Monday, 10 September 2012

SALE OF GOODS


The sale of goods (governed by the Sale of Goods Act 1930) is the most common of all commercial contracts. 

Contract of Sale

Essentials of a Contract of Sale:
  • It is a contract.
  • Between two parties.
  • To transfer or agree to transfer.
  • The property in goods.
  • For a price, that is, money consideration.


Goods
GOODS form the subject of a contract of sale. They mean every kind of movable property other than actionable claims & money, and include 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.

Sale & Quality of Goods
In a sale of description, the buyer must get the described goods if he has not seen the goods and relies on the description alone.
Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description…….
Varley v Whipp (1900)(The case of the second hand reaping machine.)

In a sale of description, where the buyer has seen or examined the goods, the description would be modified to the extent of the apparent deviations, but not by latent and hidden defects.
Beale v Taylor (1967)(The case of the car that had been put together out of two cars)

Buyer Beware (Caveat Emptor)
There is no protection for the buyer in relation to the quality of goods except in the following situations:
  • Goods sold must be of merchantable quality. However, if the buyer has examined the goods, defects which such examination ought to have revealed would be exempted from the requirement of merchantable quality.
  • If the buyer relied on the skill and judgment of the seller, the good should be fit for the purpose described by the buyer.

Baldry v Marshall (1925) (The Bugatti car case)
Grant v Australian Knitting Mills Ltd. (1935) (Case of sulphites left behind in the woollen underwear garments causing severe case of dermatitis – case attracted both the clauses, relying on the skill & judgment of sellers & the goods not being of merchantable quality.)

Conditions & Warranties
Oscar Chess Ltd v Williams [1957]
(Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model. The registration document stated it was first registered in 1948. The following year her son used the car as a trade in for a brand new Hillman Minx which he was purchasing from Oscar Chess. The son stated the car was a 1948 model and on that basis the Oscar Chess offered £290 off the purchase price of the Hillman. Without this discount Williams would not have been able to go through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a 1939 model and worth much less than thought. They brought an action for breach of contract arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to repudiate the contract and claim damages.)

Warranty in its ordinary English meaning denotes a binding promise.

Everyone knows what a man means when he says, ‘I guarantee it’, or ‘I warrant it’, or ‘I give you my word for it.’ He means the he binds himself.

Lawyers use it to denote a subsidiary term in a contract as distinct from a vital term which they call a ‘condition’.

Therefore, if used in this technical sphere, condition is a vital term and warranty is a subsidiary term.

Breach of Condition
It is the essential part or vital term of a contract whose breach creates the option for the buyer to terminate the contract.

Breach of Warranty
It is the subsidiary part of the contract. Its breach can only lead to a claim for damages but not to a repudiation of the contract.

Implied Conditions
  • Condition as to title
  • Condition in a sale by description the buyer must get the described goods.
  • Condition in a sale by sample, the bulk must correspond with the sample.
  • Conditions as to fitness & quality (in the following cases only; in other cases caveat emptor applies)
  1. Buyer makes known to the seller the particular purpose for which he requires the goods.
  2. Buyer relies on the skill & judgment of the seller (The seller’s business is to supply such goods whether he is the manufacturer or producer or not)

  • Condition as to merchantability (exception to the rule of caveat emptor)
  • Where goods are bought by description from a seller who deals in goods of that description (whether he is manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality.

Merchantability means essentially that the goods must be fit for the ordinary purpose for which such goods are used.
  • Condition as to merchantability when applied to food products, the condition of fitness of merchantability requires that the goods should be wholesome, i.e. fit for the purpose of consumption.


Implied Conditions
  • Warranty as to quiet possession.
  • Warranty as to non-existence of encumbrances.
  • Warranty as to disclosure of dangerous nature of the goods to the innocent buyer.


Change of condition to warranty…..
Option of the buyer…..

When a condition is reduced to the status of a warranty, the effect is not the condition becomes a warranty, but that the condition remains a condition, it is only the remedy which changes.

Circumstances
Circumstances are such that goods cannot be returned ….
  • When the buyer has accepted the goods & intimates to the seller.
  • When goods have been delivered to the buyer & he does any act in relation to them which is inconsistent with the ownership of the seller.
  • In a sale or return, after the lapse of reasonable time, the buyer retains them for unreasonably long time without intimating, the seller that he has rejected them.


Sale & Transfer of Ownership
  • Goods must be ascertained and specific for the transfer of ownership to take place.
  • In the case of specific and ascertained goods, we should explore whether the contract provides in express or implied terms, on the passing of ownership. These terms should be applied.
  • In the case of specific and ascertained goods, if the contract does not provide in either express or implied terms on the passing of ownership, the ownership is transferred to the buyer when the contract is made.


Nemo Dat Quod Non Habet
No one can transfer a better title than he himself has.
Rowland v Divall (1923) (Sale of a stolen car – D bought a car – sold it to a motor dealer R – painted and sold by R – police took possession from the buyer as car was found to be stolen – R refunds price to buyer & sues D to recover price paid to D.)

