1: Sale of Goods. Background

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Juniper Boyd
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1 Background 1: Sale of Goods The sale of goods is regulated by the Goods Act 1958 (Vic) Also regulated in relation to transactions by a corporation to a consumer, by the Competition and Consumer Act 2010 (Cth) (CCA). Goods Act mostly codifies the common law relating to the sale of goods Not a perfect code b/c common law has some operation under certain provisions All states sale of goods acts in Aus are same Based on UK Sale of Goods Act 1893 UK court decisions relevant to interpretation of Aus legislation Goods Act and CCA Goods Act covers disputes which aren t covered in Vic law CCA applies anywhere within Aus limited in operation to corporations under certain circumstances CCA covers implied terms, unconscionability, unfair terms etc in consumer contracts Act applies to all contracts for sale of goods where basic definitional issues are concerned Why Governed by the freedom of contract General assumption that both buyers and sellers had perfect info But this is rarely true Nor is it true that buyers and sellers have equal bargaining power or that every agreement will account for every relevant issue Therefore protection in place to protect basic expectations of contracting parties Goods Act application There must be: 1. There must be goods 2. Seller must transfers/ agree to transfer the property (ownership) in goods to the buyer 3. The transfer must be done for a money consideration (the price) Section 6 of the Goods Act Sale and agreement to sell (1) 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 one part owner and another (2) A contract of sale may be absolute or conditional (3) 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 (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 What are goods? Section 3 Goods Act provides that Goods include all chattels personal (describes physical objects), other than things in action and money and includes emblements and fixtures that are to be severed from the land. Specific Goods = identified and agreed upon at the time the contract of sale is made Unascertained goods = Not defined but are identified in accordance with contract after sale is made 1

2 Future Goods = Goods to be manufactured or acquired by the seller after the making of contract What isn t included = A gift, transfer by deed, barter exchange, contract for work and incidental materials Need to expand the concept of goods Case which illustrates this problem is the St Albans case St Albans City and District Council v International Computers Ltd (1996) 4 All ER 48 Facts: there was a contract for a computer system A fault in the software incurred costs for the buyer after installation Question; whether the software constituted goods under the Goods Act? Held: the definition of goods as all personal chattels other than things in action clearly excluded computer programs but included computer disks yet the two go together the transfer of the computer program did not pass properly but it was an essential part of the agreement. The court had regard to the obiter remarks of Lord Pearson in Trollope & Colls Ltd v Northwest Metropolitan Regional Hospital Board (1973) 1 WLR 601 An unexpressed term can be implied if and only if the court finds that the parties must have intended that the term form part of their contract it must have been a term that went without saying Sir Glidewell in St Albans resolved the issue by implying that the parties must have intended that the software under the agreement should have worked properly. Thus the relevant Sale of Goods Act applied. In other words the workability of the computers depended on the workability of the software, so even though the software was not goods a defect in the software meant that there was a defect in the computers thereby causing the Sale of Goods legislation to apply. Telstra Corporation v Hurstville City Council (2000) 105 FCR 322 Question; whether electro-magnetic signals passing through cables were subjected to a levy. Court was influenced by HCA in Adams v Rau (1931); followed by HCA in Mutual pools (1992). The item in question was not created for sale as a commodity but to enable employers to have the benefit of services given in the course of a skilled vocation Held: NO - provision of information = provision of a service - not provision of goods In Telstra providing information was a service the electro-magnetic signals which were supporting to this were not goods What is a contract of sale? A contract of sale is a contract where the seller transfers or agrees to transfer the property in goods to the buyer in exchange for money (the price). See S6 Goods Act Can be oral/writing In a sale the property in goods transfers at the time of the transaction In an agreement for a sale the property transfers in the future or is conditional Agreement for Sale In an agreement for sale the completion of the transaction depends on some event occurring. Example Jansz v GMB Imports Pty Ltd [1979] VR 581 the event was the ascertainment of tobacco for shipment to the buyer The relevant transaction was for tobacco but until the specific lot of tobacco had been identified by the seller, there was no ascertainment The buyer had to give a specific order for tobacco to the seller and the seller had to then together that order Until that time the agreement was an agreement for sale Once the property in the goods is transferred it becomes a sale 2

