Sale of Goods-CIMA: Statutory references in this chapter are to the Sale of Goods Act 1979 unless other wise noted.
DEFINITION OF A CONTRACT FOR THE `SALE OF GOODS’
1. The main statute on sale of goods is the Sale of Goods Act 1979. The Unfair Contract Terms Act 1977 restricts the use of contract terms which exclude the 1979 Act conditions. The Supply of Goods and Services .Act 1982 for the most part extends the terms of the 1979 Act ; to contacts where the supply of services is the major part – such as contracts of repair.
2. Contract for the sale of goods is defined in s2(1) of the 1979 Act as:
`a contract by which the seller transfers, or agrees to transfer, the property in goods to a buyer for a money consideration, called the price’
Sale includes both an immediate sale, such as purchase of goods in a shop, and an agreement by which the seller is to transfer ownership (in this context called `property’) in goods to the buyer at a future date
Only a sale of goods is covered by the 1979 act. Such a contract should he distinguished from other types of transaction which may resemble, but are intrinsically different to, sales of goods such as:
(a) A hire-purchase contract – eventual sale is the usual result, but such a contract is first a bailment, with an option to buy;
(b) A gift -there is no contractual status in a gift unless it is under deed: difficultly’ arises with ‘free’ gifts in return for a sale. Such as in petrol sales
(c) A Contract of barter – much depends on the intention of the parties for instance an old car ‘traded-in’ for a new one is certainly part of a sale of goods:
(d) A contract of bailment – property does not pass in so–h a transaction- the bailee is mere custodian;
(e) A supply of sew ices – such as repairing contracts;
(f) An agency contract: and
(g)a loan, with goods as security – such a transaction maybe where \ ‘sells’ his car to Y then lets it back to X on hire-purchase. If the only intention is that it should be a loan, then the transaction should be registered as a charge; failure to do so makes it void, and Y could not treat the car as security. If it is genuine. Then there is a contract of sale followed by a hire-purchase contract.
TYPES OF GOODS
The rules on sale of goods make the following further distinctions.
(a)Existing goods are those which exist and are owned by the seller at the time when the contract is made. Future goods are those which do not exist or which the seller doesn’t yet own when he contracts to sell them.
(b)Specific goods are those which are identified as the goods to be sold at the time when the contract is made, eg’my Ford Escort, registration no which are not specific are unascertained and become ascertained goods when-they are subsequently identified as the goods to be sold under the contract.
The main point of these distinctions is that property, that is ownership, cannot usually pass from seller to buyer unless, or until, the goods exist as specific or ascertained goods.
2. ‘In a contract for sale of specific goods there are rules laid down regarding the contract’s status if the goods are perishable.
(a)If, unknown to the seller, the goods have perished at the time when the contract is made, the contract is void: s6. Refer back to the case of Couturier v Hastie 1852 in Chapter 10 on mistake in contract and res extincta
(b)If the goods perish after the contract is made, without fault of either party and before the risk passes to the buyer, the contract is avoided: s7.
3.In addition to simple destruction, goods may `perish’ when they deteriorate to such an extent as to lose their commercial identity. The case-law is concerned mainly with rotting of produce; it is a question of degree as to when they perish.
Case: H’R c0 S Sainsbury v Street 1972
S agreed to sell a 275 ton crop of barley to be grown on his farm to H. Due to general adverse conditions, his crop failed and only 140 tons were yielded. These he sold at a higher price to a third party.
Held: although 135 tons of produce had perished so that the contract in that respect was frustrated, S should have offered the remainder to the plaintiff. Hence the contract as a whole had not been avoided.
1. The price may be fixed by the contract or in a manner agreed by the contract, such as the ruling market price on the day of delivery, or by the course of dealing between the parties. If there is no agreed price, a reasonable price must be paid: s 8.
case: Foley v Classique Coaches 1934
A bus company agreed to purchase its petrol from F `at a price to be agreed in writing from time to time’; any dispute between the parties was to be submitted to arbitration. For three years the bus company purchased its petrol from F at the current price but there was no formal agreement on price. The bus company then repudiated the agreement arguing that it was incomplete since it was an agreement to agree on the price.
Held: in view of the course of dealing between the parties and the arbitration clause there was an agreement that a reasonable price (at any given time) should be paid. The agreement was therefore enforceable.
2. As with any contract, leaving an important term such as the price out of an agreement may mean genuine agreement has not been reached – it is an `agreement to agree’ and not a contract. In some senses, s8 conflicts with the basic tenets df contract law that there should be full agreement. This problem is not resolved in case-law.
3. A reasonable price must be paid for goods delivered and accepted if a third party to whom the fixing of the price is delegated fails to do so.
TERMS IMPLIED BY THE SALE OF GOODS ACT 1979
1.On the distinction between conditions and warranties refer back to Chapter 8 on the terms of the contract. If there is a breach of condition but the party not at fault accepts the goods or part of them, then unless the contract is severable – it provides for delivery by installments and separate payment for each installment – he loses his right to treat the contract as discharged by ~ .breach and may only claim damages for breach of warranty: s 11.
