Chapter 1: Sales of Goods

Question 1

What does the Sale of Goods Act deal with?

Answer 1

This act deals with contracts.

Question 2

The Sales of Goods Act applies to:

Answer 2

• Sales (and agreements to sell)
• Goods - tangible items, not real property

Question 3

What are the two types of property?

Answer 3

• Real property
• Personal property: everything that is not real estate and can be tangible and intangible.

Question 4

The Sales of Goods Act does not apply to:

Answer 4

• Exchanges of goods (barter/bartering)
• Leases in some provinces
• Provision of services
• Consignments

Question 5

Why does exchange of goods (barter) not apply in the Sales of Goods Act?

Answer 5

Because there has to be a purchase from some sort of payment.

Question 6

Why doesn’t provision of services apply in the sales of goods act?

Answer 6

Because services are not a good. Services are not a property.

Question 7

What are consignments?

Answer 7

Consignments occur when the owner of the property gives possession of the property to another individual or entity for the purposes of that individual attempting to sell that article on behalf of the owner.

Question 8

What is the difference between a contract of sale and an agreement to sell?

Answer 8

• In the contract of sale, title transfers when the contract is made.
• In an agreement to sell, the title doesn’t transfer right away. It transfers at some later date.

Question 9

What is the difference between ownership and possession?

Answer 9

• Ownership is the right, the title, who owns the property. Who has the ability to deal with the title to the property.
• Possession is who holds the property. Who actually has it.

Question 10

What happens under an installment contract?

Answer 10

• Also called conditional sales agreement.
• The purchaser has possession but not the title. Tile is reserved as a security for payment of the purchase price.

Question 11

What is an example of an installment contract (or conditional sales agreement)?

Answer 11

This is how many car purchases are structured. Not always, but often if one is purchasing a car from a dealership and is some sort of payment plan, not a lease, it’s a conditional sales contract where the purchaser has possession of the car and a payment plan, and as they make payments over time their obligations decrease, and once they have completed their payments the title is transferred to the purchaser. But they don’t actually own the car until the payments are complete and title has been transferred.

Question 12

What are the terms of a contract of sale?

Answer 12

Terms are the obligation of a party over a contract. The terms spell out what the parties have to do under the agreement.

Question 13

What is the general rule where buyers may inspect goods? What does inspect mean?

Answer 13

The general rule is Caveat emptor.
Inspect: Where they can actually see it, look at it, and investigate it.

Question 14

What is Caveat emptor?

Answer 14

Caveat emptor means buyer beware. It means that they are taking on any responsibility for any defects, imperfections, or problems with the good.

Question 15

What is the difference between implied and expressed terms?

Answer 15

Implied terms: are those implied by law, and in this case, implied by the Sales of goods act. So the Sales of goods act is putting these terms into these types of contracts.
Expressed terms: These are those that are explicitly stated in the agreement, so they are either written between the parties or stated between the parties. They are expressed.

Question 16

What are the conditions of a contract?

Answer 16

Those terms in the contract that are essential to the agreement.

Question 17

What are the warranties of a contract?

Answer 17

Terms of the contract that are obligations of the parties, but they are a lesser terms and not critical or essential to the contract.

Question 18

Where is the difference between conditions and warranties?

Answer 18

The difference between these two is in the effect when there is a breach.

Question 19

What happens if there is a breach of condition in a contract? What are the remedies?

Answer 19

With a condition, if there is a breach, the remedies for the non-breaching party are repudiation (refusal to perform), or damages, or both. So if one party fails to perform a condition, then the other party can accept that they deem the party to be at an end, and they have no future obligation.

Question 20

What happens if there is a breach of warranty in a contract? What are the remedies?

Answer 20

Breach of warranty leads to damages only. Where there is a breach of a warranty, the non-breaching party is still obligated to comply with their obligations under the contract and they can only sue for damages. So if a party breaches a warranty and the non-breaching party wants a remedy, they have to complete their end of the bargain and then sue for losses later.

Question 21

What are the implied conditions of the Sales of Goods Act?

