Sale of goods: contract, property and risk PDF

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Sale of goods: contract, property and risk In this chapter we look at the Sale of Goods Act, the definition of a sale contract, the rules on the passing of property and risk, and transfer of title. 2 Law of Contract about Sale of Good:  1893  1979 The original Sale of Goods Act 1893 was an attempt to codify the common law on sale contracts. In providing greater protection for the consumer, the Sale of Goods Act 1979 and other legislation, such as the Unfair Contract Terms Act 1977, became part of a shift from the general principle of caveat emptor (buyer beware) – according to which it was for the buyer to ensure that goods did not suffer from any defects. Where much of the burden has been shifted on to the seller to ensure that goods that are being sold, do not suffer from certain types of defects, or that the buyer is made aware of such defects before the sale. The law has given some support to the seller. For example, s.15A and s30(2A)-(2B) mean that the non-consumer buyer cannot reject defective goods or a delivery of an incorrect quantity of goods where the breach is so slight as to make rejection unreasonable.

The approach to interpreting codifying statutes was laid down by Lord Herschell in a case Of Bank of England v Vagliano Brothers: To examine the language of the statute and to ask what is its rational meaning, and to see if the words of the enactment will bear an interpretation in conformity with this view. Lord Atkin confirmed that this was the correct approach to the SGA: ‘Inasmuch as we are now bound by the plain language of the code I do not think that decisions in cases before 1893 are of much value’ as per Re Wait [1927]. Yet, what this means is not always clear. Since the Act was passed in 1893 there has been a large number of cases in which its meaning has been explored, so it is increasingly difficult for a court to go back to the words of the statute without also taking into account later case law. The words of Lord Herschell should now be understood in light of the remarks of Lord Diplock in Ashington Piggeries Ltd v Christopher Hill Ltd [1972].

What problems are posed by Lord Diplock’s approach to interpreting the SGA? His approach is to encourage flexibility in the interpretation of the SGA and to concentrate on determining the common intention of the parties. The difficulty occurs if the provisions of the statute are clear and do not fit in with the common intention of the parties: for example, see the discussion of amendments to the SGA in 1995. In addition, the advantage of flexibility in statutory interpretation must be weighed against the importance of certainty: the parties need to be clear in their rights and obligations so that they can plan. Nevertheless, it is useful to keep Lord Diplock’s ideas in mind when studying sales law.

Change/ Drawback from 1893 to 1979 Sale of Good Act: There has been imply terms: WHY?  To protect customers The burden has shifted from buyer to seller  If there is a defect in the product, it is not the problem of seller but rather the buyer 1979  The 1979 Act prevails over any case law

The scope of the Sale of Good Act (SGA) 1979: The SGA 1979 defines a contract of sale of goods as: A contract in which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration. The word ‘property’ refers to the title to the goods and not to the goods. The 1893 Act applied the same rule to all types of contract and changes has been introduced by Sale of Good Act 1979. As a result, the 1979 Act can no longer be regarded as a single code applying to all contracts of sale.

What is a contract of sale of goods? The Sale of Good Act 1979 is an act of the UK which regulates contracts in which goods are sold and bought. A contract for sale is a legal contract for an exchange of goods or property to be exchanged from the seller to the buyer for an agreed value. Definition of Sale of Good: Sale of Good is a contract between the buyer and seller where the seller undertakes/ agrees to transfer property (goods) to the buyer.

Responsibility of Buyer: To pay for consideration Contract between the buyer and seller  To transfer/sell or agreed to sell  property  to buyer

What are the basic principle of contract:  2 parties  Freedom as per s55 of SGA 1979: The parties have got rights

The Sale of Good Act (SGA) 1979 adheres to the principle of freedom of contract: Under s.55(1) of SGA 1979, ‘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.’ There are certain restrictions  They are stipulated in s55.

A contract of sale is defined by s.2(1) of SGA 1979. The components of that definition must be present so where there is no transfer of property it is not a sale. The importance of the distinctions between contract of sale and other types of contracts involving goods has been reduced – but has not entirely vanished – because, in so far as is possible, the same principles are applied to different types of contracts involving the supply of goods.

Transactions that are not sales The Act applies only to sales of goods and not to other types of contracts dealing with goods. It is, therefore, worthwhile considering the distinction between these different contracts, although the courts have sought to apply similar rules to all of them.

There are transaction despite they are characterised as sales although they are not goods: 1. Gif A gift involves the transfer of property in goods without consideration being given in exchange (i.e. there is no price). A promise to give goods is not enforceable, unless by deed. Gift: because of no consideration.

2. Barter The consideration takes the form of goods or services and not money. Barter means no consideration in terms of payment Where goods are transferred to the seller in part exchange by the buyer (e.g. A agrees to sell to B a car, which is priced at £5000, for £2000 plus B’s existing car), this may be construed as two sales – B buys A’s car for £5000 and A buys B’s car for £3000. The leading case is Aldridge v Johnson.

