SALE OF GOODS PART II

 To understand and explain the essential elements of a valid contract of sale

 To understand and explain some of the key legal consequences of entering into a contract
of sale.

 To understand and explain the legal duties that are imposed upon parties, and the
consequences that flow if these duties are breached.

 Apply the knowledge acquired during the course to solve practical problems with regard
to specific contracts.

Contract for Sale

This topic is a continuation of sale of goods. Last week you were introduced to some basic sale of
goods concept. This week those concepts would be discussed in detail. In addition to this you
would be introduced to the legal effects of the contract for sale of goods together with the seller’s
obligation and buyer’s remedies. You must have realized that the Sale of Goods Act lays down
very precise rules relating to the sale of goods.

Definition
Sale of goods and contract law goes hand in hand, since sale of goods is itself a contract. A contract
of sale comes into existence when parties who have the requisite intention agree together that the
seller or the vendor, will make the items (which are subject of the sale) available to the other,
called the buyer or the purchaser, in return for the payment of a price the contract is a sale. Section
5 provides that a contract of sale may be made in writing or by word of mouth or partly in writing
and partly by word of mouth or may be implied from the conduct of the parties.

Goods

Goods are defined in s 2(1) as including all chattels personal which are the subject of trade or
commerce and component parts of any such chattels. In St Albans City and District Council v
International Computers Ltd [1996] 4 All ER481 the UK courts recognized that a computer disk
is a sale of goods, although a computer program is not.

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Classification of Goods
The Act classifies goods into two categories. Section 7 provides that goods which form the subject
of a contract of sale may be either existing goods or future goods. Existing goods are goods which
are owned or possessed by the seller at the time the contract is made1."Future goods" means goods
to be manufactured or acquired by the seller after the making of the contract of sale2.
If you closely peruse the interpretation section then you will notice that s 2(1) defines "specific
goods" as goods identified and agreed upon at the time a contract of sale is made. You will see
that the in s 18 the Act makes reference to unascertained goods, however unascertained goods are
not defined in the interpretation section.
The general understanding of unascertained goods are those which are not so identified and agreed
on. Ascertained goods are probably those which are identified and agreed on after the making of
the contract: Re Wait [1927] 1 Ch 606.

Sale and Agreement to Sell

Section 3 (1), provides that 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.
There may be a contract of sale between 1 part owner and another.

Section 3 (2) states that a contract of sale may be absolute or conditional.

Section 3 (3) states that where, under a contract of sale, the property in the goods is transferred
from the seller to the buyer, the contract is called a sale: but, where the transfer of the property in
the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the
contract is called an agreement to sell.

Section 3 (4), an agreement to sell becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in the goods is to be transferred.

Property is defined in s 2 (1) as the general property in goods and not merely a special property;
The distinction between sale and agreement to sell is important for a number of reasons. And one
of the reasons is that risk prima facie passes with property, risk in the goods will generally pass to
the buyer under a sale. If the goods are destroyed, the buyer will suffer the loss, whether or not
they are in his or her physical possession.3

1
Borrowdale, “Butterworths Commercial Law in New Zealand,”4th ed (2000)
2
SGA s 2(1)
3
Ibid 1

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THE PRICE
Section 3 (1) stipulates that a contract of sale requires a money consideration, called “the price”.
“This simply means that the consideration must be measured in money, and it is not necessary that
the consideration provided be in the form of money. The consideration may be satisfied by the
delivery of goods of equivalent value4.”

Can the supply of work and materials be a sale of goods contract?

The Sale of Goods Act applies only to goods and not to services. Contracts for the provision of
services are also known as contracts for work and materials. Generally, if the contract is mainly
for the supply of goods, i.e. there is a higher content of materials than skills, it will be a contract
for sale of goods. Where there is more components of skill and less of materials then it will be a
contract for work and materials and the Sale of Goods Act will not apply to it.

Some examples of contracts that are not for sale of good but are work and materials include:

 The painting of a portrait;

 The supply and installation of seats in a theatre; and

 The supply and installation of a lift in a building.

In the case of Furrier Ltd v Tapper [1953] 1 All ER 15 the court held that the making of tailor
made fur coats was a contract for the sale of goods, and not a contract for work and materials. This
is comparable with Robinson v Graves [1935] 1 KB 579 where Robinson sued Graves for failing
to pay for a portrait that Robinson had painted. Graves argued that their verbal contract was a sale
of goods contract, however the court held that there was a high degree of skill and effort required
in completing a portrait so it was not a contract for sale of goods.

