Atiyah: Sale of Goods

The Sale of Goods 11th ed Patrick S. Atiyah , John N. Adams , Hector MacQueen

ISBN13: 9780582894082
Published: April 2005
Publisher: Pearson Higher Education
£47.95

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Note: Cases linked in the text on the right are either to BAILII reports (where available) or the Wikipedia reference.

Contract Text

Contents

1. Introduction

2. The Contract of Sale

3. Terms of the contract

4. Exclusion Clauses

5. Title and Passing of Property

6. Retention of Title

7. Nemo Dat

8. Performance of the Contract

9. Remedies of the Seller

10. Remedies of the Buyer

11. Articles on Sale of Goods and Contract issues

12. Drafting Sale Contracts and specimen sale contract

 

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Recent Case Law

Cases on Sale of Goods and Contract 2009 - 2000

 

Statutes

Sale of Goods Act 1979

Sale and Supply of Goods Act 1994

The Sale and Supply of Goods to Consumers Regulations 2002

Unfair Contract terms Act 1977

Factors Act 1889

Part III Hire Purchase Act 1964: ss.27 - 29.

Companion Volume

The Law of Contract



 

 

 
 
 
 

 




8. Performance of the Contract

8.1 The Duty of Seller and Buyer

 

8.1.1 Section 27 Sale of Goods Act 1979

"It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract."

Seller breach: [B] may bring an action for damages for non delivery under s.51.

Buyer Breach: [S] has a range of alternatives depending on the factors below:

(a) Whether property has passed

(b) Whether payment is a condition of the contract or not

(c) Whether there are express terms on remedies

(d) Whether the market is rising or falling.

This will be considered in detail in the analysis of remedies (Infra). The basic rule is - if the property has passed the Seller may sue for the price under s.49(1). If the property has not passed the seller, in the absence of an express term or 'day certain' provision under s.49(2), may only bring an action in damages for non-acceptance under s.50.

8.1.2 Delivery

Delivery is a technical concept and means the 'voluntary transfer of possession from one person to another - in most cases effected by the seller allowing the buyer to collect the goods. Delivery in this technical sense does not necessarily mean physical delivery.

8.1.3 Making delivery

(a) The physical transfer of possession.

(b) Constructive delivery , for example by delivering a document of title such as a bill of lading.

(c) By handing over the means of control, for example the keys to a car.

(d) By attornment, where a third party acknowledges that he holds on behalf of the buyer. (See Sterns v Vickers ).

 

8.1.4 Payment and delivery are concurrent conditions

Section 28 Sale of Goods Act 1979

"Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods."

In the absence of contrary provision goods must be paid for on delivery - C.O.D.

While this is invariably the case in consumer contracts, commerce operates a rather different practice.

In commercial contracts it is very common for the goods to be delivered and for payment to be made against an invoice thereafter, quite often on the usual 30 day terms basis.

It is all a matter of construction to see what the parties have agreed.

8.1.5 Anticipatory breach before delivery

If a seller indicates to the buyer that he does not intend to deliver the goods the buyer may accept this anticipatory repudiatory breach there and then, treat the contract as at an end and claim damages. (Infra as to quantum) Alternatively, the buyer could wait for the time fixed for delivery to see if the seller will perform, claiming damages only if the seller fails to deliver under s.51.

The converse could happen and the buyer could indicate before delivery that he will not accept and pay for the goods. This subject is dealt with in greater detail in the section on damages. Briefly, the seller could accept the anticipatory breach, treat the contract as at an end and sue in damages under s.50 - or for the price if the property in the goods has passed under s.49(1) or wait until the time fixed for performance and pursue a remedy against the buyer if he then refuses to accept and pay for the goods.

See: Fercometal SARL v Mediterranean Shipping Co SA [1988] 2 All ER 742 "The Simona"

Both seller and buyer run the risk in anticipatory breach situations of supervening illegality or frustration discharging the contract after refusing to accept the anticipatory breach.

Avery v Bowden (1855) 5 E & B 714


8.1.6 Delivery

Section 29 Sale of Goods Act 1979

"(1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties.

