Topic 3 - SALE OF Goods PDF

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TOPIC 3 SALE OF GOODS

1.0

INTRODUCTION

Sale of Goods Act 1957 Section 3: The Contracts Act 1950, in so far as they are not inconsistent with the express provisions of this Act shall continue to apply to contracts for the sale of goods. Definition: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. Section 2: “goods” means e very kind of moveable property other than actionable claims and money: and includes 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. “price” means the money consideration for a sale of goods ‘contract of sale’ – sale occurs when the ownership or ‘property in goods’ passes to the buyer. An ‘agreement to sell’ is a contract pure and simple whereas a sale is a contract plus a transfer of ownership. Capacity: Governed by Contracts Act 1950 - above 18 years Formalities: No special formalities, in writing, by words of mouth or partly in writing and partly by word of mouth. Formation of contract of sale of goods: Offer – to buy or to sell Acceptance – to sell or to buy

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Terms of the contract (condition and warranty) : Section 12(2) – a condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as a repudiated. Section 12(3) - a warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. Warranty ------ less vital term of a contract Section 13(1): Permits the buyer to treat a breach of condition as a breach of warranty.

2.0

IMPLIED TERM

a) Implied term as to title Section 14(a): “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” Rowland v Divall Facts: The plaintiff bought a car and after using it for some four months, discovered that it was stolen. He had to return it to the true owner and asked for return of purchase money. Held: there was breach of implied terms because the seller did not have the title at the time when the property is to pass.

b) Implied warranty as to quiet possession Section 14(b): “an implied warranty that the buyer shall have and enjoy quiet possession of the goods” Microbeads AG v Vinhurst Road Markings Breach of the section – because the buyer did not enjoy the future quiet enjoyment of the goods. Claim was made by the owner of a patent affecting the goods.

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c) Implied warranty that the goods are free from encumbrance Section 14(c): “An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third not declared or known to the buyer before or at the time when the contract is made. Steinke v Edwards Facts: The plaintiff who had bought the car paid off the tax owing and sought to recover it from the defendant-seller. Held: the right of the government to levy a tax on a vehicle coupled with a right to seize the car to enforce collection was a ‘charge or encumbrance’. Therefore, the claim was allowed for breach of the implied warranty.

d) Implied condition that goods correspond with description Section 15: “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; and if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with that sample if the goods do not also correspond with the description”. Moore & Co. v Laundauer & Co Facts: Contract for 3100 cases of Australian canned fruit packed 30 tins per case. Held: Buyer was entitled to reject the goods when half of the cases contained only 24 tins per case. Goods do not correspond with the contractual description. Section 16 provides the common law principle of " caveat emptor". This principle is applicable to buyer. Caveat emptor means "Let the buyer beware". The law imposed duty on the buyer to exercise due care and diligent before making any decision to buy any goods. However, this principle has two exceptions:  Goods must be reasonably fit for purposes which the buyer wants;  Goods must be of merchantable quality.

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e) Implied condition as to fitness for particular purpose Section 16 (1)(a): “Implied condition that goods are reasonably for a purpose and also of merchantable quality” However, four (4) requirements in section 16 (1) must be fulfilled. 1. 2. 3.

4.

Disclosure of purpose-the contract is made, the particular purpose for which the goods are required. Buyer makes known to seller the particular purpose why he requires the goods The buyer is relying on the seller’s skill or judgment The buyer must make known either expressly or impliedly to the seller at or before the time when goods are of a description which it is in the usual and ordinary course of the seller’s business to supply Patent or trade name . The goods were not bought because it’s patent or trade name.