2. One of the main functions of the Sale of Goods Act 1979 is to codify the terms implied :m, contracts of sale. As noted above, these have largely evolved from case-law. Much depends on whether an implied term is a condition or a warranty, and on whether one party to the; contract is dealing as a consumer. The rules are set out below.
A sale of goods may be subject to statutory rules on:
(a) The effect of delay in performance (s10);
(b) Title or the seller’s right to sell the goods (sl2);
(c) Contract description (s13);
(d) Quality of the goods (s 14);
(e) fitness of the goods for the purpose for which they are supplied (s14); and
(f) Sale by sample (s15).
4. In addition, the Unfair Contract Terms Act 19–17 prohibits or restricts the possibility of odifyine these statutory rules (other than those on time) by the use of exclusion clauses as i follows.
(a) It is not possible to exclude or restrict:
(i) The statutory terms on the seller’s title – his right to sell – in any circumstances; nor
(ii) The statutory terms relating to contract description or sample, quality or fitness for a purpose when the buyer is dealing as a consumer;that is when he is not buying in the course of a business and the seller is selling in the course of a business: UCTA 1977 s 6 and 12.
(b)In a contract under which the buyer is not dealing as a consumer, that is when seller and buyer are both engaging in the transaction. in the course of business, the terms referred to in (a) (ii) above may be excluded or restricted, but only if the exclusion or restriction satisfies a requirement of reasonableness. It is possible for a business to be operating as a consumer, for instance where a company purchases a car for one member of staff: R & B Customs Brokers Ltd v UDT Ltd 1987.
Time of performance (s 10)
5.it depends on the terms of the contract whether time of performance is of the essence. If it is, then breach of it is breach of a condition, which entitles the injured party to treat the contract as discharged.
6.in commercial contracts for the supply of goods for business or industrial use, it will readily be assumed that time is of the essence even where there is no express term to that effect (see Chapter 15 on discharge of contract). Often one party is given a period of time within which to perform his obligation, say for delivery of goods. The deliverer is not in breach until the whole period has elapsed without performance.
7. The contract may stipulate that the party should use his ‘best endeavors’ to perform his i by a certain time. If he fails to make that date, he must perform his obligations with, reasonable time:’ under s29, similar reasonableness is required if no date is set by the contract, in any case, time of performance stipulates a ‘reasonable hour’ for obligations to performed – this is a question of fact.Hence it is not reasonable to offer delivery of perishable goods to a factory on the Friday night before a two week shutdown of which the seller is aware
8. Time for payment is not of the essence unless a different intention appears from the contract For example A, a manufacturer, orders a supply of components from B and B fails to deliver the agreed date. A can treat the contract as discharged and refuse to accept late delivery by B. But if B delivers a first instalment on time and A pays the price a week after the agreed date, B could not (under a continuing contract) refuse to make further deliveries, and treat the, contract as discharged. If, however, A failed to pay altogether, that is not delay in payment but breach of an essential condition, that the price is payable in exchange for the goods (unless otherwise agreed).
Seller’s title (s 12)
9 it is an implied condition that the seller has, or will have at the time when property in the ‘ goods is to be transferred, a right to sell the goods.
10. In the ordinary way the seller satisfies this condition if he has title to the goods at the moment when property is to pass to the buyer. (NB in this statutory code `title’ and ‘property’ are both used in different contexts to mean the same thing – ownership). But the condition is broken if the seller, although he owns the goods, can be stopped by a third party from selling j them: the right to transfer its essentials
Case: niblett v Confectioners materials 1921
A seller sold condensed milk in tins labeled with the name `Nissly’. The well-known company, Nestle took legal action when the goods arrived in the UK to have them detained as infringing ‘ the Nestle trademark. The buyers were obliged to remove the labels from the tins in order to have them released from the customs warehouse in which they were held at the instance of Nestle. ;
Held: the seller was in breach of the implied condition that he had a `right to sell’.
11. If the seller Delivers goods to the buyer without having the right to sell, there is a total failure of consideration, and the buyer does not obtain the ownership of the goods which is the ‘ essential basis of the contract. If the buyer has then to give up the goods to the real owner he may recover the entire price from the seller, without any allowance for the use of the goods meanwhile.
Case: Rowland r divall 1923
R, a motor, dealer, bought from D a car which, unknown to D, had been stolen. R re-sold the car ; to a customer. Later the owner of the car recovered it from R’s customer and R repaid to his ; customer the price received from him. R then sued D to recover the entire price paid by R to D: D argued that allowance should be made for two months use of the car before it was returned to the owner.
Held: no allowance should be made. The contract was for transfer of ownership and none had beetn transferred. Possession and use were in the circumstances immaterial.
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Case: Cehave v Bremer 1975
Contract for the supply of `citrus pulp pellets’ (a raw material used in making animal feeding tuffs). On arrival at port of destination, part of the cargo had deteriorated and the buyers rejected the entire cargo. The cargo was offered for sale and was purchased (at a much lower price) by the same buyers who used it for its intended original purpose. The sellers denied that the buyers had been entitled to reject the cargo as not being of merchantable quality.