Answer 21

• Goods sold by description will conform to the description.
• Goods sold by sample will correspond to sample.
• Seller has the right to sell the goods.
• Goods are fit for purpose.
• Goods are of merchantable quality.
• Retailer could be bound by implied terms under the Sales of Goods Act in contract with consumer, but may be unable to rely upon those same terms if the manufacturer used exemption clause.

Question 22

Goods sold by description will conform to description.

Answer 22

• If the seller purchases a good on the bases in which there is some sort of specific description, then whatever is delivered actually has to conform to that description.
• This is in relation to generic characteristics of a product and not marketing words or sales words. For example, a generic characteristic may be it is color red, whereas a non descriptive word that would be a condition is “it’s a beautiful car.” The word beautiful is not an implied condition.

Question 23

Goods sold by sample will correspond to sample

Answer 23

If the purchaser sees a sample and the purchaser buys it on that basis, then whatever is delivered to the purchaser has to conform to that.

Question 24

Seller has the right to sell the goods

Answer 24

The seller has, with title to the good, or some other authority to sell the good. They have an ownership or an agreement with the owner to sell. For example, confinement.

Question 25

Goods are fit for purpose

Answer 25

This applies only where the purchaser is relying on the seller’s skill or judgment. So if there is some sort of technical aspect or professional aspect to the sale, or the purchaser is relying on the seller to provide them with a product that is fit for the purpose that the seller has described, that is an implied condition.

Question 26

goods are of merchantable quality

Answer 26

That is a condition that provides that the product or the good is in reasonable condition and free from defects that would make them unsuitable for use. So it is in a condition that makes it usable.

Question 27

Retailer could be bound by implied terms under Sale of Goods Act in contract with consumer, but may be unable to rely upon those same terms if manufacturer used exemption clause.

Answer 27

• Retailer would be bound by these conditions with respect with their sale to the consumer; however, if there is a problem with the product, then they cant go back to the manufacturer if there is an exception clause.
• So this puts the responsibility on the seller for problems with products, and not the manufacturer. For example, an appliance retailer sales a microwave and it turns out that it is defective, and it just doesn’t work, is not a merchantable quality, it can’t be used for anything. The purchaser could seek a remedy on the basis, and the retailer is responsible for that, even though the retailer didn’t create the product, they didn’t build it or manufacture it, they sold it and they are responsible for it. The retailer can’t exempt these provisions by exemption clause, but the manufacturer can exempt liability with respect to the retailer. So the retailer, if the clause exists in the contract between them, the manufacturer might be off the hook, they might not be able to go back to the manufacturer for a problem with the product.

Question 28

What are the implied warranties in the Sales of Goods Act?

Answer 28

• Buyer will have quiet possession.
• Goods are free of liens.

Question 29

Buyer will have quiet possession

Answer 29

Means that they have possession free from interruption.

Question 30

Goods are free of liens.

Answer 30

Essentially a lien is a right to retain or hold possession of a property until payment. So when a purchaser buys a good, they are taking it on the warranty that there are no liens attached to that piece of property. That they can maintain possession of it without interruption.

Question 31

What is an exemption clause?

Answer 31

An exemption clause is an exclusion, so it will state that those particular provisions of the Sale of Goods Act, for example, don’t apply, they are exempt from the contract.

Question 32

What does it mean that exemption clauses are strictly constructed?

Answer 32

Exemption clauses have to be very well drafted, and those who are drafting have to make sure they are actually excluding what is intended. If they are so broad that they are vague the court won’t enforce it, they won’t exempt rights. Courts don’t like to take away rights unless is very clear.

Question 33

What exemptions do several provinces, including BC, prohibit?

Answer 33

Several provinces, including BC, prohibit exemption of the implied terms of merchantability and fitness for purpose in retail sales and leases.

Question 34

What does the case law provide in relation to exception clauses and the seller?

Answer 34

• Case law provides that seller cannot exempt itself from liability of performance of contract.
• An exemption clause for liability can’t go so far as to say that the seller won’t be liable for delivering the product. That is not enforceable in law because is essentially removing all liability under the contract. It makes the contract meaningless, so that is not going to be enforceable.

Question 35

What is the “title”

Answer 35

A right or claim to ownership of property.
When someone is the owner of property whether it is personal or real what they have is title to that good or property.

Question 36

When can title change in relation to possession?

Answer 36

Title may change before or after change of possession.

