Case No: B2/2009/1131
Neutral Citation Number: [2010] EWCA Civ 69
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COUNTY COURT AT CARDIFF
MR RECORDER P. HARTLEY-DAVIES
8NP02415
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11/02/2010
Before :

LORD JUSTICE RIX
LORD JUSTICE WILSON
and
SIR SCOTT BAKER
- - - - - - - - - - - - - - - -
Between :

	ROHIT KULKARNI  	Appellant / Claimant	
	- and -		
	MANOR CREDIT (DAVENHAM) LTD	Respondent / Defendant	
- - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No:  020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - -
Mr Christopher Purchas QC and Mr Nicklaus Thomas-Symonds (instructed by Hornby Baker Jones & Wood) for the Appellant
Mr James Ross (instructed by Walker Morris Solicitors) for the Respondent

Hearing dates : Tuesday 1st December 2009
- - - - - - - - - - - - - - - -
Judgment
Lord Justice Rix : 
1.	The question in this appeal is whether the appellant, Dr Rohit Kulkarni, can bring himself within section 27 of the Hire Purchase Act 1964  (the “1964 Act”) which provides a rare exception to the general principle of English law that no one can transfer a better title than he possesses (nemo dat quod non habet). The judge at trial, Mr Recorder Hartley-Davies, to his clearly expressed regret, considered that Dr Kulkarni could not.

2.	Dr Kulkarni, a consultant orthopaedic surgeon, wanted to purchase a new Mercedes CLK cabriolet motorcar. Unfortunately, he placed his order with a company which committed the fraud from which one of the two innocent parties to this appeal must suffer. That company was known as Gwent Fleet Management Limited, now in liquidation (“Gwent”). It has played no part in these proceedings. Dr Kulkarni ordered the car to certain specifications from Gwent at the end of February 2008. The sale contract is recorded in a confirmation of order dated 3 March 2008. The price agreed was £38,950 and had already been paid in full by that date, as the document records. Delivery was stated to be March 2008.

3.	Gwent did not own such a car at the time, but claimed to be able to source it at a discounted price. On 11 March 2008 the respondents to this appeal, Manor Credit (Davenham) Limited (“Manor Credit”), a finance company, bought from Mercedes-Benz of Worcester a Mercedes CLK 280 meeting the agreed specifications. Mercedes-Benz’s invoice refers to a tax point date and delivery date of 11 March 2008. The invoice is addressed to Manor Credit, but states that delivery is to be made to Gwent. The total price of the invoice is £40,225.63, due from Manor Credit. The invoice refers to the engine and chassis numbers of the vehicle and also to a registration number VK08 EVF, with a registration date of 10 March 2008.

4.	On the same day as the invoice, 11 March 2008, Dr Kulkarni received by e-mail a cover note from his insurers or insurance broker (the cover note is not before the court) confirming motor insurance cover for the new car. That e-mailed cover note was sent to Gwent as well as to Dr Kulkarni. Dr Kulkarni had been telephoning Gwent about delivery and at some time obtained from Gwent the registration number of the Mercedes, which he wrote down on his copy of Gwent’s confirmation of order. The judge records that Dr Kulkarni thought that the registration number was provided to him on 8 March but made no precise finding about that. For myself, I would infer that that was more likely to have occurred on 11 March itself, for Dr Kulkarni says in his witness statement that he arranged the cover on the same day as learning of the registration number; but it probably does not matter. The judge also made no finding as to the date from which the insurance was to run. Dr Kulkarni’s witness statement said that he arranged insurance “to enable me to drive” the car. I would infer therefore that the insurance had been arranged to begin not immediately, but from the expected date of delivery of the car.
   
5.	It is not entirely clear when this car came into the hands of Gwent and the judgment does not clarify that matter. However, on 13 March Manor Credit entered into a Master Assignment agreement with Gwent, pursuant to which it was agreed that Manor Credit would provide vehicles to Gwent on hire or hire purchase terms on the understanding that those vehicles would then be provided to Gwent’s customers on sub-hire terms.  On 14 March Manor Credit and Gwent entered into a hire purchase agreement for a period of three years in relation to the Mercedes VK08 EVF. That agreement stated the cash price as £40,225.63 and provided for a first payment of £5,000 payable on signing that day, followed by monthly instalments concluding on 14 March 2011. 

