Implied terms on Title
In every sale of goods contract, there is an implied condition that the seller has the right to sell. There is a further warranty that the goods will remain free from any charge or incumbrance, not disclosed to the buyer before the contract is made. The seller also warrants that the buyer will have quiet possession of the goods. The obligations cannot be excluded, even in a non-consumer contract.
The seller may limit the type of title he passes, provided he specifically discloses the position. The seller gives a warranty that all charges and incumbrances known to him have been disclosed before the contract was made. Such a provision may be appropriate where the seller knows that he may have a limited title.
The obligation is effectively to give a title which is good against all third parties. A title derived from the seller’s possession alone is insufficient in this context. The right to sell must exist at the time, that the ownership is to pass. Therefore, a seller need not necessarily own the goods at the time of the contract for sale provided that he acquires such rights by the time that the ownership is to pass.
Condition as to the Seller’s Title to the Goods
It is an implied condition in the sale of goods, that the seller has a title (property) to them. There are certain circumstances where a person without a title, may sell goods. However, the general position is that if the seller does not have title or ownership, he cannot and does not give the title to the buyer.
If the absence of a title or flawed title arises before the completion of the sale, the buyer need not complete and may claim damages for breach of contract. It is possible for parties to agree specifically that the seller will transfer only such title as he has. Where this occurs, the buyer takes the risk and there is no right to damages against the seller if the title is defective.
If a title issue emerges after completion of the sale, the buyer is entitled to damages from the seller for breach of the title condition. If the goods are sold without a title, the true owner can recover them in most cases.
No Charges, Quiet Possession
There is an implied warranty by the seller that the goods are free from any charge (security interest) which has not been disclosed. In some cases, a buyer without notice of the charge will not be bound by it.
The seller warrants that the buyer will have quiet possession of the goods. This means that a third party will not disturb him in his ownership by a legal claim. It can also apply to a breach of trademarks or other claims that interfere with his possession of the goods.
The conditions and warranties regarding quiet title, charges and quiet possession are mandatory. It is not possible to contract out of them completely. It is possible to agree to sell a lesser title in the case of domestic sales. It is possible to limit or exempt liability in the case of international sales.
Passing of Property / Title I
The general rule is that property in the goods is transferred when the parties intend it to be transferred. There are presumptions in the Sale of Goods Act in relation to the transfer of title. They apply where the contract does not, express or imply that the property is to pass at a particular point in time.
In the case of an unconditional sale of specific identifiable goods, it is presumed, in the absence of an indication to the contrary, that the property passes when the contract is made. The contract must not be subject to any preconditions (as opposed to “conditions” in the sense of terms of the contract). The obligation to pay will not usually have arisen, at this stage.
The seller must specify and agree with the buyer, that he retains the title. Exceptionally, it may be possible to imply and infer that title is not to pass until payment, from the particular circumstances.
Passing of Property / Title II
Where goods are ascertained but are not yet deliverable (because, for example, something needs to be done to make them deliverable), the presumption is that ownership does not pass until the relevant thing has been done and the buyer has been notified. A deliverable state means that the goods fit generally, their description. It does not mean that they are necessarily fully compliant with the contract in every respect.
Where the seller must do something to determine the price, such as measuring or weighing the goods, the presumption is that ownership does not pass until this is done.
In the case of sales on approval, the sale does not take place until there has been approval or no return. In the absence of an indication otherwise, the ownership passes when the buyer indicates that he accepts the goods, or when something is done which shows that he accepts them. This may involve using the goods. It may involve selling the goods.
Where no duration is specified, ownership passes after a reasonable period. Merely retaining the goods and not returning them is insufficient, unless the contract provides that he is deemed to accept them.
Title in Unascertained Goods
In the case of unascertained goods, ownership cannot pass until they are identified. At that point, they may be “appropriated” to the contract. The presumption is, unless otherwise stated or implied, that ownership passes once the goods are appropriated to the contract and are in a deliverable state.
The appropriation must be unconditional. They must be unconditionally earmarked for that buyer. It is sufficient that the particular goods or a particular consignment are so earmarked. Placing goods with consigners or selecting them for the buyer would be sufficient. The appropriation may be undertaken by either the buyer or the seller.