3 Under S3 of the Goods Act a Contract of sale includes both an agreement to sell as well as a sale. However the difference between the two can affect the type of remedies that are available In a sale, property has passed, and the seller can sue for the price In an agreement to sell, default by either party might result in damages Future Goods Future goods are goods to be manufactured or acquired by the seller after the making of the contract of sale. S3 Goods Act What isn t covered by the SoG Gift isn t covered Transfer by deed isn t covered Barter exchange isn t covered A contract for work and incidental materials is not covered by the Goods Act However where the goods used are defective the Goods Act might play a role The difference between a contract for sale and a contract for work affects the relationship between the parties and hence the remedies. Why is the distinction important? The difference can affect when the property passes. In a contract for work and materials property only passes once the work has been done. In a contract for sale the remedy can be the goods. But in a contract for work the remedy would be damages Contract for Work A contract for work and materials involves the paying for skill and effort, the goods produced being the expression or results of that skill and effort Profession Ardagh There is a difference of view as to the correct tests to be applied. Where it is unclear from the form of the contract, the courts will have regard to the substance of the contract Robinson v Graves [1935] 1 KB 579. In Lee v Griffin(1861) 1 B&S 272 the Court held that if a contract results in the sale of chattel then it is a contract for the sale of goods. (Page 133) Lee concerned a contract for the manufacture of dentures. Essentially, B contracted to make dentures for A. But A died after the dentures were made and after rejecting an appointment for a fitting. B sued A s estate. Held: that if the contract results in the sale of a chattel, it should be construed as a sale of goods Sale of dentures by dentist to patient was held to be sale of goods Robinson v Graves If like Lee v Griffin substance of the contract was the production of something to be sold by the dentist to the dentist s customer sale of good Substance of the contract Test But if substance of contract skill and labour have to be exercised for production of the article and that it is only supporting to that there will pass from the artist to his client some materials in addition to the skill involved in the production of the portrait doesn t change the result as the substance of the contract is the skill and experience of the artist in producing the picture (page 134) Applying the Tests Applying the Lee and Robinson tests can result in different results Robinson test seen as illogical and unsatisfactory Deta Nominees v Viscount Plastics [1979] VR 167 Facts: Deta contracted with Viscount for the manufacture of a furniture component Under the contract property in the component was to pass when it was made and when enough drawers were delivered to Deta 3

4 Viscount refused to supply the components and abandoned other aspects of the agreement Fullagar J criticized the substance of the contract test Held: Sale of goods, subject matter of contract was sale and delivery of chattel Why did Fullagar J criticize the substance of the contract test? Suggested that the point was not that the drawers were manufactured as a work of art, rather that there be the supply of the tool for commercial furniture supply BASICALLY; the more artistic the endeavor the more likely it is that the contracting party is paying for work with goods being the result rather than just paying for goods. The less artistic ie. Just functional, more likely it is a SOG contract Toby Constructions Products v Computa Bar Sales [1983] 2 NSWLR 48 A mass produced computer system comprising both hardware and software was goods within the meaning of the then TPA and the NSW Sale of Goods Act. But it was an open question as to whether software could be goods. Rogers J applied the substance of the contract test swayed by the fact that the system was mass-produced and not a one-off painting. Pacific Film v Federal Commissioner of Taxation (1970) 121 CLR 154 per Barwick CJ at 160: Whilst one cannot derive any uniformity of application of principle from these and other like cases depends upon the substance of the arrangements between the parties and is not to be resolved by any single criterion. However, in this connection the circumstance that the services are to produce a chattel in which, but for the agreement and what is done under it, the person to whom it is to be delivered would have had no property is a most potent circumstance. Goods Four categories - specific - unascertained - ascertained - future 1. Specific Goods 2: Transfer of Property 4

5 - Goods are identified and agreed upon at the time a contract of sale is made - These are the unique goods subject to the contract - In the case of specific goods, property will pass when the contract for the sale of goods is made unless the parties decree otherwise - Specific goods can be future goods - S22 Goods Act : Property transfer when parties intend it to 2. Unascertained Goods - Goods Act doesn t define unascertained goods - Means goods which are not agreed on, specific or identified, at the time of making the contract - These can be generic good or good sold ex bulk - It is not possible to transfer property in unascertained goods - You cannot acquire title until it is known what the title relates to 3. Ascertained Goods - ascertained goods are those identified in accordance with the agreement after the time a contract of sale is made - per Atkin LJ in Re Wait (1927) 1 Ch These are not specific goods because they are only identified after the contract is made - For example, the sale of wheat from a silo once it is loaded into a container then it is ascertained - So where the goods are in bulk ascertainment does not occur until the goods are separated from the bulk - Stapylton Fletched (1995) 1 All ER 192 ascertainment occurred because the customer s wine was separated form the common stock and kept in another part of the warehouse 4. Future Goods - future goods are goods to be manufactured or acquired by the seller after the making of the contract of sale - S3 Goods Act - This includes goods not yet in existence as well as goods existing but not yet acquired by the seller - Where a contract for sale deals with future goods it is an agreement to sell goods s10 Goods Act - Without property in the goods the seller cannot transfer title - After the goods are ascertained the property is transferred as the parties intend Akron Tyres v Kittson (1951) 82 CLR 477 Why classify goods? The nature of goods determines when property passes This affects remedies and priorities The intent of the parties is the objective intention look to terms of contract and circumstances Note that the rule that property cannot pass from unascertained goods is a fundamental rule of property Goldcorp Exchange Ltd (1995) 1 AC 74 It makes no difference what the parties intended if what they intend is impossible: as in the case with an immediate transfer of title to goods whose identity is not yet known The Goods Act also deals with the transfer of property S of the Goods Act deals with the transfer of property Property in the Act generally means property in goods The terms title and property can be used interchangeable but can have different means in different contexts Why is it important? Risk prima facie passes with property A buyer can lose the right to reject goods once property passes The party with property can sue for damages to the goods If the buyer has property in the goods he/she can pass title 5

