Lecture Fundamentals of business law (7/e): Chapter 12 - M.L Barron

Chapter 12 - Sale of goods. At the end of this chapter you should understand: the main statutory and common-law rules relevant to the sale of goods; the difference between specific, unascertained and future goods; the difference between contracts for the sale of goods and agreements to sell;…

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Sale of goods

Chapter 12

Learning objectives

At the end of this chapter you should understand:

• the main statutory and common-law rules relevant to the sale of goods

• the difference between specific, unascertained and future

goods

• the difference between contracts for the sale of goods and

agreements to sell

• the definition of a contract for sale of goods

• the rules relating to the passing of title in goods from the seller

to the buyer

• the application of the exceptions to the nemo dat rule

• when implied condition and warranties apply and the

consequences of their breach

• the remedies available to an unpaid seller or to a buyer if seller

is in breach of contract.

• When goods are sold, there exists a

contract for the sale of goods.

• Both common law principles and

statutory provisions apply to these types

of contracts.

Relevant legislation

• Each state has its own Act that regulates the sale of goods

– All states but Victoria title them the Sale of Goods Act.

• These acts apply to all types of entity from companies to

individuals and to all types of goods.

• Requirements of the legislation:

– Contracts must involve an exchange of monetary

consideration for goods.

– Ownership of goods must pass to the buyer.

– Only covers contracts for sale of goods, not for work done or materials supplied, otherwise the provisions of the relevant

Sale of Goods Act cannot be relied upon.

– In NT, WA and Tasmania, such contracts must be evidenced

in writing, elsewhere, maybe verbal, written or implied.

Types of goods

The type of goods determines the point in time at which ownership will pass to the buyer, along with the 'risk' associated with those goods.

Distinction between a contract for the sale of goods and an agreement to sell

• Sale:

Property or title in the goods passes

to the buyer at the time the contract

is made.

• Agreement to sell:

Title or property in goods is to pass

at some point in time after the

contract is made.

Distinguishing contracts for the sale

of goods from other contracts

Covers goods

• The delivery of the goods is the main

substance of the agreement

not

• The work done or materials supplied—

involving skill and effort with goods resulting from the effort.

Property in goods and possession

When property (and risk) in goods passes, ownership passes

Type of goods—indicates when property or title in

goods passes to buyer.

At time goods become identifiable and buyer has been

notified, or when the parties to the contract of sale intend

that it should pass.

Specific rules for determining

when property in goods passes

Rule 1

• Unconditional contract for specific goods:

– When contract is made

Rule 2

• Specific goods that need to be placed in a

deliverable state:

– When goods are in a deliverable state

– Buyer has been notified

Rule 3

• Specific goods that need weighing or measuring to

obtain their price:

– When goods have been weighed or measured

– Buyer has been notified

Specific rules for determining when property in goods passes (cont.)

Rule 4

• Goods purchased on approval:

– Buyer communicates approval or acceptance

of the goods to the seller.

or

– Buyer does not communicate approval or

acceptance to the seller but:

 keeps goods without notice of rejection

 on expiration of any specified time

 on expiration of reasonable time.

Specific rules for determining when property in goods passes (cont.)

• Rule 5(2): Delivery of future or

unascertained goods to a carrier:

– When delivered to the carrier

Romalpa clauses

• Retention of title clauses

– Buyer cannot claim title before full

payment has been received

– Seeks to protect seller from buyer’s

failure to pay.

– Must be very carefully drafted to be

effective.

Seller without title

The common law principle

nemo dat quod non habet

means sellers of goods cannot

pass

better title than they actually

have.

Seller without title (cont.)

• Estoppel

• Sale by a mercantile agent

• Sale by a seller still in possession

• Sale by a buyer in possession (without title)

• Statutory and common law power of sale

• Sale in the market overt

If the owner creates an impression

by word or conduct that another party has the authority to sell the goods, and a purchaser buys those goods in good faith without

knowledge of the deficit in title, for value, the purchaser will gain good title

Performance of a contract for the sale of goods

• Rules regarding delivery

• Duty of seller to deliver:

Shipping contracts

CIF (Cost insurance freight)

• Price includes:

– cost of the goods

– insurance (seller organises)

– freight (seller organises).

FOB (Free on board)

• Price includes:

– cost of the goods

– delivery on board ship

– insurance (buyer organises)

– freight (buyer organises).

Rules regarding acceptance

• Seller notified

• Reasonable time

• Conduct of buyer

• Rejection

Rules regarding payment

• Pay correct amount on delivery:

– contracted price

or

– reasonable price

Relationship between the sales of goods Acts and the ACL

• The sale of goods Acts imply certain conditions and warranties into contracts for sale of goods which

must be met by the seller.

• Under the state sale of goods Acts the parties can agree to exclude these implied terms and conditions.

• The Australian Consumer Law is federal law which applies across Australia and provides for non-

excludable ‘guarantees’ by the seller where the

buyer is a ‘consumer’ (discussed in Chapter 13).

• The Australian Consumer Law takes precedence

over the sale of goods Acts where both apply.

Relationship between the sales of goods Acts and the ACL (cont.)

• The guarantees are very similar to the

implied conditions and warranties provided in the sale of goods Acts.

• Therefore, the sale of goods Acts will

continue to apply to sale of goods not

regulated by the Australian Consumer Law, e.g business to business sales where the

goods are purchased for resupply—namely where the buyer does not fall into the

classification of a ‘consumer’.

Implied conditions

• Breach of an implied condition will terminate the

contract and allow damages to be claimed.

• As to title, it is implied that the seller has the right to sell the goods to pass good title to the buyer the

seller must possess good title.

• Correspondence with description:

– Goods must correspond with the description

where goods have been sold by description

• Merchantable quality:

– Goods must be fit for a purpose for which goods

of that description are normally used, unless an examination by the buyer should have revealed

Implied conditions (cont.)

• Fitness for purpose:

– Where the buyer buys goods in reliance upon the

seller’s skill, after purpose of good is known to seller

• Sale by sample:

– The quality of the bulk of goods supplied must

correspond with the quality of the sample supplied

– The buyer must have a reasonable opportunity to

compare the bulk of the goods to the sample.

– The goods must be free of defect rendering them

unmerchantable

Implied warranties

• Breach will enable the innocent party

to claim damages.

– The buyer shall have quiet possession.

– The goods shall be free of any

undisclosed encumbrances.

Remedies for breach of contract for sale of goods

Rights of the unpaid seller

• Against the goods:

– Right to withhold delivery

– Right to a lien (possessory)

– Right to stop goods in transit

– Right to resell the goods

• Against the buyer (breach of contract):

– Sue for damages

– Sue for the price

Remedies for breach of contract for sale of goods (cont.)

Rights of the buyer:

• Damages for non-delivery of goods

• Breach of warranty of quality

• Specific performance

• Rescission of contract