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. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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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
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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
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5. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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6. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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7. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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8. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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9. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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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
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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
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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
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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
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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
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15. Deliverable Condition
SALE OF GOODS
PASSAGE OF TITLE (AND RISK) UNDER STATUTE
REQUIREMENT BEFORE TITLE PASSES TO BUYER
CONDITION
SPECIFIC GOODS
Deliverable Condition
None: Title Passes When Contract Made
SPECIFIC GOODS
Something to Be
Done to Put in
Deliverable State
Notice Given to Buyer That Work Done and Goods in Deliverable State
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SALE
AGREEMENT
SPECIFIC GOODS
Deliverable State
Required Measurement,
Testing, or Weighing to
Ascertain Price
Notice Given to Buyer That Seller Has Weighed, Measured, and Tested the Goods and Ascertained Price
(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
SPECIFIC GOODS
Sold on Approval,
Sale, or Return
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Cont’d 26

16. PASSAGE OF TITLE (AND RISK) UNDER STATUTE, cont’d
SALE OF GOODS
PASSAGE OF TITLE (AND RISK) UNDER STATUTE, cont’d
REQUIREMENT BEFORE TITLE PASSES TO BUYER
CONDITION
(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
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GOODS TO BE
PRODUCED
Sold by Description
AGREEMENT
TO SELL
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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
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18. CONDITIONS AND WARRANTIES
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
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19. CONDITIONS AND WARRANTIES
Warranty
A minor term in a contract
Breach allows injured party to:
Damages but not rescission
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20. CONTRACTUAL DUTIES OF THE SELLER
Implied Terms
Seller’s Title
Nature of the goods
Payment and Delivery
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21. Copyright © 2004 McGraw-Hill Ryerson Limited
SELLER’S 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 buyer’s title to goods
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22. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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23. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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24. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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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 seller’s skill and judgment
Exception: buyer requests goods by patent or trade name
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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
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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
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28. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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29. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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30. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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31. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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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
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33. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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34. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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35. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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36. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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37. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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38. Copyright © 2004 McGraw-Hill Ryerson Limited
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
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39. Copyright © 2004 McGraw-Hill Ryerson Limited
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 Buyer’s Remedies
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