Contract law 2 - Sales and goods act Flashcards
Remedies
- Special performance
○ Deliver
○ Repair
○ Replace - Damages
○ Your loss
○ Penalties - to be paid without agreement? - Termination
○ Ending the contract
○ Partially ending? - Other
E.g. injunction?
SELLERS breach of a contract - Delay
Delay - The relationship of mutuality between buyer and seller means that the buyer (in a cash sale) is entitled to retain the purchase price upon the seller’s non- delivery at the due time
Delay from the seller also entitles the buyer to the following remedies: he may still claim delivery (affirm the contract), he may cancel the sale (avoid the contract) and claim damages
The buyer’s remedy of affirming the contract against payment of the purchase price follows from s. 21(1).
The buyer’s (justified) avoidance of the contract of sale implies that both parties’ right to demand performance lapses
Where performance has already been made, each party must return what he has received
Thus, if the buyer has received the goods – albeit too late – he must return them to the seller upon his avoidance of the contract (s. 57)
Where the goods have perished, the buyer is barred from avoidance unless their destruction was due to an accidental event (s. 58).
Avoidance of the contract on account of delay normally requires that the delay was of material importance to the buyer, cf. s. 21(2)
In a commercial sale, any delay is deemed material unless, however, only an insignificant part of the quantity sold is affected by the delay, cf. s. 21(3)
The requirement as to materiality is also derogated from in so-called “fixed” sales, which are sales in which the buyer has stipulated delivery at an exact time
In a consumer sale, the rule granting the buyer the remedy of avoidance for material delay cannot be derogated from by agreement, cf. s. 74 in con- junction with s. 1(2)
The buyer’s interests will not always be absolutely safeguarded even if he is not to pay the agreed purchase price upon his avoidance – or when he recovers the price from the seller
Under s. 23, the seller is liable in damages “unless he can show that the delay is not his fault”. In tort terms, s. 23 expresses a fault (or “culpa”) rule. The seller is liable if he has been at fault but escapes liability if the delay is dee- med to arise from accidental causes
Where delivery is delayed, the buyer is to notify the seller if he intends to rely on the delay – in a business sale, notification must be given forthwith and otherwise without undue delay, cf. s. 27
If the buyer wishes to cancel the contract, in spite of delivery (delayed as it is), he must without undue delay notify the seller to such effect
SELLERS breach of a contract - Defects
Defects - For a sale which is not governed by the special rules on consumer sales in ss 72-87, in this context particularly ss 75a and 76, the Sale of Goods Act makes no attempt to define in detail when the subject-matter of a sale is “defective”
The rules on defects are drafted with a view to defects in quality but it follows from s. 50 that the rules are also applicable to quantity defects, i.e. where the quantity delivered is less than agreed
In the assessment of defect under s. 44 the emphasis is normally placed on the properties of the goods at the time of delivery (the time of passing of risk) to the buyer
Under s. 44, the decisive element is when the defect arose and not when it became evident
Therefore, if the defect came in existence before delivery, this circumstance could be relied upon by the buyer even if the defect does not manifest itself until after delivery was made
The seller’s warranties as regards the existence of certain properties will also be relevant
A warranty will not exactly create a duty on the seller to eliminate defects in the goods, but s. 42(2) shows that the seller’s warranting certain properties at the conclusion of the contract may attract liability in damages if it turns out, at delivery or later, that the goods do not possess the properties warranted
The word “warranty” may sometimes be construed as a limitation of the buyer’s right to claim remedies for defects
Thus, a “warranty” may imply that the seller has undertaken within a certain period after delivery, to remedy certain defects in the goods (for which the buyer is presumed to “waiver” claims for defects, e.g. the right to avoid the contract)
In sales both of specific goods and generic goods the buyer may claim a proportionate reduction of the purchase price if the goods delivered are non- conforming, cf. s. 42(1) and s. 43(2)
A proportionate price reduction implies that the agreed price is reduced so that the amount payable corresponds to the relationship between the value of the goods without defects and their value with defects
In a consumer sale, the rules on proportionate price reduction are mandatory (s. 78(1)(iii), cf. s. 1(2), whereas they may be derogated from in other sales
A material defect allows the buyer to avoid the sale both in a sale of specific goods and in a sale of generic goods under s. 42(1) and s. 43(2), respectively
A buyer of generic goods may, under s. 43(1) and (2) claim replacement delivery, i.e. non-defective performance under the same terms as apply to his right of avoidance
This means that the buyer may normally only claim re- placement delivery if the defect is material