Question 37

How many rules does the Act have to determine when title changes and what are they?

Answer 37

There are five rules:
Rule 1: Specific Goods if Deliverable
Rule 2: If Not Yet in Deliverable State
Rule 3: Weigh, Measure… for Pricing
Rule 4: Goods Delivered on Approval
Rule 5: If Goods Are Not Identifiable

Question 38

Who can transfer ownership?

Answer 38

Only the owner of a good can pass good title and transfer ownership to another person.

Question 39

What are exception to passing of title?

Answer 39

• The owner’s agent can cause passing of title.
• Innocent purchaser for value who buys goods in the normal course of business acquires good title.

Question 40

How can title pass through the exception of an agent?

Answer 40

If the owner authorizes an agent to transfer the property on their behalf then that is possible.

Question 41

How can title pass to an innocent purchaser?

Answer 41

If a purchase is innocent of any problems with the title, so they are unaware that the seller has good title for value (so there is some sort of exchange there), who buys the good in the normal course of business, so it’s in the seller’s normal course of business, then that purchaser can acquire a good title.
For example, if I buy a stove at an appliances store and pay money for it, but then it turns out the store didn’t own it, but it was still owned by the manufacturer, that is not an excuse for the manufacturer to come after me. The seller was in the business of that type of exchange, so I can rely on that, so title has passed in those circumstances.

Question 42

Rule 1: Specific Goods if Deliverable

Answer 42

• If an unconditional contract is made for sale of specific goods in a deliverable state, ownership changes when the contract is made.
  Unconditional contact: there is nothing that has to be fulfilled before the contract is in effect.
  Specific good: Ascertainable and known.
• It does not matter if payment is postponed – both title and risk pass to the buyer.
  For example, I go to a car lot and I make a contract to purchase a specific vehicle, let’s say is a used vehicle and there are no conditions attached to it, and it is in a deliverable state, nothing has to be done to it. If I make that contract, haven’t paid for it yet, and decide to pick it up the next day, and in between the time that I make that contract and the time when I was supposed to come back, there is a fire at the dealership and the car is gone. Title has transferred to me, as well as risk. That means that that contract was already in effect and I owned that car. Even though the car doesn’t exist anymore, I am liable for that loss.

Question 43

Rule 2: If Not Yet in Deliverable State

Answer 43

• If the goods must be modified, title passes when the work is done and the buyer notified.
  For example, the car that I purchased in the lot, the dealership agreed to add an undercoating and would let me know when that was done, and I can come a get the car. They do that the same day, they call me in at 6 pm and say that is ready to be picked up and I say “great, I’ll come get it tomorrow.” At that point title passes, so at that point I have assumed ownership as well as the risk. Again, if the dealership burns down, even though I don’t have my car, I am still liable for the purchase price of that car.

Question 44

Rule 3: Weigh, Measure… for Pricing

Answer 44

When the goods must be weighed, measured, or tested, title passes when the act is done and the buyer notified.

Question 45

Rule 4: Goods Delivered on Approval

Answer 45

Sometimes contracts will provide that title doesn’t pass until the good is delivered and approved by the purchaser.

Question 46

In Rule 4, when goods are delivered on approval, when does title pass?

Answer 46

Title passes when:
- The buyer signifies his acceptance or adopts the transaction. So when they have taken the product.
- Keeps the goods past the time specified or, if no time was specified, beyond a reasonable time.
If there is a time period where the purchaser can return or reject the product and that time passes, then the title transfers when the time expires. Or if there is no specified time, is what is reasonable in the circumstances. And that is a contractual interpretation exercise that a court will have to go through.

Question 47

Rule 5: If Goods Are Not Identifiable

Answer 47

• When goods have not yet been manufactured or are not identifiable, title passes when there is unconditional appropriation and the buyer consents.
• The effect of this is that is usually when the buyer actually receives the product, or when it’s sent for delivery, because at that point, the seller can’t substitute it for something else.

Question 48

In Rule 5, what does appropriate mean?

Answer 48

• “Appropriate” the specific good to the contract – designate the good such that the seller cannot substitute another.
• Appropriate means that that specific good is at some point attached to the contract. A good that was not identifiable when the contract was made becomes identifiable and part of the agreement.