6.	Thus as of 14 March 2008, Manor Credit was the owner of the car, having paid Mercedes-Benz, as I would infer, on that day, and Gwent merely its lessee. Gwent at no time owned the car, which was sold by Mercedes-Benz directly to Manor Credit.  

7.	In that state of affairs, Gwent delivered the car to Dr Kulkarni at his home at 8.30 pm on Friday 14 March. At that time it had affixed to it its registration plates, but it is not known precisely when those plates were put on. It might have been inferred from the terms of the Mercedes-Benz invoice that the plates were already attached to the car on delivery to Gwent, but the judge did not find that that was so. On the contrary, he went out of his way to make a finding that the car was in a deliverable state under the contract of sale to Dr Kulkarni “without having a number plate affixed to it”. 

8.	At latest at the time of that delivery to Dr Kulkarni Gwent would have sold or purported to have sold the car to Dr Kulkarni by apparently transferring property in it to him. In fact it did not then own the car and so (subject at any rate to the operation of section 27 of the 1964 Act) was at that time at latest in breach of its implied promise under its contract with Dr Kulkarni that at the time of sale it had a right to sell the car (section 12(1) of the Sale of Goods Act 1979). That implied promise was a condition of the contract (section 12(3)). I shall refer to that Act as the SGA 1979. 	

9.	I say “at that time at latest” because, if under its contract of sale with Dr Kulkarni the time for the passing of property had come at some earlier stage in these events, for instance at the time when Dr Kulkarni learned of the registration number of the car on, as I infer, 11 March, then the sale might have been effected at that time, and if so Gwent would already have been in breach of its section 12(1) obligation at that time. This is because section 2 of the 1979 Act distinguishes between a sale and a mere agreement to sell. An agreement to sell is a contract of sale under which the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled. Such an agreement matures into a “sale” when that time elapses or that condition is fulfilled. Thus a “contract of sale” may amount to either a sale or an agreement to sell: it is a sale where under the contract the property is transferred there and then; otherwise the contract of sale is called an agreement to sell. Section 12(1) only requires a seller to have the right to sell “in the case of a sale”: in the case of a mere agreement to sell he promises only that he will have such a right “at the time when the property is to pass”. That reflects a completely standard way of the world. Sellers and buyers are for ever agreeing to sell and buy what sellers at the time of agreement do not then own, for the goods in question have to be fabricated or sourced and acquired before the time when property is to pass. 

10.	The judge, however, found that the property in the car had been intended to pass to Dr Kulkarni not at the time of delivery but at the earlier time when he assented to its appropriation to the contract on learning of the registration number and insuring it, at latest on 11 March. He considered that this question was settled by the application of a prima facie rule for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer, viz the rule found as rule 5(1) in section 18 of the SGA 1979. That rule, which applies, unless a different intention appears, where (as in this case) there is a contract for the sale of unascertained or future goods by description, states (inter alia) that property passes when goods of the contractual description, in a deliverable state, are unconditionally appropriated to the contract by the seller with the assent, express or implied, of the buyer. The judge ( at para 17 of his judgment) put it as follows:

“Once the identity of the vehicle had been obtained by obtaining a number plate, or rather a registration number of the vehicle, because that must refer to a specific vehicle, then those goods are unconditionally appropriated to the contract, and it is done by the seller with the implied assent of the buyer. At the very latest the buyer assents to that by insuring the vehicle on 11th March…Once that vehicle had been identified in that way, once the claimant had insured that specific vehicle, the goods were no longer unascertained goods; they were ascertained goods and they were in a deliverable state.”

11.	What is the importance of trying to establish the exact moment when property was intended to pass under Dr Kulkarni’s contract with Gwent? The significance lies in the terms of the Hire Purchase Act 1964 (the “1964 Act”), on which Dr Kulkarni relies to provide him with title to the car in order to resist what would otherwise be Manor Credit’s better rights as its owner. In due course, when Gwent’s fraud had come to the attention of Manor Credit, it repossessed the Mercedes from Dr Kulkarni’s home on 6 July 2008. It later sold it for £24,000. However, Dr Kulkarni claims against Manor Credit in conversion, relying on a title derived under section 27 of the 1964 Act, which provides as follows:
“(1) This section applies where a motor vehicle has been bailed or (in Scotland) hired under a hire-purchase agreement, or has been agreed to be sold under a conditional sale agreement, and before the property in the vehicle has become vested in the debtor, he disposes of the vehicle to another person. 

