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1 1 © Oxford University Press, 2007. All rights reserved. 10 Sale of Goods and Services.

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1 1 1 © Oxford University Press, All rights reserved. 10 Sale of Goods and Services

2 2 2 © Oxford University Press, All rights reserved. Introduction There are three main pieces of consumer legislation dealing with the sale of goods/services. These are: 1. Sale of Goods Act (States & Territories) 2. Fair Trading Act (States & Territories) 3. Trade Practices Act (Cth) 1974

3 3 3 © Oxford University Press, All rights reserved. Trade Practices Act 1974 (Cth) (TPA) Origins The TPA is a Commonwealth statute. The Commonwealth Parliament derives its power to make law through the powers listed in the Commonwealth Constitution. The TPA is a Commonwealth statute which deals with the law governing the supply of goods by a corporation to a consumer. This includes the supply of goods by a corporation involved in interstate or overseas trade and commerce.

4 4 4 © Oxford University Press, All rights reserved. Trade Practices Act 1974 (Cth) (TPA) cont… The Commonwealth Parliament relies on the following sections within the Constitution to enact the TPA: 1.S.51(20) of the Commonwealth Constitution: provides the Commonwealth Parliament the power to make laws with respect to corporations. 2.S.51(1) of the Commonwealth Constitution: provides the Commonwealth Parliament the power to make laws with respect to trade and commerce with other countries and among the States.

5 5 5 © Oxford University Press, All rights reserved. Trade Practices Act 1974 (Cth) (TPA) cont… S.51(5) of the Commonwealth Constitution: provides the Commonwealth Parliament the power to make laws with respect to postal, telephonic and other like services. Therefore, it follows that the TPA applies to contracts involving the supply of goods/services by a corporation to a consumer, OR by an individual engaged in interstate/international trade OR postal, telephonic and other like services.

6 6 6 © Oxford University Press, All rights reserved. Trade Practices Act 1974 (Cth) (TPA) cont… Corporation Since the TPA is based for constitutional reasons on the Parliaments power to make laws with respect to companies, the TPA only applies to goods supplied by a company: See Section 4 TPA. The TPA and along with the implied terms under the TPA does not apply to goods and services supplied by a sole trader, partnership, or other unincorporated body. However, the application of the TPA is extended to also apply to the supply of goods and services by traders which are engaged in interstate trade and commerce, postal, telephonic or like services: S.5 & S.6 TPA.

7 7 7 © Oxford University Press, All rights reserved. Trade Practices Act 1974 (Cth) (TPA) cont… Supply The TPA applies to contracts involving the supply of goods/services by a corporation to a consumer. Supply is defined in S.4 to include not only the sale of an item but also contracts of exchange, lease, hire or hire purchase, as well as the provision of services.

8 8 8 © Oxford University Press, All rights reserved. Trade Practices Act 1974 (Cth) (TPA) cont… Consumer The TPA and the implied terms under the TPA applies to the supply of goods/services to a consumer. Who is a consumer under the TPA? A consumer is defined under Section 4B of the TPA. A consumer is a person who is taken to have acquired goods/services if: (a) The price of the goods does not exceed $40,000; or (b) the price exceeds $40,000 and the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption: S.4B(1) & S.4B(2). Personal, domestic or household use? Goods or services acquired for everyday ordinary/personal use. This does not include goods acquired for the purpose of re-supply, or goods supplied for the purpose of manufacture and/or repair.

9 9 9 © Oxford University Press, All rights reserved. Implied Terms under the TPA Correspondence with description: S.70(1) S.70(1) provides that in a contract for the supply of goods by a corporation in the course of a business to a consumer by description, there is an implied condition that the goods will correspond with the description.

10 10 © Oxford University Press, All rights reserved. Implied Terms under the TPA cont… Merchantable quality: S.66(2) & 71(1) S.71(1) provides that where a corporation supplies goods to a consumer in the course of a business, there is an implied condition that the goods are of merchantable quality. What is merchantable quality? S.66(2) defines merchantable quality as goods which are fit for the purpose for which goods of that kind are commonly bought, having regard to any description given to them, the price and any other relevant circumstances.

