Sale of Goods: Introduction 41 CHAPTER 4 Sale of Goods: Introduction 4.1 Introduction 41 4.2 Relevant legislation 42 4.3 Sale of goods to consumers 42 4.4 Definitions 44 4.5 Structure of the UK SGA 1979 45 4.6 Effects of a sale of goods contract 47 4.7 Other types of contract under which goods may pass 47 LEARNING OUTCOMES After reading this chapter you will be able to: appreciate how the UK Sale of Goods Act 1979 (SGA 1979) applies to contracts at each stage of the supply chain identify the relevant legislation that governs all sale of goods contracts understand the statutory definitions relating to sales of goods summarise the main rights and duties which the UK SGA 1979 imposes on a seller and buyer of goods, how and when they apply, and whether or not these may be excluded explain the effects of a sale of goods contract identify other types of contract under which goods may pass. 4.1 INTRODUCTION The next four chapters will examine direct sales of goods from manufacturer to retailer. A brief reminder of the supply chain (see Chapter 1) shows the relevant contracts which will be governed by the SGA 1979. Manufacturer SOG contract sells to Retailer SOG contract sells to End user Figure 4.1 Sale of goods contracts The sale of goods contract is probably the most commonly occurring contract type of all, with countless numbers of contracts being entered into every day. This is a vast area of law and the purpose of this chapter is to introduce you to the legal framework within which such contracts are created, and to provide a summary of the structure of the SGA 1979.
42 Commercial and Intellectual Property Law and Practice 4.2 RELEVANT LEGISLATION In the UK, all commercial (B2B) sales of goods are governed by the SGA 1979, as amended by: (a) the Sale and Supply of Goods Act 1994; (b) the Sale of Goods (Amendment) Act 1994; (c) the Sale of Goods (Amendment) Act 1995. Where goods are supplied along with services, eg a contract to decorate a house, the Supply of Goods and Services Act 1982 (SGSA 1982) applies. The Unfair Contract Terms Act 1977 (UCTA 1977) deals with exclusion clauses, including exclusion of the implied terms under the SGA 1979. In this chapter, all references are to the UK SGA 1979, the UK SGA 1982 and the effect of the provisions of UCTA 1977 within the UK, unless otherwise stated. 4.3 SALE OF GOODS TO CONSUMERS Consumer contracts are largely beyond the scope of this book, although they are clearly important in practice. Many commercial clients will have dealings with consumers, and will need to consider the particular issues raised by dealings with this type of buyer. Between 2014 and 2016, consumer legislation underwent a major overhaul as a result, first, of the introduction of the Consumer Rights Act 2015 (CRA 2015), which came into force in October 2015, and, secondly, the implementation of the Consumer Rights Directive in the summer of 2014 by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) ( Consumer Contracts Regulations 2013 ). The purpose of the CRA 2015 was to simplify, consolidate and expand the existing consumer legislation relating to the provision of goods and services, and to introduce measures in relation to digital content. In summary, it governs all contracts between traders and consumers (B2C). It deals with the rights and remedies of consumers, giving consumers greater potential for effective redress and enhances consumer protection from unfair contract terms. (Note that the CRA 2015 does not cover C2C contracts, so where protection exists, consumers will still have to rely on the SGA 1979, eg, sales by description.) It amended or repealed a number of consumer protection statutes, including the SGA 1979, the Supply of Goods and Services Act 1982, UCTA 1977, the Unfair Terms in Consumer Contracts Regulations 1999 and the Misrepresentation Act 1967, amongst others, consolidating the consumer protection measures from these in one statute (see Chapters 7 and 8). From 13 June 2014, the Consumer Contracts Regulations 2013 replaced the Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334) and introduced important changes to the statutory regulation of distance, off-premises and some on-premises sales. The Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013) which regulate both B2B and B2C contracts in relation to e-commerce remain in force. The application of these Regulations in relation to e-commerce will be discussed in Chapter 26. Further legislation has been introduced to implement other provisions of the Consumer Rights Directive which will not be covered by the CRA 2015 or the Consumer Contracts Regulations 2013: (a) The Consumer Protection from Unfair Trading (Amendment) Regulations 2014 (SI 2014/870) came into force on 13 June 2014. They extend the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277). The Regulations give consumers greater protection by introducing new rights of redress in relation to misleading and aggressive demands for payment and inertia selling, ie sales of unsolicited goods, which do not have to be paid for and can be retained.
