PART 5 – SPECIAL CONTRACTUAL RELATIONSHIPS Chapter 22 – The Sale of Goods Prepared by Douglas H. Peterson, University of Alberta Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited THE SALE OF GOODS Codification of the Law Nature of a Contract of Sale Contractual Duties of the Seller Caveat Emptor Contractual Duties of the Buyer Remedies of the Buyer Remedies of the Seller Copyright © 2004 McGraw-Hill Ryerson Limited

CODIFICATION OF THE LAW Various common law provisions developed over several years 1893 Sales of Goods Act Adopted in Canada and other commonwealth countries Similar legislation in the United States Copyright © 2004 McGraw-Hill Ryerson Limited

NATURE OF A CONTRACT OF SALE Statute embodies case law and complements normal rules of contract law Applies to all situations where goods are bought and sold Intended to fill the gaps in the terms of a contract Terms in contract prevail over provisions of Act Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited APPLICATION OF THE ACT Applies only to the sale of goods Not apply to land Not apply to buildings Form part of the land Not apply to money, intangible goods Shares, bonds, negotiable instruments, patents, trademarks Not apply to services Mixed contracts – look at what is the substantial portion of the contract Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited APPLICATION OF THE ACT Property must be transferred for monetary consideration Act does not apply to: Barter or exchange of goods Consignment No special form required Written, oral, under seal Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited APPLICATION OF THE ACT Statute of Frauds Written requirement when sale of goods valued at more than a particular amount Act can be satisfied by: Buyer accepts part of the goods Buyer makes a part payment Buyer gives something in earnest Each act must relate to the particular contract of sale Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited TRANSFER OF TITLE Sale of Goods Act represents an agreement to transfer property in the goods to the buyer “Property in the goods” Right of ownership in the goods Title One may part with possession, yet retain ownership Parties can determine when title passes Risk of loss generally follows title Person with title bears the loss Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited TRANSFER OF TITLE Five Rules Exist for the passing of property Significance: loss is with the one who has title Onus on one with title to ensure goods Copyright © 2004 McGraw-Hill Ryerson Limited

PASSING OF PROPERTY – 5 RULES Rule 1 – Goods in Deliverable State Nature Unconditional sale Specific goods In deliverable state Time of Transfer When contract is made Irrelevant that price or delivery is postponed Copyright © 2004 McGraw-Hill Ryerson Limited

PASSING OF PROPERTY – 5 RULES Rule 2 – Goods to be put in Deliverable State Nature Seller required to do something to put goods into deliverable state Time of Transfer Seller has done the required things Notice given to buyer Copyright © 2004 McGraw-Hill Ryerson Limited

PASSING OF PROPERTY – 5 RULES Rule 3 – Goods to be weighed, measured, tested Nature Seller required to do some act to ascertain price of specific goods Time of Transfer Act or thing has been done Notice given to buyer Copyright © 2004 McGraw-Hill Ryerson Limited

PASSING OF PROPERTY – 5 RULES Rule 4 – Future Goods sold by Description Nature Goods not yet produced Ordered by description Time of Transfer Produced and in a deliverable state Unconditionally appropriated to the contract By buyer with assent of seller; or By Seller with assent of buyer Copyright © 2004 McGraw-Hill Ryerson Limited

PASSING OF PROPERTY – 5 RULES Rule 5 – Goods on Approval Nature Specific goods “on approval” or with return privileges Time of Transfer Buyer does something to signify acceptance or approval of goods or adopts the contract Lapsing of a reasonable period of time or a fixed period of time Copyright © 2004 McGraw-Hill Ryerson Limited

Deliverable Condition SALE OF GOODS PASSAGE OF TITLE (AND RISK) UNDER STATUTE REQUIREMENT BEFORE TITLE PASSES TO BUYER CONDITION SPECIFIC GOODS Deliverable Condition None: Title Passes When Contract Made SPECIFIC GOODS Something to Be Done to Put in Deliverable State Notice Given to Buyer That Work Done and Goods in Deliverable State Copyright © 2004 by McGraw-Hill Ryerson Limited. SALE AGREEMENT SPECIFIC GOODS Deliverable State Required Measurement, Testing, or Weighing to Ascertain Price Notice Given to Buyer That Seller Has Weighed, Measured, and Tested the Goods and Ascertained Price (1) Buyer Signifies Approval or Does Anything to Adopt Transaction (2) Buyer Retains the Goods Without Giving Notice of Rejection Within Time Fixed, or if No Time Fixed, Beyond a Reasonable Time SPECIFIC GOODS Sold on Approval, Sale, or Return Copyright © 2004 McGraw-Hill Ryerson Limited Cont’d 26

PASSAGE OF TITLE (AND RISK) UNDER STATUTE, cont’d SALE OF GOODS PASSAGE OF TITLE (AND RISK) UNDER STATUTE, cont’d REQUIREMENT BEFORE TITLE PASSES TO BUYER CONDITION (1) Goods Produced and in a Deliverable State and Unconditionally Appropriated to the Contract (2) Goods Produced and Delivered to a Carrier or Other Bailee for Purpose of Delivery to Buyer Where Seller Does Not Reserve Right of Disposal Copyright © 2004 by McGraw-Hill Ryerson Limited. GOODS TO BE PRODUCED Sold by Description AGREEMENT TO SELL Copyright © 2004 McGraw-Hill Ryerson Limited 27