(2) Apart from any such contract, express or implied, the place of delivery is the seller's place of business if he has one, and if not, his residence, except that, if the contract is for the sale of specific goods, which to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery.

(3) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.

(4) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods.

(5) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour and what is a reasonable hour is a question of fact.

(6) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller.

(a) Delivery

Delivery is defined as the 'voluntary transfer of possession from one person to another.' (s.61)

Delivery can take the following forms :

1. Physical transfer of the goods

2. Delivery of the means of taking delivery

3. Attornment

4. Constructive delivery - seller becomes bailee

5. Delivery to a carrier - s.32.

(b) Time of Delivery

The general rule is that stipulations as to time of delivery are of the essence of the contract even though not expressed to be so in the contract. It is standard , in drafting commercial contracts, to stipulate that time of delivery is of the essence - if this is what the parties wish. If the seller delays delivery, the buyer is entitled to treat the failure as a breach of condition and treat the contract as repudiated.

Bowes v Shand (Supra)

Confirmed by the House of Lords in Bunge Corporation v Tradax SA [1981] 2 All ER 513

Waiver

The buyer may waive his right to delivery on time by pressing for delivery after the due date. The buyer may later re-instate, upon giving notice, his right to strict delivery.

Rickards (Charles) Ltd v Oppenheim [1950] 1 KB 61

8.1.7 Delivery of wrong quantity

Section 30 Sale of Goods Act 1979

(1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate.

(2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or reject the whole.

(3) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell and the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.

(4) Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or he may reject the whole.

(5) This section is subject to any usage of trade, special agreement, or course of dealing between the parties.

De minimis non curat lex applies

In Shipton Anderson & Co v Weil Bros [1912] 1 KB 574 Lush J held that an extra 55lbs in weight on a 4950 ton contract was so slight a variation that the buyer was not entitled to reject.

The de minimis exception is a very narrow one. See Arcos v Ronaasen and Re Moore & Co v Landauer in connection with s.13.

Derogation can be achieved by adding the words 'more or less' to the delivery quantity.

The right to reject given by the section can be taken away by agreement. This would be an exemption clause and would be governed by UCTA 1977.

 

8.1.8 Instalment deliveries

Section 11(4) only applies where contracts are not severable.

The starting point is to determine whether there is one contract or several contracts.

Several contracts

If there are several contracts a breach in one will not affect the others.

One contract

If there is but one contract the remedy will depend upon whether the contract is 'entire' that is non-severable or severable.

Non-severable

If the contract is non-severable a breach in relation to part of the contract will affect the remainder of the contract, s.11(4) will be applicable and one will either (subject to s.30) have to accept the whole of the goods under the contract or reject the goods - acceptance of part is not permissable (Infra).

Severable

If the contract is severable s.11(4) will not apply and the buyer will be able to accept part of the goods under the contract and reject the remainder or vice versa.

What is a severable contract ?

A contract for the ale of goods to be delivered by stated instalments which are to be separately paid for.

In Regent OHG v Francesco of Jermyn Street [1981] 3 All ER 327 a contract for the sale of goods in instalments to be determined by the seller was brought within the definition of a severable contract.

The rules relating to severable contracts are dealt with in s.31 SOGA 1979.

8.1.9 Section 31 Sale of Goods Act 1979

(1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery of them by instalments.

(2) Where there is a contract for the sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated.

(a) Breach

Breach in relation to one instalment will amount to a repudiation of the whole contract only where the breach goes to the root of the contract.

The test is that in Maple Flock Co. Ltd v Universal Furniture Products Co. Ltd [1934] 1 KB 148 - The ratio quantitatively which the breach bears to the contract as a whole and the degree of likelihood of breach arising in the future.

Millar's Karri and Jarrah Co v Weddle, Turner & Co (1908) 100 LT 128

The effect of repudiation in this type of contract is that the victim of breach is entitled to refuse further performance, treat himself as discharged from liability, notwithstanding acceptance of earlier performance. If delivery of earlier instalments can be regarded as parts of an indivisible whole - a set of books for example - the buyer would, arguably, be entitled to rescind the contract ab initio.

