Commercial Law Lecture 1 - Introduction To Sale Of Goods PDF

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Commercial Law Lecture 1 – Term 2 English Sale of Goods: The Foundations Sale of Goods Act 1979 (SGA) - Replaced SGA 1893 which codified the existing common law rules Bank of England v Vagliano Bros [1891] AC 107 – 144-145: First instance is to examine the language of the statute and to ask what is its natural meaning..... Where provision have a technical meaning it may be permissible to look at prior case law to interpret the relevant provision.

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S 62(2): ‘… the rules of the common law, including the law merchant, except in so far as they are inconsistent with the provisions of this Act, and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake, or other invalidating cause, apply to contracts for the sale of goods’

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Usages and customs

-Freedom of Contract: S 55(1): ‘where a right, duty or liability would arise under a contract of sale of goods by implication of law, it may (subject to the Unfair Contract Terms Act 1977) be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract’ What is a contract for the sale of goods? 

‘A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.’ (s 2(1))

-If the seller is transferring the property, then that is a ‘sale’ (S. 2(4) -If the seller AGREES to sell then that is an ‘agreement to sell’ - where under a c-t of sale transfer of property is to take place in the future or subject to some condition later to be fulfilled (s 2(5)) S 2(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’

Sale v Agreement to sell: -Breach of agreement to sell leads to damages. In the case of a sale: can only bring an action where the property in the goods has passed to the buyer (S. 49(1)) -Risk of loss/damage also lies with the owner (S in an agreement of sale; B in a sale) –Risk passes with transfer of property as general rule (S. 20(1)) PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2015] EWCA Civ 1058 – Number of parties in the chain and the chain involved gasoil supplies (‘the bunkers’). OWBM is the supplier to the vessel owners (PST Energy). The payment had to be made within 60 days after delivery; the contract also

contained a retention of title clause. The contract also allowed the buyer to consume the goods before them being paid for. OWBM went into restructuring and payment was never made, and the goods were consumed. The supplier was trying to get the price from the owner of the vessel. Buyer argued that the property had not passed under s. 49(1), the seller continued to hold the title. Held: Their descriptive of the contract is not decisive. The essence was the owners did not contract for the transfer of property, they contracted for the delivery of the quantity of bunkers and had an immediate right to use for which they had 60 days to pay. So it was not a sale contract and they could not claim the price back

Sale contracts for work: -The provision of services is normally subject to obligation to provide with care and skill. Whereas provision of goods is subject to strict obligation of quality Distinguishing goods and services Lee v Griffin (1861) 1 B&S 272, 278: Involved obligation of dentist to make and fit artificial teeth, the lady who ordered them died so it was claim against her executive. ‘If the party has done work and labour which ends in nothing that can become the subject of a sale, the party cannot sue for goods sold and delivered...’ here it was decided it was a sale of goods contract Robinson v Graves [1935] – General test is one of determining the substance of the contract. –If it is all to do with the skill then it is likely the provision of a service as it was in this case. ‘If you find … that the substance of the contract was the production of something to be sold … then that is a sale of goods. But if the substance of the contract…is that skill and labour have to be exercised for the production of the article and that it is only ancillary to that that there will pass from the artist to his client or customer some materials in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture”’ Can also look at comparative value(although this was rejected in Lee v Griffin, Robinson v Graves can be said to support it): It looks at the value of the goods and the value of the services and then compare and see what the substance of the contract is 

Is a mixed contract possible? Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129, 1148: ‘The obligations…were not confined to selling the vessel but they included designing and building it and there were special provisions…that the contract price ‘shall include payment for services…’’ BUT ‘the shipbuilding contract has little similarity with a contract of sale and much more similarity with…contracts in which the party…had either performed work or provided services’

-Cammel laird case

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First, the transaction may be seen in substance or essence as one or the other;

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secondly, a comparative value test may be applied to determine whether the goods or the labour have the greater financial value;

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or thirdly, the transaction may be seen as a sale of goods contract if the property in some goods is conveyed and these goods are not wholly incidental to the transaction…

 In the current state of English law, it is impossible to say which test is predominant’ (MG Bridge)