Baldry v Marshall Facts: A contract for sale of a Burgatti car was entered into and it was later found that the car was unsuitable for touring. Held: dealer was liable, buyer had relied on the dealer’s judgment.

f) Implied condition as to merchantable quality Section 16(1)(b): “Where goods are bought by description from a seller who deals in goods of that description (where he is the manufacturer of producer or not) there is an implied condition that the goods shall be of merchantable quality. Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examined ought to have revealed” Davies Jones v Willis It was held that a pair of shoes that heels came off on the third occasion was unmerchantable. The goods were defective for the purpose for which they were sold.

g) Sale by samples Section 17(1): “A contract of sale by sample where there is a term in the contract express or implied to that effect”

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Sale of bulk goods example rice, flour, wheat, Conditions in section 17(2) (a), (b), (c): (a) that the bulk shall correspond with the sample in quality (b) that the buyer have reasonable opportunity of comparing the bulk with the sample (c) that the goods shall be free from any defect rendering them unmerchantable which would not apparent on reasonable examination of the sample Therefore, if the bulk corresponds with the sample but there is a latent defect rendering the goods unmerchantable, the buyer is entitled to reject them. Drummond v Van Ingen The cloth supplied by the seller was equal to samples previously examined but because of a latent defect not discoverable by a reasonable examination, the court found the seller in breach of the subsection.

3.0

PASSING OF PROPERTY

Property in goods, that is title or ownership, must be distinguished from possession, example in hire-purchase law. As a general rule: title passes when the parties to a contract of sale intend that it’s should pass. 1. Section 18: “where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the good are ascertained” 2. Section 19(1): “where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the certain intend it to be transferred.” 3. Section 19(2): “for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.” 4. Section 20: “where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer

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when the contract is made, and it is immaterial whether the time of payment of the price, or the time of delivery of the goods or both, is postponed.” 5. Section 21: “where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.” 6. Section 22: “where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weight, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.” 7. Section 24” “when goods are delivered to the buyer on approval or “on sale or return”, or other similar terms, the property therein passes to the buyer …” (a) When he signifies his approval or acceptance to the seller or does any act adopting the transaction (b) Ff he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of goods, on the expiration of such time, and no time has been fixed, on the expiration of a reasonable time.

4.0

TRANSFER OF TITLE

Rule:

No one can give what he has not got

Section 27: “where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, ……”

Nemo dat rule Maxim:

Meaning

NEMO DAT QUOD NON HABET No one can transfer a better title than he has himself

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EXCEPTIONS: 1.

Estoppel

Section 27 “the owner of the goods is by his conduct precluded from denying the seller’s authority to sell” Example: Owner of the goods makes it appear to buyer that the person who sells his good has his authority to do so. Therefore, the buyer will acquire a good title by estoppel. N.Z Securities & Finance v Wrightcars Ltd. Facts: A agreed to sell a car to B and B was given possession of the car upon the tender of a cheque as payment. It was agreed that property in the car was not to pass until the price had been received. B then sold the car to C and took it back on a lease. However, before the sale to C was finalizes, C had contacted A’s office and in response to C’s query was informed by A’s employee that B had paid for the car. The cheque given to A by B was dishonoured whereupon A repossessed the car. On discovery of the events that had occurred, C sued A for conversion relying on the New Zealand equivalent of section 27. Held: C was successful in claiming that A was precluded by his conduct from denying B’s authority to sell so that title had passed to C.

2.

Sale by a Merchantile Agent

An agent may pass a good title in selling goods belonging to his principal. Example: broker, auctioneer or dealer of goods. Conditions: i. at the time of disposition, the merchantile agent must be in possession of the goods or the documents of the goods ii. the possession must be with the consent of the owner iii. the disposition must be made ‘when acting in the ordinary course of business of a merchantile agent’ iv. The buyer must have acted in good faith and, at the time of the contract of sale, must not have notice the agent’s lack of authority to sell 35

3.

Sale by One of Joint-Owners

Section 28: Conditions to fulfill: i. one of the joint – owners has the sole possession of the goods with permission of the co-owners ii. the buyer acts in good faith

4.

Sale under a Voidable Contract

Section 29: “where a seller of goods obtained possession under the contract voidable under Section 19 or Section 20 of Contracts Act, but the contract has not been rescinded at the time of the sale, buyer gets good title to the good provided he buys them in good faith and without notice of seller’s defect of title.

5.