CONTRACTUAL DUTIES OF THE SELLER Parties can contract out of sale of goods act Purpose of Sales of Goods Act is to imply reasonable terms when they are inadvertently left out Terms of a sales of goods contract are called conditions or warranties Some terms are conditions Some terms are warranties Significance is remedy available whether breach of condition or breach of warranty Copyright © 2004 McGraw-Hill Ryerson Limited

CONDITIONS AND WARRANTIES An essential or fundamental term in a contract Breach allows injured party to Ignore it and accept the goods Avoid the contract Consider themselves no longer bound to the contract Copyright © 2004 McGraw-Hill Ryerson Limited

CONDITIONS AND WARRANTIES Warranty A minor term in a contract Breach allows injured party to: Damages but not rescission Copyright © 2004 McGraw-Hill Ryerson Limited

CONTRACTUAL DUTIES OF THE SELLER Implied Terms Seller’s Title Nature of the goods Payment and Delivery Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited SELLER’S TITLE Condition that seller has title to sell Cannot sell that you do not own Implied warranty Goods are free from charges or encumbrances Buyer will have quiet possession of the property No one will challenge buyer’s title to goods Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited NATURE OF THE GOODS Description – goods sold by description must match the description “Description” refers to identity (not quality) of goods May be sale by description even if buyer picks item Is sold by catalogue must match description in catalogue Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited NATURE OF THE GOODS Sample – goods sold by sample must match the sample May be sold by sample and description Must match quality of sample Cannot be lower quality Buyer is allowed a reasonable opportunity to compare received goods with sample Buyer responsible for reasonably discoverable defects Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited CAVEAT EMPTOR “Let the buyer beware” Common law principle that buyer through examination of goods can determine the quality and fitness for purpose purchased Sales of Goods Act – imposes minimum obligations on the seller Copyright © 2004 McGraw-Hill Ryerson Limited

FIT FOR INTENDED PURPOSE Condition - Goods must be fit for intended purpose Requirements Seller in the business of selling such goods Buyer makes purpose of purchase known to seller Buyer relies upon seller’s skill and judgment Exception: buyer requests goods by patent or trade name Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited MERCHANTABLE QUALITY Condition - Goods must be of a merchantable quality Breach if reasonable buyer would not pay full price Merchantability also includes packaging and labeling Applicable only if seller normally deals in goods No liability for reasonably discoverable defects Buyer does not have to inspect but if they do seller not liable for reasonably discoverable defects Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited DELIVERY Time of delivery is a condition If specified Must be delivered on time If not specified Within a reasonable period of time Failure to deliver Buyer may reject them if delivery is late Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited DELIVERY Quantity Delivery of proper quantity is a condition Buyer may reject Buyer may accepts lesser amount and sue for damages on difference Pay for lesser amount at contract rate Buyer does not have to accept excess quantity If accept must pay for extra at contract rate Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited CONSUMER PROTECTION Some jurisdictions do not allow seller to exclude implied conditions and warranties of the act Verbal warranties and conditions expressed at time of sale not included in written agreement may also be binding on seller “Cooling-off” period – allows consumer to avoid contract by giving notice within certain period of time Door-to-door sales Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited DELIVERY Place Usually specified in contract If not specified, seller must have goods available and ready for delivery at its place of business If goods stored at place of storage Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited DELIVERY Delivery by installments One delivery on an installment basis is not usually grounds for repudiation of the contract unless: Amount of delivery was significant amount of the whole contract; and High degree of probability that next delivery would also be deficient Copyright © 2004 McGraw-Hill Ryerson Limited

CONTRACTUAL DUTIES OF THE BUYER Take delivery Pay for goods Payment is a warranty Payment and delivery are concurrent conditions, unless the parties have agreed otherwise Buyer must pay price on delivery Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited REMEDIES OF THE BUYER Rescission Breach of condition Repudiate contract and reject the goods Right to refuse payment If payment made may sue for recovery Damages Breach of warranty Specific Performance If goods have unique or special attribute and cannot be readily obtained elsewhere Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited REMEDIES OF THE SELLER Rights may be exercised against Buyer personally Goods themselves Lien Not obliged to deliver goods unless payment has been made or credit terms granted Seller may claim lien on goods Cash sale or credit sale Buyer becomes insolvent Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited REMEDIES OF THE SELLER Action for the Price If goods delivered and title has passed may sue for price of goods If delivery is refused Damages For non-acceptance Resell goods and sue buyer for loss incurred Place seller in same position had buyer performed Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited REMEDIES OF THE SELLER Retention of Deposit Retain deposit as liquidated damages Also acts as evidence of contract and avoids the Statute of Frauds Deposit cannot be a penalty clause Stoppage in Transit Order carrier to stop delivery If buyer has become insolvent Seller has to be careful of wrongful stoppage Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited REMEDIES OF THE SELLER Recovery of Goods Bankruptcy Act Allows recovery of unsold goods in possession of bankrupt debtor Goods must: Unsold In possession of buyer Identifiable Same condition as when delivered Resale Stoppage in transit is a repossession Seller may resell goods Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited SUMMARY Law of contract applies to sales of goods Sales of Goods Act sets out special default rules Act applies to: Sale agreement – specific goods Agreement to sell – future goods Copyright © 2004 McGraw-Hill Ryerson Limited

Copyright © 2004 McGraw-Hill Ryerson Limited SUMMARY In absence of agreement, Act determines Passage of title 5 Rules Relevance of who bears risk of loss Implied Conditions Fit for purpose Merchantable quality Seller and Buyer’s Remedies Copyright © 2004 McGraw-Hill Ryerson Limited