Reservation of Title by Seller
The seller may change the above presumption by providing that the title to the goods does not pass to the buyer until payment has been made. A specific agreement to this effect is required.
In the case of an individual, a charge or grant of security over goods requires registration as a bill of sale. This is very difficult to do, as the legislation is very rigid. In the case of companies, it is more feasible to register a charge or mortgage over the goods.
The reservation of title is not the creation of a security interest. Registration is not required. This is because the ownership has not passed to the buyer / chargor. The requirement to register applies where ownership has passed and a security interest is granted back to the seller.
Risk, in the context of the sale of goods, refers to the risk of the destruction or damage of the goods. The person who takes or carries the risk, should in prudence, take out insurance against it.
The general presumption is that the risk goes with ownership. Therefore, when property passes to the buyer, the goods are at his risk even though he has not yet taken delivery of them. The parties may agree as to which of the seller or buyer bears the risk. This may differ from the party who has title or ownership.
In “carriage insurance freight” (CIF) and free on board (FOB) contracts, the risk passes to the buyer when they are put on the carrier’s ship. Ownership may not yet have passed. Where the buyer is entitled to reject goods, the risk does not generally pass, even if the property in the goods has passed.
Where specific goods have been destroyed without the fault of either party before the contract for their sale is made, the Sale of Goods Act provides that the contract is avoided. Where there is a contract for the sale of specific goods, and the goods have perished without the knowledge of the seller at the time when the contract is made, the contract is void. The principle of frustration may apply where the goods are destroyed in other circumstances.
Frustration may discharge a contract where performance becomes impossible, because of some extraneous circumstance, wholly outside the control of the parties. The risk of the event that frustrates performance must not be one, which was taken by either party. In many situations, it will be implicit that the buyer or seller takes the particular risk of the loss or destruction of the goods.
Breach of Title Condition
If the title warranty is breached, the buyer may treat the contract as terminated, reject the goods and sue for compensation. Where ownership of the goods has not passed, there is usually a complete failure of consideration. The buyer may thereby sue for recovery in restitution. The condition may be breached innocently where a seller bona fide believes he has title but does not, in fact, have title to the goods. This may be due, for example, to a predecessor in title having stolen the goods.
The implied warranty that the borrower will have quiet possession is breached where third-party purports to repossess the goods, on the basis of a superior title. It also covers interference by the seller in the enjoyment of the goods. However, it will not apply where a third party wrongfully interferes with the goods, on a basis other than that of the seller’s title.
The warranty as to quiet enjoyment of possession continues throughout the period of ownership. Its breach entitles the buyer to claim for compensation, but not to reject the goods and treat the contract as terminated.
References and Sources
Brian Doolan, A Casebook on Irish Business Law (1989)
Henry Ellis, Modern Irish Commercial and Consumer Law (2004)
Michael Forde, Commercial Law, 3rd Edition (2005)
Linehan, Irish Business and Commercial Law (1995)
McCormack, Reservation of Title 1990 (1994)
Patrick O’Reilly (ed.), Commercial and Consumer Law (Statutes) (2000)
Sean Quinn (ed.), Statutes Revised on Commercial Law, 1695-1913 (1994)
Fidelma White, Commercial Law (2003) (2nd Ed 2012)
Fidelma White, Commercial and Economic Law In Ireland (2011)
Vincent Grogan, Thelma King and Edward J. Donelan, Sale of Goods and Supply of Services: A Guide to the Legislation (Law Society of Ireland, 1983)
Paul Anthony McDermott, Contract Law (Butterworths, Dublin, 2001)
2011 Report of the Sales Law Review Group,
Atiyah and Adam’s Sale of Goods 13th Ed (2016)
Bridge, Benjamin’s Sale of Goods 9th Ed (2015);
Bridge, The Sale of Goods 3rd Ed (2014)
Blackstones’ Statutes Commercial and Consumer Law 2017
Goode on Commercial Law 5th Ed 2017
Sale of Goods Act 1893
Sale of Goods and Supply of Services Act 1980
Electronic Commerce Act 2000
Criminal Justice (Theft and Fraud Offences) Act 2001 (50/2001)
International Carriage of Goods by Road Act 1990 (13/1990)
European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (S.I. No. 484 of 2013)
European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003 (S.I. No. 11 of 2003)