(2) Where the disposition referred to in subsection (1) is to a private purchaser, and he is a purchaser of the vehicle in good faith, without notice of the hire-purchase or conditional sale agreement (the “relevant agreement”) that disposition shall have effect as if the creditor’s title to the vehicle has been vested in the debtor immediately before that disposition.”

12.	“Disposition” is defined in section 29(1): 
““disposition” means any sale or contract of sale (including a conditional sale agreement), any bailment or (in Scotland) hiring under a hire-purchase agreement and any transfer of the property in goods in pursuance of a provision in that behalf in a hire-purchase agreement, and includes any transaction purporting to be a disposition (as so defined) and “dispose of” shall be construed accordingly.”

13.	For these purposes, Manor Credit is the creditor, Gwent the debtor, and Dr Kulkarni the private purchaser. There is no dispute that Dr Kulkarni is a private purchaser in good faith without notice. What is required, however, for section 27 to pass a good title to a private purchaser is a “disposition” by the debtor Gwent at a time when it is a debtor, that is to say a hirer under its hire-purchase agreement with Manor Credit which it entered into on 14 March 2008. Disposition is defined as a sale or a contract of sale or a transaction purporting to be a sale or contract of sale. 

14.	Dr Kulkarni’s original contract of sale was of course entered into well before Gwent became Manor Credit’s debtor. However, Mr James Ross, who appears for Manor Credit, does not rely on that contract as a relevant disposition, because he concedes that section 27 would give relief to a private purchaser for the latest relevant “disposition”, even if there had been an earlier one at a time before section 27 became applicable. Thus he concedes that where an earlier contract of sale, which does not itself amount to a sale, fructifies later into a sale, when there is a transfer or purported transfer of property, and that later sale falls within the relevant window of section 27, then that will count as a disposition within section 27, even though the earlier contract of sale fell outside that window. He had earlier made the same concession at trial, which is why the judge had said (at para 13):

“it is not so important to look at the earliest date on which there could be a contract of sale or a sale, but to look to the latest date”.

15.	Another possible rationalisation is that for these purposes “contract of sale” means such a contract as amounts to a sale, as will occur (see above) where the parties intend the contract to transfer the property in the car there and then. (It might be said, however, that that makes the words “or contract of sale” redundant; and it may be important in another context to consider whether a purchaser is a “private purchaser” at the earlier time of an agreement to sell: see section 29(2) and GE Capital Bank Ltd v. Rushton [2005] EWCA Civ 1556, [2005] 1 WLR 899.) Another possible rationalisation is that nothing counts as a relevant disposition until a particular motor vehicle has been identified. That is because section 27 is concerned with property and title in a particular identifiable motor vehicle: see “the property in the vehicle” and “a purchaser of the vehicle in good faith”. On that basis, there could in any event be no “disposition” until the car labelled as VK08 EVF had been (irrevocably) identified with the goods to pass under Dr Kulkarni’s contract. A third rationalisation may be that the definition of “disposition” provides true alternatives, so that as long as there is something which counts as a disposition within the statutory window, then section 27 may work its power. 

16.	Be that as it may, Mr Ross made it plain that his concession was made. If there was a passing of property or purported passing of property at a time when Gwent was a hirer of the car from Manor Credit, then Dr Kulkarni would obtain a good title under section 27; but if property had purportedly been transferred to Dr Kulkarni before that time, then there would be no assistance to Dr Kulkarni to be derived from that section.  Thus there was no concession in relation to anything which occurred after Dr Kulkarni’s agreement had fructified into a sale (or purported sale). Once there had been a final transfer of property under his agreement with Gwent, it was too late to talk of any further “disposition” under the 1964 Act.

17.	All this explains why it became important to identify the latest moment when a mere agreement to sell fructified into a sale (or at least a purported sale) under which transfer of the property in the car was intended to be transferred. If that was before Gwent became Manor Credit’s debtor under their hire purchase agreement, then the disposition in question fell outside the protection of section 27 and Dr Kulkarni received no aid from it to establish a better title than Manor Credit’s.
18.	In the circumstances, the question became when Gwent and Dr Kulkarni intended property in the car to be transferred to Dr Kulkarni, a question of sale of goods law. 

