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Copyright © 2004 McGraw-Hill Ryerson Limited 1 PART 5 – SPECIAL CONTRACTUAL RELATIONSHIPS Chapter 22 – The Sale of Goods Prepared by Douglas H. Peterson, University of Alberta
Copyright © 2004 McGraw-Hill Ryerson Limited 2 THE SALE OF GOODS Codification of the Law Nature of a Contract of Sale Contractual Duties of the Seller Caveat Emptor Contractual Duties of the Buyer Remedies of the Buyer Remedies of the Seller
Copyright © 2004 McGraw-Hill Ryerson Limited 3 CODIFICATION OF THE LAW Various common law provisions developed over several years 1893 Sales of Goods Act Adopted in Canada and other commonwealth countries Similar legislation in the United States
Copyright © 2004 McGraw-Hill Ryerson Limited 4 NATURE OF A CONTRACT OF SALE Statute embodies case law and complements normal rules of contract law Applies to all situations where goods are bought and sold Intended to fill the gaps in the terms of a contract Terms in contract prevail over provisions of Act
Copyright © 2004 McGraw-Hill Ryerson Limited 5 APPLICATION OF THE ACT Applies only to the sale of goods Not apply to land Not apply to buildings Form part of the land Not apply to money, intangible goods Shares, bonds, negotiable instruments, patents, trademarks Not apply to services Mixed contracts – look at what is the substantial portion of the contract
Copyright © 2004 McGraw-Hill Ryerson Limited 6 APPLICATION OF THE ACT Property must be transferred for monetary consideration Act does not apply to: Barter or exchange of goods Consignment No special form required Written, oral, under seal
Copyright © 2004 McGraw-Hill Ryerson Limited 7 APPLICATION OF THE ACT Statute of Frauds Written requirement when sale of goods valued at more than a particular amount Act can be satisfied by: Buyer accepts part of the goods Buyer makes a part payment Buyer gives something in earnest Each act must relate to the particular contract of sale
Copyright © 2004 McGraw-Hill Ryerson Limited 8 TRANSFER OF TITLE Sale of Goods Act represents an agreement to transfer property in the goods to the buyer Property in the goods Right of ownership in the goods Title One may part with possession, yet retain ownership Parties can determine when title passes Risk of loss generally follows title Person with title bears the loss
Copyright © 2004 McGraw-Hill Ryerson Limited 9 TRANSFER OF TITLE Five Rules Exist for the passing of property Significance: loss is with the one who has title Onus on one with title to ensure goods
Copyright © 2004 McGraw-Hill Ryerson Limited 10 PASSING OF PROPERTY – 5 RULES Rule 1 – Goods in Deliverable State Nature Unconditional sale Specific goods In deliverable state Time of Transfer When contract is made Irrelevant that price or delivery is postponed
Copyright © 2004 McGraw-Hill Ryerson Limited 11 PASSING OF PROPERTY – 5 RULES Rule 2 – Goods to be put in Deliverable State Nature Seller required to do something to put goods into deliverable state Time of Transfer Seller has done the required things Notice given to buyer
Copyright © 2004 McGraw-Hill Ryerson Limited 12 PASSING OF PROPERTY – 5 RULES Rule 3 – Goods to be weighed, measured, tested Nature Seller required to do some act to ascertain price of specific goods Time of Transfer Act or thing has been done Notice given to buyer
Copyright © 2004 McGraw-Hill Ryerson Limited 13 PASSING OF PROPERTY – 5 RULES Rule 4 – Future Goods sold by Description Nature Goods not yet produced Ordered by description Time of Transfer Produced and in a deliverable state Unconditionally appropriated to the contract By buyer with assent of seller; or By Seller with assent of buyer
Copyright © 2004 McGraw-Hill Ryerson Limited 14 PASSING OF PROPERTY – 5 RULES Rule 5 – Goods on Approval Nature Specific goods on approval or with return privileges Time of Transfer Buyer does something to signify acceptance or approval of goods or adopts the contract Lapsing of a reasonable period of time or a fixed period of time
Copyright © 2004 McGraw-Hill Ryerson Limited 15 Copyright © 2004 by McGraw-Hill Ryerson Limited. SALE OF GOODS PASSAGE OF TITLE (AND RISK) UNDER STATUTE SALE AGREEMENT CONDITION REQUIREMENT BEFORE TITLE PASSES TO BUYER SPECIFIC GOODS Deliverable Condition None: Title Passes When Contract Made Notice Given to Buyer That Work Done and Goods in Deliverable State Notice Given to Buyer That Seller Has Weighed, Measured, and Tested the Goods and Ascertained Price SPECIFIC GOODS Something to Be Done to Put in Deliverable State SPECIFIC GOODS Deliverable State Required Measurement, Testing, or Weighing to Ascertain Price SPECIFIC GOODS Sold on Approval, Sale, or Return (1) Buyer Signifies Approval or Does Anything to Adopt Transaction (2) Buyer Retains the Goods Without Giving Notice of Rejection Within Time Fixed, or if No Time Fixed, Beyond a Reasonable Time Contd
Copyright © 2004 McGraw-Hill Ryerson Limited 16 SALE OF GOODS PASSAGE OF TITLE (AND RISK) UNDER STATUTE, contd CONDITION REQUIREMENT BEFORE TITLE PASSES TO BUYER AGREEMENT TO SELL GOODS TO BE PRODUCED Sold by Description (1) Goods Produced and in a Deliverable State and Unconditionally Appropriated to the Contract (2) Goods Produced and Delivered to a Carrier or Other Bailee for Purpose of Delivery to Buyer Where Seller Does Not Reserve Right of Disposal Copyright © 2004 by McGraw-Hill Ryerson Limited.
Copyright © 2004 McGraw-Hill Ryerson Limited 17 CONTRACTUAL DUTIES OF THE SELLER Parties can contract out of sale of goods act Purpose of Sales of Goods Act is to imply reasonable terms when they are inadvertently left out Terms of a sales of goods contract are called conditions or warranties Some terms are conditions Some terms are warranties Significance is remedy available whether breach of condition or breach of warranty
Copyright © 2004 McGraw-Hill Ryerson Limited 18 CONDITIONS AND WARRANTIES Condition An essential or fundamental term in a contract Breach allows injured party to Ignore it and accept the goods Avoid the contract Consider themselves no longer bound to the contract
Copyright © 2004 McGraw-Hill Ryerson Limited 19 CONDITIONS AND WARRANTIES Warranty A minor term in a contract Breach allows injured party to: Damages but not rescission
Copyright © 2004 McGraw-Hill Ryerson Limited 20 CONTRACTUAL DUTIES OF THE SELLER Implied Terms Sellers Title Nature of the goods Payment and Delivery
Copyright © 2004 McGraw-Hill Ryerson Limited 21 SELLERS TITLE Condition that seller has title to sell Cannot sell that you do not own Implied warranty Goods are free from charges or encumbrances Buyer will have quiet possession of the property No one will challenge buyers title to goods
Copyright © 2004 McGraw-Hill Ryerson Limited 22 NATURE OF THE GOODS Description – goods sold by description must match the description Description refers to identity (not quality) of goods May be sale by description even if buyer picks item Is sold by catalogue must match description in catalogue
Copyright © 2004 McGraw-Hill Ryerson Limited 23 NATURE OF THE GOODS Sample – goods sold by sample must match the sample May be sold by sample and description Must match quality of sample Cannot be lower quality Buyer is allowed a reasonable opportunity to compare received goods with sample Buyer responsible for reasonably discoverable defects
Copyright © 2004 McGraw-Hill Ryerson Limited 24 CAVEAT EMPTOR Let the buyer beware Common law principle that buyer through examination of goods can determine the quality and fitness for purpose purchased Sales of Goods Act – imposes minimum obligations on the seller
Copyright © 2004 McGraw-Hill Ryerson Limited 25 FIT FOR INTENDED PURPOSE Condition - Goods must be fit for intended purpose Requirements Seller in the business of selling such goods Buyer makes purpose of purchase known to seller Buyer relies upon sellers skill and judgment Exception: buyer requests goods by patent or trade name
Copyright © 2004 McGraw-Hill Ryerson Limited 26 MERCHANTABLE QUALITY Condition - Goods must be of a merchantable quality Breach if reasonable buyer would not pay full price Merchantability also includes packaging and labeling Applicable only if seller normally deals in goods No liability for reasonably discoverable defects Buyer does not have to inspect but if they do seller not liable for reasonably discoverable defects