6 The seller can sue for the price only after property has passed Style Finish v Abloy (1994) 2 Qd R 203 Remember, regardless of the intent of the parties property cannot pass in unascertained goods see s21 Goods Act Jansz v GMB Imports (1979) VR 581 When there is a contract of sale of unascertained goods no property (ownership) of the goods is transferred to the buyer unless and until the goods are ascertained Until the goods have been identified, ownership of them cannot pass to the buyer Hughes v ACCC (2004) FCAFC 319 an injunction on the sale of contraceptives was not breached by an order being placed on the internet why not? Because the order, even with payment, did not attach to a specific batch of goods S22 Goods Act This provision makes the intent of the parties a paramount concern in determining when property is to pass Regard must be had to the terms of the contract, the circumstances of the case and the conduct of the parties If intent can be derived from these factors then it is not necessary to apply the statutory presumptions S23 provides five presumptions that apply in the absence of evidence as to intent These presumptions only apply if intent cannot be ascertained However: conduct that might evidence intention includes - Postponing payment or delivery - Agreement on transfer of risk - Obligation on one of the parties to insure - If contract for sale of goods and land property in goods usually passes when land does Transfer of property presumptions where no contrary intention appears Specific goods in a deliverable state Rule 1 When 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, is or are postponed Preconditions to the application of the rule are: a) Unconditional contract b) For the sale of specific goods c) In a deliverable state In such circumstances, property passes d) when the contract is made e) irrespective of the time for payment of delivery Unconditional contract: means that the sale contract is not subject to any condition suspensive of the passing of property McPherson, Thom, Kettle & Co v Dench Bros (1921) VLR 437 If the contract is conditional, property will not pass when the contract is made but only when the contract is fulfilled McPherson; Sale of heifer (cow) by auction. Heifer disappeared before delivery. The seller sued for the price. The conditions of sale meant that property passed after the hammer fell at the auction Page Clause 1: All lots shall be at risk of purchaser after the fall of the hammer This activated Rule 1 Clause 2: did not alter clause 1 Clause 2 did not suspend Clause 1, it could resolve a particular scenario Ordinarily risk passes with property Terms Unconditional Contract: the sale contract is not subject to any condition suspensive of the passing of property 6

7 Specific Goods: Goods identified and agreed upon at the time the contract of sale is made Deliverable state: When the buyer would under contract be bound to take delivery of them When the contract is made: where the rule applies, property in specific goods will pass at the time the contract is made. Important in jurisdictions which provide that the buyer loses right to reject the godos once property in the goods has passed Contrary intent: You can contract out of passing property when the contract is made; ie pass on delivery or payment Specific Goods not in a deliverable state Rule 2 When 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 is done and the buyer has notice thereof Prerequisites for the operation of this rule are: a) Contract for the sale of specific goods. Specific goods are considered elsewhere; b) The seller is bound to do something to the goods for the purpose of putting them into a deliverable state In such circumstances: c) Property does not pass until such thing is done and d) The buyer has notice thereof Specific goods Seller bound to do something to the goods to put them in a deliverable state Bound: meaning contractually bound Worcester Works (1972) 1 QB 210 Deliverable state means being in such a state wherein the buyer would be bound under contract to take delivery of them Property passes when the thing is done and the buyer has notice Notice actual or constructive? Constructive notice might be insufficient Worcester Wallace v Safeway Caravan Mart (1975) 3 QL 224 Caravans purchased on the condition that the seller install a shower and deliver the caravan The caravans were stolen before the work was done The caravans were not in a deliverable state therefore the property and the risk had not passed The caravans would actually have had to have been both fixed and delivered before it would have been in a deliverable state Specific goods to be weighed, measured or tested to ascertain price Rule 3 When 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 is done and the buyer has notice thereof The prerequisites for this rule are: a) The contract for the sale of specific goods. b) In a deliverable state. c) 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 In these circumstances d) Property does not pass until such act or thing is done and e) The buyer has notice thereof Specific goods Deliverable state 7

[as between seller and buyer] I. Basic rules

Sale of goods: Passing of proper t y [as between seller and buyer] I. Basic rules (a) No property can pass in unascertained goods (s.18)! Re Wait: equitable interests play no part in sale of goods " Parties