Passing of Property and Risk

You may recall that property is defined as meaning general property in goods and not merely a
special property. Property in goods in this context refers to the legal interest in the goods sold.
Property in goods does not equate to possession of goods. You must remember that it is not
necessary that property and possession pass together. Why so much emphasis on this aspect? Well

4
Ibid 1

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it is extremely important to know when property in goods passes from the seller to the buyer for a
number of reasons. These reasons includes but are not limited to the following:
to know allocation of risk
to ascertain the effect of bankruptcy of one of the parties.
to determine retention of title and;
to know the standing to sue in tort.

Intention Paramount in Passing of Property

Section 19 (1) stipulates, where there is a contract for the sale of specific or ascertained goods, the
property in them is transferred to the buyer at such time as the parties to the contract intend it to
be transferred. Section 19 (2) further provides: for the purpose of ascertaining the intention of the
parties, regard shall be had to the terms of the contract, the conduct of the parties and the
circumstances of the case.

However s 18 provides, where there is a contract for the sale of unascertained goods, no property
in the goods is transferred to the buyer unless and until the goods are ascertained.

Re Wait [1927] 1 Ch 606, where the buyer had agreed to buy, and had paid for, 500 tons of wheat
and the seller went bankrupt while in possession of 1,000 tons of wheat from which it was intended
that the buyer’s 500 tons should be taken, it was held that the buyer had no equitable interest which
could entitle him to delivery of any 500 tons from the undivided bulk.

The Statutory Presumptions

Section 20 outlines specific rules which are presumptions in determining the intention of the
parties as to when property is to pass. These are only presumptions and are applicable if a different
intention does not appear.

Rules for Ascertaining Intention as to Time When Property Passes

Section 20 states that unless a different intention appears, the following are rules for ascertaining
the intention of the parties as to the time at which the property in the goods is to pass to the buyer:-

Rule I - Where there is an unconditional contract for the sale of specific goods in a deliverable
state, the property in the goods passes to the buyer when the contract is made and it is immaterial
whether the time of payment or the time of delivery or both be postponed.

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Rule II - Where there is a contract for the sale of specific goods and the seller is bound to do
something to the goods for the purpose of putting them into a deliverable state, the property does
not pass until such thing be done and the buyer has notice thereof.

Rule III - Where there is a contract for the sale of specific goods in a deliverable state but the seller
is bound to weigh, measure, test or do some other act or thing with reference to the goods for the
purpose of ascertaining the price, the property does not pass until such act or thing be done and
the buyer has notice thereof.

Rule IV - When goods are delivered to the buyer on approval or on "sale or return" or other similar
terms, the property therein passes to the buyer-

(a) when he signifies his approval or acceptance to the seller or does any other act adopting the
transaction;

(b) if he does not signify his approval or acceptance to the seller but retains the goods without
giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration
of such time or, if no time has been fixed, on the expiration of a reasonable time.

Rule V-Where there is a contract for the sale of unascertained or future goods by description and
goods of that description and in a deliverable state are unconditionally appropriated to the contract
either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the
property in the goods thereupon passes to the buyer. Such assent may be express or implied and
may be given either before or after the appropriation is made.

(2) Where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or
other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to
the buyer and does not reserve the right of disposal, he is deemed to have unconditionally
appropriated the goods to the contract.

In Underwood v Burgh Castle and Cement Syndicate [1922] 1 KB 343 the plaintiff sold a
condensing machine to the defendant. At the time of the contract it was cemented to the floor. It
was held that it was not in a deliverable state, so that no property had passed.
In Joseph Reid Pty Ltd v Schultz [1949] SR (NSW) 231 the contract provided that the seller was
bound to cut the timber to be sold and place it on ramps. The issue was whether property had
passed after these things had been done, but notice had not been given to the buyer. It was held
that timber was in a deliverable state when it was cut and placed on the ramps, and the frame of
the contract itself indicated that the parties intended to dispense with the necessity that the buyer
be given notice.

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RISK
Section 22 provides that unless otherwise agreed, the goods remain at the seller's risk until the
property therein is transferred to the buyer, but, when the property therein is transferred to the
buyer, the goods are at the buyer's risk whether delivery has been made or not: provided that-
(a) where delivery has been delayed through the fault of either buyer or seller, the goods are at the
risk of the party in fault as regards any loss which might not have occurred but for such fault;
(b) nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee
or custodier of the goods of the other party.
In Sterns Ltd v Vickers Ltd [1923] 1 KB 78 there was a sale of 120,000 gallons of white oil out of
bulk of 200,000 gallons lying in tanks belonging to a wharf company. The seller obtained and
delivered to the buyer a delivery warrant issued by the wharf company. The warrant stated that
120,000 gallons were deliverable to the named buyer, and that the warrant was the only document
issued as the legal symbol of the goods. It was held that, although the goods were unascertained,
the risk had passed to the buyer in the circumstances. In particular, the Court of Appeal considered
it decisive that the seller had done all that it had undertaken to do after handing over the warrant,
and that the goods were then out of the seller’s control. (You are required to read the case now)

Perishing of Goods
Section 8 states that where there is a contract for the sale of specific goods and the goods, without
the knowledge of the seller, have perished at the time when the contract is made, the contract is
void.

