Sale of Goods Act is one of very old mercantile law.

Sale of Goods is
one of the special types of Contract. Initially, this was part of Indian
Contract Act itself in chapter VII (sections 76 to 123). Later these
sections in Contract Act were deleted, and separate Sale of Goods Act
was passed in 1930.

The Sale of Goods Act is complimentary to Contract Act. Basic

provisions of Contract Act apply to contract of Sale of Goods also. Basic
requirements of contract i.e. offer and acceptance, legally enforceable
agreement, mutual consent, parties competent to contract, free
consent, lawful object, consideration etc. apply to contract of Sale of
Goods also.

Contract of Sale - A contract of sale of goods is a contract whereby

the seller transfers or agrees to transfer the property in goods to the
buyer for a price. There may be a contract of sale between one part-
owner and another. [section 4(1)]. A contract of sale may be absolute
or conditional. [section 4(2)].

Thus, following are essentials of contract of sale - * It is contract, i.e. all

requirements of contract must be fulfilled * It is of goods * Transfer
of property is required * Contract is between buyer and seller * Sale
should be for price * A part owner can sale his part to another part-
owner * Contract may be absolute or conditional.

How Contract of sale is made - A contract of sale is made by an

offer to buy or sell goods for a price and the acceptance of such offer.
The contract may provide for the immediate delivery of the goods or
immediate payment of the price or both, or for the delivery or payment
by instalments, or that the delivery or payment or both shall be
postponed. [section 5(1)]. Subject to the provisions of any law for the
time being in force, a contract of sale may be made in writing or by
word of mouth, or partly in writing and partly by word of mouth or may
be implied from the conduct of the parties. [section 5(2)]. Thus, credit
sale is also a sale. - - A verbal contract or contract by conduct of
parties is valid. e.g. putting goods in basket in super market or taking
food in a hotel.

Two parties to contract - Two parties are required for contract. - -

Buyer means a person who buys or agrees to buy goods. [section
2(1)]. Seller means a person who sells or agrees to sell goods.
[section 2(13)]. A part owner can sale his part to another part-owner.
However, if joint owners distribute property among themselves as per
mutual agreement, it is not sale as there are no two parties.
Contract of Sale includes agreement to sale - 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, but where the transfer of the
property in the goods is to take place at a future time or subject to
some condition thereafter to be fulfilled, the contract is called an
agreement to sell. [section 4(3)]. 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. [section 4(4)]. The
provision that contract of sale includes agreement to sale is only for
the purposes of rights and liabilities under Sale of Goods Act and not to
determine liability of sales tax, which arises only when actual sale
takes place.

Transfer of property - Property means the general property in

goods, and not merely a special property. [section 2(11)]. In laymans
terms property means ownership. General Property means full
ownership. Thus, transfer of general property is required to
constitute a sale. If goods are given for hire, lease, hire purchase or
pledge, general property is not transferred and hence it is not a sale.

POSSESSION AND PROPERTY - Note that property and possession are

not synonymous. Transfer of possession does not mean transfer of
property. e.g. - if goods are handed over to transporter or godown
keeper, possession is transferred but property remains with owner.
Similarly, if goods remain in possession of seller after sale transaction
is over, the possession is with seller, but property is with buyer.

Goods - Goods means every kind of movable property other than

actionable claims and money; and includes stock and shares, growing
crops, grass, and things attached to or forming part of the land which
are agreed to be severed before sale or under the contract of sale.
[section 2(7)].

Price - Price means the money consideration for a sale of goods. [section
2(10)]. Consideration is required for any contract. However, in case of contract of
sale of goods, the consideration should be price i.e. money consideration.

Ascertainment of price - The price in a contract of sale may be fixed by

the contract or may be left to be fixed in manner thereby agreed or
may be determined by the course of dealing between the parties.
[section 9(1)]. Where the price is not determined in accordance with
the foregoing provisions, the buyer shall pay the seller a reasonable
price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case. [section 9(2)].
Conditions and Warranties - Opening para of section 16 makes it clear that
there is no implied warranty or condition as to quality of fitness of goods for any
particular purpose, except those specified in Sale of Goods Act or any other law.
- - This is the basic principle of caveat emptor i.e. buyer be aware. However,
there are certain stipulations which are essential for main purpose of the contract
of sale of goods. These go the root of contract and non-fulfilment will mean loss
of foundation of contract. These are termed as conditions. Other stipulations,
which are not essential are termed as warranty. These are collateral to contract
of sale of goods. Contract cannot be avoided for breach of warranty, but
aggrieved party can claim damages. - - A breach of condition can be treated as
breach of warranty, but vice versa is not permissible.

A stipulation in a contract of sale with reference to goods which are the subject
thereof may be a condition or a warranty. [section 12(1)]. A condition is a
stipulation essential to the main purpose of the contract, the breach of which
gives rise to a right to treat the contract as repudiated. [section 12(2)]. A warranty
is a stipulation collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not to a right to reject the goods and treat
the contract as repudiated. [section 12(3)]. Whether a stipulation in a contract of
sale is a condition or a warranty depends in each case on the construction of the
contract. A stipulation may be a condition, though called a warranty in the
contract. [section 12(4)].