Transfer of property under the SGA 1979

19.	Manor Credit’s case was that the judge was right to say that such transfer took place by 11 March and that rule 5(1) of section 18 of the SGA 1979 provided the answer. Dr Kulkarni’s case, however, was that there was no intention to transfer the property until delivery itself. As of 11 March there had been no unconditional appropriation: there could be no such appropriation, nor any relevant assent on the part of Dr Kulkarni at a time when Gwent did not have any property in the car. Dr Kulkarni could not be taken to assent to the appropriation of a car in which Gwent had no property to transfer. Alternatively, the car was not in a deliverable state without its registration plates being attached to it. In any event, rule 5(1) was only a prima facie rule. There could be no intention to pass property in a car in which Gwent had no property. In such circumstances, property would not pass until delivery (see rule 5(2)). That was in any event the better view of what parties to such a contract of sale should be taken to intend, namely that property passes with delivery.  

20.	I refer to the Appendix to this judgment where relevant provisions of the SGA 1979 are collected. In brief, however, we are concerned in this case with a contract for the sale of unascertained or future goods. In such a case, no property is transferred unless and until the goods are ascertained (section 16). Where, however, there is a contract for the sale of specific or ascertained goods, property in them is transferred at such time as the parties intend it to be transferred, and for these purposes regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case (section 17). (In terms section 17 appears to apply only to contracts for the sale of specific or ascertained goods, but in practice it has come to be applied to contracts for the sale of unascertained goods as well, once they have become ascertained.) The statute also contains working rules for discovering that intention “Unless a different intention appears”. Those rules are set out in section 18. The rules with which we are concerned in this case are rules 5(1) and (2).

21.	Rule 5(1) for present purposes requires (i) “goods of that [ie the contractual] description”; (ii) “in a deliverable state”; (iii) which have been “unconditionally appropriated to the contract” by the seller; (iv) “with the assent of the buyer”, which assent may be given either before or after the appropriation. No one has argued here for a prior assent by Dr Kulkarni. There is no suggestion that VK08 EVF did not comply with the contractual description. The three matters which it is therefore necessary to consider are (ii), (iii) and (iv). 

22.	Rule 5(2), which until the addition of rules 5(3) and 5(4) pursuant to the Sale of Goods (Amendment) Act 1995 was the last of the rules to be set out under section 18, represents a form of long stop prima facie rule, which is that, save where the seller reserves a right of disposal, delivery to the buyer (or to a carrier or other bailee or custodier for transmission to the buyer) amounts to an unconditional appropriation of the goods. For these purposes there is no need for there to be any assent by the buyer, the rule presupposes that the goods are in a deliverable state without making that a condition of the intention to transfer property, and the goods are deemed to have been unconditionally appropriated, whether they have been or not. There is of course no theoretical need for transfer of property and delivery to coincide, just as there is no theoretical need for delivery and payment to occur at the same time, or of property and risk to pass at the same time. However, in the absence of a right of disposal where the price has not yet been paid, and in the absence of any earlier transfer of property, delivery is likely to be the time when parties would intend property to pass. 

23.	The passing of risk is dealt with in section 20. Unless otherwise agreed, the goods remain at the seller’s risk until property is transferred: upon transfer risk passes to the buyer as well, whether delivery has been made or not. But not in the case of a consumer sale. By an exception first introduced pursuant to the Sale and Supply of Goods to Consumers Regulations 2002, section 20(4) of the SGA 1979 now provides that where the buyer deals as consumer, the goods remain at the seller’s risk until delivery to the consumer. That is presumably to protect a consumer to whom property and risk may have passed, but to whom delivery has not yet been made. 
 
Deliverable state

24.	The definition of “deliverable state” is contained in section 61(5) of the SGA 1979, viz “such a state that the buyer would under the contract be bound to take delivery of them”. It is true that the absence of the registration plates was in one sense a trivial matter which certainly did not fundamentally affect the condition or the quality of the car in question. However, it could not be lawfully driven by Dr Kulkarni without them. If Gwent had proposed delivery of the car to Dr Kulkarni without putting them on, he would have said that the car was of no use to him without its plates. The judge seems to have considered that there was a substantial question as to when in this case the plates were attached to the Mercedes, for in para 16 he said that – 

“The only thing that might be said in respect of this Mercedes was that until it actually had a number plate affixed to it, it might not be said to be in a deliverable state, but I reject that argument. It seems to me that it would be in a perfectly deliverable state without actually having a number plate affixed to it, even though actually at the time that that event arises Gwent would not in fact have been able to deliver it.”

