Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Legal and Taxation Aspects of Your Small Business 3 rd Edition `08 IAN.BIRT

Chapter: 6 Selling Goods Legal and Taxation Aspects of your Small Business IAN BIRT

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Objectives After reading this chapter, you should be able to : –Identify business transactions regulated by sale of goods legislation –Recognise when ownership passes in sale of goods transactions –Outline the legal consequences for breaches of sale of goods contracts

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Sale of Goods Legislation  Sale of goods definition: –Contract where seller transfers ownership of goods to buyer for a price –Does not include goods: given away Bartered Exchanged  Each state / territory has similar legislation  Legislation: –Regulates all local contracts for sale of goods for private & business sales –Maintains the general common law rules for contracts with some statutory modifications: Classifies different types of goods Determines when ownership passes in sale of goods transaction Implies specific terms into contracts for the sale of goods to protect buyers Provides legal remedies to sellers & buyers for breaches of contract

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Types of Goods - 1  Includes any moveable property in physical form: e.g. Furniture, household contents, Food, clothing, Motor vehicles, books, Stationery, commodities  Does not include land & fixtures attached to land (buildings)  Excludes property in non-physical form: Copyright Shares  May include both labour & goods (tradesperson)

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Types of Goods - 2  Existing goods: Owned by seller at time of sale  Future goods: To be acquired / manufactured by seller at time of sale  Specific goods: Identified & agreed upon by seller at time of sale (shopping item taken to cashier)  Unascertained goods: Described but not yet identified at time of sale (goods ordered e.g. 1 tonne of sand)

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Transferring Ownership Important as the owner bears risk of loss & damage to the goods Types of goods  Specific goods in deliverable state  Specific goods not in deliverable state  Specific goods that need to be priced  Goods purchased on ‘approval’ or on ‘sale or return’  Unascertained or future goods Ownership passes  When contract is made (delivery or payment time is irrelevant)  When goods are made deliverable  When goods are weighed or measured  When approval is communicated or goods are held beyond an agreed or otherwise reasonable period  When goods are unconditionally selected (ascertained) for delivery

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Transfer by Non-Owners A non-owner cannot pass on ownership of goods Exceptions:  Unknowing buyer paid a fair price for goods and true owner gave impression that seller had the right to sell  Mercantile agent in legal possession of goods acts without authority & buyer acts honestly & without knowledge of agent’s lack of authority  Buyer allows seller to keep the goods bought & seller sells them to an unknowing second buyer  Prospective buyer has the goods (without yet ownership) with seller’s consent & sells goods to an unknowing buyer  Anyone possessing another person’s goods under force of law can sell the goods – e.g. a sheriff under a court order

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Implied Terms - 1 Implied conditions The seller has the right to sell the goods The goods sold correspond with any description given Bulk goods sold by sample must correspond with the sample Goods are fit for the purpose required Goods are of merchantable quality Implied warranties The buyer shall have & enjoy quiet possession of the goods The goods sold are free from encumbrance

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Implied Terms - 2  Fit for purpose applies if: Buyer informs seller of particular purpose for which goods are required Buyer relies on the seller’s skill & judgement as to suitable goods to buy Goods sold are of a type that seller normally sells  Merchantable (saleable) quality applies if: buyer buys goods by description (without seeing them) Goods sold are of a type seller normally sells No defects are revealed where buyer examined goods before buying them  Breach of implied conditions when defective goods sold: Buyer can sue seller (not manufacturer) for breach of implied terms –Contract is between buyer & seller (not manufacturer) Under common law: –Breach of contract terms: Innocent party can terminate contract & sue for damages –Breach of warranty: innocent party can sue only for damages Under Sale of goods Acts, buyer must treat any breach of condition terms as a breach of warranty if: –They have accepted the goods –The ownership pf specific goods has already passed to the buyer

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Rights of Sellers - 1

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Rights of Sellers - 2 An unpaid seller has rights against goods or against the buyer  Sellers’ rights against goods: –Withhold / stop delivery: provided ownership has not passed to buyer –Lien: Seller can retain possession of the goods until price is paid –Stop goods in transit: Seller can stop goods in transit to buyer if buyer unable to pay its debts –Resell the goods: Seller can resell perishable goods (food)  Sellers’ rights against buyers: –Sue for damages: If buyer does not accept and pay for the goods –Sue for price: Instead of recovering damages, sue the buyer for the price of the goods buyer recieved

Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Rights of Buyers –Sue for damages (for non-delivery): Buyer may sue seller for any damages (losses) Include any excess of current market price over the contract price of the goods –Sue for damages (for breach of warranty of quality): Goods delivered not of quality ordered by buyer Buyer may reject goods & sue for damages –Sue for specific performance: When damages are an inadequate remedy A court order to seller to carry out their obligations under the contract May be obtained if unique goods not delivered –Rescind the contract: In some circumstances, buyer can rescind (cancel) contract where there is a breach of a condition term If rescission possible, goods are returned and full purchase price paid recovered