Where a particular stipulation in contract is a condition or warranty

depends on the interpretation of terms of contract. Mere stating
Conditions of Contract in agreement does not mean all stipulations
mentioned are conditions within meaning of section 12(2).

When condition to be treated as warranty - Where a contract of sale is

subject to any condition to be fulfilled by the seller, the buyer may
waive the condition or elect to treat the breach of the condition as a
breach of warranty and not as a ground for treating the contract as
repudiated. [section 13(1)]. Where a contract of sale is not severable
and the buyer has accepted the goods or part thereof, the breach of
any condition to be fulfilled by the seller can only be treated as a
breach of warranty and not as a ground for rejecting the goods and
treating the contract as repudiated, unless there is a term of the con-
tract, express or implied, to that effect. [section 13(2)]. Nothing in this
section shall affect the case of any condition or warranty fulfillment of
which is excused by law by reason of impossibility or otherwise.
[section 13(3)].

Time of payment is not essence of contract but time of delivery of

goods is, unless specified otherwise - Unless a different intention
appears from the terms of the contract, stipulations as to time of
payment are not deemed to be of the essence of a contract of sale.
Whether any other stipulation as to time is of the essence of the
contract or not depends on the terms of the contract. [section 11]. As a
general rule, time of payment is not essence of contract, unless there
is specific different provision in Contract. In other words, time of
payment specified is warranty. If payment is not made in time, the
seller can claim damages but cannot repudiate the contract.

Caveat Emptor - The principle termed as caveat emptor means

buyer be aware. Generally, buyer is expected to be careful while
purchasing the goods and seller is not liable for any defects in goods
sold by him. This principle in basic form is embodied in section 16 that
subject to provisions of Sale of Goods Act and any other law, there is
no implied condition or warranty as to quality or fitness of goods for
any particular purpose. As per section 2(12), Quality of goods
includes their state or condition.

Transfer of property as between seller and buyer - Transfer of general

property is required in a sale. Property means legal ownership. It is necessary to
decide whether property in goods has transferred to buyer to determine rights
and liabilities of buyer and seller. Generally, risk accompanies property in goods
i.e. when property in goods passes, risk also passes. If property in goods has
already passed on to buyer, seller cannot stop delivery of goods even if in the
meanwhile buyer has become insolvent. - - - 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. [section 18].

Property passes when intended to pass - 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. [section 19(1)]. 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. [section 19(2)]. Unless a different intention appears, the
rules contained in sections 20 to 24 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. [section 19(3)].

Specific goods in a deliverable state - 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 of the price or the
time of delivery of the goods, or both, is postponed. [section 20].

Auction sale - Auction sale is special mode of sale. The sale is made in open after
making public announcement. Buyers assemble and make offers on the spot. Person
offering to pay highest price gets the goods. Usually, auctioneer is appointed to conduct
auction. Higher and higher bids are offered and sale is complete when auctioneer accepts
a bid.- - - In the case of a sale by auction (1) where goods are put up for sale in
lots, each lot is prima facie deemed to be the subject of a separate contract of sale; (2) the
sale is complete when the auctioneer announces its completion by the fall of the hammer
or in other customary manner; and, until such announcement is made, any bidder may
retract his bid; (3) a right to bid may be reserved expressly by or on behalf of the seller
and, where such right is expressly so reserved, but not otherwise, the seller or any one
person on his behalf may, subject to the provisions hereinafter contained, bid at the
auction; (4) where the sale is not notified to be subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at
such sale, or for the auctioneer knowingly to take any bid from the seller or any such
person; and any sale contravening this rule may be treated as fraudulent by the buyer; (5)
the sale may be notified to be subject to a reserved or upset price; (6) if the seller makes
use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.
[section 64].

Delivery of goods to buyer - The Act makes elaborate provisions regarding delivery of
goods to buyer. It is the duty of the seller to deliver the goods and of the
buyer to accept and pay for them, in accordance with the terms of the
contract of sale. [section 31]. Unless otherwise agreed, delivery of the
goods and payment of the price are concurrent conditions, that is to
say, the seller shall be ready and willing to give possession of the
goods to the buyer in exchange for the price, and the buyer shall be
ready and willing to pay the price in exchange for possession of the
goods. [section 32]. - - Note that this is unless otherwise agreed, i.e.
buyer and seller can agree to different provisions in respect of
payment and delivery.

Acceptance of goods by buyer - Contract of Sale is completed not by mere

delivery of goods but by acceptance of goods by buyer. Acceptance does not
mean mere receipt of goods. It means checking the goods to ascertain whether
they are as per contract. - - - Where goods are delivered to the buyer which he
has not previously examined, he is not deemed to have accepted them unless
and until he has had a reasonable opportunity of examining them for the purpose
of ascertaining whether they are in conformity with the contract. [section 41(1)]. -
- Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable opportunity of
examining the goods for the purpose of ascertaining whether they are in
conformity with the contract. [section 41(2)].

Buyers and Sellers duties - The Act casts various duties and grants certain
rights on both buyer and seller.