However, a seller’s fraudulent conduct (e.g. an attempt to hide the defect) will always entitle the buyer to claim replacement delivery
Both with regard to “original” defects, i.e. defects which were present in the goods at the conclusion of the contract, and to “subsequent” defects, i.e. defects arisen after conclusion of the sale but before the risk passed to the buyer, the buyer may claim damages if the seller has acted fraudulently, cf. s. 42(2), e.g. by hiding the defect to the buyer
Whereas, apart from consumer sales, the Sale of Goods Act does not entitle the buyer to claim that the seller remedies defects by repair, the seller may – in all sales under the terms of s. 49 and s. 79 – make such repair with the effect that the buyer’s remedies completely or partly will lapse
The buyer’s right to rely on defects in the goods sold may lapse if he fails to give notice to the seller under s. 52(1) – in business sales forthwith and otherwise without undue delay
The duty to give notice under s. 52(1) is performed if the buyer merely makes a “neutral” communication to the seller without specifying the remedy in respect of the defect the buyer intends to rely upon
in consumer sales, s. 52 has been replaced by the less stringent rule of s. 81, first sentence, requiring merely that the buyer is to give notice “within a reason- able time”
BUYERS breach of a contract - Delay
Delay - If the purchase price is not paid on time, the seller may elect to affirm the contract or cancel it
Whether the sale is affirmed or cancelled the seller is also entitled to claim damages for the loss he may have suffered
Under s. 28 the forms under which the buyer may be in breach are limited to situations in which the price is not paid at due date and where the buyer is to take certain measures as part of his payment performance
The term will also cover cases which directly concern the seller’s capability to deliver but which on account of the principle of performance against performance will also be relevant for the payment of the purchase price
The remedy of affirming the sale means that the seller is entitled to claim the agreed purchase price and to claim that the buyer implements the measures necessary for payment to be effected
If the principle of performance against performance has not been derogated from, e.g. by agreeing that the buyer is to pay in advance, the seller’s right to affirm is dependent on his concurrent delivery of the goods to the buyer
In a commercial sale, the seller may cancel the contract of sale upon the buyer’s breach (delay) and the remedy is not dependent on the delay being material, cf. s. 28(1), third sentence, nor that the delay is attributable to the buyer
In other sales, a sale may be cancelled if the delay is material but it is no requirement in such sales either that the buyer is to blame for the delay
If the subject-matter of sale has already been handed over to the buyer, the sale can only be avoided if the seller must be deemed to have made a reservation to such effect, cf. s. 28(2)
If the seller cancels the sale on account of the buyer’s delay in payment he is entitled to damages for the loss he has suffered thereby
The reference in s. 30 to the liability rule in s. 24 shows that, unless the buyer disclaims liability in such respect in the contract, an exemption of the buyer’s duty to pay will only arise in exceptional cases
The most important head in the computation of damages is the price difference, i.e. the amount by which the agreed sales sum has exceeded the price of the goods of a similar nature and quality as those sold at the time of shipment, cf. s. 30(1)
If the seller affirms the contract he will, apart from being able to claim the purchase price, have a claim for interest under the Interest Act
Buyers inablilty to pay
Buyer’s Inability to Pay - When, in consequence of s. 28(2), the seller will usually be barred from avoiding the sale if the goods have been handed over to the buyer, a need may arise to protect him against the consequences of the buyer’s inability to pay when manifested after conclusion of the contract but before the goods are handed over to the buyer
If the buyer, after conclusion of the sale, is declared bankrupt or negotiations for a compulsory composition are commenced against him, s. 39 allows the seller, even if the sale is for credit, to retain the goods, or where they have al- ready been sent, to prevent their being handed over to the estate until adequate security has been placed for the payment of the purchase price on the due date
Where the time of delivery has arrived and the estate fails to place such security on the seller’s request he may cancel the sale
The right to retain the goods is of independent relevance alongside the principle of performance against performance when the seller, in granting credit terms, has waived cash payment.
Where, after the buyer’s adjudication in bankruptcy, the goods have been handed over to the bankrupt estate and the purchase price remains out- standing, the seller may under s. 41 re-claim possession from the estate, unless the estate adopts the contract and places security for the payment of the purchase price at the due date on the seller’s request
Types of contracts and characteristics
- Product, commodity and sales of goods contracts
- Service contracts
- Construction contracts
- IT contracts
- Consulting contracts
- Lease contracts
- Solution contracts
- Turnkey contracts
Ect.