Definition of ‘Goods’ S 61(1): ‘“goods” includes all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular “goods” 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; [and includes an undivided share in goods; -Is software goods? St Albans DC v International Computers [1996] 4 All ER 481 (CA): Local authority was buying software to help collecting a community charge. The software was faulty as it overestimated the number of people and the charge calculated was wrong and they suffered losses: population was overestimated and the charges set at a low rate, resulting in losses. Held: Software per se is not goods; not subject to the SGA implied terms. BUT if it is on a physical medium it can be. ‘ A computer disc onto which a program is designed and intended to instruct or enable a computer to achieve particular functions has been encoded’ is ‘goods’ – But in this case it was held to be goods London Borough of Southwark v IBM UK Ltd [2011] EWHC 549 (TCC) - Purchase of software by London Borough of Southwark. Claim that the software was unsatisfactory and unfit for purpose Held: Is it goods? No! No transfer of property – rights to use software are licensed. It was a licensing arrangement rather than a sale. 

BUT: ‘In principle, a licence to use, if that is all it is, may well not transfer any property or title in the goods in question. However, if the arrangement between the parties can be said to involve the transfer of property to the buyer, I see no reason why in principle software that is so transferred cannot be "goods" for the purposes of the Act. ’(para. [97])

-It is an arbitrary distinction between the physical medium and non physical software -Tangibility and moveability are the key characteristics of goods

Classification of goods:

 Existing and future: ‘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’ (S 5(1)). ◦

‘Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods’ (s 5(3))

 Specific and unascertained ◦

‘“specific goods”: goods identified and agreed on at the time a contract of sale is made [and includes an undivided share, specified as a fraction or percentage, of goods identified and agreed on as aforesaid]’ (s 61(1))

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Varley v Whipp [1900] 1 QB 513 (reaping machine: specific, but future goods in the SGA sense)

‘Ascertained goods’ are specific goods but are identified at a later point -Significance of the distinction: Ss 6 & 7 SGA – only apply in the case of specific goods S. 6: ‘Goods which have perished: Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void’. S. 7: ‘Goods perishing before sale but after agreement to sell: Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided’. -Also, property can only pass if the property is specific or ascertained (this means the passage of risk also depends on this) -Specific performance: S. 52(1): ‘In any action for breach of contract to deliver specific or ascertained goods the court may, if it thinks fit, on the plaintiff’s application, by its judgment or decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages’ -Distinction is also important when it come to the right to cure (if goods are specific, replacement is not possible) AerCap Partners 1 Ltd v Avia Asset Management Ab [2010] - Buyer argued the goods had to be specific goods, a specific aircraft and because the seller leased that aircraft to a third

party, they made themselves incapable of performing the contract and therefore repudiated it. The buyer says he then accepted that repudiation and refused to pay. Held: The engines were not specific goods because their contractual definition did not extend to their serial numbers.-There was also no apparent commercial reason why the fate of an agreement should hinge on the supply of a specific engine. The CPs’s obligations would not terminate provided the engine was replaced. The Price -Price in money paid or promised. Means legal tender, not ‘money’s worth’. Three ways of fixing price: S. 8(1) SGA: ‘The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties’. S. 8(2): ‘Where the price is not determined as mentioned in sub-section (1) above the buyer must pay a reasonable price.’ (McBridge criticized this provision, saying it is ambigious and makes it uncertain how far law is prepared to go in enforcing uncertain contracts) May & Butcher v The King [1934] – contract stated that the price was to be determined ‘from time to time’. There was also an arbitration clause in the contract. Relationship between parties broke down and could not decide price. Buyer sought to enforce the agreement at a ‘reasonable price’. Held: There was no contract, the term regarding the price was too uncertain. –All essential terms must be agreed for there to be a contract.(including price) –Had the agreement been silent about the payment, the price could have been fixed by the SGA. –A ‘reasonable price’ was not the same as the mechanism of agreeing the price from time to time, and therefore making a reasonable price would be contrary to the intention of the parties. –The arbitration clause was also inapplicable because there was no agreement from which issued arised which could be sold by arbitration. Watford v Miles [1992] – Agreements to negotiate are unenforceable Cases with more liberal approach: Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 – There was an option for buyer to purchase another ‘100,000 standards for delivery in 1931’. It was argued that this was too uncertain. Held: There was a contract; there was intention of parties for contract to exist. The option was binding and could be given reasonable meaning, they relied on the previous agreement they had (for 22,000 standards) which helped give meaning to the clause. Both parties were