Rights of unpaid seller against the goods - After goods are sold and property
is transferred to buyer, the only remedy with seller is to approach Court, if the
buyer does not pay. Seller has no right to take forceful possession of goods from
buyer, once property in goods is transferred to him. However, the Act gives some
rights to seller if his dues are not paid.

Suits for breach of the contract - Unpaid seller can exercise his rights to the
extent explained above. In addition, seller can exercise following rights in case of
breach of contract. Buyer has also rights in case of breach of contract.

Measure for compensation and damages The Sale of Goods Act

does not specify how to measure damages. However, since the Act is
complimentary to Contract Act, measure of compensation and
damages will be as provided in sections 73 and 74 of Contract Act.

11. Definition Of Contract Of Sale

The Sale of Goods Act (Ont. s. 3; U.K. s. 1) provides:

3. - (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a money consideration, called the price.
There may be a contract of sale between one part owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in goods is transferred from the seller to
the buyer the contract is called a sale ;but where the transfer of the property in the goods
is to take place at a future time or subject to some condition thereafter to be fulfilled the
contract is called an agreement to sell.

(4) 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.

The distinction drawn in sub.-ss. 3 and 4 between an agreement to sell and a sale is
fundamental in the law of sale of goods. This distinction can, however, be more
conveniently discussed in chapter 3, in connection with the rules which govern the
passing of the property as between the seller and the buyer.

Whereas in the Sale of Goods Act the term "contract of sale" is used to express both an
"agreement to sell" and a "sale," in the United States the term "contract of sale" does not
occur in the Uniform Sales Act, and the terms "contract to sell" and "sale" are used
throughout the statute, either in the alternative or singly as the context may require.

[IN THE COURT OF APPEAL.]

KURSELL
-v-
 TIMBER OPERATORS AND CONTRACTORS,
LIMITED.
[1927] 1 K. B.928

Sale of Goods-Contract for Sale of uncut Timber in Latvian Forest-Timber to be cut when
Ripe-Cutting to be completed and Timber removed within fifteen Years-Possession taken
by Purchasers-Subsequent Expropriation of Forest by Latvian Government-"Specific
goods"-Frustration of Contract-Sale of Goods Act, 1893 (56 & 57 Vict. c. 71) ss. 17, 18,
r. I

BY the Sale of Goods Act, 1893, s. 17, sub-s. 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." By sub-s. 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." By s. 18, r. 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."

By a contract dated September 10, 1920, the vendors agreed to sell and the purchasers to
purchase all the merchantable timber growing on August 20, 1920, in the forest of Luhde
in the Republic of Latvia. Merchantable timber was therein defined to be "all trunks and
branches of trees but not seedlings and young trees of less than six inches in diameter at a
height of four feet from the ground. The. timber was to be cut not more than twelve
inches from the around. The purchasers were to have fifteen years in which to cut the
timber and were to have the use of the vendors' sawmills, plant and huts. and the right to
occupy every part of the forest. The price was 225,000l., and the payments were to be
made 15,000l. on each of the three quarter days in the year, and for the fourth quarter a
sum equal to 4l. a standard of exportable timber cut in the forest during the year, less
45,000l. (the three previous instalments). The amount was to be certified by the
authorized agents of the vendors and purchasers, the measurements having been agreed
by them. The purchasers, unless prevented by some act or enactment of the Government
of the country, or by force majeure, were to cut the timber at the rate of 15,000 standards
per annum, and if they were so prevented, the fifteen years' period was to receive a
corresponding extension of time. During the period of prevention the 15,000l. instalments
of price were to be reduced to 4l. a standard of timber cut, carried away and sold or
exported during the quarter.

On September 16 the Latvian Assembly passed an agrarian law, by which from October
1, 1920, the forest became the property of the Latvian State and the contract was annulled
and all property and rights of vendors and purchasers in the forest were confiscated. For
the last five and a half years, therefore, it had been illegal to perform the contract in the
place where alone it could be performed and the obstacle to its performance was
continuing. The purchasers had paid 30,000l. to the vendors covering the first six months,
and no question therefore arose that a default of payment of sums due had made the
whole price payable:-

Held, that the contract was not a contract for the sale of specific goods in a deliverable
state within the meaning of s.18, r. 1, of the Sale of Goods Act, 1893 ; that the goods in
question were neither identified nor agreed upon; that it was not every tree in the forest
which passed, but only those complying with certain measurements not then made; that
the timber was not in a deliverable state until the purchasers had severed it and that they
could not under the definition in the rule be bound to take delivery of an undetermined
part of a tree not yet identified, and accordingly that the property in the timber had not
passed under s. 18, r. 1, and therefore that the timber was not at the risk of the purchasers.

Morison v. Lockhart 1912 S.C. 1017 followed.

Held, also, by Scrutton L.J., that even if the property in the timber had passed so much
remained to be done under the contract that the doctrine of frustration would apply.

Metropolitan Water Board. v. Dick, Kerr & Co. [1918] A.C. 119 applied.

Decision of Rowlatt J. affirmed.

APPEAL from a decision of Rowlatt J. upon an award in an arbitration stated in the form
of a special case under s. 7 (b) of the Arbitration Act, 1889.

