sales contracts

what is the primary legislation for a sale

sale of goods act 1979 - consolidated earlier laws

what was the historical source of law for sales

• prior to 1893- based mainly on case law with limited statuory provisions-

  • factors acts

  • s17 statute of frauds act 1677, requiring written evidence for contracts over £10 (now repealed)

• sir mackenzie chalmers drafted SoGA 1893 = basis for commercial sales law, minor amendments in 1973, changes by UCTA 1977 then consolidated and re-enacted as SoGA 1979

• s62(2) of the act states that common law rules apply unless inconsistent with the act’s provsions so the act doesnt codify the entire sale of goods law

Re Wait Case

• facts- wait sold 500 tonnes of wheat to a company but wait went bankrupt before the 500 tonnes were identified

• issue- could the company claim ownership of the 500 tonnes or were they just creditors in wait’s bankruptcy

• held- COA ruled that the copany had no proprietary claim and could only claim in wait’s bankruptcy

• significance- rejected the idea of an equitable claim independent of the act and argued the act intended to replace prior law, providing a complete structure of rules

  • emphasised that equitable rights should not undermine the legal rights carefully outlined in the act

what does the act apply to?

• contracts for the sale of all types of goods

• but excludes contracts intended as security arrangements

• s62(4) excludes contracts operating as a mortgage, pledge, charge, or other security

• (egs) 1979 act covers: commercial sales between businesses, sales from a business to a consumer w/ exclusions now mainly governed by CRA 2015, sales where neither party is a trader

what is the definition of sale of goods

• s2(1): a contract where the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price

  • excludes exchanges of goods/repair contracts involving parts

  • excludes cases where goods are consumed before ownership transfer

PST Energy 7 Shipping LLC Product Shipping & Trading SA v OW Bunker Malta Ltd 2016

• facts- OWBM supplied bunkers to PSTE on credit, reserving tittle until payment PSTE consumed the bunkers, and the OWBM’s parent company OWBAS never paid RMUK (OG supplier)

• held- SC ruled PSTE was potentially liable because the contract wasn’t a standard sale of goods as the contract allowed consumption before payment- indicated no transfer of property in consumer bunkers, wasn’t a divisible contract, price covered all bunkers consumed or not

Example- if a wine merchant supplies wine to a h credit, reserving title (they own it until you pay) until payment, is that a cont’ is that a contract for the sale of goods

yes because the transfer is eventual but going to happen s2(5)

definition of a sale

s2(4): a sale occurs when a contract actually transfers the property in the goods

s2(5): an agreement to sell occurs when the transfer of property is yet to take place

• contract for the sale of goods encompasses both of them

definition of goods

s6(1): ‘goods’ include all personal chattels other than things in action and money and in scotland all corporeal moveables except money

• includes:

  • emblements, industrial growing crops, things attached to the land to be severed like unharvested wheat/fruit to be picked (if not agreed to be severed before sale = not goods)

  • ships, aircrafts,vehicles

  • animals

  • water, oil, gases (including compressed air- Britvic Soft Drinks Ltd v Messer UK Ltd [2002])

• excludes:

  • notes/coins sold as collector’s items (moss v hancock 1899)

  • personal chattels are choses in possession (tangibles)

  • electricity and pure energy

  • computer software (St Albans District Council v International Computers Ltd [1996])

  • databases (Your Response Ltd v Datateam Business Media Ltd [2014])

  • information

what are the different types of goods

• s5 divides goods into existing goods and future goods (to be manufactured/acquired after the contract) (classification has little practical significance)

  • goods in existence but not owned by the seller are future goods

  • can’t be a sale of future goods only an agreement to sale (s5(3)

• specific goods : s61(1): means goods identified and agreed on at the time a contract of sale is made.

  • must be unequivocally designated at time of contract and only those can be tendered by the contract

• unascertained goods: seller can fulfill obligation by providing any goods matching the contract description

  • generic goods sold by description- eg any car

  • goods not yet in existence eg future crop of soya beans

  • unidentified part of a specific bulk (eg 100 tonnes out of 1000 tonnes of wheat)

• the relevant time for distinguishing between specific and unascertained goods is when the contract is concluded

• ascertained goods: goods which at the time of the making of the contract are unascertained but which become identified as the contract goods at some later time

  • importance of ascertainment: s16 states property in goods cannot be transferred to the buyer unless and until the goods are ascertained

kursell v timber operators & contractors ltd

• contract was for the sale of all merchnatable timber growing in a forest, had 15 years to cut that timber

• court held that the timber wasnt specific goods because the trees weren’t identified, even though it was still property of the sellers and contract was frustrated

what is a part-interest in goods

• eg a 1/3 share in a racehorse

• s61(1) now includes an undivided share in goods

• a contract to transfer a part-interest in goods is treated as a contract of sale of goods

• a person owning a proportion of an undivided bulk is regarded as having specific goods eg a buyer owning 40% interest in a particular cargo of something

• Distinction: Selling 10 tonnes out of 100 tonnes vs. selling a one-tenth share in 100 tonnes.

  • In the first case, the buyer owns 10 tonnes, and the seller owns 90 tonnes.