(b) Clauses excusing delivery

Express provisions 'events outside our control'

"Prevented' or 'hindered' clauses

Force Majeure : express drafting required.

If the Force Majeure (Exemption) Clause of the ICC is incorporated the party unable to perform will not be liable if he can prove : (a) the failure was due to an impediment beyond his control and (b) he could not reasonably be expected to have foreseen the impediment and effects thereof at the time of the contract and (c) he could not reasonably have avoided or overcome the effects thereof.

Terms like ' the usual force majeure clauses to be apply' will be void for uncertainty

British Electrical & Associated Industries v Patley Pressings Ltd [1953] 1 WLR 280

Force majeure will not be applied to cover events caused by the failure of the party to perform due to miscalculation, default or negligence. Force majeure is wider than 'Act of God'. - Force majeure can cover acts caused by human intervention such as war, strikes et al.

These clauses may attract the operation of s.3 UCTA 1977.

 

8.2 The Doctrine of Acceptance

If the doctrine of acceptance applies as set out in ss.34, 35 and 11(4) the buyer will lose his right to reject the goods and be limited in the event of a breach by the seller to a claim in damages.

8.3 SS.34, 35 &11(4) SOGA 1979

8.3.1 S.34 (1) Sale of Goods Act

"Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract."

S.34 (2) Sale of Goods Act 1979

"Unless otherwise agreed, when the seller tenders delivery of the goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract."

(a) What is a reasonable time is a question of fact in the circumstances of the case

Castle v Sworder (1860) per Bramwell J

Severable/Instalment sales :

Maple Flock Co Ltd v Universal Furniture Products [1934] 1 KB 148

Munro v Mayer [1930] 2 KB 312

Hardy & Co v Hillerns & Fowler [1923] 2 KB 490

S.4 Misrepresentation Act 1967 - s.34 governing section.

8.3.2 Acts of acceptance

Section 35 Sale of Goods Act 1979

"The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or (except where s.34 otherwise provides) when the goods have been delivered to him , and he does any act in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them."

Buyer has had reasonable opportunity to examine goods

Perkins v Bell [1893] 1 QB 193 CA

The buyer will not lose the right to reject until the goods have been delivered to him, he has had a reasonable opportunity of examining the goods and thereafter

indicates acceptance

does an act inconsistent with the seller's reversionary ownership

allows time to lapse without intimating rejection.

An important practical difficulty may arise when a seller sells gods to a buyer who resells them on to Buyer No. 2 without examining the goods.

In this case the buyer, so long as the opportunity to examine the goods was afforded to him, will lose his right to reject by the act of resale unless the seller delivered the goods direct to the second buyer in which case the resale will not prevent rejection.

Molling v Dean (1901)

(a) Express intimation

The buyer will lose his right to reject where he expressly intimates acceptance.

There are practical difficulties where a delivery note is signed indicating acceptance of the goods. If the delivery wording indicates acceptance of the goods, rather than simply acknowledging the fact of delivery, the buyer could lose his right to reject by signing the delivery note.

(b) Acts inconsistent with the (reversionary) ownership of

In many sale contracts the property will pass to the buyer on contract or by delivery. Any act that the buyer does thereafter strictly cannot be inconsistent with the seller's ownership for the seller is no longer the owner.

Kwei Tek Chao v British Traders & Shippers [1954] 2 QB 459 Devlin J pointed out that any property passing to the buyer is conditional upon acceptance and therefore the seller's reversionary interest will be affected if the buyer does any act which precludes him from making reparation.

Illustrations of 'an act inconsistent with the seller's interest' are numerous: selling the goods on, using the goods, continuing to use the goods knowing of a defect justifying rejection, consumption or destruction of the goods and the like.

(c) Lapse of time

Lapse of time causes the most difficulties in application.

The buyer will be deemed to have accepted the goods if, after the lapse of a reasonable time, he retain the goods without rejecting them.

What is a reasonable time is a question of fact in the circumstances of the case.

