Willes 722

Copyright © 2004 McGraw-Hill Ryerson

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PART 5 – SPECIAL CONTRACTUAL RELATIONSHIPS

Chapter 22 – The Sale of Goods

Prepared by Douglas H. Peterson, University of Alberta


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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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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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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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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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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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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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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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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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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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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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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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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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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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SALE OF GOODS

PASSAGE OF TITLE (AND RISK) UNDER STATUTE

SALE AGREEMENT

CONDITIONREQUIREMENT BEFORE TITLE PASSES TO BUYER

SPECIFIC GOODSDeliverable Condition

None: Title Passes When Contract Made

Notice Given to Buyer That Work Done and Goods in Deliverable State

Notice Given to Buyer That Seller Has Weighed, Measured, and Tested the Goods and Ascertained Price

SPECIFIC GOODSSomething to Be

Done to Put inDeliverable State

SPECIFIC GOODSDeliverable State

Required Measurement,Testing, or Weighing to

Ascertain Price

SPECIFIC GOODSSold on Approval,

Sale, or Return

(1) Buyer Signifies Approval or DoesAnything to Adopt Transaction

(2) Buyer Retains the Goods Without GivingNotice of Rejection Within Time Fixed, orif No Time Fixed, Beyond a Reasonable Time

Cont’d


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SALE OF GOODS

PASSAGE OF TITLE (AND RISK) UNDER STATUTE, cont’d

CONDITIONREQUIREMENT BEFORE TITLE PASSES TO BUYER

AGREEMENT TO SELL

GOODS TO BE PRODUCED

Sold by Description

(1) Goods Produced and in a DeliverableState and Unconditionally Appropriatedto the Contract

(2) Goods Produced and Delivered to aCarrier or Other Bailee for Purpose ofDelivery to Buyer Where Seller Does NotReserve Right of Disposal

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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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CONDITIONS AND WARRANTIES

Condition 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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CONDITIONS AND WARRANTIES

Warranty A minor term in a contract Breach allows injured party to:

Damages but not rescission


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CONTRACTUAL DUTIES OF THE SELLER

Implied Terms Seller’s Title Nature of the goods Payment and Delivery


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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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

Willes 722

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