By an agreement dated September 10, 1920, and made between the plaintiffs (thereinafter
called "the vendors") of the one part and the defendants (thereinafter called "the
purchaser") of the other part, the plaintiffs agreed to sell and sold and the defendants
agreed to buy and bought at the price of 205,000l. all the merchantable timber growing
on August 20, 1920, in the forest called Lillide, situate between the towns of Wolmar and
Walk in the Republic of Latvia. The agreement provided that the purchaser was to have
fifteen years within which to cut and remove it, and at the end of that time any timber
uncut or not removed was to be forfeited to the vendors: "Provided however that if the
purchaser shall be prevented by any act or enactment of the Government of the country
de facto, or otherwise by force majeure, or by war from cutting the timber or from
disposing of the timber so cut, then the said term of fifteen years shall be extended by a
time equal to the duration of such prevention." By clause 10 the timber sold was to be
felled, piled, sawn and removed-subject to the following stipulations: (1) All trees should
be felled so that the stumps thereof did not exceed twelve inches in height from the
ground. (2.) The timber so collected as aforesaid should be measured before removal
according to British customary methods, and the measurements agreed by the
representatives of the vendors and the purchaser respectively. (3.) As soon as any section
of the forest should have been cleared of merchantable timber the vendors should be at
liberty to enter thereon for the purpose of replanting the same, provided that such
replanting should not interfere with the efficient exploitation by the purchaser of the
sections not so cleared. By clause 12 the timber was to be cut at the minimum rate of
15,000 standards per annum. By clause 13 30,000l. was to be paid down in cash or it's
equivalent on the signing of the agreement, the balance of 193,000l. was to be paid by
quarterly instalments of 15,000l. with an adjustment in the case of each fourth instalment,
or last annual payment, upon a certificate signed by the authorized agents of the vendors
and purchaser; and by a proviso to the clause in case any part of the timber hereby agreed
to be sold shall be destroyed by fire during the said period of fifteen years ....the same
shall be deemed to have been merchantable timber and to have been cut by the purchaser
at the time when the same was destroyed and the amount so deemed to have been cut
shall be such fraction of the total estimated number of standards of merchantable timber
in the whole forest on 20th August, 1920, last as shall equal the fraction of the total area
of the forest, the timber whereon shall have been so destroyed." By clause 19 the
agreement was to be construed as an agreement made in England, and the rights of the
respective parties were to be determined in accordance with the laws of England. By
clause 1(i) merchantable timber was to mean and include all trunks and branches of trees,
but not seedlings and young trees of less than six inches in diameter at a height of four
feet from the ground.

The facts as found by the special case were as follows:-

(a) The forest of Luhde in the agreement of September 10, 1920, mentioned had an area
of 9000 dessiatines or thereabouts. A dessiatine was a Russian measurement equal to 2.7
acres. A small part of the forest consisted of leaf bearing trees ; by far the greater part
consisted of conifers.

(b) The forest was estimated by the plaintiffs to contain 24,000,000 and by the defendants
to contain about 33,000,000 or 34,000,000 cubic feet of timber ripe for cutting.

(c) The sum of 30,000l. part of the purchase money payable tinder the agreement was
duly paid by the defendants to the plaintiffs in manner provided by clause 13 (i) of the
agreement. No further part of the purchase money had been paid.

(d) On September 15, 1920, the defendants were duly admitted by the plaintiffs into the
forest and took possession of the timber, the subject-matter of the agreement.

(e) On or about October 2, 1920, the defendants began to cut the timber in pursuance of
the agreement and continued so to cut the same until October 14, 1920. There was no
evidence before the arbitrator as to the amount of timber so cut by the defendants.

(f) On October 14, 1920, the Government of Latvia by its agents in pursuance of the
Lettish agrarian law passed on September 16, 1920, Part I. of which (being the relevant
Part) came into operation on October 1, 1920 took possession of the forest and the timber
therein.

(g) By virtue of the said law as from October 1, 1920, the forest and the timber therein
became the property of the, Latvian State and the agreement of September 10, 1920,
became annulled, and all property and rights of the plaintiffs and the defendants in the
forest and the timber therein became entirely confiscated to the Latvian State.

(h) Continuously until the present time (a) the said law had remained in force and (b) the
Government of Latvia had remained in possession of the forest and (subject to the
arrangement and agreement with the defendants hereinafter referred to) of the timber
therein.

(i) The defendants used all reasonable means to obtain from the Latvian Government
recognition of the agreement of September 10, 1920, with a view to the agreement being
carried into effect, but were unsuccessful in obtaining such recognition.

(j) The defendants recommenced felling timber in the forest about the end of October,
1920, and continued such felling until December 23, 1920. Such felling was done under a
temporary arrangement with the Latvian Government made while negotiations were
being carried on between the defendants and the Government for a formal contract
between the defendants and the Government.

(k) On December 23, 1920, the defendants ceased felling timber in the forest in
consequence of an order of the Latvian Government prohibiting any further felling
therein. The defendants did not fell any timber in the forest after that date until January
21, 1921.