The key point here is the seller's interest in being able to 'close the book' on the transaction and be able to say that while he may still be liable in damages he will not be liable to take the goods back and give a full refund.

The time period is not the time during which the goods must be merchantable but the time necessary to examine the goods.

In Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 All ER 220 Rougier J., while holding that the car was unmerchantable said that the buyer had lost the right to reject after driving only 142 miles within only three weeks - having been ill for part of that time.

"what is a reasonable time in relation to a bicycle will hardly suffice for a nuclear submarine."

UCTA 1977

Contractual provisions limiting the 'rejection time' will have no effect as against a consumer but may be upheld as against a non-consumer under the Unfair Contract Terms Act 1977

Rules on place of delivery

Kwei Tek Chao v British Traders & Shippers [1954] 2 QB 459

Acceptance of part of the goods

Subject to s.30 delivery of wrong quantity and save for severable contracts it is not possible to accept part of the goods and reject the rest. It is acceptance or rejection in whole.

S.36 - Buyer not bound to return rejected goods 

On rejection the buyer does not physically have to return the goods it is for the seller to collect them.

The effect of s.11(4)

Where the buyer accepts the goods (or is deemed to have accepted the goods) s.11(4) applies to prevent the buyer from rejecting the goods limiting him to a claim in damages.

8.4 Remedies for breach of implied terms

The buyer's remedies will depend on whether he has accepted the goods or not.

8.4.1 Buyer not lost right to reject

1. Rejection (s.36: seller to collect goods)

2. Recovery of Price (Action in quasi-contract /Restitution)

3. Damages for non-delivery (s.51 )

4. Consequential loss recoverable as special loss (2nd Limb Hadley v Baxendale : s.54)

5. Possible claim in damages for Breach of warranty (s.53(4))

8.4.2 Buyer has lost right to reject

1. Damages only (s.53 SOGA 1979)

2. Special loss recoverable.

8.5 Demonstration Question


Smith Ltd v Brown

Smith Ltd, a manufacturer, agreed to sell 4000 bales of cloth to Brown, a wholesaler. The cloth was to be delivered in equal consignments over a period of 4 months. There was no express provision regarding payment, although the contract did provide that each delivery was to be treated as a separate contract.

The first consignment was delivered and paid for. The second consignment was delivered and paid for. Brown resold most of it, but about half his customers complained and returned the cloth to Brown because of faults in the weave. The third consignment was delivered to Brown. On inspecting it he discovered similar faults, and has refused to accept or pay for this consignment, and has told Smiths not to deliver any more cloth. He has also asked Smiths to take back the cloth from the second consignment which his customers returned to him and for a refund of a proportionate part of the price.

Advise Smith Ltd.

***

Analysis

 

Smith Ltd v. Brown

1. The agreement

1.1 This is an agreement for the sale of unascertained future goods by description made between Smith Ltd, manufacturers of cloth (The Seller) and Brown, wholesalers (The Buyer) on terms that 4000 bales of cloth were to be delivered to the buyers in equal consignments over a period of four months.

1.2 While it is not clear how many instalment deliveries are to be made it will be important to determine the precise total number of instalments to be delivered. Further particulars will be required. It will be assumed, for the present, that four equal monthly instalments are to be made. (Infra)

2. Entitlement to discharge from further performance

2.1 The buyers entitlement to discharge from further performance in the present circumstances, where the seller is clearly in default of his obligation to supply merchantable goods, (S.14(2) Sale of Goods Act 1979) will initially turn on the distinction between 'entire' and 'severable (or divisible) contracts. Prima facie, a contract will be severable if liability accrues as the seller performs his obligations under the contract.

2.2 It is clear that a contract expressed to be for the delivery of goods by instalments may nevertheless, when construed, be an entire indivisible contract. ( Reuter v Sala (1879) 4 C.P.D. 239) It is equally clear that a contract for the sale of goods by instalments may be a single contract (for the delivery of goods by instalments) and not a "complex of as many contracts as there are instalments under it" (See : Maple Flock Co. Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 )

2.3 The terms of the contract, while not making any provision regarding payment go on to provide 'that each delivery [is] to be treated as a separate contract.' Is there anything in the nature of that provision which would compel a finding that such a contract is a series of separate contracts ?