Held: the fact that the cargo could only be sold on the market at a lower price than the contract provided was not conclusive that it was not of merchantable quality. It could be – and was – used for its purpose, ie making cattle food, and so by that test it was of merchantable quality. On a different point (not referred to above) the Court of Appeal held that some contract terns cannot be treated as conditions until the consequences of breach of those circumstances can be seen. Such terms have come to be described as `innominate’ – see Chapter S on contract terms.
23. If the goods can be used for only one purpose, such as a hot water bottle (see Priest v Last ‘ 1903) or a pair of underpants (Grant v Australian Knitting Mills 1936), and the goods are unsuitable for that purpose, they are of unmerchantable quality. On the other hand where goods v are multi-purpose, the Court of Appeal held in Aswan Engineering Establishment Co v Lupdine Lid ‘ 1987 that the Act does not mean that the goods must be suitable for all of the purposes for ? Which goods of that kind are commonly bought? They will still be merchantable providing they are ‘, suitable for at least one or more purposes for which they might reasonably be expected to be used.
24. If it is contemplated that the goods will be processed in some way before use, such as cooking or washing foodstuffs, and this treatment will remove a defect, the goods are merchantable in spite of the defect–. Hell v Hedges 1951 (plaintiff failed to cook pork chops properly).
25. Once goods are found not to be of merchantable quality the seller has no defence – there is strict liability, so showing that all reasonable care was taken will not succeed.
26. The goods must remain of merchantable quality for a reasonable time, eg during the time of ~ transit between seller and buyer. One of the major areas of uncertainty in consumer protection law is how long the goods must remain in satisfactory condition after transfer to the buyer. But if a fault appears soon after the transfer it will readily be concluded that the goods were not of merchantable quality when sold.
case: Bristol Tramways v Fiat Motors 19I
Sale of omnibuses for use in heavy traffic on hilly roads.The vehicles broke down soon after delivery.
Held: the buses were neither of merchantable quality nor fit for their purpose
27. If the buyer examines the goods before agreeing to buy them he is treated as discovering any defects apparent on examination, whether or not he actually discovers them – but not defects which no examination could reveal, eg arsenic in beer.
Case: Thornett ‘Fehr v Beers & Son 1919 .
Contract for sale of glue in barrels. The buyer inspected the outside only of the barrels. The defect would have been discoverable if he had also looked inside.
Held: the defects which the buyer could have discovered should count when deciding whether the goods were of merchantable quality.
.28 Merchantable qualities have recently been extended to include not only the physical condition of the goods but also other qualities.
case: Shine v General Guarantee Corporation 1988
S obtained an enthusiast’s car under hire purchase.
Held: although the car had no physical defects, was entitled to rescind for breach of s14, since merchantable quality included such fundamentals as having been preciously written off. Fitness of goods for a disclosed purpose (s 14(3))
29. This condition also applies only to goods sold ‘in the course of business’.
30. Where the buyer expressly or by implication makes known to the seller any particular purpose for which the goods are bought, it is an implied condition that the goods supplied under the ; contract are reasonably fit for that purpose (whether or not that is the common purpose of such goods), unless the circumstances show that either;
(a) the buyer does not rely, or
(b) It is unreasonable for him to rely on the skill or judgement of the seller.
Case: Ashington piggeries v Christopher Hill 1972
B gave S a recipe for mink-food and requested that S should mix the food in accordance with the recipe and supply it to B. S told B that they had never supplied mink-food before although they were manufacturers of animal foodstuffs. One of the ingredients was herring-meal which had been stored in a chemical which created a poisonous substance damaging to all animals but particularly damaging to mink. As a result many of the mink died.
Held: because the poison affected all animals the food was unfit for its disclosed purpose since B relied on S’s skill and judgement to the extent that S was an animal-food manufacturer and should not have supplied a generally harmful food. If the poison had only affected mink then B’s skill and judgement demonstrated by its supply of a recipe would have made it unreasonable to rely on S’s.
31.if the goods have only one obvious purpose, the buyer by implication makes known his purpose ,merely by asking for the goods.
Case: Priest v Last 1903
A customer at a chemist’s shop asked for a hot-water bottle and was told, in answer to a question, that it should not be filled with boiling water. It burst after only five days in use.
He/d: if there is only one purpose that particular purpose is disclosed by buying tile lo0d”. Because it was not an effective hot-water bottle, it was in breach of s14(3): This was followed by Frost v Aylesbury Dairy Co 1905 – in the purchase of milk supplied to a domestic address the buyer discloses his purpose, which is human consumption.
32 If, however, the goods can be used for more than one purpose or there are special circumstances which affect their suitability, there is no breach of this condition unless the buyer has made an express disclosure.