(l) On January 21, 1921, the defendants recommenced felling timber in the forest and
continued to fell timber therein until March 9, 1921. From and after March 9, 1921, no
timber was felled in the forest by the defendants or by their servants or agents.

(m) All the timber in the forest which was felled by the defendants on and after January
21, 1921, was so felled under and in pursuance of the agreement of that date specified in
the schedule to the special case.

(n) As from October 14, 1920, no timber was felled in the forest under or in pursuance of
the agreement of September 10, 1920.

(o) The total amount of timber in the forest felled by the defendants between the end of
1920 and March 9, 1921, was about 2,000,000 cubic feet.

(p) The defendants did not in regard to any matter relevant to the subject of the reference
induce the plaintiffs to alter their position for the worse or to refrain from altering their
position for the better.

(q) The risk of confiscatory legislation on the part of the Latvian Government to the
detriment of British subjects was mentioned in the course of the negotiations between the
plaintiffs and the defendants leading up to the agreement of September 10, 1920, but such
risk was treated in the course of such negotiations by both the plaintiffs and the
defendants as being too remote to require consideration, and both parties entered into the
agreement on the footing that there would be no such confiscatory legislation.

(r) Apart from the said Lettish agrarian law passed on September 16, 1920, there was
nothing in any relevant law rendering the agreement of September 10, 1920, or the
performance thereof in accordance with the terms thereof illegal or unenforceable by the
plaintiffs. The arbitrator declined to admit, as being irrelevant to any issue arising in the
reference, evidence tendered by the plaintiffs for the purpose of showing that the
defendants made considerable profits by the sale of timber cut under their arrangement
and agreement with the Latvian Government.

The arbitrator awarded and determined (subject to the opinion of the Court on the
questions of law thereinafter submitted)-

1. That the agreement of September 10, 1920, was dissolved by frustration of its
commercial object.

2. That no further part of the purchase money payable under the agreement beyond the
sum of 30,000l. already paid thereunder was payable by the defendants to the plaintiffs.

3. That the claims of the plaintiffs in the arbitration failed.

The questions submitted by the arbitrator for the opinion of the Court were:-

1. Whether on the true construction of the agreement of September 10, 1920, and in the
events which had happened the commercial object of the agreement was frustrated and
the agreement became dissolved.

2. Whether on the true construction of the agreement and in the events which had
happened the term of fifteen years mentioned in clause 3 of the agreement had become
extended until the present time.

If the Court should be of opinion as to either question in the affirmative then the award
was to stand.

If the Court should be of opinion as to both questions in the negative then the arbitrator
awarded and determined that the defendants should pay to the plaintiffs the sum of,
together with interest thereon at the rate of 7 percent per annum from June 10, 1921, until
the date of payment, and made a special order as to the costs of the award.

Rowlatt J., without deciding whether the property in the timber had passed, held that the
responsibilities of the vendors under the agreement had not been fulfilled or completed
on September 16, 1920, and that the agreement was dissolved by frustration of its
commercial object.

The plaintiffs appealed. The appeal was heard on February 25, 26, 1926.
Maugham K.C., Barrington-Ward K.C. and E. F. Spence K.C. for the appellants.
Clauson K.C. and D. N. Pritt for the respondents.

The arguments sufficiently appear from the judgments.

[The following cases were referred to : James Jones & Sons v. Earl of Tankerville1;
Taylor v. Caldwell2; Ralli Brothers v. Campania Naviera Sota y Aznar3 ; Morison
v.Lockhart4 ; Tarling v. Baxter5 ; Rugg v. Minett6 ; Royce v. Birley7; Metropolitan Water
Board v. Dick, Kerr & Co.8 ; Blackburn Bobbin Co. v. T. W. Allen & Sons.9

Cur. adv. vult.

March 10. The following written judgements were delivered:-

LORD HANWORTH M.R. This is an appeal from a judgment of Rowlatt J. given on

December 2, 1925, upon an award in an arbitration between the above parties stated in
the form of a special case under s. 7 (b) of the Arbitration Act, 1889.

Two questions were propounded in the case for the opinion the Court. The meaning and
purport of 'the second of question is not easy to follow. Probably at the time it was
suggested and framed, it had special relevance to some points at the arbitration, and
seemed to raise correctly the raised point on which a decision was invited, though it is
somewhat obscure now. However, it is not necessary to discuss it or deal with it, for
counsel for the appellants agree that unless the first question is answered in their favour
their appeal fails.

By an agreement made between the parties and dated September 10, 1920, the Timber
Operators and Contractors, Ltd.-the respondents to the appeal, who were, and herein will
be called "the purchasers"-made a contract with the appellants, who were the owners and
will be called herein "the vendors," as to some timber then standing uncut in the forest of
Luhde in the Republic of Latvia.

From the facts found and stated in the case by the learned arbitrator, it appears that on
September 16, 1920, the purchasers were duly admitted by the vendors into the forest,
and took possession of the timber, the subject-matter of the agreement, and that they
began to cut the timber on October 2, and continued to cut it until October 14, 1920; but
the amount so cut cannot be determined, and since the latter date no timber has been
felled under, or in pursuance of, the agreement of September 10.

