Summary Guide for Chapter 11

Foundations of Australian Law

Fourth Edition

Callie Harvey

ISBN: 978-0-7346-1191-8 (print) ISBN: 978-0-7346-2057-6 (ePDF)

Foundations of Australian Law, Fourth Edition

2 Copyright © 2013 Tilde Publishing and Distribution

Chapter 11 – Sale of goods

Answer guide to questions on the sale of goods In your introduction identify the relevant legislation.

State/Territory Legislation

NSW Sale of Goods Act 1923

VIC Goods Act 1958

QLD Sale of Goods Act 1896

SA Sale of Goods Act 1895

WA Sale of Goods Act 1895

TAS Sale of Goods Act 1896

ACT Sale of Goods Act 1954

NT Sale of Goods Act 1972

Refer to the text book for particular sections of the Act to answer problems in particular states and territories.

It is important when answering a question relating to the sale of goods that you identify the types of goods that are the subject matter of the sale contracts.

existing goods - owned and possessed by the seller at the time that the contract was made;

future goods - manufactured or acquired by the seller after the contract of sale has been made;

specific goods - goods agreed upon and identified at the time that the contract of sale is made;

unascertained goods – goods that cannot be identified with any certainty or agreed upon at the time the contract of sale was made.

If the problem addresses a contract of sale of goods it is important to identify whether it includes an executed contract and an executory contract.

An executed contract:

- exists when actual sale of goods occurs where the ownership of the goods is transferred to the buyer at the time the contract is made;

- gives the seller the right to sue the buyer for the price of the goods;

- gives the buyer the right to claim damages against the seller if he or she does not transfer the goods, and for interference with the goods in other words, if the seller wrongly disposes the goods;

Summary Guide

Copyright © 2013 Tilde Publishing and Distribution 3

- imposes that after the sale, the buyer bears the risk of loss to the goods.

Executory contract:

- arises where an agreement to sell involving unascertained goods is formed;

- does not involve the transfer of the goods at the time the contract is made but at some future time, or the transfer is dependent upon a condition(s) in the contract;

- may involve an agreement to sell which becomes a sale when the goods are delivered or the condition(s) is fulfilled;

- imposes that the risk in the goods remains with the seller because ownership of the goods has not been transferred to the buyer;

- where the buyer defaults, the seller can sue the buyer and vice versa;

- where buyer defaults the seller and the buyer can sue for damages.

If the problem asks you to explain when ownership has passed from the seller to the buyer you will need to apply a number of rules:

When a good is bought, ownership passes from the seller to the buyer and if the goods are damaged before they have passed to the buyer, the loss suffered is endured by the seller. The general rule is that the seller endures damage or loss suffered to the goods before they are passed to the buyer unless an agreement to the contrary has been made. The Sale of Goods Acts have also provided the following rules as a guide for judges:

Rule 1 – Unconditional Contract for Specific Goods - where an unconditional contract for the sale of specific goods exists at a deliverable state, ownership passes to the buyer at the point that the contract is made.

Rule 2 – Conditional Contracts for Specific Goods - where a condition is included in the contract of sale for specific goods requiring the seller to perform an act to bring the goods to a deliverable state, ownership does not pass to the buyer until this condition is fulfilled and the buyer receives notice of it.

Rule 3 – Contracts for specific goods that require pricing - where in a contract of sale of specific goods the seller must perform an additional act in order to determine the price of the goods, ownership does not pass until this act has been performed and the buyer receives notice of it.

Rule 4 – Contract for goods on approval - where the goods are delivered ‘on approval’ or ‘on sale or return’’ ownership passes when:

- the buyer expressly or impliedly by conduct accepts the goods or

Foundations of Australian Law, Fourth Edition

4 Copyright © 2013 Tilde Publishing and Distribution

- the buyer retains the goods beyond the agreed ‘approval time’ or beyond a period of time that is considered to be reasonable or

- the buyer performs an act, which adopt the transaction such as lends the goods to a third party.

Rule 5(1) – Contract for unascertained or future goods by description Pignataro v Gilroy [1919] 1 KB 459. Where unascertained goods are sold by ‘by description’ such as through an advertisement, ownership of the goods passes when:

- the goods are said to be at a deliverable state or

- they are unconditionally appropriated (chosen) by one contracting party with the express or implied assent of the other.

Rule 5(2) Delivery to the buyer or carrier without a right of disposal - where the seller delivers ascertained goods to the buyer or an authorised representative of the buyer, ownership passes at the time the delivery takes place: Wardar’s Import and Export) Co. Ltd v Norwood & Sons Ltd [1968] 2 QB 663

If the problem asks you to explain the right of disposal of goods you may need to examine:

Romalpa clause used where the sellers of goods included this clause in the contract to indicate that the legal ownership of the goods remain with the seller until such time as the buyer has made a full payment for the goods.