33 Even partial reliance of the buyer on the seller’s skill etc makes the !2tter subject to the condition.
Case:Cammell Laird v Manganese Bronze& Brass Co 1934
Shipbuilders ordered a ship’s propeller to be manufactured by a specialist contractor. The buyers specified the materials and certain dimensions but left other details to the seller’s judgement.
Held: partial reliance on the seller’s skill -etc is sufficient to bring the condition into operation a_, regards matters left to the seller to determine.
34. There is a considerable overlap between the merchantable quality and fitness for purpose conditions and the buyer can often claim that both have been broken. But if the goods are multipurpose and the buyer has disclosed that he has one purpose only, it is no defence to the seller that his goods are suitable, for other purposes. They may in such a case be of merchantable quality (as in the Lupdine case in paragraph 4.23), but they are not fit for the disclosed specific purpose. The one condition is a test of general suitability and the other (where it applies) of specific suitability.
Sale by sample (s15)
35 In a sale by sample there are implied conditions that:
(a) The bulk shall correspond in quality with the sample, and
(b) The buyer shall have a reasonable opportunity of comparing bulk with sample; and (c) the goods shall be free of any defect rendering them unmerchantable which would not be apparent on a reasonable examination of the sample.
Passing OF PROPERTY AND RISK
1. Determining at what stage property passes is important for two reasons.
(a)Risk of accidental loss or damage is, as a general rule, borne by the owner, so risk passes with ownership (or `property’) in a sale; of goods: s20.
(b)The rights of parties against each other, and the rights of either party’s creditors if he becomes insolvent, are also affected.
2. No inference is drawn merely because the seller is still in possession – the goods may now be owned by the buyer. Similarly, even though the buyer is in possession the seller may still be owner of them.
3. In determining when property in goods passes the following general principles apply.
a) No property can pass in goods which are unascertained and not yet identified asthe goods to be sold under the contract: s 16.
b) The property in specific or ascertained goods is transferred to the buyer at the time when the parties intend it to be transferred. Their intention may be deduced from the terms of the contract, the conduct of the parties and the circumstances of the case: s 17.
c)Unless a different intention appears (and the parties can agree upon whatever terms they like) the rules of s 18 are applied to ascertain what their intention is on the passing of property to the buyer.
4. Many contracts for the supply of goods contain a clause stating that title to the goods remains with the seller until the contract price is paid. Such `retention of title’ or `Romalpa’ clauses re a common example of the s17 rule that title to specific goods passes when the parties so intend. These clauses are discussed later in this chapter in the context of an unpaid seller’s; remedies against goods.
Passing of property. The s 18 rules
5.rule 1:If the contract is unconditional and the goods are specific or identified, property asses when the contract is made.
t is immaterial that the seller has not yet delivered them or that the buyer has not yet paid he price. However, the seller may, and often does, stipulate that property shall not pass until he price is paid. If the seller insists on retaining the goods or documents relating to them, such as the registration book of a car which has been sold, until the price is paid it will readily be inferred that he intended (and the buyer agreed) that property would not pass on making the contract, but only on payment of the price.
6. rule 2: If, under a contract for sale of specific goods, the seller is bound to do something to put the goods into a deliverable state, property does not pass until the seller has done what is required of him and the buyer has notice of it
Case: Underwood v Burgh Castle etc Syndicate 1922
Contract for the sale of an engine to be loaded on to a railway wagon. At the time of making the; contract the engine was embedded in cement foundations at a factory and it was not in a deliverable state. In loading it into the railway wagon the sellers broke part of the machine. The buyers refused to accept it.
Held: rule 2 and not rule 1 applied. At the time of the damage the engine was still in the sellers’ ownership and so at their risk. The buyers were entitled to reject it in its damaged ‘ state.
7.Rule 3:Where there is a contract for the sate of specific goods in a deliverable state but the seller is bound to weigh, measure or test them to Mt e price, property passes when he has done so and the buyer has notice of it. The rule does not apply when it is the buyer who must Take this action.
Case:Turley v Bates 1863
Contract for the sale of a heap of clay at f X per ton, the buyer to weigh the clay as he loaded it.
Held: rule I not rule 3 applied,
8Rule 4:When goods are delivered to the buyer on approval, that is on sale or return terms, the property passes to the buyer when:
(a) He signifies to the seller that he approves, or indicates approval by dealing with them; or
(b) He retains the goods beyond the time fixed for their return without giving notice of rejection or, if no time has been fixed, if he retains them beyond a reasonable time.
9. Rule 5: When there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract by the seller with the assent of the buyer, or by the buyer with the assent o t e seller, the property then passes to the buyer.
Such assent may be expressed or implied and given before or after the appropriation is made. For example, if the buyer orders goods to be supplied from the seller’s stock he gives implied assent to the seller to make an appropriation from his stock.
10. To bring Rule 5 into operation, something more definite is required than merely selecting or setting aside goods for delivery to the buyer. ‘(Be act must be irrevocable, for example where the seller sets aside goods and also informs the buyer that they are ready for collection.