On September 16, 1920, an agrarian law was duly passed in Latvia, and the relevant part
became effective on October 1, 1920. By virtue of this law, as from October 1, 1920, the
forest of Luhde, and the timber therein, became the property of the Latvian State and the
agreement of September 10, 1920, became annulled, and all property and rights of the
vendors and purchasers in the forest, and the timber, became entirely confiscated to the
Latvian State. On October 14 the Government of Latvia by its agents took possession of
forest and the timber therein.
Continuously to the present time, the said law has remained in force and the Government
of Latvia has remained in possession of the forest and the timber, and the purchasers have
failed to secure recognition of the agreement of September 10, 1920, by the Latvian
Government.

The risk of confiscatory legislation by the Latvian Government, to the detriment of

British subjects, was mentioned in the course of negotiations between the parties leading
up to the agreement of September 10, 1920 ; but was treated as too remote to require
consideration. The total sum payable by the purchasers to the vendors under the
agreement was 225,000l. ; of this sum 30,000l. was duly paid by the purchasers as
provided by clause 13, sub-clause 1, of the agreement. The balance of 195,000l. was
payable by instalments. By clause 3 of the agreement the purchaser was to "have fifteen
years within which to cut and remove from the forest the whole of the timber agreed to be
sold".

The purchaser's claim that in the events which happened the commercial object of the
agreement has been frustrated, and that it became dissolved in accordance with the
principle adopted in Metropolitan Water Board v. Dick, Kerr & Co.10 The vendors do not
contend otherwise, unless under the agreement the property in the timber sold passed, so
as to render the contract between them executed in the sense that there is nothing left to
be done under it by the vendors, except to receive the balance of the purchase money.

They claim that the relation of the parties was no longer that of contractors bound, inter
se, by the terms of the contract ; but was only that of creditor and debtor in accordance
with the principle stated by Montague Smith J. in Royse v. Birley.11 Putting it in another
way, the vendors claim that an immediate sale of the timber was effected on September
10, 1920, and that their right to payment accrued at once, although such payment was to
be made by instalments and deferred over a period of time-that the illegality supervened
subsequently, and that the purchasers are not discharged from their obligation as in
accordance with the doctrine of Taylor v. Caldwell12 : see per Blackburn J.13 and see also
Blackburn Bobbin Co. v. P. W. Allen & Sons.14

It is thus necessary to examine the agreement of September 10, 1920, to ascertain

whether the property passed.

It may be stated, that subject to the case stated, the learned arbitrator held that the
agreement of September 10, 1920, was dissolved by the frustration Of its commercial
object. The learned judge, without deciding whether the property in the timber had
passed, held that the responsibilities of the vendors under the contract were by no means
fulfilled or completed on September 16, and he found it to be a case of frustration-that the
whole substratum of the contract had gone.

The terms of the agreement may be summarized shortly as follows. [His Lordship shortly
stated the material provisons of the agreement as above set out, and referring to the
definition of merchantable timber in clause 1, sub-clause 12 thereof continued:] Taking
this interpretation and bearing in mind that under clause 10, sub-clause 3, the vendors
have a right to replant any section of the forest then cleared of merchantable timber. I do
not accept the construction of clause 2 suggested by the vendors-namely, that what is or is
not merchantable timber was to be determined and fixed as on August 20, Such a
construction offers many practical difficulties. Ten years hence it may be difficult to
decide whether a tree had been of not less than six inches in diameter on August 20,
1920, nor will it be easy to determine at what point on the bark the measurement is to be
taken, for undergrowth or detrition may have altered the Point from which the four feet is
to be measured.

In my judgment the determination of what trees fulfil the definition of merchantable,

timber is to be determined from time to time, as and when it is proposed to fell them and
the words "growing on the 20th August 1920" are inserted in order to lay down the
condition that such trees must have Part of the forest growing at the date, and not part of
those replanted later under clause 10, sub-clause 3, some of 1926 which might reach the
required measurements in the course of the lapse of twelve or fourteen years from their
planting by the vendors. This conclusion negatives the contention that the agreement of
September 10, 1920, made a sale of specific or ascertained goods. The definition of
specific goods in s. 62 of the Sale of Goods Act, 1893, is "'specific goods' means goods
identified and agreed upon at the time a contract of sale is made." It is clear that this
definition will not fit trees of which it cannot be determined that they are merchantable
and within the contract until the time for felling them has approached and when the time
for their measurement has arrived-that may be any number of years up to nearly fifteen
after the contract was made.

It is not necessary, however, to base my judgment upon this point of interpretation of its
terms alone. From a careful study of the agreement, and in particular the clauses which I
have set out above, I have come to the conclusion that the agreement. was not executed
on the part of the vendors at its date. They still had to agree the timber to be cut, its
measurement when cut, and its value, and the instalments due in respect of it.

The question whether the property in the timber then passed depends first upon whether it
is "specific or ascertained goods" within s. 17 of the Sale of Goods Act, 1893, and next if
it be such, whether the parties intended the property in it to be transferred.

Further, by sub-s. 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."

