LAWS13015 PRINCIPLES OF COMMERCIAL LAW

Study Guide Week 2

Version 2.02 - 2016

Welcome to Sale of Goods and International Sales Contracts, the Topic for Week 2. I do not repeat the theme of the course, or the course information set out in detail in the Notes for Week 1. I hope you are familiar with Moodle. Moodle is your best source of up to date information, beginning with my message of the week. There are also many aspects such as the forums that you might like to explore. From the Course Coordinator

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 Discipline of Law School of Business and Law CQUniversity Australia Bruce Highway, Rockhampton, QLD 4701 Dr Christopher Walshaw Telephone: +61 07 49 23 2741 I welcome your feedback and suggestions for Facebook: https://www. facebook .com/ CQU- future content. You can email me at Law -192901937531609/ [email protected]. iTunesU: Colleges and Universities> CQUniversity Christopher Walshaw, Course coordinator, Website: http://www.cqu.edu.au/law Principles of Commercial Law

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 CONTENTS

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 iii Prescribed Reading SALE OF GOODS Clive Turner, Australian Commercial Law (30th ed, 2015) Chs 14 and 15 (Turner). A) PREVIEW

The law governing the sale of goods in Australia is found Additional Reading partly in the Sale of Goods Acts of the States and Davenport and Parker, Business and Law in Australia territories, partly in the common law and partly in (2012) Chs 14 and 15. consumer legislation notably the ACL. Auctions and export sales are governed by special rules. The result is a Dilan Thampapillai and others, Australian Commercial somewhat bewildering array of rules that often overlap. Law (2015) Chs 2, 3 and 4. The best approach, adopted in this course, is to begin with the Sale of Goods Acts. This particularly is so because they Key Terms are substantially based on the United Kingdom Sale of Goods Act 1893, which was designed to codify and make The following are key terms for Topic 2. The account of sense of common law rules that had accumulated over these terms provides a foundation for an explanation of many centuries to facilitate the trade in goods. The UK Act the characteristics of a contract for the sale of goods. is the foundation for subsequent modifications. This enables us to deal separately with the ACL in Topic 3. Sale – a transfer of property in the goods for a money Auction and international sales are particular kinds of sale consideration by a contract made between the seller and of goods and the rules specifically relevant to them are the buyer. It does not include a gift, hire, a bailment or an discussed at the end of this Topic. exchange of goods by barter (a trade-in is a part exchange and not a barter). See Turner at [14.10] for references to the various State and Territory Sale of Goods Acts and the rules therein Goods – goods are defined in the Sale of Goods Acts as relating to the ACL. The ACL will be the usual first port of including “all chattels personal other than things in action call when considering a Plaintiff’s remedies. However if and money. The term includes emblements (crops) and threshold tests set out in the ACL, such as those relevant things attached to or forming part of land which are to the nature and value of the transaction, are not met, agreed to be severed before sale or under the contract of and if remedies under the Sale of Goods Acts are sale.” Clearly land is not included. Services, skill and preferred, then consideration must be given to the Sale of expertise, ideas, intellectual property and knowhow are Goods Acts (as well as in contract, tort etc). not goods. Tangibility and movability are characteristics of goods. [There is more about “goods” in Section 3 and Activity 1, below.] Objectives

After studying Topic 2 you should be able to: B) CHARACTERISTICS OF, Identify whether a transaction is covered by a State Sale AND FORMATION OF A of Goods Act (e.g. 1896, QLD); CONTRACT OF SALE OF Explain the characteristics of a contract for the sale of goods; GOODS Describe the terms implied into a contract for sale of In order for there to be a contract of sale of goods the goods and their impact; ordinary elements of a contract must be present (offer Outline the rules relating to transfer of property between and acceptance, consideration, intention, capacity, buyer and seller; formalities). List and explain the remedies for breach of a contract of In Queensland, unlike New South Wales and Western sale of goods; Australia, there are no special formalities required in Explain the particular rules relating to auctioneers and respect of a contract for sale of goods. See Turner auction sales; and [14.180] and [14.190]. Have an awareness of the particular rules relating to In every contract of sale of goods three main matters international sales contracts. must be present: 1. Goods, 2. Money consideration sometimes called the price, and

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 iv 3. Transfer of ownership in the goods. Specific goods are those identified and agreed upon at the time the contract of sale is made and may be existing or Goods are defined as we have seen above and more is future goods. said about this in the next Section. Some further things need to be said about price and transfer of ownership. Unascertained goods are those sold under a description where no particular goods were identified and agreed The price of the goods may be fixed by the contract or in upon at the time when the contract was made. Examples some manner agreed upon, or by the dealings between are progeny of farm animals and crops. the parties. The contract may be complete and binding although no price is stated, and in such circumstances the The classification may determine when the property in buyer must pay a reasonable price. What is a reasonable the goods and the risk passes to the buyer as follows: price is a question of fact dependent upon the Specific goods - the property passes to the buyer at such circumstances of each particular case. time as the parties to the contract intend it to be There is more about price below, in part 4. transferred, taking into account the terms of the contract, the conduct of the parties, and the circumstances of the The contract of sale of goods may be one of two types case. relevant to transfer of ownership, a sale of goods and an agreement to sell goods. The property in unascertained goods does not pass until the goods become ascertained and being in a deliverable A sale occurs where the ownership of the goods is state are appropriated to the contract, either by the seller transferred to the buyer at the time of the contract. This is with the assent of the buyer, or by the buyer with the the typical transaction when going into a shop, choosing assent of the seller. an item and completing the purchase. An agreement to sell arises where the ownership of the goods is to be transferred at a future time, or subject to some condition. An agreement to sell becomes a “sale” when the time elapses or the condition is fulfilled. Internet shopping is an example. The sale is completed when the goods are delivered and that point the buyer becomes the owner of the goods. The difference is important in two respects. (1) As to the status of the parties if they want to sue the other party. In particular, if there is an agreement to sell, the buyer generally cannot require delivery of the goods (the buyer is not yet the owner) and only may claim damages (if any). (2) As to transfer of the risk of loss of or damage to the goods. Risk passes with ownership. Therefore the risk passes to the buyer only after delivery in respect of an agreement to sell. See Turner at [14.80] and [14.100]. The rights of third parties also may be affected. There is more about transfer of property below, in part 6. C) CLASSIFICATION OF GOODS