Case: Pignataro v GiIroy 1919
Contract for sale of 140 bags of rice. The seller sent to the buyer a delivery order for 125 bags at a warehouse and asked him to collect I S from the seller’s premises. The buyer took no action for a month and meanwhile the IS bags were stolen.
Held: the property and risk had passed to the buyer whose assent was inferred from his inactivity.
11.delivery of goods to the buyer, or to a carrier for transmission to the buyer, without reserving to the seller a right of disposal is an unconditional appropriation which brings rule 5 in to operation
12 Rule 5 only applies to appropriation of goods in a deliverable state.
Case: Philip Head & Sons v Showfronts 1970
Contract for supply and laying of carpet at the buyer’s premises. A roll of carpet was delivered but: it was stolen before it could be laid.
Held: the carpet was deliverable to the buyer when laid and not before. It was the seller’s property when stolen – the risk of loss remained with him.
Summary of s18 – passing of property
|1||Specific||Unconditional||When contract made|
|2||Specific||Seller to put into deliverable state||When seller has done so, and buyer has notice|
|3||Specific &deliverable||Seller must measure to fix price||When seller has done so, and buyer has notice|
|4||Specific or ascertained goods||Sale or return||When buyer signifies approval, or he retains them|
|5||Unascertained or future goods||By description||When goods, fitting description and deliverable, are. Unconditionally appropriated by either party, with assent.|
NEMO DAT QUOD NON HABET
1. The general rule is that only the owner, or an agent acting with his authority, can transfer ownership (called ‘title’ in this part of the 1979 Act) of goods to a buyer. This is expressed in the Latin maxim nemo dat quod non habet – no one can give what he does not have.
2. To the general rule there are a number of exceptions to protect an honest buyer against loss. The exceptions fall under rules relating to:
(c) Market overt
(d) Voidable title;
(e) Seller in possession-
(f) Buyer in possession,
(g) Motor vehicles held under hire purchase; ;
(h) Special powers of sale.
These are now discussed in turn.
.3.agency s21 If an ordinary agent sells goods without actual or apparent authority, there is usually no transfer of title to the buyer. But a mercantile agent, that is an agent whose business is selling goods for others, may have possession of goods (or documents of title to them) with the owner’s consent. He can then sell them, in the ordinary course of his business, to a buyer who buys in good faith and without notice that the agent had no authority to sell (or was exceeding his authority). The buyer acquires title to the goods: s21. See Folkes v King in Chapter 17 on the law of agency.
4.,Estoppel.If, by his conduct, the true owner leads the buyer to believe that the person who makes the sale owns the goods, the true owner is prevented (estopped) from denying the seller’s authority to sell. Merely to put goods in the possession of another is not to represent that he is the owner
Case: Central Newbury car Auctions v Crni1 Finance 1957
A rogue was allowed by motor dealers to take a car (and its registration book) pending completion of arrangements to buy it from a finance company on hire purchase. He sold the car. The dealers sued the buyer.
Held: the dealers could deny that the rogue to whom they had given possession had authority m sell the car: transfer of possession is not a representation that the transferee is the owner.
Case: Henderson v Williams 1895
The owners of a stock of sugar informed the warehouse at which it was stored that they should hold it to the order of F as purchaser from them. F re-sold the sugar to H who was told by the ware’ house (in reply to his enquiry) that they held the sugar to the order of F. Later the owner Repudiated their transaction with F (induced by Fs fraud) and instructed the warehouse tc refuse delivery to H.
Held: the owners were estopped from denying their previous statement that the sugar was now hclc to the order of F (as owner).
5. Market overt (s 22).If goods are sold in market overt according to the usage of the market, the buyer acquires good title if he buys in good faith and without notice of the seller’s lack of title.
6. Market overt (open market) means either a recognised public market, such as are held daily o weekly in many town squares etc, and any shop in the City of London. The goods must be of a type usually sold there, the sale must take place in the public part of the shop and must be a sale, by the shopkeeper (not to him). Sale in any market overt must (to afford this protection) tak, place between sunrise and sunset. The principle which underlies these rules is that the buyer i protected if he buys openly in a market to which the public resort, and where the goods are on public display.
Case: bishop gate motor Finance v Transport Brakes: 1949
X, who had possession of a car obtained under a hire purchase agreeme4t, offered it for sale b auction at Maidstone market. There were no bidders but later the same day X sold the car to Y u the same market by private treaty.
Held: this was market overt; sale by private treaty was in accordance with market usage and n the buyer obtained good title.
7. Sale under voidable title (s 23).A person may acquire goods under a contract which is voidable, say for –misrepresentation. He then has title to the goods until the contract is avoided. If he re-sells before the sale to him is avoided, to a person who buys in good faith and without notice pf his defective title, that buyer obtains a good title to the goods. Normally the first contract of sale is not avoided until the person entitled to avoid it communicates his decision to the other party but if that party has disappeared other evidence of intention to avoid the first sale, such as reporting the matter to the police, will suffice: Car & Universal Finance Co v Caldwel! 1965.
