CHAPTER 18 SALE OF GOODS  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

SALE OF GOODS ACT 1923 (NSW) Section 6 defines a contract for sale of goods as: “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price” In this definition the word “property” means ownership  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

ELEMENTS OF A CONTRACT FOR SALE OF GOODS 1.There must be a contract (not simply an agreement). 2.The contract must involve a “sale” (seller and buyer) of some type. 3.Ownership (not merely possession) is transferred or intended to be transferred to the buyer. 4.The subject matter of the contract must be “goods”. 5.Some money must be exchanged.  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT ARE GOODS? Personal property known as “choses in possession” which have material form and physical existence (ie you can touch and feel them) Such types of personal property can be transferred by delivery Ownership of such property is usually proven by possession Examples include clothes, jewellery, and electrical appliances  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT ARE NOT GOODS? 1.Real estate (land/houses/shops/factories/units) 2.Labour or services (employment/service contracts, etc) 3.Legal tender (currency) 4.Personal property called “choses in action”, which is property that has value but no material form or physical substance (ie it cannot be touched or felt). Such property cannot be transferred by delivery and normally ownership is established by documents Examples include copyright, shares in a public company and a share in a partnership business  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

CLASSIFICATION OF GOODS The Act refers to and defines different categories of goods: –Specific goods –Unascertained goods –Ascertained goods –Future goods Ownership in these types of goods passes to the buyer at different times depending on which category of goods have been sold  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHEN DOES OWNERSHIP IN GOODS PASS TO THE BUYER? The Sale of Goods Act includes some general rules about the passing of ownership from the seller to the buyer: –When ownership passes, risk also passes –Section 21: ownership of unascertained goods cannot pass to the buyer whilst goods remain unascertained – ie ownership may pass when the goods become ascertained –Section 22: ownership of specific goods passes at such time as is intended by the parties (the court looks at the agreement or conduct and all the circumstances to determine intention)  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

THE NEMO DAT RULE Under this rule a buyer cannot obtain better ownership to the goods than the seller originally had. This means that goods are sold subject to any defects in ownership. The Sale of Goods Act recognises this rule but supplies a number of exceptions including: –Estoppel –sale by mercantile agent –sale under voidable title –sale by buyer or seller in possession after sale –sale under common law or statutory power  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

BUYER’S RIGHTS AND REMEDIES The buyer is mainly concerned with either receiving the goods paid for, or ensuring the goods are of the required quality or standard. The main remedies for the buyer under the Sale of Goods Act include: -damages for non-delivery, or breach of warranty of quality -specific performance, but only where the goods are unique or have a special significance -termination of the contract for breach of a condition where the ownership has not passed  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

SELLER’S RIGHTS AND REMEDIES The seller’s main legal problem is for the buyer to accept the goods and pay for them. The seller may, depending upon the circumstances, have rights both against the buyer and against the goods themselves: Against the goods to withhold delivery of the goods to exercise a right of lien over the goods until paid to stop the goods in transit after exercising a right of lien or stoppage in transit, to resell the goods if they are perishable or after giving reasonable notice to the buyer  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

SELLER’S RIGHTS AND REMEDIES CONT… Against the buyer where ownership has passed, to sue for the price to sue for damages for non-acceptance of the goods the use of a Romalpa Clause in the contract (if any): –the seller can use a clause to specifically reserve his rights; –usual application is for the seller to provide that title does not pass until payment has been made by the buyer; –this provision makes it possible for the seller to reclaim the goods if unpaid.  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT IS A CONSUMER SALE IN SALE OF GOODS? In a consumer sale, the Sale of Goods Act will imply a number of promises (conditions and warranties) in favour of the buyer. According to the Sale of Goods Act (NSW), a consumer sale is “a sale of goods (other than a sale by auction) by a seller in the course of a business where the goods: –are a kind commonly bought for private use or consumption; and –are sold to a person who does not buy or hold himself out as buying them in the course of a business”. Note that in a consumer sale the seller cannot exclude the implied conditions and warranties in the Sale of Goods Act.  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