Sale of Goods: Introduction 43 (b) The Consumer Rights (Payment Surcharges) Regulations 2012 (SI 2012/3110) came into force on 6 April 2013. These Regulations ban credit or debit card surcharges which exceed the cost to the business of using such credit or debit card facilities. The Regulations only apply to consumer contracts. Table 4.1 shows the main changes to the legislation. B2C Contracts Existing Legislation Previous Legislation Sale of goods CRA 2015 SGA 1979: B2C provisions repealed/ replaced by CRA 2015 Supply of Goods (Implied Terms) Act 1973: B2C provisions repealed/ replaced by CRA 2015 Sale and Supply of Goods to Consumers Regulations 2002: revoked Supply of services/ goods and services Supply of digital content Exclusion clauses (see Chapter 8) On-premises*, offpremises and distance sales * excludes day-to-day purchases (see Chapter 26) Other protections CRA 2015 CRA 2015 CRA 2015 Consumer Contracts Regulations 2013 Consumer Protection from Unfair Trading (Amendment) Regulations 2014; Consumer Rights (Payment Surcharges) Regulations 2012 SGSA 1982: B2C provisions repealed/ replaced by CRA 2015 New UCTA 1977: B2C provisions repealed UTCCR 1999: revoked MA 1967, s 3: amended to exclude consumer contracts Consumer Protection (Distance Selling) Regulations 2000: revoked Doorstep Selling Regulations 2008: revoked [Electronic Commerce (EC Directive) Regulations 2002: unchanged] Consumer Protection from Unfair Trading Regulations 2008: extended New Table 4.1 Legislative changes under the CRA 2015 Brexit Much of UK consumer law is UK-derived or inspired by UK law, particularly the CRA 2015. Although it is possible that the UK might consider amendments to consumer law emanating from the EU, eg consumers rights to return goods under the Consumer Contracts Regulations 2013, this is unlikely to be a priority for the Government, especially given the recent overhaul of the law.
44 Commercial and Intellectual Property Law and Practice 4.4 DEFINITIONS 4.4.1 What is sale of goods? The SGA 1979, s 2(1) defines a contract for the sale of goods as:... a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. Section 2(4) defines a sale as follows: 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. These subsections indicate how a sale of goods differs, for example, from a contract for hire of goods because the property in the goods (the title to the goods) changes hands. It differs from a gift of the goods because the buyer pays the seller money for the goods in a sale contract. It also differs from a contract of barter, in which goods are exchanged for goods or a combination of goods and money. Whether a contract amounts to a sale of goods contract will be a question of fact in each case. For example, see PST Energy Shipping 7 LLC and Product Shipping and Trading SA v OW Bunker Malta Ltd and ING Bank SA (Res Cogitans) [2016] UKSC 23, where the Supreme Court has confirmed that despite the expectations of the parties, a contract for the supply of marine bunkers (marine fuel), where the parties know and intend that the bunkers will be consumed prior to payment, is not a sale of goods contract (and see 6.1.3). 4.4.2 What are goods? Usually it is perfectly obvious whether the subject matter of the contract is goods (eg buying a chocolate bar in a shop). The SGA 1979, s 61 defines goods as including all personal chattels other than things in action and money. An example of a thing in action is a cheque, which is in effect a promise to pay money. Land is not included, but crops and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale are within the definition of goods. Section 5(1) differentiates between present and future goods: The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods. Existing goods may be: (a) (b) (c) specific goods, which under s 62 are goods which can be identified and agreed upon at the time of the contract, eg my 2007 sky blue Mercedes SLK registration number T15 SHR ; unacertained purely generic goods, eg 100 tons of potatoes; a specified quantity of goods from an identified bulk, eg 100 tons of potatoes from 200,000 tonnes currently stored in Allpress Distribution Ltd s warehouse in Chatteris. Future goods are goods which do not yet exist, eg next year s potato crop, or goods which the seller does not yet own. Future goods can never be specific goods. The distinction between the various types of goods is important when considering when title or property in the goods passes (see 6.2). Section 6 provides that where specific goods have perished, the contract is void (see 3.4.3). One area where there has been uncertainty is computer programs. Are they goods or services? (The point is that the implied terms in the contract would be different for goods and for services.) In St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481, it was held obiter that programs were goods when they were supplied on a disk. More recently, in
