Crypto Currencies in the light of the Sale of Goods Act(1893); Regulatory Issues -By Kazeem Shamsudeen

The Sale of Goods Act(1893) regulates every contract of sale or agreement to sell goods. It is the position of the law that goods have two major fundamental interests namely Possession and Property. The subject matter of a contract of sale which the Sale of Goods Act regulates is the transfer of property in goods whether immediate or subsequent. Goods as defined by section 62 of the Act includes; all chattels personal other than things in action and money.

And in Scotland, all corporeal moveables except money. It includes emblements , industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

According to section 62 of the Act, property is defined to be general property in goods and not merely a special property. Cryptocurrency is a novel financial arrangement that uses Cryptographic authentication system and distributed transaction ledger with block chain technology. The status of Cryptocurrency is yet to be legally determined to justify whether the Sale of Goods Act governs the transactions made in Cryptocurrency. It is my argument that for many reasons set out in this write up, the Act does not govern Cryptocurrency.

First, Cryptocurrency does not fall within the definable ambit of property law because it’s status is yet to be determined as such. It is worth outlining how English Law deals with and defines property. The Law of Property Act(1925) defines property under section 205(xx) as “ any thing in action, and any interest in real or personal property” . Although this section only provides a basic definition of property, it does identify things in action as a special category of personal property and highlights the key distinction between personal and real property. In COLONIAL BANK v WINNEY(1885) 30 CH D 261, Fry LJ observed that “All personal things are either in possession or in action.

The law knows no tertium quid between the two ” As such, English law has traditionally viewed property as being of two kinds- choses in possession and choses in action. The former refers to an object which physically exists, such as money in a purse and the latter describes a right that can only be claimed or enforced through legal action, such as money due on a bond. Under Fry Lj’s definition, if something is not in possession or in action, it cannot be classified as property.

Cryptocurrency not being a physical thing, therefore cannot be a chose in possession. This poses a problem for the status of Cryptocurrencies which do not fit neatly into either category. They are not a chose in possession because they are intangible and they are not a chose in action because they do not embody a right capable of being enforced by legal action. Cryptocurrencies have novel features like intangibility, cryptographic authentication, use of distribution ledger, decentralization and rule by consensus. These features make Cryptocurrencies very difficult to be classified as property. And as such, there is no legislation governing Cryptocurrency directly.

However, parties enter into contracts for the sale and acquisition of bitcoin, etherium, litecoin etc which are all Cryptocurrencies.

Should they now be left with no legal protection at all? The Sale of Goods Act implied some conditions and warranties in a contract of sale unless the circumstances of the contract are such as to show a different intention. Section 12(1) provides that there is an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods and that in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. Because Cryptocurrencies are definable by some cryptographic authentication through personal wallets, therefore a seller of bitcoin is implied to have title to every bitcoin in his wallet and in the case of a sale, he has a right to sell the bitcoin. Perhaps a seller of bitcoin hacked into another wallet and sold such bitcoin to the buyer, can he be said to have passed a good title to the buyer? Under section 23 of the Act, when the seller of goods has a voidable title thereto, but his title has not been avoided at the time of sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect in title. Perhaps it was discovered by the buyer that the seller of bitcoin did hack into another wallet to transfer the bitcoin to the buyer, will he pass a good title? The answer is no because a fundamental breach has occurred since he sold something without title. However, the bitcoin buyer can only treat such breach as a breach of warranty under section 11(1) ( c ) of the Act where he has accepted the goods or part thereof and the sale is not severable. Cryptocurrency is not a type of goods recognized by the Act and the contract is not severable, therefore by the course of dealing and binding usage between parties to a Cryptocurrency contract, implied term as to title is excluded. This position is also recognized by section 55 of the Sale of Goods Act.

Under section 12(2) of the Act, there is an implied warranty that the buyer shall have and enjoy quite possession of the goods. In any Cryptocurrency transaction, when a wallet has received any currency, the seller no longer has any liability for any interference with the enjoyment of the possession. Under section 13 of the Act, where there is contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. In VARLEY v WHIPP(1900)1 Q.B. 513, Court held that the term description applies to all cases where the purchaser has not seen the goods but is relying on the description alone. No buyer of Cryptocurrency can see them, he must necessarily rely on the description of the seller. However, for this condition to apply, two fundamental requirements must be fulfilled. One, the description must not be of a general class but specific description. Secondly, there must not be correspondence between the description and actuality which must be exact.

Cryptocurrencies are intangible by nature, therefore they cannot take specific description but description of general class. Again, Cryptocurrencies do not have actuality because of the intangibility therefore, we cannot determine the degree of the correspondence between the description and actuality.

Finally, Cryptocurrencies are not goods properly called by the definition in section 62 of the Sale of Goods Act. Goods to which the Act applies must necessarily be choses in possession which must be physically existing.

There is no evidence of any tangible Cryptocurrency as I write and therefore, the provisions of the Sale of Goods Act do not govern Cryptocurrency. However, from the definition of goods by the Act, it proceeded from the phrase “goods includes” which means that it is not close ended. Cryptocurrency can still fall under the definition of goods but that is yet to be fully determined in accordance with the law.