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PART 5 – SPECIAL CONTRACTUAL RELATIONSHIPS
Chapter 22 – The Sale of Goods
Prepared by Douglas H. Peterson, University of Alberta
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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SALE OF GOODS
PASSAGE OF TITLE (AND RISK) UNDER STATUTE
SALE AGREEMENT
CONDITIONREQUIREMENT BEFORE TITLE PASSES TO BUYER
SPECIFIC GOODSDeliverable Condition
None: Title Passes When Contract Made
Notice Given to Buyer That Work Done and Goods in Deliverable State
Notice Given to Buyer That Seller Has Weighed, Measured, and Tested the Goods and Ascertained Price
SPECIFIC GOODSSomething to Be
Done to Put inDeliverable State
SPECIFIC GOODSDeliverable State
Required Measurement,Testing, or Weighing to
Ascertain Price
SPECIFIC GOODSSold on Approval,
Sale, or Return
(1) Buyer Signifies Approval or DoesAnything to Adopt Transaction
(2) Buyer Retains the Goods Without GivingNotice of Rejection Within Time Fixed, orif No Time Fixed, Beyond a Reasonable Time
Cont’d
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SALE OF GOODS
PASSAGE OF TITLE (AND RISK) UNDER STATUTE, cont’d
CONDITIONREQUIREMENT BEFORE TITLE PASSES TO BUYER
AGREEMENT TO SELL
GOODS TO BE PRODUCED
Sold by Description
(1) Goods Produced and in a DeliverableState and Unconditionally Appropriatedto the Contract
(2) Goods Produced and Delivered to aCarrier or Other Bailee for Purpose ofDelivery to Buyer Where Seller Does NotReserve Right of Disposal
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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
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CONDITIONS AND WARRANTIES
Condition 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
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CONDITIONS AND WARRANTIES
Warranty A minor term in a contract Breach allows injured party to:
Damages but not rescission
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CONTRACTUAL DUTIES OF THE SELLER
Implied Terms Seller’s Title Nature of the goods Payment and Delivery
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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