Question 49

What are the remedies for the seller under the Sales of goods act?

Answer 49

• Seller’s lien
• Repossession
• Resale
• Damages for non-acceptance
• Action for the price
• Retention of deposit

Question 50

For remedies for the seller, explain seller’s lien

Answer 50

A lien is the right to retain property until payment. So the seller retains possession, they hold that property, but they don’t longer have title. So the purchaser has title and ownership, but the seller still actually has possession. The seller can hold that property/good until payment is made. This doesn’t apply where there is credit extended to a buyer (liens aren’t applicable).

Question 51

For remedies for the seller, explain repossession

Answer 51

• These are only available in very specific circumstances. So this is where the seller goes and takes back the property. Is only available when the buyer has become insolvent or bankrupt within 30 days of the purchase, and the buyer still owes money. Is also only possible if it is a business good and not a consumer good.
• The good also still has to be in the possession of the buyer. So if the original buyer has sold it to someone else then the seller can’t go and repossess it.

Question 52

For remedies for the seller, explain resale

Answer 52

Where the original seller has a lien or has repossessed, or where the purchaser has refused delivery of the product, the seller can resell that product to try and mitigate their losses.

Question 53

For remedies for the seller, explain damages for non-acceptance

Answer 53

If the seller goes out to deliver the product and the purchaser rejects it, or just refuses to take it, the seller can claim for damages. So they can resell it, which they should do, and if they do, then that impacts the damages that are available to the seller.

Question 54

For remedies for the seller, explain action for the price

Answer 54

If the purchaser refuses to accept the product and not pay for it, the seller could sue them for the price that they would have been paid for the product. Generally, seller would just resell and seek for damages.

Question 55

For remedies for the seller, explain retention of deposit

Answer 55

If a deposit has been paid then that can be partial satisfaction of any losses due to the purchaser refusal to perform.
- In some circumstances this deposits should be drafter carefully to avoid the interpretation that they are liquidated damages if that is not what the intention was.
- Liquidated damages are those that are set by the contract, so the parties agree ahead of time what damages will be paid in the event of a breach. If the parties didn’t intend for the deposit to be a form of liquidated damages, then they need to carefully draft the contract such that that is not the interpretation.

Question 56

What are the remedies for the buyer under the Sales of Goods Act?

Answer 56

• Rescission/damages for misrepresentation.
• Refuse to pay where condition was breached.
• Partial payment for breach of warranty.
• Specific performance if goods have been paid for but not delivered.
• Damages if defective goods cause injury.

Question 57

For remedies for buyers, explain rescission/damages for misrepresentation

Answer 57

Recission: Essentially an unwinding of the agreement.
Is often impractical. It is possible to return the property and get a refund but usually, there is a better remedy available for the purchaser. The better remedy would be damages for breach.

There are three types of misrepresentation: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation.
Innocent misrepresentation can result in rescission.
Damages are available for negligent or fraudulent misrepresentation.

The damages would be the loss suffered by the purchaser.
If it was an innocent mistake, rescission is the only option. However, if it was negligent or fraudulent, then damages are available.

Question 58

For remedies for the buyer, explain refuse to pay where condition is breached

Answer 58

If there is a condition that was breached (one of the essentials of the contract), the purchaser can refuse to pay.

Question 59

For remedies for the buyer, explain partial payment for breach of warranty

Answer 59

If it was a warranty that was breached, sometimes partial payment is an option. That is very circumstance specific and depends on the terms of the contract. The purchaser in those circumstances would sue for damages.

Question 60

For remedies for buyer, explain specific performance if goods have been paid for but not delivered.

Answer 60

If the goods have been paid for and not delivered. Specific performance is a very limited remedy. Courts will usually only award it when there is something unique about a good that couldn’t be easily replaced, or the loss couldn’t be addressed with money. So it is uncommon.

Question 61

For remedies for buyers, explain damages if defective goods cause injury.

Answer 61

• Injury is not necessarily personal injury, but also economic loss. If the defective good resulted in some sort of loss of profit or some other economic loss, then damages are available.
• Another potential loss could be the cost of fixing the defective product if the purchaser retained possession of it or replacing the product with another undefective good.