The Sale of Goods Acts, imply that the seller is said to have reserved the right of disposal where the goods are shipped by sea through the bill of lading or where payment has been made through a negotiable instrument.

Where a problem raises the issue of risk of passing goods- the general rule is where the goods are lost, damaged, deteriorated or destroyed the risk passes with the property.

Where a problem raises the issue as to whether goo title can be passed by a person who did not own the goods in the first place then the nemo dat rules should be applied.

Nemo dat rules - A buyer receives the same rights to the goods as the ones possessed by the seller. This is called the nemo dat rule the transferee (buyer) cannot receive a better title than the transferor (seller) had.

However, it is important to note that there are some exceptions to the nemo dat rule:

Special powers of sale - pawnbrokers, sheriffs, innkeepers or bailiffs by court order.

Market overt - where goods are bought in a public market that is usually regulated by local council.

Summary Guide

Copyright © 2013 Tilde Publishing and Distribution 5

Estoppel may be used in a situation where a person with legal title to goods have been wrongfully sold by a third party to an innocent buyer.

Sale under a voidable title under common and statute law a seller who possesses goods under a voidable title at the time of sale, he or she may pass on good title to the buyer if the goods had been bought in good faith and were not notified of the original sellers defect in the title. Seller is in possession of goods but sells them to a third party: Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd[1965] 112 CLR 192.

Buyer in possession where the buyer acquires possession of the goods without title and then sells them to a third party.

A factor or mercantile agent is given possession of the goods or title documents from the owner with the purpose for the consignment of sale.

If the problem addressed issues with the terms of the contract of sale it is important to consider possible implied terms

Implied conditions as to title without title the seller cannot transfer ownership to the buyer and thus total failure of consideration: Rowland v Divall [1923] 2 KB 500.

Implied conditions as to the sale of the goods by description - an obligation on the seller and the manufacturer where the sale was made in the course of business. The following criteria must be satisfied where goods are sold with sample and description:

- most of the goods must correspond with the sample;

- the buyer must be given the opportunity to compare the sample with the goods;

- the goods must not have any defect that would not be found upon examination of the goods.

Implied condition as to fitness for purpose - the buyer must inform the seller expressly or impliedly of the particular purpose for which the goods are to be used and relies on the advice given by the seller then, the goods must be ‘reasonably fit for the purpose’ for which they are bought: Grant v Australian Knitting Mills.

Section 71(2) of the Trade Practices Act 1974 and state legislation places obligations upon a seller or manufacturer who supplies the buyer during the course of business that the goods are reasonably fit for any purpose that the goods are to be used even where the goods are not to be used for their common purpose.

Implied conditions as to merchantable quality in other words that the good is reasonable for the purpose described.

- Merchantable quality of goods bought by description – the description matches the goods;

Foundations of Australian Law, Fourth Edition

6 Copyright © 2013 Tilde Publishing and Distribution

- Merchantable quality of goods bought by sample most of the goods must correspond with the sample quality and satisfy the following criteria:

the buyer must have a reasonable opportunity to judge the sample against the goods delivered;

the goods must not have any defect that is not possible to detect upon examination of the sample.

If a contracting party breaches a condition (usually the defendant) the plaintiff has the option to terminate the contract by not accepting the goods being delivered and sue for damages.

Implied warranty quiet possession - the buyer is to enjoy a quiet and undisturbed possession of the goods.

Implied warranty goods are free from any charge or encumbrances thus, the goods are free from any charge or encumbrance in other words there is no third party unknown to the buyer that has a financial interest in the goods.

If a contracting party (usually the defendant) breaches the warranty, the plaintiff can only sue for damages but they do not have the right to terminate the contract.

Where the problem deals with the types of rights that an unpaid seller where the goods have not passed to the buyer, consider the following:

Right to lien;

Right to withhold goods;

Right to stop goods in transit;

Right to re-sell the goods.

Where the problem deals with the types of rights that an unpaid seller where the goods have passed to the buyer, consider the following:

The seller has a right to bring an action against the buyer for the price of the goods.

If the unpaid seller chooses to sue for the price of the goods he or she cannot claim loss of profit.

If the seller has already resold the goods they can claim damages for the difference between the contract price and the actual price the goods were sold.

The seller cannot sue the buyer for the full price of the goods because he or she can no longer deliver the goods to the buyer as they are already re-sold.

Where the problem deals with the types of rights that buyer has consider the following:

Damages for non-delivery of goods or breach of warranty of quality;

Summary Guide

Copyright © 2013 Tilde Publishing and Distribution 7

Specific performance; and

Recision.