8. Re-sale by seller in possession (s 24),if a seller, or a mercantile agent acting for him, continues in possession of the goods (or documents of title to them), and he makes a delivery of m to a person w o receives them in good faith and without notice of the previous sale, the transaction takes effect as if the seller were authorised for that purpose.
Suppose that A sells specific goods to B and B, to whom the ownership of the goods passes, immediately leaves them in A’s possession until B can collect them in his car. A by mistake then re-sells the goods and delivers them to C, who is unaware of the previous sale to B. C gets good title to the goods; B’s only remedy is to sue A. But if A does not actually deliver the goods to C, B has the better right.
9. Re-sale by a buyer in possession (s 25).The seller may permit the buyer to take possession of the goods before ownership has passed to the ‘buyer, eg the seller makes delivery but retains title until the price is paid. If the buyer then makes a re-sale or other disposition in the normal course of business as mercantile agent,’ with actual delivery or transfer of the goods (or documents of title), to a person who takes them in good faith and without notice of the original seller’s rights, title passes to that person as if the buyer had acted as a mercantile agent. This applies even if the buyer has a voidable title which is actually avoided (say by notifying police of the buyer; tack of title).
Case:Newtons of Wembley v 1filliams 1965
X purchased a car and paid the price by cheque. The seller stipulated that title to the car should not pass until the cheque was cleared but allowed X to take possession of the car. The cheque was dishonored and the sellers informed the police and thereby avoided the sale to X in the only way available to them. But X sold the car for cash in an established secondhand car market to Y who took delivery forthwith.
Held: Y acquired good title since X was a buyer in possession with the seller’s consent and the re-sale in the Warren Street market was a disposition in the ordinary course of business of a mercantile agent – it was a commercial sale, so Y acted in good faith. The loss must fall on the original seller if he could not recover from X.
10.The buyer must But person who has’ bought or agreed to buy’, which includes a person such as X in the case above. But the following are not persons who have `bought or agreed to buy’ and so are rot buyers in possession:
(a) a person with an option to buy;
(b) a person taking goods on sale or return terms: Edwards v Vaughan 1910;
(c) a hirer of goods under a hire purchase agreement (but see 6.13 below); (d) a buyer under a regulated conditional sale agreement: s2S(2).
11. To be a buyer in possession, the person must have obtained possession of the goods or documents of title to goods with the seller’s consent. It is immaterial that the seller withdraws consent after the buyer has obtained possession, and that the latter obtains possession after contracting to sell to the innocent purchaser – he is a buyer in possession provided he obtains possession before delivering possession to the innocent purchaser. Cahn v Pockett’s Bristol Channel Steam Packet Co 1899.
12.However, s25 does not allow good title to be giyen to an innocent purchaser from a buyer in possession if the latter had obtained possession from a ‘seller’ not entitled to sell – that is, a thief.
Case: National Mutual General Insurance Association Ltd v Jones 1958
B stole a car from A and sold it to C, who sold it to D (a car dealer) who sold it to E (another car dealer) who sold it to J (au innocent customer). J claimed that, under s25, he obtained title from a buyer in possession acting as a mercantile agent so the loss should fall on A. Held: s25 only served to defeat the claim of an owner who gave possession to a buyer; it could not defeat the title of an owner whose car was stolen.
13. Sale of a motor vehicle acquired under hire purchase.By the Hire Purchase Act 1964 a private (but not a trade) purchaser of a -motor vehicle sold by a hirer under a hire purchase agreement or a buyer under a conditional sale agreement obtains good title (although the seller had none) if the purchaser takes the vehicle in good faith and without notice that it was only let on hire purchase. The innocent buyer’s purchase may be an ordinary sate or a hire purchase or conditional sale agreement.
If there are intermediaries who are not private purchasers, the protection is available only to the first private purchaser. For example, A, who has a car under a hire purchase agreement, purports to sell it to B, a car dealer, who sells it to C, a private purchaser. B does not obtain title but C does. This is so even if B is a car dealer buying a vehicle for private, not business, purposes: Stevenson v Beverley-Bentinck 1976.
14. Special powers of sale.The court may order goods to be sold. Various persons, such a: pawnbrokers, unpaid sellers and hotel keepers and bailees (eg dry-cleaners) in possession o’ abandoned goods for which charges are owing, have specific powers of sale.
1. Unless otherwise agreed, the seller is entitled to receive the -price before he must deliver th ~/ goods to the buyer, but he must deliver them as soon as the price is paid: s 28. The parties’ may agree on whatever delivery arrangements may suit them. But unless otherwise agreed the following rules apply.
a) Method:delivery is the voluntary transfer of possession from one person to another (s61 ~ It may bs by p}.ys;,7al transfer of possession, or of the means of control (eg the key of warehouse) or by arranging that a third party who has the goods acknowledges (`attorns’) i the buyer that he holds them on his behalf, or by delivery of a document of title to ti goods.
b) Place: delivery is to be-made at the buyer’s place of business, or if he has none at h residence, unless the goods are specific and. to the knowledge of both parties when tl contract is made, the goods are at some other place. Delivery is, in those circumstances to be at that other place
c) Time: if no time is agreed, delivery is to be made within a reasonable time and at, reasonable hour. s29(5).
d) Expense:the seller bears the expense of putting the goads into a deliverable state (eg packing them up or bagging them).
2. Unless otherwise agreed the buyer is not obliged to accept delivery by instalments: s30 (1).he May reject a delivery of part only of the goods.
3. If the contract does provide for delivery by instalments with separate payment for ea instalment, the contract is `severable’. If one or more instalments under a severable contra are defective, this may amount to repudiation of the entire contract or merely give a right claim compensation for the defective deliveries only. !t depends on the ratio of defective to sound deliveries and the likelihood or otherwise that future instalments may also be defective,’
4. If the seller delivers the wrong quantity the buyer may reject the whole quantity, but if he accepts what is delivered he must pay at the contract rate for the quantity accepted. When the seller delivers too much the buyer may also accept the correct quantity and reject the rest s30.
5. If the seller delivers the contract goods mixed with other goods the buyer may reject tile wholeor accept the contract goods and reject others: s30.
6. Where the contract requires that the goods be moved in the course of delivery:
(a) Delivery to a carrier for transmission to the buyer is deemed to be delivery to the buy unless the contrary intention appears, eg when the seller consigns the goods to himself his agent at their destination: s32;
(b) The seller must make a reasonable arrangement with the carrier and (if the goods are se by sea) give the buyer notice in time to permit the buyer to arrange insurance: s32
(c) The buyer must bear the risk of any deterioration necessarily incidental to the course transit: s33.
ACCEPTANCE AND REJECTION
1. as already stated, acceptance of goods or part of them (unless the contract is severable) deprives the buyer of his right to treat the contract as discharged by breach of condition (for example as to the quality of the goods) on the part of the seller. But he may claim damage
2. The buyer is deemed to have accepted the goods (ss 34 and 3p):
(a) If he informs the seller that he accepts them; or
(b) If he does any act inconsistent with the seller’s ownership such as re-selling the goods to a third party; or
(c) If, after the lapse of a reasonable time, the buyer retains the goods without informing the seller that he has rejected them
3. The buyer must have a reasonable opportunity to examine the goods before accepting, them: s34. On delivery the seller must give the buyer that opportunity. If the buyer either states expressly that he accepts or simply retains the goods beyond a reasonable time for examination, he has had his opportunity and he has accepted the goods. But re-sale (possibly with delivery direct from the seller to the sub-purchaser) may give the buyer no opportunity; for example the buyer may be unaware that the goods are defective until the sub-purchaser makes complaint to him In these circumstances the buyer is permitted to reject the goods in spite of the re-sale.
4. Where the seller has breached a condition the buyer may treat the contract as repudiated and hence reject the goods the buyer does not have to return the goods to the seller – he merely has to inform the seller of his rejection: s36.
5. The buyer loses his right to reject goods if:
(a)he waives the breached condition;
(b) He elects to treat the breach of condition as a breach of warranty;
(c) He has accepted the goods (in a contract which is not severable); or
d) He is unable to return the goods because, for example, he has sold them on to a buyer who keeps them.
1. As with any other contract, one for sale of goods may be breached. Aside from the usual common law remedies (damages, action for the price etc) the parties have rights peculiar to this type of contract. They are categorized as follows:
(a) seller’s remedies against the goods;
(b) Seller’s remedies against the buyer,
(c) Buyer’s remedies against the seller.
The remedies which are against goods are described as `real remedies’; all others-are called personal
Seller’s remedies against the goods
2. Ownership of goods often passes to the buyer before they are delivered to the buyer in exchange for the price. If the buyer then defaults, for example by failing to pay the price when due, the seller is given rights against the goods in his possession or under his control although chose goods are now owned by the buyer. It is usually more satisfactory to him to retain the goods than merely to sue a buyer, who may well be insolvent, for breach of contract.
3. These rights are given only to an `unpaid seller’ (s 38). He is unpaid if either:
(a) The whole of the price has not been paid or tendered to him; or
(b) He has received a bill of exchange etc as conditional payment and the bill has been dishonored.
4. An unpaid seller of goods which are now the property of the buyer has the following statutory rights in respect of the goods (s39):
(a) A lien on the goods so long as they are in his possession; and
(b) A right of stoppage in transitu if the buyer is insolvent and the goods are in the hands of a carrier;
(c) a right of re-sale in certain circumstances.
5. The unpaid seller’s _lien, his right to retain the goods in his possession until the price is paid or tendered, exists (s 41):
(a) where the goods are sold without any stipulation as to credit; or
(b) Where they have been sold on credit terms but the credit period has expired; or
©Where the buyer becomes insolvent.
Even if part of the goods have been delivered to the buyer, the unpaid seller has a lien on the rest unless part delivery indicates his agreement to give up his lien altogether. s42.