25.	The judge therefore contemplated that, without registration plates attached, Gwent would not even have been able to deliver the car. Whether that is so or not, for dealers are, I believe, entitled to transport cars with their own dealer plates attached, the judge found that without its individual registration plates Gwent would not have been able to deliver the car. Either for that reason or because in any event Dr Kulkarni would not have been able to drive the car without its registration plates attached, which is possibly what the judge meant by his observation, and in circumstances where there was no evidence that, at any material time prior to the time of delivery, the car had its registration plates attached, the car was not shown to have been in a deliverable state as of 11 March (even if at that time it might have become ascertained goods by being appropriated to the contract). In my judgment, Dr Kulkarni would not have been bound to have taken delivery of the car without registration plates attached.    

26.	I would therefore be prepared to hold that there is no evidence that rule 5(1) was fulfilled in this respect before Gwent became Manor Credit’s debtor under their hire purchase agreement. In such a case, Dr Kulkarni could establish that he had become a purchaser of the car under a disposition which first took place at the time of delivery, and thus when Gwent was in a position to transfer the property in the car under the nemo dat exception contained within section 27. That is enough to entitle Dr Kulkarni to judgment in his favour and thus to succeed on his appeal.

27.	On behalf of Dr Kulkarni, Mr Christopher Purchas QC had prepared a skeleton argument which sought to argue in addition that the car was not in a deliverable state for reasons unconnected with its physical state and which resided in the fact that at what might otherwise have been the time intended for transfer of the property in the car Gwent lacked any title to transfer. However, at the appeal hearing he abandoned that wider argument, in my judgment correctly. See, for instance, Underwood Ltd v. Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343 (CA) at 345 – “It depends on the actual state of the goods…” per Bankes LJ; see also Benjamin on Sale, 6th ed, 2002, para 5-023, “The goods must therefore be in a physical condition in which the buyer can take delivery and in which it has been agreed that he shall take delivery under the contract.”  

Unconditional appropriation and assent as indicators of intention

28.	If that conclusion about deliverable state be wrong, the next question which would arise would be whether there was an unconditional appropriation of the car with the assent of Dr Kulkarni, ie factors (iii) and (iv) above. The judge considered that there had been such an appropriation, and that therefore property in the goods had been intended to be transferred to Dr Kulkarni by at latest 11 March. He said (at para 17):

“Once the identity of the vehicle had been obtained by obtaining a number plate, or rather a registration number of the vehicle, because that must refer to a specific vehicle, then those goods are unconditionally appropriated to the contract, and it is done by the seller with the implied consent of the buyer. At the very latest the buyer assents to that by insuring the vehicle on 11th March. I have to say that that seems to me to be an unassailable argument.”

29.	Subject to the ultimate question of intention, for of course rule 5(1) is only a prima facie rule, the judge’s proposition appears to have a rough good sense to it. Authority, however, suggests that the rule is not after all so very easily fulfilled, at any rate as an indicator of the parties’ intentions. This is in part because the statutory presumptions are not difficult to rebut. As Diplock LJ said in Ward v. Bignall [1967] 1 QB 534 at 545 – 

“in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment.”

30.	A number of cases illustrate the flexibility of the law. Thus in Varley v. Whipp [1900] 1 QB 513 the buyer bought, sight unseen, a second hand reaper under a certain description, viz that it was nearly new as having been used to cut only about 50 to 60 acres. The reaper was sent to the buyer by rail, and on its arrival the buyer complained that it did not comply with its description, being old and mended. The seller sued for the price. The divisional court treated this contract for the sale of specific goods under section 17, not under section 18, and held that property could not have been intended to pass in goods which did not comply with their description until they had been inspected and accepted, which the reaper had not been. The seller therefore failed in his action. In the present case, there was no problem about the car’s description, but there was a breach of the implied condition as to title. 