3. Contract of bailment Contract of bailment:  2 parties  One agrees to return the property to the owner at the end of the contract. This is where goods are delivered to the bailee on terms requiring their return to the owner (the bailor) or to another party. Although the person holding the goods under such a contract has certain rights and obligations, there is no intention that property will pass to the bailee. There is, therefore, no bailment if the intention of the parties is that property passes to the other party, even if the terms of their agreement stipulate that on the occurrence of an event the property in the goods must be conveyed back to the original owner as per South Australian Insurance Co v Randell. Is there absolute contract of good?  No contract at all

4. Security interests Where someone (the chargor) grants an interest in goods in favour of another (the chargee) as security for a loan or some other form of credit, the chargor retains property in the goods. The chargee does acquire a proprietary interest in the goods, and the charge will cease when the debt is paid. There are various ways in which a charge may be created in relation to goods: the owner may or may not hand possession of the goods or documents of title to the other party to secure the debt (pledge), or may transfer legal title to the goods to the creditor under terms that require the creditor to convey that title back to the debtor on payment of the debt. The creditor will have the right to sell if the debt is not paid.

5. Contract for work and materials The Seller undertakes a task for buyer. For example Contract with x for a painting to be delivered for 2 weeks and pay him the money This is a contract involving skill and labour as well as the transfer of property in goods, such as the painting of a portrait by an artist. Where the work element can be separated from the goods, as where a gas fitter installs a new central heating boiler, one might be able to suggest there are two contracts, one for the labour (contract for work) and one for the boiler (contract of sale). The problem arises where the work done by the fitter is very defective and the householder wishes to reject the boiler. This may not be possible because the boiler is not defective and there is, therefore, no breach of the sale contract, only a breach of the contract for labour. The courts will distinguish between a contract for sale and one for work and materials by looking at the substance. The test involved determining if the skill is ‘only ancillary’ or if ‘the substance of the contract is the skill and experience of the artist in producing the picture.’ In Robinson v Graves, the distinction in that case was between the portrait painter and the maker of a set of dentures. It was concluded that in the maker of a set of dentures situation there is a sale of goods. The assumption that a contract must be in substance either a contract of sale or of work and materials may work well if there is a clear separation between the supply of goods and the performance of some service (such as fitting the goods). The significance of the distinctions between some of these contracts has diminished, although not entirely vanished. In Young v McManus Childs Ltd, the House of Lords took the view that, as far as possible, the same principles should be applied whether goods were supplied under a sale contract or a contract for work and materials.

6. Agency contracts Test to determine contract of Agency:  Identify who is the agent and who is the principal  Whether the principal has ratified the contract that whether he has authorized it

Where Agent buys goods from Third party on behalf of Principal and Principal has authorised or later ratifies the purchase, there is an agency contract between Principal and Agent and a sale contract between Principal and Third party. The test as to whether someone sells/buys as principal or agent is determined by the substance of the transaction (in essence, what did the parties intend) and not the form it took (e.g. the words used to describe the transaction).

7. Option to buy Option to buy: No contract yet because there is no transfer. Only when the condition is satisfied that there will be a sale under the Sale of Good Act 1979. Where X agrees to grant an option to Y to buy goods, this is an enforceable contract if supported by consideration, but it does not fall within the SGA until and unless Y exercises the option to buy as per Helby v Matthews [1895]. A sale-or-return contract arises where X delivers goods on terms that allow Y to accept or reject them within a particular period of time. This is an option to buy because Y has a choice.

8. Conditional contract The SGA applies to conditional contracts. It cannot mean an agreement expressed to be ‘subject to contract’ because this is not a contract. It refers to a contract where some or all of the obligations are conditional on some fact or event: e.g. the parties agree that the sale of a car is subject to it passing a test of roadworthiness. The parties are bound if the condition is fulfilled.

9. Contract of hire-purchase

Contract of Hire-purchase: Not full payment of the good Typically, contract of Hire-purchase is a means by which someone can buy goods by making payments over a period of time. However, it is not a sale because, while the intention is that the buyer will own the goods when all the payments have been made, the passing of property will only occur if the buyer chooses to exercise an option under the contract to that effect. There is no obligation on the buyer to exercise this option. Most hire-purchase contracts are regulated by legislation, especially the Hire-Purchase Act 1965 and the Consumer Credit Act 1974.

Sale of Good is a contract between the buyer and seller where the seller undertakes/ agrees to transfer or sell property (goods) to the buyer for an agreed price.

1. Sale or agreement to sell: The sale of Good Act applies to both a sale and an agreement to sell. The word ‘sale’ includes both types of contract, and buyer/seller includes someone who has agreed to buy/sell as per s.61(1). Agreement to sell is where the transfer of property that is the transfer of ownership or title in the goods does not take place at the same time as the contract is agreed. For the purchase of a newspaper in a shop, when the contract of sale is agreed, then the property in the goods passes at the same time. On the other hand, an airline agreeing to buy an aeroplane that has not been built, when the contract of sale is agreed a long time before, property in the goods passes to the buyer. If the seller fails to deliver the aeroplane, the buyer has no property rights, merely an action for breach of contract; whereas the buyer of the newspaper acquires property rights in the goods and rights under the contract. The sale involves both a contract and the conveyance of title to goods, whereas the agreement to sell does not convey title. What is the element at risk in the contract of sale?  That the property is not delivered. If the seller complies with his obligation and fails to deliver goods or fails to satisfy one condition of the contract, then it will be a breach of contract.

