Ch.21 The Sale of Goods Flashcards
History of a Contract of Sale
Codification of the common law into a statute
Purpose was to enhance efficiency and reduce uncertainty
Contract of sale is a type of contract
General contract rules apply i.e. rules of formation, discharge and impeachment
More than ordinary contract because contains promises of parties but represents evidence of a transfer of ownership to the buyer
Two different types of contract of sale:
Ownership transferred immediately (sale)
Transfer of ownership takes place at a future time, or subject to fulfillment of a condition (agreement to sell)
Application of the Act For Goods:
Agreement to sell must be for tangible goods i.e. moveable personal property and not intangibles
Distinct from land or anything attached to land
- Land transactions not covered by Sale of Goods Act
Distinguished from contract for work and materials
- Not covered by Sale of Goods Act if majority of contract is represented by the “work” / labour
For money:
Property must be money i.e. money must change hands
- Barter or exchange of goods is not a contract of sale
- Consignment is not a contract of sale
For Writing:
No special form required for contract; can be written, verbal, implied from conduct of parties
Requirement of writing if sale of goods valued above particular amount (unless partial payment made or something else given in earnest)
Transfer of title:
Represents agreement to transfer property in the goods to the buyer
Title - ownership of the goods
- Normally goes with possession
- Sale of Goods Act determines when title passes
Goods not in deliverable state remain at seller’s risk until “ready for delivery”
- Examples: goods that must be produced, weighed, measured, counted, sorted or tested
If transfer of title not dealt with in contract, Sale of Goods Act sets out fives rules
Deemed to apply to the sale of goods
Rules deal with the passing of property (title) and therefore who bears the risk
Specific goods - goods that are identified and agreed on at the time a contract of sale is made
Unascertained goods - goods not yet set aside and identifiable as the subject of the contract at the time the contract is formed
Rule 1
If there is
- Unconditional contract
- For sale of specific goods
- In a deliverable state
Then the property in the goods passes
- the buyer
- When the contract is made
Immaterial whether the time of payment or the time of delivery (or both) be postponed
Example: “I will buy that TV as is for $1000”
Rule 2
Variation of Rule 1 - where there is a contract for sale of specific goods and
- The seller is bound to do something to the goods for the purpose of putting them in a deliverable state
Then the property passes
- To the buyer
- When the thing is done and
- The buyer has notice thereof
Title does not pass until seller does whatever is necessary to put goods into deliverable state, and notifies buyer that goods are now ready for delivery
Example: “I will buy that TV for $1000 after you replace the power cable”
Rule 3
Variation of Rule 1 - when there is a contract for sale of specific goods in a deliverable state, but
- The seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price
Then the property passes
- To the buyer
- When such act or thing is done and
- The buyer has been notified thereof
Seller must have the duty to weigh, measure, or otherwise deal with the goods
Example: “I will buy all the TVs on that truck once you count them”
Rule 4
Deals with contracts for the sale of goods “on approval” or with return privileges
- Two-part rule - where goods are delivered to buyer on approval or “on sale or return” or other similar items
Then the property passes
- To the buyer:
-When he or she signifies his or her approval or acceptance of the transaction, or
-If buyer does not signify his or her acceptance to seller but retains goods without giving notice of rejection
Example: “I might buy that TV but let me take it home to try for a few days”
Rule 5
Applies to unascertained or future goods by description (subject matter of an agreement to sell)
Then the property passes
- To the buyer
- When goods unconditionally appropriated to the contract
-By seller with buyer’s assent; or
-By buyer with seller’s assent
Example: “if you can get my size, I will buy a set of this year’s new Michelin Snow tires when they arrive”
Contractual Duties of the Seller
Sales of Goods Act permits parties to insert any terms or conditions they wish into contract of sale
- Seller obliged to comply with these terms
- If not specified, Act implies certain obligations in terms of warranties and conditions of the goods:
-Condition
-Warranty
Condition
essential term of a contract; if breached entitles innocent party, if he or she chooses, to treat breach as discharge
Warranty
minor term in contract of sale; breach of the term would allow injured party damages, but not rescission of agreement
Title:
- Implied condition that in case of a sale, seller has right to sell the goods
- Implied warranty that goods are free from any encumbrance in favour of a third party
-Unless seller informed buyer of the encumbrance before at time of agreement being made
Buyer shall have “quiet possession” of goods i.e. no person will later challenge the buyer’s title to the goods
Sold by description or sample:
Condition that goods will correspond with description/sample
