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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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References

Bennion, F 2000, The global method: statutory interpretation in the common law world, viewed 29 January 2013, http://www.francisbennion.com

Carter, JW 2003, Party autonomy and statutory regulation: sale of goods, Journal of Contract Law, vol. 6, viewed 29 January 2013, 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, Oxford University Comparative Law Forum 2003, viewed 12 May 2005, http://www.ouclf.iuscomp.org

Rodriguez, A 2002, Lex Mercatoria, Retsvidenskabeligt Tidsskrift, viewed 29 January 2013, http://www.rettid.dk/artikler/20020046.pdf

Schwartz, A 2002, Contract theories and theories of contract regulation, viewed 12 May 2005, http://esnie.u-paris10.fr/pdf/textes_2002/Schwartz_indus.pdf

Turner, C & Trone, J 2013, Australian commercial law, 29th edn, Thomson Reuters, Sydney.

Ziegel, JS 1993, Commentary on party autonomy and statutory regulation: sale of goods, Journal of Contract Law, vol. 6, viewed 29 January 2013, http://www.cisg.law.pace.edu/cisg/biblio/ziegel4.html