2. Price

The price must be in money, either paid or promised. This includes payment by cheque, credit card or other forms of money transfer. What is the main benefit of the seller?  The price What consist of the Price?  Consideration Concerning price, it can be in a clause as per s8 (1): Parties agree subject to the clause, to determine the price in the year. The price may be fixed in the contract as per s.8(1) of SGA , or the price may be agreed by the parties in the contract. If the parties have left the price to be agreed upon later by the parties, there is usually no contract on the grounds of uncertainty, unless the court can infer an intention that a reasonable price is to be paid (s.8(2)).

3. Goods The word ‘goods’ are defined in s.2(1) of SGA 1979. Under s.61(1) ‘goods’ includes an undivided share in goods so that a contract of sale includes the sale of part of a larger, undivided bulk of goods, such as a one-half share in a horse or boat. The Act 1979 does not apply to land (real property), nor shares and cheques (choses or things in action) or bank notes (money). Computer software has caused some difficulties and may not be covered by the SGA. The SGA does apply where the program is carried on a disc and both are sold to the consumer, but not if the program is simply licensed. The leading case is Fern Computer Consultancy v Intergraph CADWorx [2014], where software was supplied on CDs, particularly where the supply was accompanied by a physical dongle and documentation, there was real success in arguing that this was a supply of goods.

The Land itself is not covered by SGA 1979 but things on land such as crops are covered by it.

The Act does cover crops that are attached to the land, although these are also land within the meaning of s205 of the Law of Property Act 1925. Whether goods have been affixed to land and so become part of land often depends partly on the degree of annexation (how easily can the goods be detached?) and partly on the purpose of annexation (what was the intention of the parties in attaching the goods to the land?):  Bricks are goods that become land when formed into a wall on land.  A building is land, but can become goods by demolition or detachment from the land.  Therefore, if the owner of land agrees to demolish a building and sell the materials, this is a contract of sale of goods. Things attached to or forming part of the land – buildings, fixtures, crops, minerals and soil – which are agreed to be severed before sale or under the contract of sale, are declared to be goods by s.61(1).

The law recognises no right of property in a dead body or any part thereof, so human remains cannot ordinarily be considered goods capable of being bought and sold. In Dobson v North Tyneside Health Authority [1996], the court appears to have concluded that once a person has, by the lawful exercise of work or skill, so dealt with a human body or part of a human body that it has acquired some attributes distinguishing it from a mere corpse awaiting burial, it can be the subject of property rights like other types of goods. For example, stuffing or embalming a corpse or preserving an anatomical or pathological specimen for a scientific collection, education or exhibition (Egyptian mummies can, therefore, be the subject of a contact of sale). In Yearworth v North Bristol NHS Trust [2010], the Court of Appeal sought to distance itself from the application of skill transformed body parts into goods, but did not provide a satisfactory substitute Under s.61(1) ‘goods’ includes an undivided share in goods so that a contract of sale includes the sale of part of a larger, undivided bulk of goods, such as a one-half share in a horse or boat. We will discover the significance of this when we come to discuss the passing of property in goods.

4. Transfers or agrees to transfer the property

 Property What is property?  Who benefit from the property: The buyer While the price is the benefit received by the seller, the buyer receives both the goods and property in the goods. In addition, since risk usually runs with property, who has property will often settle the question of who bears the loss if goods are damaged or destroyed.

A property right is the connection between an individual and a thing : The touchstone of a property right is its universality: it can be asserted against the world at large and not, for example, only against another individual such as the contracting partner. If, under a contract of sale, I acquire the ownership of a chattel, my property right to the chattel may be asserted not just against the seller but against the whole world. If A sells a car to B, B can assert the property right acquired, not only against A, but also against others even though they are not parties to the contract. The whole right can be asserted against the whole world. For example, if X sold property to Y. Then Y can stand up against X and say to the whole world that “this property belongs to me”.

Section 2 of SGA refers to sales as contracts where the seller transfers, or agrees to transfer, property in goods. In other words, the Act covers two distinct aspects: the contract to transfer and the transfer itself. Where there is a sale, the contract and the transfer occur simultaneously; where there is an agreement to transfer they are separated because the transfer of property in the goods is delayed. What is the ‘property’ that is being transferred? According to s.61(1) it is ‘the general property in goods, and not merely special property’. This means the seller is transferring, or agreeing to transfer, the absolute legal interest in the goods, so the transfer of something less than the seller’s full legal interest does not constitute a sale. Transfer is for all legal interest of the property. For example, the whole apple is transferred to the seller, not half of it remains with the buyer.

 Categorisation of goods

In order to understand the principles governing the passing of property, it is necessary to understand the way the Sale of Good Act categorises goods as existing, future and specific or unascertained. This categorisation occurs at the time of the contract.

1. Existing goods Existing goods are goods owned or possessed by the seller at the time of the contract as per s5(1).

2. Future goods Future goods are to be manufactured or acquired by the seller after the making of the contract. So, if the goods do not y...