experienced in this trade. As long as they have intention to be bound, then it should be supported Foley v Classique Coaches Ltd [1934] 2 KB 1 (CA) – The seller was owner of petrol station and some adjoining land. Had agreed to sell peice of land to buyer on agreement that the buyer would purchase petrol on an exclusive basis. The price was to be agreed ‘from time to time’. This arrangement lasted for 3 years until the buyer found a cheaper deal on petrol and refused to pay. Buyer argued it was too uncertain. Held: The agreement was valid and binding on both parties. Emphasis on their intention to be bound. This was inferred because the agreement lasted for three years, there was an exclusivity arrangement which showed an intention to be bound. The court said they ahd to imply a term to give effect to the parties intention, the price was a ‘reasonable price’. An arbitration clause applies as a mechanism to decide price if the parties cannot reach an agreement of what a ‘reasonable price’. –May & Butcher case distinguished as applying on its particular facts

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Tension in case law (against which s. 8 operates)?

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Intentions of parties is crucial(!)

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It can be argued that, on balance, s. 8(2) should only operate where the c-t is silent on the determination of the price (according to May & Butcher) – in Foley and Hillas there were additional circumstances (eg, prior conduct)

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At the same time, it can also be argued that the May & Butcher approach contradicts the scheme of s. 8. Under s 62(2) SGA, s. 8 should prevail over the conflicting common law.

S. 8(3): ‘What is a reasonable price is a question of fact dependent on the circumstances of each particular case’. S. 9(1): ‘Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided; but if the goods or any part of them have been delivered to and appropriated by the buyer he must pay a reasonable price for them’.

Duty of Seller and Buyer: 

S. 27 SGA: ‘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’.

S. 28: ‘Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods Note: S and B are only required to be ‘reading and willing’; S does not have a duty to actually deliver the goods before S becomes entitled to sue B for the price What is delivery? S. 61(1): ‘“delivery” means voluntary transfer of possession from one person to another; [except that in relation to sections 20A and 20B…it includes such appropriation of goods to the contract as results in property in the goods being transferred to the buyer];’ -There is actual(S transfers physical possession of the goods to B) and constructive delivery Constructive delivery: 1. S does not have physical possession of the goods and transfers control (or right to possession) to B 2. Transfer of a document of title: S 1(4) of Factors Act 1889: ‘The expression “document of title” shall include any bill of lading, dock warrant, warehouse-keeper’s certificate, and warrant or order for the delivery of goods, and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented 3. Attornment. S 29(4) SGA: ‘Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods’. Attornment - Sterns Ltd v Vickers [1923] 1 KB 78 (CA): ◦

120,000 gallons of white spirit, part of a larger quantity lying in a tank belonging to a storage company. S handed to B a delivery warrant, whereby the storage company undertook to deliver the said quantity to B’s order. The Buyer accepted the warrant and agreed to pay storage charges. The goods deteriorated before the goods were severed from the bulk. The buyer then refused to pay Held: Risk passed to the Buyer, even if property in the undivided portion did not. The buyer had accepted the delivery, S could no longer access the goods. There was

an attornment. The buyer had also started to pay the storage charges. The seller had delivered the goods, when attornment has taken place, delivery had also taken place. ‘The vendor of a specified quantity out of a bulk in the possession of a third party discharges his obligation to the purchaser as soon as the third party undertakes to the purchaser to deliver him that quantity out of the bulk’ (Scrutton LJ, 85 Physical(actual) delivery:

1. The parties may agree that S will hold the goods as B’s agent or bailee 2. Physical transfer of the goods to the buyer 3. Delivery to a carrier - S 32(1): ‘Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer.’ S. 32(2): ‘Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages.’ What is a ‘reasonable’ contract of carriage? Thomas Young & Sons v Hobson & Partner (1949) 65 TLR 365 (CA) – It was a sale of electric engines to be delivered by rail. The seller loaded engines in box wagons, but failed to secure them adequately as a result the goods arrived damaged. When the seller made a contract of carriage the provision provided that the engines were to be carried at owner’s risk but they could have been dispatched at the same cost at carrier’s risk (by putting in such a clause). The buyer then refused to accept the goods from the railway. Held: The seller failed to perform his duty under s. 32(2), the contract of carriage was not reasonable in the circumstances. The buyer was entitled to refuse the delivery (as it was not actually a delivery)

Place of delivery 

S 29(1): ‘Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties.’

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S 29(2): ‘Apart from any such contract, express or implied, the place of delivery is the seller’s place of business if he has one, and if not, his residence; except that, if the contract is for the sale of specific goods, which to the knowledge of the parties when the contract is made are in...