Copyright © 2004 McGraw-Hill Ryerson Limited 27 DELIVERY Time of delivery is a condition If specified Must be delivered on time If not specified Within a reasonable period of time Failure to deliver Buyer may reject them if delivery is late
Copyright © 2004 McGraw-Hill Ryerson Limited 28 DELIVERY Quantity Delivery of proper quantity is a condition Buyer may reject Buyer may accepts lesser amount and sue for damages on difference Pay for lesser amount at contract rate Buyer does not have to accept excess quantity If accept must pay for extra at contract rate
Copyright © 2004 McGraw-Hill Ryerson Limited 29 CONSUMER PROTECTION Some jurisdictions do not allow seller to exclude implied conditions and warranties of the act Verbal warranties and conditions expressed at time of sale not included in written agreement may also be binding on seller Cooling-off period – allows consumer to avoid contract by giving notice within certain period of time Door-to-door sales
Copyright © 2004 McGraw-Hill Ryerson Limited 30 DELIVERY Place Usually specified in contract If not specified, seller must have goods available and ready for delivery at its place of business If goods stored at place of storage
Copyright © 2004 McGraw-Hill Ryerson Limited 31 DELIVERY Delivery by installments One delivery on an installment basis is not usually grounds for repudiation of the contract unless: Amount of delivery was significant amount of the whole contract; and High degree of probability that next delivery would also be deficient
Copyright © 2004 McGraw-Hill Ryerson Limited 32 CONTRACTUAL DUTIES OF THE BUYER Take delivery Pay for goods Payment is a warranty Payment and delivery are concurrent conditions, unless the parties have agreed otherwise Buyer must pay price on delivery
Copyright © 2004 McGraw-Hill Ryerson Limited 33 REMEDIES OF THE BUYER Rescission Breach of condition Repudiate contract and reject the goods Right to refuse payment If payment made may sue for recovery Damages Breach of warranty Specific Performance If goods have unique or special attribute and cannot be readily obtained elsewhere
Copyright © 2004 McGraw-Hill Ryerson Limited 34 REMEDIES OF THE SELLER Rights may be exercised against Buyer personally Goods themselves Lien Not obliged to deliver goods unless payment has been made or credit terms granted Seller may claim lien on goods Cash sale or credit sale Buyer becomes insolvent
Copyright © 2004 McGraw-Hill Ryerson Limited 35 REMEDIES OF THE SELLER Action for the Price If goods delivered and title has passed may sue for price of goods If delivery is refused Damages For non-acceptance Resell goods and sue buyer for loss incurred Place seller in same position had buyer performed
Copyright © 2004 McGraw-Hill Ryerson Limited 36 REMEDIES OF THE SELLER Retention of Deposit Retain deposit as liquidated damages Also acts as evidence of contract and avoids the Statute of Frauds Deposit cannot be a penalty clause Stoppage in Transit Order carrier to stop delivery If buyer has become insolvent Seller has to be careful of wrongful stoppage
Copyright © 2004 McGraw-Hill Ryerson Limited 37 REMEDIES OF THE SELLER Recovery of Goods Bankruptcy Act Allows recovery of unsold goods in possession of bankrupt debtor Goods must: Unsold In possession of buyer Identifiable Same condition as when delivered Resale Stoppage in transit is a repossession Seller may resell goods
Copyright © 2004 McGraw-Hill Ryerson Limited 38 SUMMARY Law of contract applies to sales of goods Sales of Goods Act sets out special default rules Act applies to: Sale agreement – specific goods Agreement to sell – future goods
Copyright © 2004 McGraw-Hill Ryerson Limited 39 SUMMARY In absence of agreement, Act determines Passage of title 5 Rules Relevance of who bears risk of loss Implied Conditions Fit for purpose Merchantable quality Seller and Buyers Remedies
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