Considerations when choosing different contracts
- The desired obligation (Goods, services, solutions)
- Uncertainty as to risk, cost and prices
- Supplier versus buyer skills and competencies
- Long-term versus short-term agreements
- Degree of trust between parties
- Gain share and pain share between the parties
- Process or technology uncertanity
- Supplier’s abillity to affect costs
- Total value of purchase
The Sale of Goods Act
Non-mandatory and Mandatory Rules
Apart from the rules on consumer sale, the rules of the Sale of Goods Act are non-mandatory (i.e. they may be derogated from), cf. s. 1(1), and will there- fore only apply in the absence of contrary agreement or contrary implication in the contract, or where trade custom or usage does not imply otherwise
S. 1(1) expresses the important view that the Act is not designed to settle with binding effect all legal issues in connection with a sales agreement
In contrast, most of the rules on consumer sales in ss 72-86 are mandatory (not to be derogated from) and the mandatory character has been extended to a number of the rules applying to ordinary sales when such rules regulate sales in a consumer setting, cf. s. 1(2)
Sale of Specific Goods and Generic Goods
In a sale of specific goods the seller can only perform the contract by delivering the object specified in the contract
Similarly, the buyer will be barred from claiming another object than that with which the seller is to perform
To illustrate: The seller S has agreed to sell his car of the make “Fiat” to the buyer B. S has no other car at his disposal, which B is cognisant of
A contract for the sale of unascertained goods implies that the seller is to deliver one or more objects by description
In such contracts, the seller is entitled to choose the subject-matter of the contract for his performance
To illustrate: S has undertaken to deliver 10 specimens of some standardised manufactured goods which are also available from other suppliers
Place of delivery
In the absence of contrary agreement, including the “special clause sales” below – the sale is one of collection
The buyer is to collect the goods sold at the place of residence of the seller at the time of sale or – if he had a business at that time and the sale is related to such business – at the seller’s place of business, cf. s. 9(1)
If, at the time of agreement, the goods were at another place than the seller’s place of residence or business and the parties knew or ought to have known this, such other place is deemed to be place of delivery, cf. s. 9(2)
The rule in s. 9 corresponds to the rule in s. 3(1) of the Debt Instruments Act under which “money debts are payable at the creditor’s address and other liabilities must be discharged at the debtor’s address”
In a consumer sale the provisions in ss 10-11 are replaced by the provision in s. 73. If the seller has undertaken to send the goods to the buyer, delivery will – under s. 73 – be deemed to have been effected when the goods have been placed in the buyer’s possession
Transport terms
A number of these transport terms have been collected and published by the International Chamber of Commerce (ICC) under the designation of “Incoterms”
The purpose of Incoterms is to offer contract parties in international trade a set of delivery terms which may be used by the parties to their own advantage thereby reducing the importance of any dissimilarities between national delivery rules
“FOB” – free on board, Sale of Goods Act, s. 62:
When goods are sold FOB from a stated place (the place of dispatch), the buyer is to charter ship or reserve shipping space for the carriage of the goods from that place, cf. s. 62(1)
“Cost & freight”, “C & F”, “cf” – s. 63 of the Sale of Goods Act:
When this term is used, the seller is to see to chartering and payment of costs in this respect up to the place of destination and the seller will also bear the costs of transportation accommodation, cf. s. 63(1)
“CIF” (cost, insurance, freight) – Sale of Goods Act, s. 64:
The CIF term is interpreted in accordance with the C & F term except that the seller is also to take out customary insurance for the part of the carriage which is after delivery
“Franco” – Sale of Goods Act, s. 65:
Under this term, the seller is to arrange and pay for the carriage of the goods to their place of destination which is also the place of delivery, cf. s. 65(1)
Time of delivery
The time of delivery will usually be expressed in the contract of sale, but it is also possible that circumstances will indicate prompt performance
This will often be the case when a buyer orders goods to be sent to him without indication of time
Where there is a time span agreed for delivery to take place, e.g. “in May 2010”, s. 13 provides that the seller is free to fix the time of delivery within this span of time unless circumstances indicate that the time span has been fixed in the buyer’s interest
The seller’s performance
The seller is to deliver the goods in the condition required by the contract (i.e. “conforming to” the contract)
What it takes to satisfy this requirement is primarily determined by the contract between the parties
Passing of risk
The seller’s duty is to deliver the goods in the condition required by the contract, at the stated time and place
When this has happened, the seller’s duties are discharged
A buyer who does not receive his goods at the stated time or receives non-conforming goods because of actual or legal defects will normally be entitled to avoid the agreement of sale, even if the delay in the delivery of the goods (or their destruction) or the non-conformity is attributable to circumstances beyond the control of the seller or his employees
Duties of the Buyer
The buyer’s duty is normally to pay a money consideration to the seller at the due time and at the right place