Sale of Goods: Introduction 45 the case of Horace Holman Group Ltd v Sherwood International Group Ltd [2000] WL 491372, there was a dispute as to whether software was goods, and St Albans was cited as the authority. The program itself was found not to comprise a sale of goods for the purposes of UCTA 1977, although s 7 of UCTA 1977 was held to be applicable to the contract under which the program was supplied. 4.5 STRUCTURE OF THE UK SGA 1979 The SGA 1979 imposes duties on the buyer and the seller, with corresponding rights and remedies for each party, relating to transfer of ownership and performance of the contract. Under s 27, for example, the buyer s duty to pay for the goods is concurrent with the seller s duty to deliver them, and failure to perform these duties gives rise to statutory remedies over and above the ordinary contractual remedies discussed in Chapter 3. The effect of a sale of goods is that ownership of, and risk in, the goods passes to the buyer. This is fundamental, but, in addition, each party to a sale of goods contract will have particular commercial concerns, which have been touched on in Chapter 1. For example: (a) (b) The main concern for both parties will be that the contract works for them financially. The seller will want to ensure that the price is right and that payment is prompt in order to avoid cash-flow problems. In relation to payment, the buyer will be looking for favourable credit periods and will be more concerned to see that delivery is prompt. The terms relating to these issues of price, payment and delivery are the core terms of the contract, because they define the parties principal obligations: the seller s obligation to deliver the goods; and the buyer s obligation to accept and pay for them. Once the goods are delivered, the buyer will want to ensure that it has got what it paid for, in the sense that the goods are exactly as described and that they are in perfect condition. The seller will be concerned to minimise its liability in relation to the buyer in the event that the goods turn out to be defective or unsuitable for any reason. The SGA 1979 deals with these issues. Surprisingly, however, the SGA 1979 imposes very little control on a commercial sale agreement. The SGA 1979 acts, in some circumstances, to fill in voids and omissions to which the parties have not turned their minds, or where they have simply relied upon the Act. In addition, in certain circumstance the parties can opt out of some of these controls. Provisions as to ownership and the core duties, rights and remedies of both parties are summarised in Table 4.2 below. Duties of Seller To deliver the goods (s 29) To deliver the correct quantity (s 30) To pass good title (s 12) To deliver goods which: correspond with description (s 13) are of satisfactory quality and fit for purpose (s 14) correspond with sample (s 15) Duties of Buyer To accept delivery (s 27) To pay for the goods (s 27)
46 Commercial and Intellectual Property Law and Practice Rights/Remedies of Seller To terminate/repudiate the contract for breach of condition Action for the price (s 49) Damages for non-acceptance (s 50) Rights of the unpaid seller: lien (s 41) stoppage in transit (ss 44, 45) resale (s 48) To retain title to the goods until paid (ss 17 and 19) Table 4.2 Rights and remedies of parties to a contract The main performance obligations can be divided, albeit loosely, into three categories, as set out below. 4.5.1 Default provisions Many of the implied terms are safety-net terms, implied only if the parties have not made their own provision. They would often be unsuitable for a commercial contract, eg s 28 implies cash on delivery, which will not be appropriate for most commercial transactions, where a buyer will normally be buying on credit. 4.5.2 Implied terms which can be excluded by agreement between the parties Section 55 provides that some of the terms implied into a contract for the sale of goods by the 1979 Act can be excluded by the agreement of the parties, subject to UCTA 1977 (see Chapters 8 and 9). It may be perfectly valid and desirable to exclude them, but the problem usually is to what extent UCTA 1977 permits this. 4.5.3 Implied terms which can never be excluded Rights/Remedies of Buyer To inspect the goods (s 34) To reject the goods and refuse payment for breach of condition To damages for non-delivery (s 51) To damages when the goods are accepted (s 53) To request specific performance (s 52) Under UCTA 1977, the obligation of the seller to pass good title to the buyer can never be excluded. Any attempt to do so will be void. Figure 4.2 below shows into which categories the main performance obligations fall. Each of these obligations will be discussed in more detail in Chapters 5, 6 and 7. Default provisions Ownership (ss 17 19) Price (s 8) Payment (ss 27 28) Delivery (ss 27 and 29) Risk (s 20) Implied terms which may be expressly excluded (B2B contracts only) Description (s 13) Satisfactory quality (s 14(2)) Fitness for purpose (s 14(3)) Sample (s 15) Delivery of wrong quantity (s 30) Time of delivery (Hartley v Hymans) Implied terms which cannot be excluded Title (s 12) Figure 4.2 Categories of performance obligations