6. The unpaid seller loses his lien when he makes delivery of the goods to a carrier or warehouseman etc for transmission to the buyer (unless the seller reserves a right of disposal), or when ‘ the buyer or his agent lawfully obtains possession of the goods, or when the seller waives his lien: s43.
7. Lien merely gives a right to retain possession until the price is paid. It does not rescind the contract, deprive the buyer of his ownership nor entitle the seller to re-sell the goods. If ownership of the goods in the seller’s possession has not yet passed to the buyer, the seller does not have lien (which is a right to retain the property of another person) but he does have a similar right to withhold delivery to the buyer (called a right of ‘retention’) in those circumstances where he would have lien or a right or stoppage in transitu if they were the buyer’s goods.
8. The right of stoppage in transitu (s44-45) exists when the buyer becomes insolvent. He is insolvent if he has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they fall due: it is not necessary to wait until he becomes bankrupt.
9. While goods are in transit, neither seller nor buyer has possession of the goods since they are in the possession of a carrier. The unpaid seller may stop the goods in transit by issuing an order to the carrier. The goods cease to be in transit and the seller’s right of stoppage ends:
(a) On delivery to the buyer or his agent (whether at the appointed destination or before); or
(b) If the carrier acknowledges to the buyer or his agent that the goods (arrived at their original destination) are now held on behalf of the buyer; it is immaterial that the buyer may have indicated to the carrier that the goods are to be taken on to a further destination; or
(c) If the carrier wrongfully refuses to make delivery to the buyer or his agent.
But if the buyer refuses to accept the goods which remain in the possession of the carrier, they are still in transit.
10. When the unpaid seller exercises his right of stoppage in transitu he may either resume possession or give notice to the carrier of his claim pending re-delivery. But he must allow time for the carrier to transmit instructions within his organisation to give effect to the seller’s notice etc to him: s46.
11. As between the unpaid seller and the buyer of the goods, the seller has a right of re-sale in the following circumstances only.
(a) If the goods are of a perishable nature.
(b) If the seller gives notice to the buyer of his intention to re-sell and the buyer fails within a reasonable time to pay o: tender the price,
(c)The seller reserves a right of re-sale under the contract.
12. If the seller does not, by re-sale, recover the full amount of his loss he may sue the buyer for damages for breach of contract s48. On a sale in these circumstances the second buyer gets good title to the goods.
13. If the unpaid seller, having exercised his right of lien, retention or stoppage in transitu resells the goods, the second buyer from him acquires good title even if the seller is not entitled to re-sell. The original buyer may in that case sue the seller for damages but he cannot recover the goods: s48.
14. Many commercial contracts now contain a `retention of title‘clause, often known as a romalpa clause after the ease discussed below. Under one of these, possession may pass to the buyer but ownership does not until the price is paid. (This is in accordance with sl7 which states the property in specific goods passes when the parties intend if to pass.)
Case: Aluminium Industrie Vaassen BV v Romalpa Ltd 1976
Romalpa purchased aluminium foil on terms that the stock of foil (and any proceeds of sale) should i.e. the property of the Dutch supplier until the company had paid to the supplier all that it owed. The receiver found that the company still held aluminium foil and proceeds of selling other stocks of foil and had not paid off its debt to the supplier. The receiver applied to the court to determine whether or not the foil and the cash were assets of the company under his control as receiver.
Held: the conditions of sale were valid – the relevant assets, although in the possession of the company, does not belong to it.
The receiver could not deal with these assets since his authority under the floating charge was restricted to assets of the company
15. The extent to which a Romalpa clause protects an unpaid seller depends to a great extent on the wording of the actual clause. A retention of title clause may be effective even though goods are resold or incorporated into the buyer’s products so as to lose their identity, if it expressly states that they can be used in these ways before title has passed: Clough Mill Ltd v Morn» 1955.
16. Unless the clause expressly retains title even after resale or incorporation, the supplier is not entitled to a proportionate part of the sale proceeds or the manufactured product: Borden UK) Ltd v Scottish Timber Products Ltd 1979. Where there is -no express provision, resale or incorporation is conversion of the supplier’s property but a third party will still. get good title. The proceeds of sale are the first buyer’s property and not the supplier’s: Pfeiffer weinkellerei- weinkellerei GmbH v Arbuthnot Factors Lid 1988.
17. If the buyer resells the goods when there is an express provision allowing resale before title ~passes, the proceeds of sale are held by the buyer as trustee for the supplier.
Seller’s remedies against the buyer
18. The seller has two possible remedies against the buyer personally.
(a) He may bring an action for the price if
(i) The ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay the price according to the terms of the contract; or
(ii) If the price is payable on a certain day (regardless of delivery) and the buyer wrongfully neglects or refuses to pay it.
In this latter case it is immaterial that property in the goods has not yet passed to the buyer or that goods have not been appropriated to the contract.
(b) The seller may sue for damages for non-acceptance if the buyer wrongfully refuses or neglects to accept and pay for the goods. In this case the claim may include any expense incurred by the seller, eg in storing the goods, caused by the buyer’s failure to, take delivery (after being requ