31.	In Noblett v. Hopkinson [1905] 2 KB 214 the buyers bought and paid for a half gallon of beer from a publican. The purchase was made on a Saturday and the beer was drawn off and put aside for delivery on the Sunday. The publican was proceeded against for selling liquor on the Sunday. The issue was whether there had been a transfer of property in the beer on the Saturday. The magistrates found that transfer of the property had been effected on the Saturday. The divisional court however held that that was wrong in law, as property had not been transferred until the Sunday. Lord Alverstone CJ said that the correct inference was that what was done by the publican was under his own responsibility and that “if the bottle of beer had been broken during the Saturday night, other beer would have had to be supplied to the men on the Sunday morning” (at 219). There was no sufficient appropriation. 

32.	In Ollett v. Jordan [1918] 2 KB 41 the sale was of herrings, despatched by rail by a seller in Hull to a buyer in Eastbourne. The issue under the Public Health Act 1875 was whether the seller had “exposed for sale” the herrings in an unmerchantable condition. They were in good condition on despatch, but bad on arrival. If property had been transferred on despatch, the seller was not guilty. The question was therefore whether there had been such an appropriation as would transfer the property. It was held that as the buyer had a right to inspect and reject the herrings, property had not passed on despatch, and the seller’s acquittal by the magistrates was reversed on appeal.

33.	The famous case of Rowland v. Divall [1923] 2 KB 500 (CA) concerned a car which had been sold by a seller who had no title to it, for it turned out to have been stolen. After the buyer had used the car for some time, it was recovered by the police for its true owner, and the buyer sued the seller to recover the price. He was held by this court to have been entitled to do so, on the ground that there had been a total failure of consideration, since the seller had contracted to transfer the property in the car but had failed to do so. Bankes, Scrutton and Atkin LJJ agreed in the result. Atkin LJ said (at 506):

“He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer.”     

He also (controversially) said “there can be no sale at all of goods which the seller has no right to sell” (at 506), but I do not rely on that.

34.	Finally, in Carlos Federspiel & Co SA v. Charles Twigg & Co Ltd (1957) Ll Law Rep 240 the buyer paid in advance for goods to be shipped. The seller failed before shipment, and his receiver refused to ship without a second payment. It was held that he was entitled to do so, since there had been no appropriation and thus as yet no transfer of property. Pearson J reviewed the law from the early nineteenth century. Among the cases which he examined was Mucklow and Others (Assignees of Royland) v. Mangles (1808) 1 Taunt 318, where a buyer had paid for the whole cost of a barge to be constructed, and his name had been painted on it, but the seller sold the barge to a third party and it was held that property had not yet been transferred to the original buyer. Another case was Wilkins v. Bromhead and Hutton (1844) 6 M&G 963, where the buyer had assented to an appropriation of a greenhouse which had been constructed for him: the buyer remitted the price to the seller and asked him to keep it for him. That was a clear case, but the judgment of Tindal CJ is interesting for the following observation (at 974):

“If a purchaser’s assent to the appropriation was shown to have been obtained by misrepresentation, it seems to me it would probably be held to be no assent at all.”

So, in the present case, if Dr Kulkarni’s insurance of the car is to be taken, as the judge thought, as an assent to Gwent’s appropriation, it might be said that such an assent was given on the basis of the implied representation and understanding that at that time Gwent had the property in the car which it would need to have if it was to transfer that property which it had promised to transfer at a time when the agreement to sell matured into a sale. On that basis, Dr Kulkarni’s assent would be no assent.   

35.	On the basis of his review of such cases Pearson J restated the following principles at 255/6:

“Therefore the element of common intention has always to be borne in mind. A mere setting apart or selection of the seller of the goods which he expects to use in performance of the contract is not enough. If that is all, he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract…

Secondly, it is by agreement of the parties that the appropriation, involving a change of ownership, is made…   

Thirdly, an appropriation by the seller, with the assent of the buyer, may be said always to involve an actual or constructive delivery. If the seller retains possession, he does so as bailee for the buyer…

Fourthly, one has to remember Sect. 20 of the Sale of Goods Act, whereby the ownership and the risk are normally associated. Therefore as it appears that there is reason for thinking, on the construction of the relevant documents, that the goods were, at all material times, still at the seller’s risk, that is prima facie an indication that the property had not passed to the buyer.