11 11 © Oxford University Press, All rights reserved. Implied Terms under the TPA cont… No implied condition of merchantable quality: S.71(1)(a)&(b). The implied condition of merchantable quality does not apply to defects specifically brought to the attention of the consumer before the contract is made: S.71(1)(a). No implied condition will apply to defects which ought to have been revealed if consumer examines the goods: S.71(1)(b). Does the implied condition of merchantable quality apply to supply of services? The answer is no. S.71(1) applies only to goods. In S.4 of the TPA, goods do not include services: E v Australian Red Cross.

12 12 © Oxford University Press, All rights reserved. Implied Terms under the TPA cont… Fitness for purpose: S.71(2) S.71(2) provides that where a corporation supplies goods to a consumer in the course of a business, and the consumer makes known to the seller, either expressly or impliedly, the particular purpose for which the goods are acquired, then there is an implied condition that the goods supplied will be reasonable fit for that purpose, except: Where the circumstances show that the consumer does not rely, or that it is unreasonable for him to rely on the skill or judgment of the seller.

13 13 © Oxford University Press, All rights reserved. Implied Terms under the TPA cont… Sale by sample: S.72 Section 72 provides: That the bulk of the goods correspond with the sample that has been shown to the consumer. That a reasonable opportunity has been provided to the consumer for the purposes of comparison between the bulk and the sample. The implied term further provides that the bulk will be free from any defect rendering the goods unmerchantable that would not be apparent on reasonable examination of the sample.

14 14 © Oxford University Press, All rights reserved. Differences between the Sale of Goods Act and the TPA The TPA applies to the supply of goods/services by a corporation to a consumer (or under the extended application of the TPA to individuals and the like: ss.5 & 6 of the TPA). The Goods Act of the various states and territories principally regulates the supply of goods by anyone, including partnerships, sole traders, individuals etc. Under the TPA it is not possible for parties to exclude the implied terms by agreement. Under the Sale of Goods Acts of the various states and territories it is possible for the parties to exclude the application of the implied terms in non-consumer contracts.

15 15 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) The principles of the common law relating to the sale of goods were codified in the UK in the Sale of Goods Act 1893 (UK). Each Australian state and territory passed their equivalent statute. The state and territorial statutes were enacted to provide greater consumer protection with the sale of goods/services when dealing with suppliers in the form of non-corporate entities. The State Acts provide protection to consumers in the form of implying conditions in the sale of goods.

16 16 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) cont… These implied conditions include: merchantable quality, fitness for purpose, title correspondence with description sale by sample.

17 17 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) cont… Contract for the sale of goods: The Sale of Goods Act (States & Territories) applies to a contract for the sale of goods and/or services. A contract of sale is defined as including: (a) A sale of goods and; (b) An agreement to sell.

18 18 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) cont… Definition of a Sale and Agreement to Sell Sale A sale occurs when ownership of the goods are transferred from the seller to the buyer. Under a sale the seller has a right to sue the buyer for the price of the goods, provided of course the goods have been delivered to the buyer. The buyer has the right to sue the seller for damages if the seller commits a breach. The remedies for breaches under the Sale of Goods Acts, as well as common law remedies will be discussed later.

19 19 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) cont… Agreement to sell An agreement to sell occurs when ownership of the goods is to be transferred at a future date, or subject to a future condition. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled for the goods to be transferred.

20 20 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) cont… Definition of a Good Goods Defined to include: –All chattels personal other than things in action and money. –The term is wide and includes many forms of goods such as: clothes, cars, TVs, food etc. –However the term goods does not include land or an interest in land, nor does it include shares or money. These items are regulated by other laws. –It was decided in Toby Constructions Products v Computer Bar Sales, that the sale of a computer system, computer hardware and computer software were all goods within the meaning of the Goods Act.

21 21 © Oxford University Press, All rights reserved. Non-consumer contracts regulated by: Sale of Goods Act (States & Territories) State Goods Acts regulate contracts for sale of goods and services for commercial (Non-consumer) purposes. Examples of non-consumer contracts regulated by the Goods Act of the various states: Contracts to sell good for the purpose of re-supply EG: Car yard purchasing motor cars wholesale for the purposes of reselling to the public. Contracts where the goods are raw materials EG: Bakery purchasing flour to use for baking bread and cakes. Contracts which are ordinarily acquired for the purposes of repairing other goods EG: Motor mechanic purchases tune-up equipment for the purposes of tuning cars.