Goods perished after agreement to sell

Section 9 stipulates, where there is an agreement to sell specific goods and subsequently the goods,
without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the
agreement is hereby avoided.

In Asfar v Blundell [1896] 1 QB 23 it was argued that the dates which had been submerged in
water for two days and had become impregnated with sewage had perished for insurance purposes.

Performance of the Contract

You are now going to examine the duties imposed on the buyer and the seller by the Sale of Goods
Act. Division 8 deals with performance of contract. Pursuant to s 29 of the Sale of Goods Act, it
is the duty of the seller to deliver the goods and buyer’s duty to accept and pay for them in
accordance with the terms of the contract.

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Seller’s Duty to Deliver

Delivery is the voluntary transfer of possession from one person to another: s 28- it is the duty of
the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the
terms of the contract of sale.

Rules as to delivery

Section 30 (1) provides that whether it is for the buyer to take possession of the goods or for the
seller to send them to the buyer is a question depending in each case on the contract express or
implied between the parties. Apart from any such contract express or implied, the place of delivery
is the seller's place of business if he has one, and if not, his residence: provided that, if the contract
be for the sale of specific goods which to the knowledge of the parties when the contract is made
are in some other place, then that place is the place of delivery.

Section 30 (2) states, where, under the contract of sale, the seller is bound to send the goods to the
buyer but no time for sending them is fixed, the seller is bound to send them within a reasonable
time.

Section 30 (3) states, where the goods, at the time of sale, are in the possession of a third person,
there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer
that he holds the goods on his behalf: provided that nothing in this section shall affect the operation
or the issue or transfer of any document of title to goods.

Section 30 (4) states that demand or tender of delivery may be treated as ineffectual unless made
at a reasonable hour. What is a reasonable hour is a question of fact.

Section 30 (5) states that unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller.

Delivery of wrong quantity or description

Section 31(1) stipulates, where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them but, if the buyer accepts the goods so delivered, he
must pay for them at the contract rate.

Section 31 (2) stipulates, where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the contract and reject the rest or he
may reject the whole. If the buyer accepts the whole of the goods so delivered, he must pay for
them at the contract rate.

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Section 31 (3) states that where the seller delivers to the buyer the goods he contracted to sell
mixed with goods of a different description not included in the contract, the buyer may accept the
goods which are in accordance with the contract and reject the rest or he may reject the whole.

Section 31 (4) states that the provisions of this section are subject to any usage of trade, special
agreement or course of dealing between the parties.

In Moore & Co v Landauer [1921] 1 KB 73 the contract provided for tins of fruit to be packed in
case of 30 tins each. The seller delivered the quantity of tins due under the contract, but about half
of them were packed in cases containing 24 tins. The buyer was held to be entitled to reject the
whole consignment.

Delivery by instalments

Section 32 (1) states that unless otherwise agreed, the buyer of goods is not bound to accept
delivery thereof by instalments.

Section 32 (2) provides, where there is a contract for the sale of goods to be delivered by stated
instalments which are to be separately paid for and the seller makes defective deliveries in respect
of 1 or more instalments or the buyer neglects or refuses to take delivery of or pay for 1 or more
instalments, it is a question in each case, depending on the terms of the contract and the
circumstances of the case, whether the breach of contract is a repudiation of the whole contract or
whether it is a severable breach giving rise to a claim for compensation but not to a right to treat
the whole contract as repudiated.

Delivery to carrier as buyer's agent

Section 33 (1) provides, where, in pursuance of a contract of sale, the seller is authorised or
required to send the goods to the buyer, delivery of the goods to the carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer is, prima facie, deemed to be a delivery
of the goods to the buyer.

Section 33 (2)- unless otherwise authorised by the buyer, the seller must make such contract with
the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods
and the other circumstances of the case. If the seller omits so to do and the goods are lost or
damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery
to himself or may hold the seller responsible in damages.

Section 33 (3) -unless otherwise agreed, where goods are sent by the seller to the buyer by a route
involving sea transit under circumstances in which it is usual to insure, the seller must give such
notice to the buyer as may enable him to insure them during their sea transit and, if the seller fails
to do so, the goods shall be deemed to be at his risk during such sea transit.