Fifthly, usually but not necessarily, the appropriating act is the last act to be performed by the seller…But if there is a further act, an important and decisive act to be done by the seller, then there is prima facie evidence that probably the property does not pass until the final act is done.”

36.	Applying those principles, Pearson J concluded that (1) the intention was that the ownership should pass on shipment because shipment was emphasised as the decisive act; (2) there was nothing in the parties’ correspondence to indicate any change in that intention; (3) there was no actual or constructive delivery; (4) there was no suggestion of the goods being at the buyer’s risk before delivery; and (5) there was no delivery or sending for delivery. Therefore property had not passed.

37.	That was an international sale of goods in commerce. The present case is the standard case of the domestic sale of a car to a consumer. It has to be acknowledged that such a purchaser who has paid up front for a car yet to be sourced would be protected by obtaining title to a car, once identified and sufficiently appropriated, in the dealer’s showroom or garage, were the dealer to become insolvent. Nevertheless, the present case shows that there are equal dangers in losing the protection of section 27 if property passes too early. I do not think that one can argue backwards from the consequences in any particular case to the prospective intentions of the parties. In the meantime the standard provision in a consumer case that risk remains with the seller until delivery will protect the buyer against all risk except insolvency. As to that risk in the present case, the fact is that Dr Kulkarni was prepared to trust Gwent with his cash at a time when he had no possibility of having property in a car yet to be sourced or ascertained. 

38.	Mr Purchas submitted that in the case of the sale of a car to a consumer property is in general not intended to pass until delivery, and I think that there is force in that submission, at any rate where as here the contract is not for the sale of a specific car and the buyer has never seen the car. Generally speaking, it will be on delivery that the buyer will be able to inspect the car, if new, for its specification, and if second-hand, for any work which the dealer has been asked to do to it. It is on delivery that the buyer will be handed the car’s log-book or registration document (not a matter considered by the judge). Although such a document speaks to the car’s keeper, not its owner, it is I think well recognised that a legitimate buyer would not readily assent to complete the sale of a car without getting its log-book. It is at latest on delivery that the dealer will have ensured that he is paid. It is, I would think, for and from the time of delivery that the buyer insures the car. The special rule as to risk, although perhaps designed to protect a consumer even where property may have passed before delivery, is apt for a passing of property on delivery. The consumer will have little knowledge of the rules of section 18 of the SGA 1979, but he or she will have in their mind the adage that possession is nine points of the law, and that points to the time of delivery as well. Moreover, such a result seems on the whole to fit into the apparent circumspection of the law, indicated by the review conducted by Pearson J, about any assumption that the parties are too readily supposed to intend that property passes under rule 5(1).

39.	I would therefore have wanted some good evidence that the parties in this case had intended the property in the Mercedes to pass prior to delivery before solving the issue on the basis of the rule 5(1) presumption. The judge thought that he had that evidence above all in Dr Kulkarni’s insurance of the car, identified as it would have to be by its registration number. However, as I have pointed out above, there is no finding as to the time from which Dr Kulkarni insured cover for the car. If, as I would in the absence of evidence infer, Dr Kulkarni only insured it from the time of its expected delivery, then this matter of insurance, so far from pointing towards a solution in terms of rule 5(1), actually points against it.

40.	Moreover, on the facts of this case, Gwent never had property in the car to transfer to Dr Kulkarni. It knew that it did not, and it knew that it had no intention of fulfilling its contract to transfer property in the car to its buyer. It knew therefore that any assent by Dr Kulkarni to the appropriation of a car in which Gwent had no property had been procured by its own dishonest pretence. Dr Kulkarni of course did not know the truth of the situation, but it could not be supposed on any objective basis that he would assent to an appropriation to him and thus to the transfer of title there and then in respect of a car in which his seller, Gwent, lacked title. Could a seller who knows that he lacks the property in goods which he appropriates to a contract reasonably think that his buyer would assent to such an appropriation as the means and moment of transferring property? In my judgment, no.  