Sale by Auction & transfer of Ownership
Unless the parties provide otherwise, a contract of sale in an auction is concluded on the fall of hammer.
Dennat v Skinner (1948) (Sale of cars by auction – D knocks down 4 cars to King – King does not pay, but offers cheque – D accepts based on a condition that ownership will not pass until cheques are encashed – King sells car to S – Cheque dishonoured – King arrested – pleads guilty & jailed – D now claims from S contending that the property had never passed to King.
To exercise right to retain possession & ‘seller’s lien’ possession of  goods, as agent or bailee for the buyer, is required.)

Goods not in a deliverable state
Ownership will pass only when the seller puts them in a deliverable state and informs the buyer about it.
Underwood Ltd V Burgh Castle Brick & Cement Syndicate (1922) ( U Ltd, owners of a condensing engine agreed to sell it free on rail in London to B - weighed thirty tons and was bolted to and embedded in concrete- before it could be delivered on rail, it had to be detached and dismantled - in loading the engine on a railway truck, the sellers accidentally damaged it, and the buyers refused to accept it . Seller claims goods have been sold.)
Buyers intention was to buy an article which would be a loose chattel (good) when the process of dismantling it were completed, and to convert it into a loose chattel (good), these processes had first to be performed.’

Sale or return transactions
The property passes when the person to whom goods have been given on ‘sale or return’  signifies his approval or acceptance to the seller or does any other act adopting the transaction.
Kirkham v Attenborough & Gill (1895-99) - K sends jewellery to Winter on Sale or return basis – Winter pawns jewellery to A & G  and dies – K wasn’t paid for it – K demands return of the same from A & G – A&G refuse to return unless money borrowed is paid back.

Unascertained Goods
No property in the goods is transferred to the buyer unless and until the goods are ascertained. This does not, however, mean that property would automatically pass once it is ascertained. It would depend on the intention of the parties as to when they want the property to pass.
Pignataro v Gilroy (1919) (G sold to P 140 bags of rice - Sale by sample – G would deliver 125 bags to P at a warehouse – 15 bags were to be collected by P from G’s place of business – G sends reciept for cheque received & delivery order for 125 bags – letter stating that 15 bags were ready for delivery – P neglected to collect bags – G sends two more letters – bags subsequently stolen – G took all care and was not negligent – Had ownership of 15 bags transferred?)

Unascertained Goods
‘Where on a sale of unascertained goods by description goods of that description and in a deliverable state are unconditionally appropriated to the contract by the seller, and the seller sends notice of that appropriation to the buyer, in the event of the buyer neglecting to reply to that notice promptly it must be inferred that he assents to the appropriation, and on the expiry of a reasonable time after receipt of the notice the property must be deemed to have passed.’
Wardar’s (Import & Export) Co Ltd v. W Norwood & Sons Ltd (1968)
Sellers had 1,500 cartons frozen kidneys of which they had sold 600. On morning of 14/10/1964, seller’s agent gave buyer’s carrier delivery note authorising him to collect 600 cartons. Carrier went to the cold store at 8am and found 600 cartons on the pavement. The cartons loaded onto lorry. Loading completed at noon. After morning tea break at 10am carrier noticed the cartons dripping. He switched on lorry refrigeration which became effective at about 3pm. When signing for the cartons at noon, carrier added a note “in soft condition”. When the cartons arrived in Glasgow next day, kidneys were unfit for human consumption. Buyers sued sellers for damages for breach of implied conditions -fitness for purpose and merchantable quality- and sellers sued buyers for the price. It was held that this was a sale of unascertained goods. Therefore property could not pass until goods were ascertained. This had taken place when the 600 cartons were taken out of cold store and placed on the pavement some time before 8am on 14/10.  Property in the goods and therefore the risk passed to the buyers either when the goods were placed on the pavement, or at the latest when the buyers agent called at 8am, presented his delivery docket and began loading. In either view, damage occurred subsequently and the buyers therefore bore the loss and had to pay the price.

Unpaid Seller
  • When the whole of the price has not been paid or tendered.
  • When a negotiable instrument or a bill of exchange has been received as conditional payment and the condition in which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.
  • The seller remains as unpaid seller as long as any portion of the price, however small, remain unpaid. Where the whole of price has been tendered, and the seller refused to accept such a tender, seller ceases to be an unpaid seller. In such a case the seller loses all high right against the goods.


Rights of Unpaid Seller
The sale of Goods Act has expressly given two kinds of right to an unpaid seller of goods, namely :
Against the goods
  • When property in the goods has passed
  • Right of lien
  • Right of stoppage of goods in transit
  • Right of re-sale
  • When property in the goods has not passed
  • Right of withholding delivery.

Against the buyer personally
  • Right to use for price
  • Right to sue for damages
  • Right to sue for interest.

The unpaid seller’s right can be exercised by an agent of the seller to whom the bill of leading has been endorsed, or a consignor or an agent who has himself paid, or is directly responsible for the price.

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