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In Thomas Young &Sons Ltd v Hobson & Partners (1949) 65 TLR 365 the seller made a contract
with the carrier railway company that the goods were to be sent at the risk of the railway company,
which would then have taken extra precautions to safeguard them, at no extra cost. The goods
arrived in a damaged state, and the buyer’s refused to accept them. It was held that the contract the
sellers had made was not reasonable in the circumstances, and the buyers were entitled to refuse
to treat delivery to the railway company as delivery to themselves.

Risk where goods are delivered elsewhere than at place of sale

Section 34 stipulates where the seller of goods agrees to deliver them at his own risk at a place
other than that where they are when sold, the buyer must nevertheless, unless otherwise agreed,
take any risk of deterioration in the goods, necessarily incident to the course of transit.

Buyer's right of examining the goods

Section 35 (1) stipulates, where goods are delivered to the buyer which he has not previously
examined, he is not deemed to have accepted them, unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining whether they are in conformity with
the contract.

Section 35 (2)-unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he
is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the
purpose of ascertaining whether they are in conformity with the contract.

In Ruben Ltd v faire Bros and Co Ltd [1949] 1 KB 254 the buyer asked the seller to dispatch the
rolls of rubber material which were the subject of sale directly to the sub-buyer to whom the buyer
had agreed to sell them. The sub-buyer rejected the rubber on the ground that it did not correspond
with the sample. The seller claimed the price from the original buyer and succeeded, it being held
that the seller was, in effect, the buyer’s agent to deliver the goods to the sub-buyer, and that the
buyer’s actions in dealing with the goods in that way amounted to acceptance.

Acceptance

Section 36 states that the buyer is deemed to have accepted the goods when he intimates to the
seller that he has accepted them or, subject to the provisions of section 35, when the goods have
been delivered to him and he does any act in relation to them which is inconsistent with the
ownership of the seller or when, after the lapse of a reasonable time, he retains the goods without
intimating to the seller that he has rejected them.

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Buyer is not bound to return rejected goods

Section 37 states that unless otherwise agreed, where goods are delivered to the buyer and he
refuses to accept them, having the right so to do, he is not bound to return them to the seller but it
is sufficient if he intimates to the seller that he refuses to accept them.

Liability of buyer for neglecting or refusing delivery of goods

Section 38 provides, when the seller is ready and willing to deliver the goods and requests the
buyer to take delivery and the buyer does not within a reasonable time after request take delivery
of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take
delivery and also for a reasonable charge for the care and custody of the goods: provided that
nothing in this section shall affect the rights of the seller, where the neglect or refusal of the buyer
to take delivery amounts to a repudiation

Remedies of the Seller

Remedies available to the seller in contracts for the sale of goods may be divided into two
classes, real and personal. A real remedy is one which is available against the goods
themselves, permitting the seller to act directly against them. A personal remedy is one
which provides relief against a specific person, usually requiring the payment of money
representing either the price of the goods or damages.5

Seller’s Real Remedies

Seller’s Lien

Section 41 (1) states that subject to the provision of this Act, the unpaid seller of goods who is in
possession of them is entitled to retain possession of them until payment or tender of the price in
the following cases namely:-

(a) where the goods have been sold without any stipulation as to credit;
(b) where the goods have been sold on credit but the term of credit has expired;
(c) where the buyer becomes insolvent.

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Section 41 (2) further states that the seller may exercise his right of lien, notwithstanding that he
is in possession of the goods as agent or bailee or custodier for the buyer.

A lien is a right which the unpaid seller has to retain possession of the goods until payment is made
for them, notwithstanding that property in them may have passed to the buyer.

Lien after part delivery

Section 42 provides, where an unpaid seller has made part delivery of the goods, he may exercise
his right of lien or retention on the remainder, unless such part delivery has been made under such
circumstances as to show an agreement to waive the lien or right of retention.

Termination of Lien

Section 43 (1) states that the unpaid seller of goods loses his lien or right of retention thereon-

(a) when he delivers the goods to a carrier or other bailee or custodier for the purpose of
transmission to the buyer without reserving the right of disposal of the goods;
(b) when the buyer or his agent lawfully obtains possession of the goods;
(c) by waiver thereof.

Section 43 (2) states that the unpaid seller of goods having a lien or right of retention thereon does
not lose his lien or right of retention by reason only that he has obtained judgment or decree for
the price of the goods.

Right of stoppage in transitu

The right of the unpaid seller to stop goods in transit applies only where the buyer becomes
insolvent.