41.	It seems to me that in such a situation, rule 5(1) is unlikely to provide a solution to the question of the parties’ intentions. The rule assumes that the goods which a seller proposes to appropriate unconditionally to his contract, so that with the assent of his buyer property should be transferred then and there to that buyer, are goods in which the seller has property with which to perform his section 12(1) obligation. If, therefore, a seller lacks property in the goods, his appropriation to the contract of goods in which he has no property, a fortiori where he knows he has no property, is unlikely to be any more reliable as an indication of his or the parties’ intentions than his appropriation of goods which are not in a deliverable state, or of goods which are not goods of the contract description. 

42.	A seller might in some circumstances not know that he lacks property in the goods, and therefore in his ignorance he might intend to transfer a property that he does not have. That however is not this case. Gwent knew that it had no property, and for his part Dr Kulkarni could not be thought of as intending to assent to an appropriation which his seller knew could not transfer to him the property which, if rule 5(1) were to be applied, would be required to be transferred.

43.	In such circumstances, it seems to me that the agreement to sell would only mature into a sale, or purported sale, with actual delivery of the goods itself. That would reflect the presumption in rule 5(2), which focuses on delivery, deems an unconditional appropriation then to occur, and has no requirement for the buyer’s assent. Thus, I should not be thought of as saying (despite the great authority of anything falling from Atkin LJ) that a seller cannot complete a sale if he lacks full rights of ownership in the goods. Where he lacks full title, he may well transfer such property as he has, such as a possessory title. As it happens, in the present case there is no finding even as to whether Gwent had possession of the car on 11 March.

44.	Such a solution would also reflect the principles derived by Pearson J from his examination of the topic in Federspiel. Thus in terms of those principles I would say that: (1) delivery was here looked to as the decisive act which would transfer both possession and property; (2) there was nothing in the parties’ communications which indicated an intention otherwise; (3) there was no actual or constructive delivery, no sense in which Gwent became the bailee of Dr Kulkarni’s car; (4) the car was not at Dr Kulkarni’s risk before delivery; and (5) in the circumstances of Gwent’s fraud the parties should not be taken to intend anything prior to actual delivery of the car to turn their agreement into a sale.

45.	It is not that Gwent may not have appropriated the car to the contract and done so unconditionally. It is rather that in the circumstances of the case such an appropriation should not be regarded, under a merely presumptive rule, as intended to transfer the property in the car to Dr Kulkarni.

Conclusion

46.	It follows that, for all or some of those reasons, the terms of section 27 applied to this case, and Dr Kulkarni is entitled to judgment. His appeal must therefore be allowed. 
Lord Justice Wilson :
47.	I agree.
Sir Scott Baker :
48.	I also agree.

Appendix

Sales of Goods Act 1979

2 Contract of sale
(1) A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in the goods for a money consideration, called the price…
(4) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale.
(5) Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell.
(6) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

5 Existing or future goods

(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods…

12 Implied terms about title, etc

(1) In a contract of sale, other than one to which subsection (3) below applies, there is an implied term on the part of the seller that in the case of a sale he has the right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass…
(3) This subsection applies to a contract of sale in the case of which there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third person may have…
(5A) As regards England…the term implied by subsection (1) above is a condition.

16 Goods must be ascertained

Subject to section 20A below 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.

17 Property passes when intended to pass

(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.

18 Rules for ascertaining intention 

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…

[Rules 1/3 relate to contracts for the sale of specific goods, and Rule 4 relates to goods delivered on approval or sale or return.]

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 then passes to the buyer; and the assent may be express 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 or custodier (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 taken to have unconditionally appropriated the goods to the contract…

20 Passing of risk

(1) Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not…
(4) In a case where the buyer deals as a consumer or, in Scotland, where there is a consumer contract in which the buyer is a consumer, subsections (1) to (3) above must be ignored and the goods remain at the seller’s risk until they are delivered to the consumer…

61 Interpretation

(1)	In this Act, unless the context or subject matter otherwise requires  
“contract of sale” means an agreement as well as a sale;…
“delivery” means voluntary transfer of possession from one person to another…;…
“future goods” means goods to be manufactured or acquired by the seller after the making of the contract of sale;…
“property” means the general property in goods, and not merely a special property;…
“sale” includes a bargain and sale as well as a sale and delivery;
“specific goods” means goods identified and agreed on at the time a contract of sale is made…
(5) Goods are in a deliverable state within the meaning of this Act when they are in such a state that the buyer would under the contract be bound to take delivery of them.”