The law as stated in the code is similar to the proposition as to the passing of the property
in specific and ascertained goods laid down in his judgment in Heilbutt v. Hickson15 by
Bovill C.J., where he adds "unless from other circumstances it can be collected that the
intention was that the property should not at once vest in the purchaser. Such an intention
is generally shown by the fact of some further act being first required to be done; such as,
for instance, in most cases, delivery-in some cases, actual payment of the price-and in
other cases, weighing or measuring in order to ascertain the price, or marking, packing,
coopering, filling up casks, or the like."
In my judgement the terms of the agreement point to such other circumstances, and
negative the intention that the property should at once, on the execution of the agreement,
vest in the purchaser. The case is very different from Tarling v. Baxter16, which was much
pressed upon us, where a haystack standing in a field was sold and paid for by a bill of
exchange and afterwards lost by fire. In that case however the same principle stated in
Heilbutt v. Hickson17 and in the code is referred to: "In the case of a sale of goods, if
nothing remains to be done on the part of the seller, as between him and the buyer, before
the thing purchased is to be delivered, the property in the goods immediately passes to the
buyer .... but if any act remains to be done on the part of the seller, then the property does
not pass until that act has been done " : see per Holroyd J.18

Coming to the actual subject-matter of the sale in the present case, authority is not
lacking that although for some purposes fictione juris the tree may be treated as divided
from the freehold, yet in fact and in truth the vendor cannot take them before severance:
"for it was said, that timber trees cannot be felled with a goose-quill": see 11 Co. Rep.
46b, 50a, quoted in Benjamin on Sale, 6th ed., p. 218n.

This appears to be authority for Parker J.'s dictum in James Jones & Sons v. Earl of
Tankerville19: "A contract for the sale of specific timber growing on the vendor's property,
on the terms that such timber is cut and carried away by the purchaser, certainly confers
on the purchaser a licence to enter and cut the timber sold, and, at any rate as soon as the
purchaser has severed the timber, the legal property in the severed trees vests in him": see
also Morison v. Lockhart.20

The contention of the vendors appears to strain the agreement in their favour, and to leave
out of sight many important terms which remained to be operative on their part during its
continuance.

It is in my judgment impossible to hold that the intention of the parties was that the
property passed immediately at the date of the agreement. For these reasons, therefore, I
am unable to answer the first question favourably to the vendors, with the result that their
appeal fails and must be dismissed with costs.

SCRUTTON L.J. This appeal from the decision of Rowlatt J. on a case stated by a legal
arbitrator involves the effect on the purchase of a forest in Latvia of a Latvian law
appropriating the forest and annulling all private rights in relation to it. The vendors sue
for the price of the forest on the ground that the property in it has passed to the
purchasers, and any subsequent loss of the subject-matter is for the purchasers' account.
The purchasers reply that the property has not passed ; and that if it has, the contract is
void by frustration. The arbitrator and Rowlatt J. have decided in favour of the
purchasers' contention. The contract in question was made on September 10, 1920, and
provided for the sale of all merchant able timber growing in a specified forest on August
20, 1920. Merchantable timber was defined as "all trunks and branches of trees but not
seedlings and young trees of less than six inches in diameter at a height of four feet from
the ground." The timber was to be cut not more than twelve inches from the ground. The
measurement of the trunk was, therefore, uncertain till cutting. The purchasers had fifteen
years in which to cut the timber, and were to have the use of the vendors' saw-mills, plant
and huts, and the right to occupy every part of the forest. The price was 225,000l., and the
payments were to be made 15,000l. on each of the first three quarter days in the year, and
for the fourth quarter a sum equal to 4l. a standard of exportable timber cut, in the forest
during the year, less 45000l .(The three previous instalment ). The amount was to be
certified by the authorized agents of the vendors and purchasers, measurements having
been agreed by them. The purchasers agreed unless prevented by some act or enactment
of the Government of the country, or by force majeure, were to cut timber. at the rate of
15,000 standards per annum, and if they were so prevented, the fifteen years' period was
to receive a corresponding extension. During the period of prevention the 15,000l.
instalments of price were to be reduced to 4l. A standard of timber cut, carried away and
sold or exported during the quarter. So long, therefore, as there was complete prevention,
no price would be payable.

The contract having been made on September 10, on September 16 the Latvian Assembly
passed an agrarian law, by which from October 1, 1920, the forest became the property of
the Latvian State and the contract was annulled and all property and rights of vendors and
purchasers in the forest were confiscated. In other words, for the last five and a half years
it has been illegal to perform the contract in the place where alone it can be performed;
and the obstacle to performance is continuing. A small quantity of timber was cut
between October 2 and 14, 1920, amount unknown; but as the purchasers have paid
30,000l. to the vendors covering the first six months, it is not possible to argue that a
default of payment of sums due has made the whole price payable.