IMPLIED CONDITIONS AND WARRANTIES IN THE SALE OF GOODS ACT 1.Implied conditions and warranties as to title: s 17 2.Implied condition of correspondence with description: s 18 3.Implied condition of fitness for a particular purpose: s 19(1) 4.Implied condition of merchantable quality: s 19(2) 5.Implied condition of correspondence with sample: s 20  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

IMPLIED CONDITION OF CORRESPONDENCE WITH DESCRIPTION: SECTION 18 Where there is a contract for the sale of goods by description, there is an implied condition that the goods must correspond with the description Example: a gold plated self -winding watch  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

IMPLIED CONDITION OF FITNESS FOR PURPOSE: SECTION 19(1) The goods must be reasonably fit for the purpose for which they were sold The following criteria must be satisfied before this condition applies: –the buyer must tell the seller the purpose for which the goods are required (unless there is only one obvious purpose) –there must be reliance of the seller’s skill and judgment –the goods must be of the kind usually sold by the seller in the course of business: see David Jones v Willis and Grant v AKM  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

IMPLIED CONDITION OF MERCHANTABLE QUALITY: SECTION 19(2) The goods must be of “merchantable quality” The condition applies irrespective of any lack of fault by the seller This implied condition applies where: –there was a sale by description –the sale was by a seller who dealt in goods of that description The condition does not apply where the buyer has examined the goods in respect of defects which the buyer should have seen on examination  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT DOES “MERCHANTABLE QUALITY” MEAN? The common law test is what would a reasonable person expect from the goods, having regard to their price, the type of goods, the purpose of the goods, and the understanding of the parties? The goods need not be perfect. Factors such as price, use, purpose, and all the circumstances surrounding the sale may be used to determine whether the goods were of merchantable quality: see Grant v AKM  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

OTHER STATE/TERRITORY LAWS ON SALE OF GOODS Victoria = Goods Act 1958 South Australia = Sale of Goods Act 1895 Western Australia = Sale of Goods Act 1895 Northern Territory = Sale of Goods Act 1972 Queensland = Sale of Goods Act 1896 Tasmania = Sale of Goods Act 1896 ACT = Sale of Goods Act 1954  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

FORMALITIES Originally all State and Territory legislation required any contract for sale of goods of $20 or more to be in writing and signed by the buyer; otherwise it was not capable of being legally enforced. However this requirement was abolished in all States and Territories EXCEPT Tasmania and Western Australia. The laws in those two States still apply to contracts for the sale of goods to a value of $20 or more – ie some note or memo in writing is necessary.  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

What is a note or memorandum? The note or memo must show: 1.the parties’ names 2.the description and quantity of goods sold 3.the agreed price and agreed terms or time of payment 4.the buyer’s (or agent’s) signature * Sale of Goods Act 1895 (WA) s 4 * Sale of Goods Act 1896 (Tas) s 9 The above particulars might appear in a single document or may be made up of a series of related or connected documents. If a price had been agreed upon but was omitted from the memo then it is defective.  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

Condition treated as a warranty? Usually breach of a condition in a contract allows the buyer to terminate the contract or reject the goods. However where a condition is not fulfilled by a seller, the buyer may waive the condition and choose to treat the breach of such a condition as a breach of warranty and not grounds for treating the contract as terminated. Example: where the seller supplies goods that are of a different description or type, the buyer can elect to proceed with the contract but might seek some other remedy such as damages.  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

Can implied conditions or warranties be excluded? Most State/Territory sale of goods legislation recognises that any rights, duties or liabilities can be negatived or varied by express agreement between the parties or otherwise. However in NSW the Act defines a “consumer sale” as a sale (not auction) by a seller in the course of a business of goods that are commonly purchased for private use or consumption. Section 64 of the Act provides that in such a sale any provision that tries to exclude or restrict ss 18–20 or any of the seller’s liability for breach of a condition or warranty is VOID. Note that consumers are offered similar protection under Commonwealth laws such as the new Australian Consumer laws (formerly the Trade Practices Act).  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition