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Module 8: Contracts for the sale of goodsLawyers, like medical
practitioners, need to be on guard against losing sight of the
general prevalence of healthy conditions. Sir Mackenzie Chalmers,
celebrated draftsman of such enduring codes as the Sale of Goods
Act 1893 and the Marine Insurance Act 1907, remarked that lawyers
see only the pathology of commerce, and not its healthy
physiological action, and their views are therefore apt to be
warped and one-sided.
(Francis Bennon 2000, p. 3)
Introduction
The present major Australian State and Commonwealth legislative
enactments governing the sale of goods (and now services) Sale of
Goods Act(s) and new Competition and Consumer Act 2010 (Cth)have
their origins in late 19th century endeavours to rationalise and
codify English commercial law. These efforts produced the 1882
Bills of Exchange Act, 1890 Partnership Act, 1893 Sale of Goods Act
(SGA) and the 1907 Marine Insurance Act. Until the SGA was enacted,
sales of goods in England were governed almost entirely by the
principles of common law, including the law merchant (Chesterman et
al. 1974, p. 3). The law merchant or lex mercatoria was the
distinctive European-wide body of rules of evidence and practice
that merchants applied from the Middle Ages to transactions between
themselves and which they arbitrated upon. It can be traced back at
least to ius gentium: the body of law that applied to transactions
between Romans and foreigners (Rodriguez 2002, p. 46). But as
Cordes (2003, p. 5) explains, it was not before 1600 that the term
Lex Mercatoria was used in the sense of a system of substantive
trade lawused in this sense by English merchants as an instrument
against the disliked common law. Its incorporation into English law
was slow and piece-meal at first, then more rapid in the 1700s
under Chief Justices Holt and Mansfield. Lord Mansfield, Chief
Justice of Kings Bench from 1756 observed that, any satisfactory
system of commercial law must be in harmony with the recognised
mercantile customs of other civilized nations. In point of fact,
Lord Mansfield is to be credited for integrating the rules of trade
law into the common law and thereby fundamentally contributing to a
new dynamism of the latter (Cordes 2003, p. 5).
The object of the SGA was to amend and codify the set of unique
contract rules applying to the transfer of goods with reference to
general contract and personal property law. The codified SGA thus
allowed for efficient contracting on a standardised default basis
between parties, unlessto the extent permitted by the SGAthey
choose to opt out and contract on different terms and conditions.
Thus in principle, the codified SGA preserved freedom to contract
and autonomy of the parties. Various sections of the SGA provide
that they applied unless otherwise agreed, while for example s. 56
(SGA 1896 (Qld)) allows them to exclude entirely implied conditions
and warranties. But in other statesNSW, Victoriasuch implied terms
are non-excludable in consumer sales, as well as in the
Commonwealths new Competition and Consumer Act 2010 (Cth)the CCA
2010superseding the prior Trade Practices Act and parallel State
Fair Trading Acts. In fact as Carter (1993, p. 2) noted, the
SGA:
did not impinge greatly on party autonomy. With very few
exceptions (perhaps none at all) the operation of the legislation
could be varied by agreement. In fact much of the law in relation
to sale of goods contracts was left untouched for the very purpose
of allowing the parties to reach their own agreement. The parties
to commercial contracts were considered to be themselves the best
judges of what obligations should be imposed. For the most part the
legislation was drafted from the buyers perspective, and the
legislation seems generally to prefer the interests of the
buyer.
The codified SGA therefore basically operates as a set of
default rules that govern in the absence of contrary intent, rather
than as mandatory rulesthough nowadays certain consumer sales
provisions are compulsory. That is, they cant be contracted out of
or avoided. Ziegel (1993, p. 2) describes the role of default rules
in these terms:
The role of default rules is to provide the parties with a
standard set of terms which will be automatically triggered in the
absence of contrary provisions. The underlying assumption is that
they serve a useful purpose because they will save the parties
transaction costs and because they reflect the terms the parties
would themselves have selected in a substantial number of cases has
they applied their minds to the task default rules do matter and we
ought to make sure they reflect the best contemporary practices and
promote allocational efficiencies.
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Although some economists arent altogether convinced of the
benefit of fair default rules. For example, Alan Schwartz (2002)
argues that they should not be supplied by the state since they are
likely to be disjoint and non-optimal. He asserts that, business
parties will contract out of fair but inefficient default rules, so
that, the supplying of fair default rules independently of their
efficiency can be wasted effort for the rule creators and will
impose unnecessary contracting costs on parties (Schwartz 2002, p.
10). Although since there are extensive codes of law, including
default rules applying to commercial transactions they presumably
provide the positive function of minimising transactional costs
giving the parties a common set of rules to start from. And also,
minimum legal outcomes or consequences in the event they dont vary
those default and implied terms.
As mentioned above, the two statutes we consider in this module
are the Sale of Goods Act of 1896 (Queensland version for
convenience of reference only) and the Competition and Consumer Act
2010 (Cth), and especially its Schedule 2 Australian Consumer Law
provisions. In the following module we briefly examine the previous
constitutional limitations on the Trade Practices Act 1974the
predecessor of the CCA 2010. These constitutional limitations mean
that for some transactions it is only the relevant state
legislation which is applicable.
Then when we examine the legislation we will consider the types
of contracts covered by the respective acts together with the
implied conditions and warranties which the legislation imports
into those contracts. We will also see how the new Competition and
Consumer Act 2010 (Cth) provides greater protection than the Sale
of Goods Act as the implied conditions and warranties cannot be
contracted out of under the CCA 2010-Australian Consumer Law.
Objectives
On completion of this module you should be able to:
sketch out the historical sources and provenance of the
Australian Sale of Goods Act(s) in English common law and lex
mercatoria
discuss and critically appraise the concept and operation of
fair default rules in commercial contracting and their utility in
the Sale of Goods Act and Competition and Consumer Act
outline, describe and apply to typical examples, the main
provisions of the Sale of Goods Act
provide an account of the defects of the Sale of Goods Act in
relation to excludable default terms that led to enactment of the
Competition and Consumer Act, and articulate the scope and
application of the non-excludable terms implied thereunder into
consumer and the improved array of available remedies.
Readings
Textbooks Turner & Trone 2013 Ch. 14
Davenport & Parker 2012 Ch. 14
What is a sale of goods?
A contract of sale of goods is a contract whereby the seller
transfers, or agrees to transfer, the property in goods to the
buyer for a money consideration called the price. The term goods
includes all chattels personal, other than things in action and
money. Chattels personal are tangible moveable property and are to
be distinguished from chattels real, which are chattels attached to
or forming part of the land.
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The consideration for the sale must be money, otherwise the
contract is one of barter or exchange. There is nothing to prevent,
however, the consideration from being partly in money and partly in
goods or some other articles of value.
A contract of sale must be distinguished from a contract for
work and materials. A contract of sale contemplates the delivery of
a chattel; but if the substance of the contract is for the exercise
of skill and the delivery of the chattel is only subsidiary, there
is no sale of goods. The case Lee v Griffin (1861) 1 B&S 272
illustrates the difference between exercise of skill and delivery
of the chattel. A dentist agreed to make a set of artificial teeth
to fit the mouth of his patient. Held: the contract was one for the
sale of goods and not one for work and materials.
Sale and agreement to sell
1. Some money must be involved in the transaction so a pure
exchange (barter) would not be covered by the Act.
2. There must be some transfer of property (ownership) so that
contracts which involve a transfer only of possession but not
property would not amount to a sale.
3. The time when the property is to pass determines the nature
of the transaction s. 4 Sale of Goods Act 1896 (Qld).
When the property passes at the time when the contract is
madesale.
Property is to pass at some time in the futureagreement to
sell.
4. The subject matter has to be goods chattelschoses in
possession except money s. 3 Sale of Goods Act.
While under the Australian Consumer Law, s. 2(1) expansively
defines supplyequivalent to the SGA sale, as including, exchange,
lease, hire or hire purchase: see Turner and Trone (2013, para.
17.1010).
Difference between a sale of goods and a contract for work and
materials
In a contract for the sale of goods the substance of the
contract is the delivery of a chattel.
In a contract for work and materials the substance of the
contract is the hiring of skill.
What is the substance of the contract must be decided from the
facts of each case.
Generally, a contract for the supply and installation of an
article as a fixture is a contract for work and materials unless
the transaction could be viewed as two separate contracts; one for
the sale of goods, and one for the installation (ownership to pass
before installation). If ownership is to pass after installation
then it would appear there is only one contract.
Collins Trading Co. Ltd v Maher [1969] VR 20: Here there was a
contract for the sale and installation of an oil heater. The Court
had to determine whether the sale of the heater was a contract for
the sale of goods with a promise to install the heater, or a single
contract for materials and work. Held: that it was the former,
namely, a contract for the sale of goods with a collateral promise
to install. Lush J commented:
Commercially, I think the vendor is seeking to sell the
appliance and offers to install it for a price in order to win
sales, he is not engaged in the business of house improvements or
alterations. In legal terms, I think that in this case the vendor
undertook by the contract to do two things, to supply the appliance
and to install it.
Another example of the difference between sale of goods and a
contract for work and materials is Robinson v Graves [1935] 1 KB
579 where Graves commissioned Robinson, an artist, to paint a
portrait for 250 guineas. Robinson supplied the canvas and other
materials. Held: a contract for work and materials and not sale of
goods.
Note that the CCA 2010-ACL refers to both goods and services and
would apply to contracts for work done: ss 5156, 6061.
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Goods
Section 3 of the Queensland Sale of Goods Act (SGA) contains a
non-exhaustive definition of goods:
Goods includes all chattels personal other than things in action
and money. The term includes emblements and things attached to or
forming part of the land which are agreed to be severed before sale
or under the contract of sale.
In Mills v Stokman (1966) 116 CLR 61 a quantity of slate had
been left on the ground in a quarry. Some years later a contract
was entered into for the sale of the slate. Held: since the slate
had not been severed from the land either before the sale or as
part of the contract this was not a sale of goods, but a portion of
land. Another example is Warren v Nut Farms of Australia Pty Ltd
[1980] WAR 136 where it was held that a contract for the sale of
growing trees was not one for the sale of goods.
Unascertained goods ss 19, 20 SGA
Unascertained goods are goods which have not been identified at
the time of formation of the contract. They become ascertained when
the seller identifies the actual goods to be delivered. The goods
then become, in effect, specific goods.
Specific goods s. 3 SGA
Specific goods are goods identified and agreed upon at the time
the contract of sale is made. They are therefore in existence when
the contract is made and identified by the parties as the property
to be passed pursuant to the deal. An example would be the sale of
a bicycle.
Future goods s. 8 SGA
This is defined as where by a contract of sale the seller
purports to effect a present sale of future goods, the contract
operates as an agreement to sell the goods. Such a contract is thus
a sale of goods in terms of the Act. An example would be a contract
to build and supply a table and chairs.
Price
Sections 4, 11 and 12 SGA. The barter of goods does not come
within the Act. This is obvious from a reading of part of s. 4
which states that a contract for the sale of goods must include
money consideration called the price. If no price is specified then
the courts will imply a reasonable price which is ascertained from
the evidencess 11 and 12. If this is impossible then the contract
will fail for uncertainty.
In other words, price is:
fixed by contract
to be fixed later in an agreed manner
determined by a course of dealing
otherwise must pay as reasonable price.
Formalities of contract
Section 7 SGA has been repealed in Queensland so there is no
need for a contract to be in writing.
Contractual terms
A condition is a stipulation in a contract going to the root of
the contract, the breach of which gives rise to a right to treat
the contract as repudiated, and sue for damages.
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A warranty is a stipulation which is not of such importance as
to go to the root of the contract but is collateral to the main
purpose of the contract, the breach of which gives rise to an
action for damages, but not to a right to reject the goods, or to
treat the contract as repudiated. Both of these common law concepts
are recognised in the Sale of Goods Act. In summary therefore:
Conditions Warranties
Terminate contract and sue for damages or keep the contract and
sue for damages.
Sue for damages only as cannot repudiate the contract.
Effect of s. 14 SGA on the general rules of contract
Subsections 14(1) (2) are simply a restatement of common law
principles. It does not matter what you call a term in the
agreement it is for the court to actually decide. For example
Rowland v Divall [1923] 2 KB 500. Rowland bought a car from Divall
and used it for four months. Divall had no title to the car and
consequently Rowland had to surrender it to the true owner. Rowland
sued to recover the total purchase money he had paid to Divall.
Held: he was entitled to recover it in full notwithstanding that he
had had the use of the car for four months.
Subsection 14(3) Buyer loses right to reject goods
1. buyer has accepted the goods or any part of the goods and the
contract of sales is not severable
or
2. contract is for specific goods and the property has passed to
the buyer.
Section 37 confirms that acceptance is complete:
(a) when the buyer confirms to the seller that he or she accepts
the goods
(b) when the buyer accepts delivery of the goods and acts in
some way as owner of the goods
(c) when the buyer retains the delivered goods for a reasonable
time indicating that the buyer has accepted the sale of goods.
The buyer also has a right to examine the goods s. 36 SGA.
Under the CCA 2010, the buyer can reject the goods due to
non-compliance with the expanded consumer guarantees amounting to a
major failure (Australian Consumer Law s. 259260) but loses that
rejection right if the rejection period ends, the goods on-sold,
lost, destroyed or damaged after delivery (s 262). But if rejection
is possible, the goods are to be returned/collected and the
supplier either refunding the price or replacing the goods (ACL ss
263264).
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Implied terms under Sale of Goods Act
In any contract for the sale of goods the law allows the parties
to create their own terms and the law will then enforce that
contract according to its tenor. In many cases the parties do not
spell out the terms of the contract so that the contract is silent
on any number of issues.
The Sale of Goods Act provides that a number of terms will be
implied in every contract for the sale of goods (sections 15 to 18
SGA) unless the parties have created an inconsistent express term
on that matter s. 17(4) or have agreed that these implied terms are
excluded. Section 56 states:
Exclusion of implied terms and conditions. When any right, duty
or liability would arise under a contract of sale by implication of
law, it may be negatived or varied by express agreement or by the
course of dealing between the parties, or by the usage, if the
usage is such as to bind parties to the contract.
That implied terms can be excluded is one of the weaknesses of
the SGAthough remedied in some States in relation to consumer
salesand the position is different under the CCA 2010, ACL s. 61(1)
which also superseded the prior parallel State Trading Acts.
Under this section the usual conditions and warranties under the
Act cannot be excluded, unless the contract relates to goods not
ordinarily used for personal, domestic and household consumption.
In the latter, liability will be limited to either replacement of
the defective item, or in the case of services supplying the
service again, or providing the cost of such service.
A term in a contract limiting liability will not however be
recognised unless it is fair and reasonable for the seller to rely
upon such a term. Note in particular the terms of S. 64A Australian
Consumer Law.
Implied condition as to title s. 15 SGA
The corresponding provision of the Australian Consumer Law is s.
51.
Rowland v Divall [1923] 2 KB 500, the total failure of
consideration entitled the buyer to the return of the full purchase
price.
Patten v Thomas Motors Pty Ltd [1965] NSWR 1457 is an example of
feeding the title so that when the buyer purports to rescind he is
unable to do so on the ground of defective title. Here the seller
purported to sell goods when he had no title to them. After
transfer of the goods and before the buyer had notified its
intention to rescind the contract, the seller obtained a clear
title to the item sold. Held: the buyer was bound by the contract,
the seller had been able to cure the defective title before notice
of rescission.
The section contains two other implied warranties.
Sale by description s. 16 SGA
What is a sale by description? It is:
goods identified by words only
goods appear with words
goods on display no words.
Essentially, a sale by description is where goods are described
by the contract and the buyer contracts in reliance on the
description. Specific goods may be sold by description as long as
they are sold not merely as specific things, but as things
corresponding to a description, for example, a towel or a cup. Note
Re Moore & Co Ltd and Landauer & Co [1921] 2 KB 519. Moore
sold to Landauer 3000 cases of Australian canned fruits, the cases
to contain 30 tins each. Moore delivered the total quantity, but
about half of the cases contained 24 tins, and the remainder 30
tins. Landauer rejected the goods. There was no difference in
market value between goods packed 24 tins and goods
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packed 30 tins to the case. Held: as the goods delivered did not
correspond with the description of those ordered, Landauer could
reject the whole. The outcome seems pedanticand pure humbug on an
economic analysissince the cases of 24 tins and 30 tins were
functionally equivalent. The buyer was evidently looking for a
legal excuse to avoid the contract. The more precisely goods are
described the greater the risk of non-compliant supply.
Note also the comments of Dixon J. Grant v Australian Knitting
Mills Ltd (1936) 54 CLR 49 at page 61:
The condition that goods are of merchantable quality requires
that they should be in such an actual state that a buyer fully
acquainted with the facts and, therefore, knowing what hidden
defects exist and not being limited to their apparent condition
would buy them without abatement of the price obtainable for such
goods if in reasonably sound order and condition and without
special terms.
Cases
In Varley v Whipp [1900] 1 QB 513 a buyer was held entitled to
reject a secondhand reaping machine which he had not seen, but
which did not correspond with the description that it was new the
previous year and had been used to cut only fifty acres. At page
516 Channell, J. says:
The term sale of goods by description must apply to all cases
where the purchaser has not seen the goods, but is relying on the
description alone.
In Arcos Ltd v EA Ronaasen & Son [1933] AC 470 it was
accepted that a buyer cannot be compelled to accept goods which do
not, in fact, correspond with the description, even though they are
merchantable under that description, that is, good product, but
different to that described.
There can still be a sale by description even where the buyer
has seen and examined the goods provided the goods were bought as
corresponding to a description as in Beale v Taylor [1967] 1 WLR
1193. Here the defendant placed on advertisement to sell his car as
a Herald, convertible, white 1961. The plaintiff after inspecting
the car purchased it. Both parties thought the car was a 1961
model. In fact only part of the vehicle was a 1961 model, the rest
had been welded and added from an earlier Herald car. Held: this
was a sale by description, that is, a 1961 model. The plaintiff had
relied upon such a description to his detriment and was entitled to
damages. The court determined there had been a breach of an implied
condition.
The corresponding section of the Australian Consumer Law is s.
56.
Sale by sample s. 18 SGA
Section 18 covers the case of a sale by sample as well as by
description. It is necessary to satisfy both the requirements as to
sale by sample and sale by description: Nichol v Codts [1854] 10 Ex
191. Here Nichol agreed to sell to Codts some oil described as
foreign refined rape oil warranted only equal to sample. Nichol
delivered oil equal to the quality of the samples, but which was
not foreign refined rape oil. Held: Codts could refuse to accept
it.
It is for the court to decide whether a sale is a sale by sample
or not. It does not matter whether there is any reference to
samples in the contract or not. Generally, sale by example occurs
in the sale of bulk goods. Once classified as a sale by sample
there are three separate conditions, a breach of any one of which
gives rise to a right to reject.
The implied conditions in a sale by sample are:
(a) that the bulk shall correspond with the sample in
quality
(b) that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample
(c) that the goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.
These matters were recognised and applied in Boshali v Allied
Commercial Exporters Ltd (1961) 105 SJ 150.
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An example where the court determined that the principles of
sale by sample had been breached is Drummond v Van Ingren & Co
(1887) 12 App Cas 284. Here worsted cloth, weight and quality to be
equal to sample, was ordered from a manufacturer. The cloth was
equal to sample but was not suitable for tailoring owing to its
being slippery, this defect not being apparent on a reasonable
inspection of the sample. Held: that the buyer could reject the
goods.
In earlier times the law relating to sales of goods was based on
the notion of caveat emptorlet the buyer bewareand it was up to the
buyer to look out for their own interests when dealing with
sellers.
This doctrine is more suited to the commercial realities of
earlier times when
1. there was more equal bargaining power
2. less sophisticated marketing
3. not such a wide range of goods available and both the buyer
and seller would be more familiar with the quality.
The corresponding section of the Australian Consumer Law is s.
57(1).
Implied conditions as to quality or fitness s. 17 SGA
Applies to sales by dealers and not private sellers.
Fitness for purpose s. 17(1) SGA
There are three requirements for s. 17(1) to operate
1. The buyer must make known to the seller the particular
purpose for which the goods are requiredthis can be expressly or by
implication especially if the purpose is an ordinary one, for
example, Frost v Aylesbury Dairy Co Ltd [1905] 1 KB 608. A milk
vendor was held liable for damages for supplying milk containing
typhoid germs which caused the death of Frosts wife.
Chaproniere v Mason (1905) 21 TLR 633. Here a confectioner
supplied a bath bun containing a stone which broke a tooth of the
solicitor who bought it. He was awarded damages by the learned
Judge who said that he was inclined to think that such a bun was
not reasonably fit for eating.
If the purpose is not the only use the goods could be put to the
buyer must bring the purpose home to the seller.
2. It must be shown that the buyer relies on the sellers skill
and judgment.
For this requirement to be met it is sufficient that the buyer
relies only partly on the sellers skill and judgement, provided
that the matters of which he complained are matters in respect of
which he relied on the seller. Ashington Piggeries Ltd v
Christopher Hill Ltd [1972] AC 441. Statements alone will not
necessarily be enough to allow a claimant to be successful. Not
only must a plaintiff identify the goods, they must also show that
the statements by the seller induced the buyer to enter into the
contract and that the statements related to some kind of implied
condition as to quality of description.
3. The goods are of a description which it is in the course of
the sellers business to supply.
The goods are required to be reasonably fit for such
purpose.
Purchase under a tradename
These implied conditions do not apply in the case of a purchase
made under a patent or trade name. However, the mere fact that an
article is sold under its trade name does not necessarily make it a
sale under its trade name for purposes of this section. The trade
name may be part of the general description Baldry v Marshall
[1925] 1 KB 260. Here Baldry told Marshall, a motor car dealer,
that he wanted a comfortable car suitable for touring purposes.
Marshall recommended a Bugatti car and Baldry purchased one. The
car was uncomfortable and unsuitable for touring purposes. Held:
(1) the mere fact of a car being sold under its trade name, which
is part of the description of the car, does not necessarily exclude
the condition of fitness; (2) if the buyer, while asking to be
supplied with a named make of car, indicates to the seller that he
relies on his skill and judgment for its being fit for a particular
purpose, he does not buy the car under its trade name, within the
meaning of s. 14 (British legislation), s. 17 (Australian
legislation); (3) Baldrys claim was successful.
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Merchantable quality s. 17(2)
The corresponding sectiongoods of acceptable quality in the
Australian Consumer Law is s. 54.
The term merchantable quality is not defined in the SGA but
there is a definition in the TPA s. 66(2). Quite a number of
judicial observations as to what constitutes merchantable quality
have been made.
Turner and Trone (2013, para. 14.270) define merchantable
quality as meaning, in essence that the goods are commercially
saleable under the description they were sold; that is, fit for a
purpose for which goods of that description are normally used,
having regard also to the price paid for the goods and the other
circumstances of the sale. In other words merchantable quality
means that the goods comply with the description in the contract,
so that to a purchaser buying goods of the that description it will
be a good bargain: Morelli v Fitch & Gibbons (1928) 2 KB 636.
Morelli asked for a bottle of Stones Ginger Wine at Fitch &
Gibbons shop, which was licensed for the sale of wines. While
Morelli was drawing the cork, the bottle broke and Morelli was
injured. Held: the sale was one of description and, as the bottle
was not of merchantable quality, Morelli was entitled to recover
damages.
A more recent test for merchantable quality was given by Murphy
J. in Anthony v Esanda Ltd (1980) 82 ALR at 635:
Before the goods can be characterised as unmerchantable, it must
be shown that as goods of a particular description or character
they are defective, although proof of unfitness for some particular
and obvious purpose may establish that they are defective. It
follows from this that the goods must meet the description under
which they are sold and if they do and are fit for normal use to
which the described goods are put, they are merchantable.
Cases
BS Brown & Sons Ltd v Craiks Ltd [1970] 1 All ER 823. This
case highlights one of the problems in defining merchantable
quality. Lord Reid in commenting on the concept said: I do not
think that it is possible to frame, except in the vaguest terms, a
definition of merchantable quality which can apply in every kind of
case.
George Wills & Co Ltd v Davids Pty Ltd (1957) 98 CLR 77.
Here however the Full High Court endeavoured to comprehensively
define merchantable quality. It was said to be a reference to the
condition or quality of goods:
Consequently goods are said to be of merchantable quality if
they are of such a quality and in such a condition that a
reasonable person would, after a full examination, accept them
under the circumstances of the case in performances of his offer to
buy them, whether he buys them for his own use or to sell them.
Merchantable quality requirement applies in the case where there
is a sale by description and even where the goods are bought under
a patent or trade name. (In this respect it is wider than the
requirement of fitness for purpose.)
Note in particular that where goods are ordered for a special
purpose and are totally unsuitable, the whole of the purchase price
may be awarded to the buyer by way of damages: Ford Motor Company
of Canada Ltd v Haley (1967) 62 DLR 329. Here trucks had been
bought warranted suitable for hauling 12 yards of gravel in dusty
off-highway conditions for approximately 20 hours a day. The trucks
broke down constantly. The total purchase price of the trucks was
awarded by way of damages, the seller having failed to prove that
the trucks were of any value to the buyer if he retained them. Note
also Hammer & Barrow v CocaCola [1962] NZLR 723.
Where the buyer has examined the goods a degree of protection is
lostas regards such defects which the examination ought to have
revealed. Perhaps it is better not to examine the goods at all.
It is important to appreciate that the corresponding sections in
the Australian Consumer Law are an updated version of the SGA, more
or less incorporating the case law, and expanded to include goods
being acceptable in appearance and finish, free from defects, safe
and durable, and with price also considered if relevant: ACL s.
54.
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Passing of the property (ownership)
Background rules
Ownership may change without a change in possession.
A change in possession may occur at a time other than when the
change of ownership occurs.
The price may be payable at a time other than when the change in
ownership occurs.
Importance of knowing when property passes
1. With a sale of goods the risk passes with the property:
whoever owns the goods at the time when loss or damage occurs bears
the loss s. 23 SGA.
Parties can change this provision when they make the
contract.
2. On the bankruptcy of seller or buyerthe goods vest in the
trustee in bankruptcy. If the property has passed and the buyer
becomes bankrupt then the seller is unable to regain the goods and
may only claim the price as a debt owing in the buyers
bankruptcy.
3. Whether the property in the goods has passed or not affects
the remedies available:
(a) when the buyer refuses to take delivery
(b) when the seller wrongfully disposes of the goods.
4. Party who has property in the goods can confer a good title
on third parties:
(c) even though the buyer has not paid for the goods
(d) even though there has been a breach of contract.
5. Operation of s. 14(3) SGAunable to reject the goods for a
breach of condition when buyer has accepted the goods; only able to
sue for damages.
When property is to pass
Section 19 SGA
No property is to pass until the goods are ascertained in the
case of unascertained goods.
Ascertained goods are goods which have been identified and
appropriated to the contract.
Section 20 SGA
This section covers both specific and ascertained goods.
The property is to pass when the parties intend it to pass.
To determine the intention of the parties consider:
the terms of the contract
the conduct of the parties
circumstances of the case.
When there is no evidence as to when the property in the goods
is to pass there are five rules which are used to ascertain the
intention of the parties.
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Section 21 SGA
Rule 1
Where there is an unconditional contract for specific goods in a
deliverable state, the property passes at the time of making the
contract.
The expression deliverable state is defined in s. 3(4) SGA.
An unconditional contract is not subject to a condition
precedent.
Rule 2
Where there is a contract for the sale of specific goods and the
seller has to do something to the goods to put them into a
deliverable state, the property does not pass until it is done and
the buyer has notice of it.
Rule 3
Where the contract is for specific goods in a deliverable state
and the seller has to weigh, measure, test or do some other act or
thing with reference for the purpose of ascertaining the price, the
property does not pass until that is done and the buyer has notice
thereof.
Rule 4
When goods are delivered to the buyer on approval or on sale or
return or other similar terms, the property passes to the
buyer:
when the buyer signifies their approval or acceptance to the
seller or does any other act adopting the transaction
when the buyer retains goods without giving notice of rejection
then after the time for returning the goods has passed or if no
time has been specified after a reasonable time.
Rule 5
Where there is a contract for unascertained or future goods by
description and goods of that description and in a deliverable
state are unconditionally appropriated to the contract by the buyer
or the seller with the consent of the other party, the property
passes to the buyer.
Rule 5(2) gives an example of an unconditional appropriation of
goods to the contract.
Wardars (Import & Export) Co Ltd v W Norwood & Sons Ltd
[1968] 2 All ER 602.
Pignatoro v Gilroy [1919] 1 KB 459.
Section 22 SGA Reservation of the right of disposal
Reservation of the right of disposal can occur when there are
certain terms in the contract so that even though the goods may
have been delivered property does not pass until these conditions
have been fulfilled. One condition that the seller may seek to
impose is that the property in the goods does not pass to the buyer
until the goods have been paid for, even though the buyer has
possession of the goods and may use them in the manufacture of
other goods which the buyer then resells. The advantage of this
type of clause in the contract is that if the buyer experiences
financial difficulty then the seller can recover the goods which
the buyer still has and also the proceeds of sales of the goods
made by the buyer. A clause like this is called a Romalpa Clause
after the case in which this became prominent: Aluminium Industrie
Vaassen B V v Romalpa Aluminium Ltd [1976] 2 All ER 552.
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Section 23 SGA Passing of Risk
This rule simply states that in general the risk will pass with
the property unless the parties have agreed otherwise. Provision is
also made for risk to be placed at the party who has delayed the
delivery.
Transfer of title
Section 24 SGA Sale by person other than the owner
General rule: nemo dat quod non habet.
A transferee of goods can acquire no better title than a
transferor except in the case where the owner of the goods is
estopped from denying the authority of the seller. To permit goods
to go into the possession of another with all the insignia of
possession and apparent title estops the owner from upsetting a
purchase of such goods by a third party made bona fide and for
value, for example, leaving a car in a dealers yard.
Section 25 SGA Sale under a voidable title
Phillips v Brooks [1919] 2 KB 243
The title of the swindler was voidable as it had been obtained
by fraud. The swindler was, however, able to give good title to a
bona fide third party who took it for value and without notice.
Section 27 SGA Seller or buyer in possession after sale
For s. 27 to operate there must be a delivery or transfer of
goods or the documents of title to the second buyer. There must be
a change in physical control. The second buyer must receive the
goods or documents of title in good faith and without notice (that
they have been sold).
Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance)
Ltd [1965] AC 867
Gamers Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale
Australia Pty Ltd (1987) 72 ALR 321
Sections 32 and 33 SGA Delivery of goods
Under these rules a buyer is unable to reject a whole shipment
where the difference in the quantity is small compared to the size
of the whole purchase.
Shipton, Anderson & Co v Weill Bros & Co. [1912] 1 KBan
extra 55 lbs of meat was delivered in a shipment of 4950 tons the
buyer was unable to reject.
Section 33(3) applies where goods of a different description are
delivered mixed with the other goods, not goods of a different
quality. The line between description and quality is hard to
draw.
Sections 36 37 38 SGA Acceptance of goods
Harmer & Barrow v CocaCola
Note s. 38 SGA where a buyer is not required to return rejected
goods.
The rights of an unpaid seller are rights against:
1. the goods ss 41-47
2. the buyer ss 50 51.
Unpaid seller defined in s. 40 SGA.
The sellers rights against the goods are extinguished once the
buyer has possession
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Section 42 SGA Right of retention
Sections 4547 SGA Stopping in transit
For a seller to exercise the rights in this section the buyer
must have become insolvent s. 3(3) SGA and the goods must still be
in transit.
What amounts to being in transit is covered in s. 49 SGA.
There are two ways this right can be exercised, by:
taking actual possession of the goods
giving notice of this claim to the carrier or other bailee in
whose possession the goods are.
The unpaid sellers right of lien or stoppage in transit is not
affected by any sale or other disposition the buyer may have made
unless the seller agreed to itexcept if s. 27(2) becomes
applicable.
Section 49 SGA Resale by unpaid seller
Contract for the sale is not rescinded by the seller exercising
their right of stoppage in transit.
A seller who resells the goods after exercising their right of
retention or stoppage in transit confers a good title on the new
purchaser s. 49(2), but still has obligations towards the original
buyer unless:
the goods are of a perishable nature, or
the unpaid seller gives notice of intention to resell and the
buyer does not pay within a reasonable time s. 49(3).
If the seller expressly reserves the right of resale in the case
of the buyer making default, then on default of the buyer the
seller can resell the goods and still claim against the defaulting
buyer for damages (s. 49(4)).
Remedies of the seller against the buyer
1. Ownership of goods has passed to buyer and the buyer
wrongfully neglects or refuses to pay for the goods, the seller can
sue the buyer for the pricethere is no duty on the seller to
mitigate their loss.
2. If the price is payable on a certain day and buyer refuses or
neglects to paythe seller can sue for price irrespective of whether
or not the property has passed s. 50(2) SGA.
3. If the property has not passed and the buyer refuses or
neglects to accept and pay for the goods, the seller can sue for
damages for non-acceptance s. 51(1) SGA.
In this case the seller must act reasonably to try to mitigate
their loss, for example, by trying to find another buyer. The
amount of damages is set out in the Act. Section 39 SGA establishes
the liability of the buyer for refusing to take delivery of the
goods.
The buyer is liable to be sued for damages or for price only
where they wrongfully refuse to pay or accept and pay for the
goods. A buyer will not be held liable if the seller has not
performed or offered to perform those parts of the contract which
are conditions precedent for payment. In practical terms there is
frequently a dispute with the seller suing for damages for
non-acceptance and the buyer claiming to rescind the contract for
breach of a condition.
Remedies of the buyer
Section 32: What happens when the wrong quantity is
delivered.
Section 38: Buyer does not have to return rejected goods.
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If the property in the goods has passed:
1. the buyer can sue the seller for wrongful detention
2. if the seller sells the goods to a third party the buyer can
sue either the seller or the third party for conversion
3. the buyer may be able to obtain an order for specific
performance, that is, delivery of the goods.
In any case whether the property has passed or not there is a
remedy under s. 52 SGA with damages for non-delivery or delayed
delivery. Section 52(3) sets out how the measure of damages is
calculated.
Specific performance s. 53 SGA
In some cases damages may not be an adequate remedy: Dougan v
Ley (1946) 71 CLR 142.
Section 54 SGA Remedy for breach of warranty
There are shortcomings under the Sale of Goods Act which the CCA
2010 (Cth) attempts to address; for example, the right of the
parties to contract out of the implied terms. The Sale of Goods Act
does provide a degree of certainty in commercial transactions,
frequently by having recourse to the concept of the passing of the
property.
Relationship of the Sale of Goods Act to other legislation:
Consolidation required
In contrast to other legislation such as the CCA 2010, the Sale
of Goods legislation applies to all sales of goods whether the sale
be of a commercial or domestic nature. Sometimes other applicable
legislation does not set out all the rights and obligations of the
parties so recourse has to be made to the Sale of Goods Act to fill
in the gaps. Under s. 109 of the Constitution if a provision of a
Commonwealth law is inconsistent with a State law then the
Commonwealth prevails over the State legislation. Notice that the
CCA 2010 (Cth) does not make any provision for the rules regarding
the passing of the property. The relevant law is in the Sale of
Goods Acts of the various States. Remedies which are granted under
the new CCA 2010 are in addition to the remedies granted under the
Sale of Goods Act. The common law of contract still applies except
where the legislation is such that the common law has been
modified.
The National Credit Code will also be relevant where
goodsincluding consumer leasesare financed under a credit
contract.
Australian Consumer Law
Part 32 Consumer guarantees
These provisions apply to both goods and services which are
defined in section 3 of the Australian Consumer Law.
Instead of just sales, the ACL applies to contracts for the
supply of goods and services to a consumer which includes hire,
hire-purchase and leasing agreements as well as sales.
The relevant statutory, consumer guarantees (equivalent to
implied conditions in the SGA) in the Australian Consumer Law
are:
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Title
supply by description
acceptable quality
fitness for disclosed purpose
supply by sample/model
additional guarantees for supply of services
ss. 513
s. 56
s. 54
s. 55
s. 57
ss. 6062
Note
The expression acceptable quality is expansively defined in the
Australian Consumer Law, unlike the SGA which uses the expression
but does not define what it means.
Section 64 makes any term of a contract purporting to limit or
avoid these implied conditions void. This is in contrast to s. 56
SGA. A limitation on liability may however be permitted under s.
ACL s. 64A where the goods or services are of a kind not normally
acquired for personal, domestic or household use or
consumption.
Hire-purchase transactions are not covered by the SGA but are
now by the CCA 2010-ACL. In a hirepurchase transaction the seller
generally sells the goods to a finance company who enters into a
hire-purchase contract with the hirer (potential buyer). They are
also now regulated by the National Credit Code.
The Australian Consumer Law makes the dealer and the linked
credit provider liable for defective goods supplied and for
mispresentations etc. for goods acquired on credit terms: see ss
278286 and Turner and Trone (2013, pp. 362363).
Additional remedies available to consumers
1. Common-law remedies for breach of contractdamages.
2. Remedies available under statutes in force at place where
contract is made, for example, SGA and the ACL which should now
almost equally apply. The ACL under sections 2367 gives a private
right to damages/compensation for any person who suffers loss or
damage by the conduct of another person that was done in breach of
the consumer protection provisions.
3. In addition to a compensation order, sections 239243 ACL
grants various further rights to vary, disallow or declare void
terms of the relevant consumer contract.
Further remedies against manufacturers and importers: Part 35
and ss 271, 274
Under the SGA, the buyer is only given remedies against the
seller. For actions against the manufacturer and others, resort had
(and still may) to be made to the common law remedies.
Amendments to the original Trade Practices Act 1974superseded by
the Competition and Consumer Act 2010, Australian Consumer law
provisions, enable actions to be broughtin addition to possible
actions against the retaileragainst manufacturers and importers for
losses arising in connection with the breach of statutory, consumer
guarantees, in the supply of consumer goods, and also for injury or
loss arising from the supply of faulty or defective goods. These
provisions allow for actions against manufacturers and importers
byconsumers and those who acquire title through the consumer (other
than for the purpose of resale): see Turner and Trone (2013, pp.
355360).
Of critical importance, these provisions in effect impose dual
liability, and allow a consumer to take action against the
manufacturer or importer despite having no direct contract with
them. Such rights of action are in essence based on a deemed
indirect contract or statutory tortperhaps equivalent to the
negligence action in Donoghue v Stevenson against the manufacturer,
in relation to a bottle of ginger beer sold by a retailer.
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Carter, JW 2003, Party autonomy and statutory regulation: sale
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http://www.cisg.law.pace.edu/cisg/biblio/carter3.html
Chesterman, MR et al. (eds) 1974, Benjamins sale of goods, Sweet
& Maxwell, London.
Cordes, A 2003, The search for a Mediaeval Lex Mercatoria,
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Rodriguez, A 2002, Lex Mercatoria, Retsvidenskabeligt
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Turner, C & Trone, J 2013, Australian commercial law, 29th
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Ziegel, JS 1993, Commentary on party autonomy and statutory
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http://www.cisg.law.pace.edu/cisg/biblio/ziegel4.html