22 22 © Oxford University Press, All rights reserved. Consumer Contracts Generally, the Fair Trading Acts of the various states and territories regulate contracts for the sale of goods and services to a consumer. A consumer contract exists if the following conditions are satisfied: a)The contract is less than $40,000 or; b)The contract is for more than $40,000 and the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption. And the contract is not one involving a contract of: –Re-supply –Resale –Repair –Purchase/sale of raw materials –Process of production/manufacturing.

23 23 © Oxford University Press, All rights reserved. The Sale of Goods Act (States & Territories) cont… Where the contract exceeds $40,000 the goods or services must be of a kind ordinarily acquired for personal, domestic or household use or consumption. Some Examples: 1. A gardener buys $100 worth of plants for her own garden: Consumer contract 2.A gardener buys $100 worth of plants for her client: Non-consumer contract 3.Accountant purchases $5,000 computer for use in the her office: Consumer contract 4.Computer sales person purchases $5,000 computer wholesale to sell to retail public: Non-consumer contract 5.Accountant purchases state of the art photocopier worth $45,000: Non-consumer contract (not a good ordinarily acquired for personal, domestic or household use).

24 24 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 1. Correspondence with description: In a contract for the sale of goods there is an implied condition that the goods will correspond with the description given by the seller. If the goods do not conform to their description in the contract the buyer is entitled to reject the goods for breach of an implied condition under Re Moore & Co Ltd and Landauer. For the condition to apply the goods must be sold by description. This is satisfied when the buyer has not seen the goods but is relying on their description only : Varley v Whipp. The implied condition also applies to a buyer who buys goods which has seen provided the buyer bought them as corresponding to a description: Beale v Taylor. Under the Goods Act and the Fair Trading Act of the various states and territories, the implied term sale by description only applies to statements which are used to identify the goods. The implied term does not apply to statements relating to only the quality of the goods: Elder Smith Goldsbrough v McBride.

25 25 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 2.Fitness for purpose: Where the buyer either expressly or by way of implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the sellers skill or judgment, and the goods are of a description which is in the course of the sellers business to supply there is an implied condition that the goods should be reasonable fit for such purpose. When does the condition apply? 1.In the course of the sellers business: The section only applies if a seller has a business in dealing in goods. The section does not apply to private sales of second hand goods.

26 26 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 2.Makes known the particular purpose - The buyer does not have to expressly make known to the seller the particular purpose for which the goods are required. The seller does not have to be informed of the particular purpose when such purpose is in the ordinary use for which such goods are used: Grant v Australian Knitting Mills Ltd However, if the goods are to be used outside their ordinary use, then the buyer must make known to the seller the particular purpose which he/she is purchasing the item. This can be done during negotiations prior to entering into the contract. The implied condition does not apply to abnormal uses which the seller is unaware.

27 27 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 3.Reliance on the sellers skill and judgment - In order for the implied condition of fitness for purpose to apply the buyer must show that he/she relied on the sellers skill & judgment. In consumer sale transactions there is a strong presumption that the buyer has relied on the sellers skill and judgment: Grant v Australian Knitting Mills More evidence is required when two business are involved. In such a case reliance is a question of fact. The court looks at the entire transaction, including pre-contractual negotiations and any earlier dealings between the parties. It is sufficient if the buyer relies only partially on the skill and judgment of the seller: Ashington Piggeries v Christopher Hill

28 28 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 3.Merchantable quality Goods bought by description from a seller who deals in goods of that description, there is an implied condition that the goods are of merchantable quality. Provided that if the buyer has examined the goods there shall be no implied condition as regards to defects which such examination ought to have revealed.

29 29 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 1. What is merchantable quality? It means the goods must be commercially saleable under the description they were sold, having regard to the price paid for the goods and any other circumstances of the sale: Grant v Australian Knitting Mills

30 30 © Oxford University Press, All rights reserved. Implied terms under the Sale of Goods Act & Fair Trading Act of the States & Territories cont… 2.When does the condition apply? Merchantable quality will be implied in a contract when the goods are bought by description. This has the same meaning to the implied term of correspondence to description. The condition will apply even when the buyer has seen the good, provided the buyer has bought them corresponding to a description: Grant v Australian Knitting Mills Goods sold by description over the counter in a retail context must also be of merchantable quality, otherwise a consumer has the right to return the goods and demand a refund. 3.Buyer examines goods If the buyer examines goods before the contract is made, the condition of merchantable quality will not be implied, provided the examination was capable of identifying any defect. This applies even if the buyer is careless in his examination of the goods.


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