  • In the second case, both become co-owners of the 100 tonnes in the agreed proportions.

how is property defined

• s2(1) requires the seller to transfer/agree to transfer the property in goods to the buyer

• s61(1) defines property as the general property in goods, not merely a special property

  • special property = interest of someone with a limited interest, like a pledgee

• property loosely means ownership. it’s the seller’s title to the absolute legal interest in the goods

• the act doesnt apply to the transfer of an interest less than full ownership

  • eg- contract of hire, bailment, charge over goods

• the act isnt concerned with transfers of beneficial ownership, like the creation of a trust

  • s12(3): a seller with a limited title may contract to sell that title

    • eg a person who found an article and failed to trace its owner can sell their title as a finder

• Property" means "a title to the absolute legal interest in the goods sold."

  • It involves the transfer of the absolute legal interest in the goods, not a lesser interest.

transferring property

• transfer of property involves transferring a particular title to a particular interest in the property

• nemo dat quod non habet rule= a transfer may fail if the transferor has no title to transfer

• title to tangible property is relative, protected by possessory actions requiring possession or the immediate right to possess.

• a contract of sale involves transferring a title to the absolute legal interest, not necessarily a good title.

transactions that are distinguished from a sale

• a gift -

  • in the esso case, the difference was critical

  • seller’s duty- seller has a duty regarding quality of goods in a sale but a gift giver doesnt (except for DOC in tort)

  • ownership transfer- owenrship in a sale can pass by mere agreement but a gift requires a transfer of possession or a deed executed by the giver

• a barter/exchange: a contract where goods are exchanged for other goods, services, transferred in payment of a debt rather than for money

  • SoGA= consideration must be in money, if in another form, not a sale

  • eg a counter-trade transaction = exchanging wheat for oil of similar value

  • alridge v johnson 1857 - a deal to exchnage bullocks for barley with a cash difference was treated as 2 back to back sales not an exchange

• transfer of interest in land

• bailment- the delivery of goods by 1 person to another for a limited purpose, with the understanding that the goods will be returned to the bailor or delivery to a 3rd party according to their instructions at the conclusion of the bailment

  • distinction between this and sale can be blurred when a manufacturer is involved

  • distunguished depending on contract terms and factors like who supplied principal goods and whether they remain identifiable throughout the process

• lease/hire- a finance lease= position of the lessee is very similar to that of a buyer. the term if the lease is close to the expected working life of the goods and the total hire charges approx the capital cost + interest and lessor’s profit

  • the leseee is responsible for maintenance and reapir and must pay the hire charges regardless of whether the goods are in working order

• hire-purchase: a contract where goods are hired for a period, after which the hirer has the option to buy the goods, usually by making further payment

  • position of the hirer is similar to a person who agreed to buy goods but pays the price in installments, with property only passing on full payment (a conditional sale)

  • key diff= a hire-purchaser has only an option to buy, while a buyer in a conditional sale is contractually bound to complete the transaction

  • distinction matters because a hire-purchaser cannot pass title to a good faith third-party purchaser under s 25(1) of the 1979 Act, whereas an installment buyer can (Helby v Matthews [1895]).

  • hire-purchase contract is outside the scope of 1979 act until the option to purchase is exercised

• transaction by way of security-

  • forms of security= the pledge, the lien, the mortgage, and the charge. since neither pledge nor lien involves the transfer of property - they’re distinguishable from a sale

  • charge- chargor grants an interest in their goods to the chargee but retains the property. the chargee’s interest is terminated upon payment of the debt

  • mortgage- legal title passes to the creditor, subject to the condition that the mortgagor can redeem the title once debt is paid

  • s62(4)- SoGA doesnt apply to a transaction in the form of a sale intedned to operate by way of mortgage, pledge, charge, other security

  • this applies to transactions that appear to be sales but are intended to create a security interest

  • courts may need to determine the 'true intention' of the parties. some cases have held that a contract of sale was a concealed charge (Re Curtain Dream plc [1990]), such cases are rare. sales to financiers with a lease-back arrangement are common and usually taken at face value.

• contract for work & materials-

agency vs sale of goods

• if an art dealer buys a picture for someone is the dealer acting as their agent or reselling them a pic?

• factors determining the relationship:

  • degree of independence to the middleman

  • freedom to fix prices

  • remuneration by commission/profit

  • accounting to the supplier for payments

• a person can be both

  • del credere agency- an. agent gives a guarantee to the seller that the buyer will pay price

  • confirming agent- an agent acting for the seller guarantees to the buyer that the seller will deliver the goods

IP and software

• complex

• transaction may involve sale of goods eg a dvd

• a central part will be a license granted by copyright owner

• london borough of southward v IBM UK ltd- highlights many software sales take the form of a bailment rather than a sale

formation of a contract of sale

• price determination (s8 SoGA)

  • price= reasonable price

  • may be left to be fixed in a manner agreed upon by the contract

  • may be determined by the course of dealing between the parties

  • if the price is not determined as above, the buyer must pay a reasonable price determined based on their circumstances

  • may & butcher ltd v r: an agreement to buy goods at prices to be agreed upon in future wasnt a concluded contract

  • hillas & co ltd v arcos ltd: uncertanity in a 2nd contract was resolved by reference to prior course of dealing between the parties

  • valued by a 3rd party- if the 3rd party doesnt do it then the contract isnt binding. but if the goods were delivered, appropriated by the buyer, they must pay a reasonable price