Lecture Fundamentals of business law (7/e): Chapter 12 - M.L Barron

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Sale of goods
Chapter 12

Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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12-2
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Learning objectives
At the end of this chapter you should understand:
• the main statutory and common-law rules relevant to the sale of
goods
• the difference between specific, unascertained and future
goods
• the difference between contracts for the sale of goods and
agreements to sell
• the definition of a contract for sale of goods

• the rules relating to the passing of title in goods from the seller
to the buyer
• the application of the exceptions to the nemo dat rule
• when implied condition and warranties apply and the
consequences of their breach
• the remedies available to an unpaid seller or to a buyer if seller
is in breach of contract.

Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Introduction
• When goods are sold, there exists a
contract for the sale of goods.
• Both common law principles and
statutory provisions apply to these types
of contracts.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Relevant legislation
•

Each state has its own Act that regulates the sale of goods.
– All states but Victoria title them the Sale of Goods Act.

•

These acts apply to all types of entity from companies to
individuals and to all types of goods.

•

Requirements of the legislation:
– Contracts must involve an exchange of monetary
consideration for goods.
– Ownership of goods must pass to the buyer.
– Only covers contracts for sale of goods, not for work done or
materials supplied, otherwise the provisions of the relevant
Sale of Goods Act cannot be relied upon.
– In NT, WA and Tasmania, such contracts must be evidenced
in writing, elsewhere, maybe verbal, written or implied.

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Types of goods
The type of goods determines the point in time at
which ownership will pass to the buyer, along with
the 'risk' associated with those goods.

– Specific goods:
 in existence
 identifiable at time of contract.
– Unascertained goods:
 described
 not identifiable at time of contract.
– Future goods:
 to be acquired by the seller
 manufactured by seller after contract made.
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Distinction between a contract for the
sale of goods and an agreement to sell
• Sale:
Property or title in the goods passes
to the buyer at the time the contract
is made.
• Agreement to sell:
Title or property in goods is to pass
at some point in time after the
contract is made.
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Distinguishing contracts for the sale
of goods from other contracts
Covers goods
• The delivery of the goods is the main
substance of the agreement
not
• The work done or materials supplied—
involving skill and effort with goods resulting
from the effort.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Property in goods and possession
of goods
Property in goods:
– Ownership or title to goods, i.e.
risk of goods

Possession in goods:
– Custody or control of goods

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When property (and risk) in goods
passes, ownership passes
Type of goods—indicates when property or title in
goods passes to buyer.
•

Specific/ascertained
At time parties intend it to pass, considering:
– terms of contract
– conduct of parties
– circumstances.

•

Future/unascertained:
At time goods become identifiable and buyer has been
notified, or when the parties to the contract of sale intend
that it should pass.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Specific rules for determining
when property in goods passes
Rule 1

• Unconditional contract for specific goods:
– When contract is made

Rule 2
• Specific goods that need to be placed in a
deliverable state:
– When goods are in a deliverable state
– Buyer has been notified

Rule 3
• Specific goods that need weighing or measuring to
obtain their price:
– When goods have been weighed or measured
– Buyer has been notified
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Specific rules for determining when
property in goods passes (cont.)
Rule 4
• Goods purchased on approval:

– Buyer communicates approval or acceptance
of the goods to the seller.
or
– Buyer does not communicate approval or
acceptance to the seller but:

 keeps goods without notice of rejection
 on expiration of any specified time
 on expiration of reasonable time.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Specific rules for determining when
property in goods passes (cont.)
Rule 5(1)
• Future or unascertained:
– Goods in deliverable state
– Unconditionally appropriated
– Buyer assents

• Rule 5(2): Delivery of future or
unascertained goods to a carrier:
– When delivered to the carrier

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Romalpa clauses
• Retention of title clauses

– Buyer cannot claim title before full
payment has been received.
– Seeks to protect seller from buyer’s
failure to pay.
– Must be very carefully drafted to be
effective.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Seller without title
The common law principle
nemo dat quod non habet
means sellers of goods cannot
pass
better title than they actually
have.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Seller without title (cont.)
• Estoppel
• Sale by a mercantile agent

• Sale by a seller still in possession
• Sale by a buyer in possession (without title)
• Statutory and common law power of sale
• Sale in the market overt
• Sale under voidable title
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Estoppel
If the owner creates an impression
by word or conduct that another
party has the authority to sell the
goods, and a purchaser buys those
goods in good faith without
knowledge of the deficit in title, for
value, the purchaser will gain good
title.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Performance of a contract for the
sale of goods
• Rules regarding delivery

• Duty of seller to deliver:
– place of delivery
– time
– timing
– third person in possession
– expenses
– carrier
– delivery by sea
– quantity
– instalment deliveries

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Shipping contracts
CIF (Cost insurance freight)
• Price includes:
– cost of the goods
– insurance (seller organises)
– freight (seller organises).
FOB (Free on board)
• Price includes:
– cost of the goods
– delivery on board ship
– insurance (buyer organises)
– freight (buyer organises).
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Rules regarding acceptance
• Seller notified
• Reasonable time
• Conduct of buyer
• Rejection

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Rules regarding payment
• Pay correct amount on delivery:
–

contracted price
or

–

reasonable price

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Relationship between the sales of
goods Acts and the ACL
• The sale of goods Acts imply certain conditions and
warranties into contracts for sale of goods which
must be met by the seller.
• Under the state sale of goods Acts the parties can
agree to exclude these implied terms and conditions.
• The Australian Consumer Law is federal law which
applies across Australia and provides for nonexcludable ‘guarantees’ by the seller where the
buyer is a ‘consumer’ (discussed in Chapter 13).
• The Australian Consumer Law takes precedence
over the sale of goods Acts where both apply.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Relationship between the sales of
goods Acts and the ACL (cont.)
• The guarantees are very similar to the
implied conditions and warranties provided in
the sale of goods Acts.
• Therefore, the sale of goods Acts will
continue to apply to sale of goods not

regulated by the Australian Consumer Law,
e.g. business to business sales where the
goods are purchased for resupply—namely
where the buyer does not fall into the
classification of a ‘consumer’.
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Implied conditions
• Breach of an implied condition will terminate the
contract and allow damages to be claimed.
• As to title, it is implied that the seller has the right to
sell the goods to pass good title to the buyer the
seller must possess good title.
• Correspondence with description:
– Goods must correspond with the description
where goods have been sold by description.
• Merchantable quality:
– Goods must be fit for a purpose for which goods
of that description are normally used, unless an
examination by the buyer should have revealed
any defect.
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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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Implied conditions (cont.)
• Fitness for purpose:
– Where the buyer buys goods in reliance upon the
seller’s skill, after purpose of good is known to seller

• Sale by sample:
– The quality of the bulk of goods supplied must
correspond with the quality of the sample supplied
– The buyer must have a reasonable opportunity to
compare the bulk of the goods to the sample.
– The goods must be free of defect rendering them
unmerchantable.

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PPTs to accompany Barron, Fundamentals of Business Law 7Rev

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