2.4 There is some authority, even if the contract provides that each delivery is to be treated as a separate contract, that "such clauses are subsidiary clauses, which generally have effect upon questions of performance. There is still only one contract and one contract quantity....." ( Ross T. Smyth & Co Ltd v T.D. Bailey Son & Co [1940] 3 All ER 60 @ p. 73) Where, as in the present case, the total quantity is expressed as a unitary whole, it is rather more likely that the court would construe the contract as divisible rather than as a series of separate contracts. (See: Ballantine & Co v Cramp and Bosman (1923) 129 LT 502 . cf. Berk & Co v Day and White (1897) 13 TLR 475 ).

3. Construction of the contract

3.1 The construction of the present contract is fraught with difficulty and uncertainty. The absence of a provision as to payment presents little difficulty. The court can imply a 'reasonable price. (S.8 Sale of Goods Act 1979) The conduct of the parties, a significant factor in the present case, reveals a hitherto unexpressed intention of a willingness that each instalment should be delivered and paid for separately. This coupled to other factors previously noted would tend to confirm that the present contract is a divisible or severable instalment contract and, in respect of breach, would be governed by section 31(2) of the Sale of Goods Act 1979.

3.2 Section 31(2) provides : " Where there is a contract for the sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments......., it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated. Even if this contract were not one for 'stated' instalments it is submitted that the common law, applying analogous rules to those in s.31(2), would apply. (See: Jackson v Rotax Motor & Cycle Co [1910] 2 KB 937 ; Ross T. Smyth v T.D. Bailey Son & Co (Supra) )

3.3 Despite their being no express renunciation by the seller of his contractual obligation it is still possible, through defective performance on the part of the seller, for the buyer to treat the contract as repudiated. The buyer will have to establish that the breach goes "to the root or essence of the contract" ( Munro v Mayer [1930] 2 KB 312 ). The test applied to cases such as the present is threefold - The seriousness of the breach; the ratio quantitatively which the breach bears to the contract as a whole and the degree of probability or improbability that the breach will be repeated. ( Maple Flock Co. Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 ; the importance of the second factor being stressed by Bingham J in Millar's Karri and Jarrah Co v Weddel, Turner & Co (1908) 100 LT 128 ).

3.4 In the present instance, with two defective instalments (s.14(2) SOGA 1979) out of three with one further instalment to come it is clear that the buyer would be fully justified in treating the contract as at an end. The buyer would be entitled to treat himself as discharged from further performance and, notwithstanding the acceptance of the first and second instalments may reject the third (which has not been independently accepted) and fourth instalment.

3.5 It has been decided, in cases where the contract instalments can be regarded as parts of an indivisible whole, and the example cited by Benjamin is that of individual volumes of a set of books, that the buyer would be able to rescind the contract ab initio, return instalments previously delivered and recover the whole or part of the price paid. ( Honck v Muller (1881) 7 QBD 92 ) . This latter rule would not assist the buyer in the present case. Brown, since he has accepted the second instalment within the meaning of sections 34/35 & 11(4) SOGA 1979 (which apply to each individual instalment) would be entitled to damages for breach of warranty, in respect of loss, under section 53 SOGA 1979.

Special Note

Where short delivery occurs in a divisible instalment contract.

Benjamin discusses in some detail the position where the seller makes short delivery in a divisible instalment contract.

It would appear in such cases that the "full delivery of goods is a condition precedent which has to be discharged before the buyer has to pay any part of the price; although the buyer would have to pay for any goods which he has dealt with as owner and for any goods which he retains after the period stipulated for complete delivery."

Hungerford v Halliford (1626) 3 Bulst 23

Oxendale v Wetherell (1829) 9 B&C 386

Reuter v Sala (1879) 4 CPD 239;

Nicholson v Bradfield Union (1866) LR 1 QB 620.

See : Benjamin : Sale of Goods Second Edition para 644 - 645.

This rule does not apply to defective deliveries (Supra).



 

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