Section 44 states that subject to the provisions of this Act, when the buyer of goods becomes
insolvent, the unpaid seller who has parted with the possession of the goods has the right of
stopping them in transitu, that is to say, he may resume possession of the goods as long as they
are in course of transit and may retain them until payment or tender of the price

Seller’s Personal Remedies

Action for the price
The value of an action for the price is that this is a liquidated claim and there is no duty on the
seller to mitigate his or her loss.

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Section 49 (1) states that where, under a contract of sale, the property in the goods has passed to
the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms
of the contract, the seller may maintain an action against him for the price of the goods.

Section 49 (2) states that where, under a contract of sale, the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller
may maintain an action for the price, although the property in the goods has not passed and the
goods have not been appropriated to the contract

Damages for non-acceptance

Section 51 (2) provides that the measure of damages is the estimated loss directly and naturally
resulting, in the ordinary course of events, from the buyer’s breach of contract.

Remedies of the Buyer

Action for non-delivery

Section 51 (1), where the seller wrongfully neglects or refuses to deliver the goods to the buyer,
the buyer may maintain an action against the seller for damages for non-delivery.

Measure of damages

Section 51 (2), the measure of damages is the estimated loss directly and naturally resulting in the
ordinary course of events from the seller's breach of contract.

Section 51 (3), where there is an available market for the goods in question, the measure of
damages is, prima facie, to be ascertained by the difference between the contract price and the
market or current price of the goods at the time or times when they ought to have been delivered
or, if no time was fixed, then at the time of the refusal to deliver.

In Henry F Moss Ltd v Fisher [1921] 1 GLR 47 the seller sold to the buyer a machine, which
remained in the seller’s possession after the sale. The seller, who knew that the buyer was a dealer
and must have known that the machine, was bought for resale, then sold the machine to another
person. This rendered the buyer liable in damages to the sub-buyer for non-delivery. The seller
was obliged to indemnify the buyer against his liability to the sub-buyer, and was also obligated
to compensate the buyer for his loss of profit on the sub sale.

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Right to specific performance

Section 52. In any action for breach of contract to deliver specific or ascertained goods, the court
may, if it thinks fit, on the application of the plaintiff, by its judgment or decree, direct that the
contract shall be performed specifically without giving the defendant the option of retaining the
goods on payment of damages. The judgment or decree may be unconditional or upon such terms
and conditions as to damages, payment of the price and otherwise as to the court may seem just,
and the application by the plaintiff may be made at any time before judgment or decree.

In Behnke v Bede Shipping Co Ltd [1927] 1 KB 649 a contract for a ship which was of peculiar
and unique value to the buyer, in that it satisfied the regulations of Germany where the buyer
wished to register it, was ordered to be specifically performed.

Remedy for breach of warranty

Section 53 (1), where there is a breach of warranty by the seller or where the buyer elects or is
compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the
buyer is not, by reason only of such breach of warranty, entitled to reject the goods, but he may-

(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) maintain an action against the seller for damages for the breach of warranty.

Measure of damages

Section 53 (2) states that the measure of damages for breach of warranty is the estimated loss
directly and naturally resulting in the ordinary course of events from the breach of warranty.

Section 53 (3) states that in the case of breach of warranty of quality, such loss is, prima facie, the
difference between the value of the goods at the time of delivery to the buyer and the value they
would have had if they had answered to the warranty.

Section 53 (4) states that the fact that the buyer has set up the breach of warranty in diminution or
extinction of the price does not prevent him from maintaining an action for the same breach of
warranty if he has suffered further damage.

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Interest and damages

Section 54, states that nothing in this Act shall affect the right of the buyer or the seller to recover
interest or special damages in any case where, by law, interest or special damages may be
recoverable or to recover money paid where the consideration for payment of it has failed.

In Wallis, Son and Wells v Pratt [1910] 2 KB 1003, the sellers sold seed described as common
English sainfoin to the buyers. An exclusion clause in the agreement provided that the sellers gave
“no warranty express or implied as to growth, description, or any other matters”. The seed
delivered was sown, and was discovered after it came up to be giant sainfoin, a variety inferior to
that which had been agreed in the contract. The majority of the Court of Appeal held that the
buyers had accepted the seed and so were obliged to treat what would otherwise have been a breach
of condition as a warranty with the consequences that the sellers were protected by the exclusion
clause. The dissenting judgment of Fletcher Moulton LJ however was approved by the House of
Lords which granted the buyers’ appeal. It was held that although the buyers had to treat the breach
of condition as a breach of warranty so that damages would be the only remedy, the condition did
not change its nature so as to become a warranty. In consequence, the sellers could not rely on th
exclusion clause, an the buyers were entitled to damages.

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