“Description” refers to the identity (not quality) of goods
If sold by description as well as sample, then the goods must correspond to the description as well as sample
Caveat emptor
Latin for “let the buyer beware”
Buyer subject to caveat emptor with respect to quality and fitness
Buyer has opportunity to examine goods as to quality and fitness
Act imposes some obligations on seller:
- If seller is in the business of supplying such goods, and buyer that makes the purpose of use goods known to seller, and buyer relies on skill or judgement of seller, there is implied condition - goods provided shall be reasonably fit for intended use
Merchantable quality
goods of a quality standard suitable for resale
Goods sold must be of merchantable quality
Breach if reasonable buyer would not pay full price
Merchantability covers goods, packaging, labeling
Applicable only if seller normally deals in goods
Not applied to defects in the goods that would be discovered by reasonable examination
Delivery
Seller has duty to deliver goods at the right time, in the right quantity and at the right place
Right time (condition of contract):
- If time for delivery not specified, goods must be delivered within reasonable time
- Buyer may reject delivery if it is late
- Delivery and payment should be concurrent, time of payment is a warranty
Limitation of Liability
Seller may, be expressed term in contract, exclude all implied conditions and warranties imposed in Act
- Seller must comply exactly with contract made
Consumer protection legislation:
- In some jurisdictions, seller prevented from excluding implied conditions and warranties
- Provides “cooling off” period for certain contracts
- Impose greater responsibility on seller of goods
Duties of buyer in accordance with Sale of Goods Act:
Promptly examine goods sent on approval
Compare goods to a sample
Takes delivery
Pay for the goods
Payment and delivery are concurrent conditions
Payment is a warranty unless specifically stated as a condition
Remedies of the Buyer
Rescission:
For breach of condition but not warranty
IF seller’s breach goes to very root of contract, buyer can repudiate contract and reject goods
- Includes right to refuse payment
- If payment already made, right to sue for recovery
If seller fails to deliver goods:
- Buyer can purchase goods elsewhere and sue for difference between contract and price paid in market
Damages:
For breach of warranties or in minor term
For deficiency in quantity of delivery
Buyer may treat a breach of condition as a breach of warranty
Specific performance:
On rare occasions, if goods have unique or special attribute and cannot be readily obtained elsewhere
- Monetary damages are not adequate
- Equitable remedy at discretion of the court
Remedies of the Seller
Passing of title to the buyer
Right of seller to retain goods
Rights can be exercised against the buyer personally or against the goods
Depending on circumstances and nature of remedy
Seller may not repudiate contract for non-payment unless it is a term of the contract
Lien:
(remedy of seller)
Seller retains possession of goods until buyer pays
Seller may claim a lien on goods if:
- Sale is a cash sale
- Period of credit has expired
- Goods sold on ”lay-away” plan
- If buyer becomes insolvent before goods are delivered
Seller must have possession to enforce a lien Buyer must not have right of credit
If seller voluntarily released goods to buyer, may lose right to lien
Action for the price:
Seller has delivered goods to buyer, title has passed
- Seller may sue the buyer for price of goods
Title has not passed, seller delivered goods but delivery was refused by buyer
- Seller nay sue buyer for the price
- Seller must be prepared to deliver goods if seller recovers price
Damages:
Common remedy available to seller is ordinary damages for non-acceptance
- Seller can resell goods to another
- Seller can sue buyer for any loss incurred
Damages recovered = monetary amount necessary to return seller to position prior to transaction
- Profit or loss on sale or difference between disposal price and contract price
Retention of deposit:
Entitles seller to retain deposit paid as liquidated damages if buyer refuses to perform contract
Need not be in writing to render it binding on parties
Advantages to seller:
- Circumvent the requirements of writing under Sale of Goods Act if contract is unwritten and if it for more than stipulated minimum
- Represents fund that seller can access if buyer breach’s agreement
-Must be an honest estimate of the probable loss
Stoppage in transit
right of the seller to stop delivery of goods by the carrier if the buyer is insolvent
Must be done before buyer has gained possession
Recovery of goods:
Bankruptcy and Insolvency Act - if goods shipped to buyer, and buyer becomes bankrupt, the seller may, within 30 days:
- Submit written demand to trustee in bankruptcy for return of goods
- Goods must be unsold, still in bankrupt buyer’s possession, identifiable, and in same condition as when delivered to the buyer
Seller’s rights to goods rank above claims of other secured or unsecured creditor to the goods
Electronic Sale of Goods
Electronic retailing requires new practices to:
- Minimize chance of disputes and problems
- Avoid misunderstandings as to jurisdiction of applicable law
Most internet issues can be managed via company website policies