Sale of Goods: Introduction 47 4.5.4 International sales of goods Internationally, the extent to which statutes relating to the sale of goods can be excluded varies from state to state. The CISG, the UCC, the PICC and the PECL envisage liability under domestic sale of goods legislation being excluded. 4.6 EFFECTS OF A SALE OF GOODS CONTRACT The effects of a sale of goods contract are that: (a) (b) (c) ownership of the goods is transferred to the buyer; the risk in the goods passes to the buyer; and the seller is paid. 4.7 OTHER TYPES OF CONTRACT UNDER WHICH GOODS MAY PASS Contracts for goods and services clearly involve the sale of goods but do not fall within the ambit of the SGA 1979. Many of the legal controls on the goods part are in effect the same as for the sale of goods, but in addition there are controls on the services component. Other contracts under which goods may pass include conditional sale, hire purchase, leasing, bailment and factoring. 4.7.1 Contracts for services Many businesses supplying services also provide goods as well, and to further complicate things, businesses supplying goods often provide a service, eg installation. Sometimes, it is quite difficult to know whether there is a sale of goods contract (to which the SGA 1979 only would apply) or a supply of goods and services contract, sometimes known as a work and materials contract (to which the SGSA 1982 would apply). In Samuels v Davis [1943] KB 526, the Court of Appeal suggested that it did not much matter how the agreement was categorised, as long as the correct terms were implied. In essence, there are three types of contract involving services: 4.7.1.1 Contracts for services only Examples of contracts for services only are contracts for legal or accountancy advice. These are governed by the Supply of Goods and Services Act 1982 (SGSA 1982). The main terms implied are: (a) the service will be performed with reasonable skill and care (s 13); (b) the work will be carried out within a reasonable time, but only if no time for performance has been fixed by the contract (s 14); and (c) a reasonable charge will be paid, but only if no price is fixed by the contract (s 15). 4.7.1.2 Contracts for work and materials A good example of a contract for work and materials (ie, goods and services) is a contract for repair, where the repairer supplies not only his own labour but also the necessary parts. These contracts are governed by the SGSA 1982. It is important to remember that it is not the SGA 1979 itself which applies in such cases (SGSA 1982, s 1). 4.7.1.3 Contracts for finished products An example of this type of contract would be where a carpenter agrees to construct a kitchen unit on site. These types of contract are governed by the Sales and Guarantees Directive (1999/ 44/EC), which imposes strict liability on a seller in relation to both the goods and services. In the UK, however, the Directive is implemented by the SGSA 1982, which imposes a qualified duty, as the Directive was not fully implemented into UK law. Thus there is a lesser duty
48 Commercial and Intellectual Property Law and Practice imposed by statute in the UK than in the EU, but it is generally considered that, in the event of a dispute, the courts would be bound to apply the Directive. Note that, with the implementation of the CRA 2015, the consumer protection provisions of the SGSA 1982 will be repealed, and will, with some amendments and additions, form part of the CRA 2015. 4.7.2 Exchange and barter Contracts of exchange and barter are found relatively rarely in practice. In the past, they have been most frequently encountered in dealings with businesses in developing countries, where foreign currency may not be available to allow the buyer to pay in cash. There is evidence that they are now also being used in some forms of online trading. 4.7.3 Hire purchase In a hire purchase agreement, the buyer obtains immediate possession of the goods, in return for making regular payments. However, ownership remains with the other party to the agreement. The buyer has an option to obtain ownership by paying a final instalment. The buyer buys the goods not from the seller but from the finance house, pursuant to the hire purchase agreement. In the UK, hire purchase agreements are regulated under the Consumer Credit Act 1974. However, the 1974 Act does not deal with implied terms relating to title to the goods or quality. These are governed by the Supply of Goods (Implied Terms) Act 1973, which implies terms similar to those implied into sale of goods agreements by ss 12 15 of the SGA 1979. 