What is the legal result of these facts? In the first place has the property passed ? It was
said that this was a contract for the sale of specific goods in a deliverable state under s.
18, r. 1 of the Sale of Goods Act. Specific goods are defined as goods identified and
agreed upon at the time a contract of sale is made. It appears to me these goods were
neither identified nor agreed upon. Not every tree in the forest but only those complying
with a certain measurement not then made. How much of each tree passed depended on
where it was cut, how far from the around. Nor does the timber seem to be in a
deliverable state until the buyer has severed it. He cannot under the definition be bound to
take delivery of an undetermined part of a tree not yet identified. I refer to and adopt Lord
Johnston's discussion of a similar question in the Scotch case of Morison v. Lockhart.21

For these reasons in my opinion the property had not passed under s. 18, r. 1, and,
therefore, the timber was not at the risk of the purchasers.

Even if it had passed, I agree with the view of Rowlatt J., that so much remained to be
done under the contract that the doctrine of frustration would apply. That doctrine
depends on whether in the particular contract there is an implied term that its validity
shall depend on the continued existence of some thing, or state of facts or law. Here I
think it is clear that the continued existence, apart from temporary interruptions, of a state
of law in which the contract could be performed was contemplated by the parties. The
arbitrator finds that both parties entered into the agreement on the footing that there
would be no confiscatory legislation. It is true that there are provisions for extension of
the contract period in case of temporary prevention ; but so there were in Metropolitan
Water Board v. Dick, Kerr & Co22, where the House of Lords held the prevention
sufficiently substantial and permanent to frustrate the performance of the contract. I asked
counsel for the vendors what would happen if the Latvian legislation remained valid for
forty years, with no cutting and no payment of price instalments. He was, I think, inclined
to agree that there would be an end to the contract. If so, it is a question of degree and
fact whether the prevention is sufficiently permanent to defeat the adventure and make it
a different adventure from that which the parties contemplated. The arbitrator has found
frustration ; and as absolute prevention has now lasted for five and a half years, and there
is no sign of it ceasing, we cannot possibly interfere with his finding.

I would add that I think the same result would follow under the decision of this Court in
Ralli Brothers v. CampaniaNaviera Sotay Aznar23 from the fact that performance of the
contract is at present permanently illegal in the place where the greater part of the
contract is to be performed. The appeal must be dismissed with costs.

SARGANT L.J. The argument for the appellants here has been based on establishing
that, under the contract in question, there was an immediate transfer to the purchasing
company of the property in the timber forming the subject matter of the contract. For,
though there was no admission, by the appellants that such an immediate passing of the
property was an essential (though not a sufficient) condition of their- success, they
deliberately abstained from arguing that they could succeed on any other view of the
matter. It is, therefore, necessary in the first place to consider whether the contract
effected an immediate transfer of the property in the timber to the respondents; and this,
in my judgment, depends upon whether, under r. 1 in s. 18 of the Sale of Goods Act,
1893, the contract was one for the sale of specific goods in a deliverable state. This
question again divides itself into two heads-namely, first, was the timber agreed to be
sold specific goods; and, secondly, was it in a deliverable state?

As to the first head, there is a curious ambiguity in the wording of the contract. The
merchantable timber sold is obviously limited to trees planted at the date of the contract,
and does not include any trees subsequently planted. But is it limited to such of these
existing trees as were merchantable (that is of the required size) at the date of the contract
; or does it include trees which being unmerchantable at the date of the contract become
merchantable at that period of the subsequent fifteen years when the purchasers come to
exercise their right of fell in? The former construction is one that is more in accordance
with a very strict view of the language of the contract, but it would necessarily involve
'such extreme and obvious difficulty in the working out of the contract, that I am for
myself inclined to adopt the second of these two constructions.

If then this view is correct it seems hopeless to contend that the timber sold was specific,
for the items of timber sold depend upon the rate of growth of the trees, and the time at
which the purchasers come to fell the various sections of the forest. Accordingly the
appellants contended strenuously that the date for ascertaining the size of the trees was
the date of the contract. And I will consider the question whether the goods sold were
specific on this view of the construction, which is the more favourable to the appellants.

Even on this view, however, I cannot think that the timber sold was at the date of the
contract identified, or more than merely identifiable; and in order that goods may be
specific they must in my view be identified and not merely identifiable. The appellants
relied on the maxim "Id certum est quod certum reddi potest"; but I do not think that this
maxim applies in the present connection. The future book debts which were assigned in
Tailby v. Qfficial Receiver24 were identifiable, and so were held to be subject-matter for a
good equitable assignment which prevailed against the Official Receiver; but they
certainly were not identified or specific at the date of the assignment. For the purpose of
the passing of the actual property in goods as distinguished from a right to ultimately
claim a title to the goods as against the vendor or volunteers under him, a present
identification of the goods as specific goods appears to be required by the statute. There
must be a transfer of the right in re not merely of the right ad rem.

Further I am of opinion that under the contract in question the timber sold did not form
goods in a deliverable state. I am content on this point to adopt the views of Lord
Johnston in the Scotch case of Morison v. Lockhart.25

In the view I have taken, it is unnecessary to consider whether the doctrine of frustration
would have applied even if the property in the timber had passed to the purchasers,
though I do not desire to express any doubt as to the decision on this point also of the
learned judge.

Appeal dismissed.

Solicitors for appellants: Bull & Bull.

Solicitors for respondents: Lawrence Jones & Co.

W.I.C.