Sale by a Seller in Possession After Sale

A seller who has parted with title to the goods but remains in possession of the goods or of the documents of title can pass a good title to a bona fide buyer. Pacific Motor Auctions v Motor Credits Facts: The plaintiffs became the owner of several of cars in the possession of a dealer and under a ‘floor plan agreement’. The dealer would retain the cars and sell them in the same way as it sold other cars. Wherever the car covered by the plan was sold, the dealer would account to the plaintiffs for the money received. When the plaintiffs discovered that the dealer was in financial difficulties, they revoked his authority to sell. However, the dealer went ahead and sold a number of vehicles. Held: the meaning of ‘continues….in possession’ was construed as intended to refer to the continuity of physical possession regardless of any private transactions between the seller and the purchaser which might alter the legal title under which possession was held.

6.

Sale by a buyer in Possession

Section 30(2): A buyer having bought the goods or agreed to buy goods obtains possession of the goods or the documents of title with the consent of the seller, can pass a good title to the innocent buyer.

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Newtons of Wembley Ltd v Williams Facts: The plaintiffs sold a car to A who paid by cheque and it was agreed that title would not pass until the cheque was honoured. A was given possession of the car but the cheque was dishonoured. The plaintiffs then rescinded the contract. Subsequently, A sold the car to B who bought it without the knowledge of the fact. B, in return sold it to the defendant. The plaintiffs attempted to recover the cat from the defendant. Held: The defendant had a good title to the car that he had bought although there was a prior defect in title. This is because A, the original buyer, was in possession with the consent of the plaintiffs and it follows that he could pass a good title to B who in turn transferred it to the defendant.

5.0

REMEDIES FOR BREACH OF CONTRACT Remedies

unpaid seller

remedies of the buyer

An ‘unpaid seller’ is a seller to whom: i. The whole of the price has not been paid or tendered: or ii. Where a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled due to the instruments being dishonoured or for some other reasons.

5.1

Rights of Unpaid Seller

Section 46 (1): a) a lien on the goods for the price while he is in possession of them b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them c) a right of resale as limited by this Act

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1. Lien Rights of the creditors to retain possession of his debtor’s property until his debt has been satisfied. Section 47(1): The unpaid seller of goods who still possesses is entitled to retain possession of them until payment or tender of the price in any of the following events: a. where the goods have been sold without any stipulation as to credit b. where the goods have been sold on credit, but the term of credit has expired c. a right of resale as limited by this Act

2. Stoppage in transit Section 50: “when the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit and may retain them until payment or tender of the price. The effect of stoppage in transit is to restore the right of possession to the seller that is the seller will be placed in a position as if he had not parted possession of the goods.

3. Resale Section 54(1) provides that a contract of sale is not rescinded by the mere exercise by unpaid seller of his right of lien or stoppage in transit. Since the contract is not rescinded, the seller would not be allowed to resell the goods. However, section 54(2) provides that the seller has authority to resell where: i. the goods are of a perishable nature, or ii. he gives notice to the buyer of his intention to resell and the buyer does not within a reasonable time pay or tender the price, or iii. the seller expressly reserves a right of resale in case the buyer should make default and the buyer makes such default.

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5.2

Remedies of the buyer: right of buyer to bring an action for non-delivery

1. Section 57 “where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery”

2. Section 58 “provides the buyer may bring an action for the specific performance of the contract by the delivery of specific or ascertained goods (discretion of the contracts)” Usually, specific performance is ordered when goods are of a special or peculiar kind, example: valuable painting or a priceless antique.

3. Consumer Protection Act 1999 The main objective is to provide greater protection for consumers. Under this act, an aggrieved consumer may refer any dispute or claim of less than RM50,000 to the Tribunal for Consumer Claims Malaysia (TTPM). As a consumer, where the implied guarantee regarding quality, repairs, spare parts or description and express guarantee is not being met, the consumer has a right of redress against the manufacturer. If a product does not comply with the implied guarantee, you can claim damages for any loss or damage directly caused by the failure of the product to perform properly and for the reduced value of a product.

The End

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