4.7.4 Conditional sale A conditional sale agreement achieves a very similar result to a hire purchase agreement. Again, the buyer obtains immediate possession and makes regular payments in return. Again, ownership remains with the other party, although the buyer can obtain ownership by making a final payment. However, the agreement is structured rather differently in that there is no option to purchase. Instead, it is a sale of goods agreement under which ownership does not pass until the final payment is made. Conditional sale is often used to finance consumer purchases in exactly the same way as a hire purchase agreement. When used in this way it is regulated by the UK Consumer Credit Act 1974. Because they are sale of goods agreements, the SGA 1979 applies to conditional sale agreements in the normal way and so, for example, ss 12 to 15 imply terms regarding title to the goods, quality, etc. 4.7.5 Hire agreements A hire agreement differs from a sale of goods agreement in that ownership of the goods does not pass as the hirer obtains only possession, not title to the goods. In some situations, hire agreements with consumers are regulated by the UK Consumer Credit Act 1974. The SGA 1979 does not apply to hire agreements. Instead, terms relating to the right to transfer possession and quality are implied by the SGSA 1982, ss 6 11. The terms are very similar to those implied in sale of goods agreements by the SGA 1979, ss 12 15. Exceptions are that s 7 of the SGSA 1982 implies a term that the owner, referred to as the bailor, has the right to transfer possession rather than a right to sell the goods. In a hire agreement, of course, it is only possession of the goods which is being transferred, not the title to them, so that is the important thing here. 4.7.6 Leases of goods A lease is the contract between a lessor and a lessee for the hire of an asset. Today, this would be an expensive item of equipment, perhaps industrial machinery, a computer system, lorries
Sale of Goods: Introduction 49 or other motor vehicles. The lessor need not necessarily be the manufacturer or a seller of the equipment. It could instead be a finance company. The lessor is the owner of the equipment, and keeps the ownership. The lessee has the right to possess and use the equipment during the term of the lease. The lessee pays the lessor rental payments as specified in the lease contract. At the end of the lease, the equipment is returned to the lessor, which may lease it out again or more usually sell it. If the equipment is sold to the lessee, the danger is that the contract may instead be construed as a hire purchase contract and therefore be subject to the legislation on hire purchase. There are two basic categories of lease: (a) (b) Operating leases. With an operating lease, the equipment is hired out to the user (the lessee) for a short period of time, returned to the lessor and then hired out to another user. This is, for example, how a tool hire shop would normally operate. Finance leases. With a finance lease, the equipment is supplied to one user only, which retains possession of it for substantially the whole of its working life. Most computer leases are finance leases. With a finance lease, there is no contractual relationship between the user and the supplier of the hardware. The lessor will be a finance house, which has purchased the equipment from the supplier. 4.7.7 Factoring Factoring is where a supplier of goods sells its unpaid invoices (debts) to a third party, the factor. The supplier will not receive the full book value for the debts, as the factor will charge a fee and interest, and will also take into account the risk of the debtor defaulting. However, there are considerable advantages for the business in that it releases cash and improves cash flow. Customers will deal direct with the factor in the collection of the factored debts. 4.7.8 Bailment Bailment is where the owner of goods (the bailor) transfers possession of the goods to another party, the bailee. The bailee will keep the goods on behalf of the bailor, subject to any express or implied conditions of the bailment contract, for example the goods may be used for a specified purpose. The bailment contract will normally provide for the eventual return of the goods to the bailor. The bailee, therefore, does not own the goods but simply has possession of them, and must take reasonable care of them, until the bailor reclaims them. Bailment does not always depend on the existence of a bailment contract. It may arise as a result of one party assuming voluntary possession of another s goods. The bailee will still have an implied duty to take reasonable care of the goods whilst they are in his possession. SUMMARY This chapter has introduced the legislation governing the sale of goods, in particular the SGA 1979. We have seen how the SGA 1979 imposes corresponding rights and duties on both seller and buyer, and how ownership of and risk in the goods pass from seller to buyer in return for payment. We are now going to consider the main terms of a sale of goods contract.
50 Commercial and Intellectual Property Law and Practice