had used the car for four months. This case makes it clear that in order for there to be a valid sale of goods contract the vendor have to have the right to sell such goods.
In the book, “The sale of goods” written by P. S. Attiyah, John N. Adams and Hector MacQueenreads as follows: “In CIF contracts the risk once again passes on shipment, and if the goods are lost at the sea the vendee is still bound to pay the price, although he will as a rule have the benefit of the insurance policy. The law is the same even if the vendor knows that the goods have been lost when he tenders the shipping documents. So also, the inability of the vendee to have the goods discharged at the port of destination (because, for instance, he cannot obtain an import license) is of no concern to the vendor, and cannot be a frustrating event. The delivery of the goods on board the vessel, followed by the delivery of correct documents, is a complete performance by the vendor of his duties under a c.i.f contract; what happens after that is of no concern to him, subject to some special cases (for instance, where the goods are shipped in an undivided bulk).”
In Clements Horst Co v. Biddel Bros 1912; “a contract was made for the sale of hops to be shipped from San Francisco to London, CIF net cash. The vendee refused to pay for the goods until they were actually delivered. Held, that possession of bill of lading was in law equivalent to possession of goods, and that under CIF contract the vendor was entitled to payment on shipping the goods and tendering to the vendee the documents of title.”
In this case the vendee was in possession of the goods and as well as the bill of lading. Thus the title of the goods has already passed to the vendee. Thus the vendor did not have any insurable interest in the goods at the time of the loss.
When the situation discussed in above, comparing with a system of another country it is easier to understand the real world situation on the conventional provisions and the issue mentioned about the ‘title’. I hope to compare the law on title in Switzerland herewith.
On the initiative of the UNCITRAL the Convention on the International Sale of Goods was concluded and came into force on 1 January 1988 and today there are sixty eight member states to the convention, including Switzerland.
In the Section 2 (1) of the English Sale of Goods Act 1979 defines a contract for the sale of goods as: “… a contract by which the vendor transfers or agrees to transfer the property in goods to the vendee a money consideration, called the price.”
Article 184 Section 1 of the Switzerland’s Code of Obligations states the following: “A contract of sale is a contract whereby the vendor obligates himself to deliver to the vendee the object of purchase and to transfer title thereto to the vendee, and the vendee obligates himself to pay the purchase price to the vendor”.
Most of time parties are agreeing totitleput remain with the vendor despite the fact that the goods were handed-over. Such kind of provisions are usually made to keep away from transfer of title, before the vendee paid the purchase price. It’s important to mention that title transfers when the goods were delivered based on an “iusta causa”.
Whether vendee has paid or not the purchase price doesn’t affect the transfer of title. According to Law of Switzerland such kind of provisions are only valid and functioning when they has been entered in the public register of the transferee’s domicile which is kept for this purpose by the bankruptcy office.
And; both South African and Swiss Laws on title are similar. In South Africa there’s not an obviously act on the subject of Sales of Goods. Therefore, the needs for a legally valid contract have to derive from common law.G. R. J. Hackwill says that; ‘a sales contract is a mutual contract for the transfer of possession of an object in exchange for a price.’
In Concor Construction, Cape (PLC) Ltd v Stantam Bank Ltd; bench of judges are highlighted that “The derivative mode of acquisition of ownership on which the plaintiff relies is delivery. The requirements for the passing of ownership by delivery, inter alia,
(a) That the transferor must be capable of transferring ownership;
(b) Delivery must be effected by the transferor with the intention of transferring ownership and taken by the transferee with the intention of accepting ownership; and
(c) Payment where the sale is a cash sale.”
And in the case Lend lease Finance (Pty) Ltd v Corporation de Mercadeo Agricola and others heard in 1976 the court held that “… ownership cannot pass by virtue of the contract of sale alone: there must, in addition, be at least a proper delivery to the purchaser of the contract goods ….”
However, we have to concern about, what is the way have to proceed when parties are not chosen the applicable Law. In Switzerland; if the parties of an international sale contract have not chosen the law of governing the title then the law of the place where the movable object is physically located applies. In Marcard Stein & Company v Port Marine Contractors Private (Ltd) it was held that: “… should in general apply the principle of the lex situs in determining the passing of ownership in movable property when the case involves a foreign element and there is a potential conflict of laws.”
It might happen that it is not possible to determine where the goods were located at the time of the transaction. In these cases the principle of “lex situs” cannot be applied. A court then might use the principle of “lex domicilii” of the owner; like in Swiss Law the place of destination. Finally, if it is not possible to determine where the owner is, it is possible to apply the law governing the contract of sale (“lex causae”).
Furthermore; Under Section 19 of the Sales of Goods Act, United Kingdom the vendor may reserve title to the goods even after delivery to the vendee. This reservation of title is not-to-be treated as a breach of the vendor’s obligations to deliver.
In Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd 1976 states that; the vendor may be inclined to reserve title as a means of security against the vendee until he is paid for the goods. The reservation of title will not automatically apply, the vendor must expressly incorporate it into the contract.
In the law of sale of goods, ownership and title has great importance. Although the United Nations Convention on Contracts for the International Sale of Goods does not highlighting the value of title itself, many ore countries contained provisions on ownership and title to their own acts concerning Sale of Goods.