The goods that may be the subject matter of a contract of sale of goods are sometimes placed into one of four classes. The classification may assist in determining whether or not the property in question is goods and also may affect the transfer of risk. The classification is as 8773216, 9401925 follows: Existing goods are those owned or possessed by the seller Goods, deliberately, embraces a wide field. However at the time of the contract. challenges arise from new technologies from which new entities are developed. It may be a difficult question as to Future goods are to be manufactured or acquired by the whether or not such an entity is a ‘good’ for the purpose seller after the making of the contract of sale. of the Sale of Goods Acts. This question has been explored

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 v in two Australian cases, Toby Constructions Products Pty Ltd v Computer Bar Sales Pty Ltd [1983] 2 NSWLR 48 and D) THE PRICE Gammasonics Institute for Medical Research Pty Ltd v Comrad Medical Systems Pty Ltd [2010] NSWSC 267. You The price of the goods may be fixed by the contract or in will find on Google much commentary of Gammasonics. some manner agreed upon, or by the dealings between Please follow Activity 1. the parties. The contract may be complete and binding although no price is stated, and in such circumstances the buyer must pay a reasonable price. What is a reasonable Activity 1 price is a question of fact dependent upon the circumstances of each particular case. Download and read the judgment of Fullerton J in Gammasonics Institute for Medical Research Pty Ltd v The price of the goods is to be paid upon delivery of the Comrad Medical Systems Pty Ltd [2010] NSWSC 267. goods, unless otherwise agreed and payment must be made in legal tender (cash or its equivalent) unless http://www.austlii.edu.au/au/cases/nsw/NSWSC/2010/2 otherwise agreed. 67.html In two short paragraphs note the crucial reasons: E) TERMS OF THE Why the Judge held that the relevant software was not “goods”; and CONTRACT Why this was significant in this case. As mentioned usual principles of contract law apply. This exercise will add to your knowledge of the matters Principles especially applicable to contracts of sale of summarised above and in Turner at [14.30]. goods relate to (1) the division of terms of a contract into conditions and warranties and (2) the presence of implied Duration 30 minutes. terms as well as express terms. Payment of a reasonable price in the absence of an express term about price is an Answer to Activity 1 example of an implied term. The software package was delivered under contract by A “condition” is a term that is vital to the existence of the means of a remote Internet download onto the contract. Breach of a condition gives the innocent party a Gammasonics’ server. Gammasonics was responsible for right to repudiate the contract and claim for damages providing and configuring various hardware and sustained. Instead of repudiating the contract the networking infrastructure to meet the specifications of innocent party may bring an action for damages only. the software package. [3] Gammasonics submitted that A “warranty” is a term of lesser importance. Breach of Comrad’s software package fell within the statutory warranty merely gives rise to a claim for damages and not definition of “goods”. This was submitted to be the case a right to repudiate the contract and reject the goods. The despite the fact that the package was supplied in an definition of “warranty” in the Sale of Goods Acts does not intangible form as a software download and not add to this account. contained in any physical medium such as a CD ROM or a DVD. [12] Fullerton J agreed with the Magistrate that the Under the Sale of Goods Acts certain implied conditions nature of property contained in a software program which and warranties are applicable to contracts for the sale of exists in purely electronic format can only become a good goods but the parties themselves can also make specific under the Act in circumstances where it is transformed to conditions or warranties. a medium which gives it the qualities of tangibility and moveability. [13] An extensive review of previous cases Implied terms in contracts of sale of and academic opinion did not persuade her otherwise. It was a matter for legislative amendment.[45]. goods This was significant in this case because one of the issues The Sale of Goods Acts imply certain important terms in all in considering Comrad’s claim for damages concerned the contracts for the sale of goods unless the circumstances of application of the implied statutory warranties of the contract are such as to show a different intention. merchantable quality and fitness for purpose provided for These terms are either conditions or warranties. The in s 19 of the relevant Sale of Goods Act. This raised the implied terms relate to: question whether the software package supplied under Title; quiet possession; no encumbrance; contract is properly classified as “goods” under s 5 of the Act. [5], [47]. Correspondence with description; Merchantable quality; Fitness for purpose;

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 vi Correspondence with sample. Correspondence with description Each of these is now considered in turn. There also are separate provisions in the Sale of Goods Acts that deal Where there is a sale of goods by description there is an with remedies for breach of a contract of sale of goods. implied condition that the goods will correspond with that description. If the goods do not conform to their description in the contract the buyer is entitled to reject Title them for breach of the implied condition or, alternatively sue for damages, since the buyer would not have received In a contract of sale there is an implied condition on the what he or she bargained for. part of the seller that he or she has a right to sell the goods and, in the case of an agreement to sell, that they For the condition to apply the goods must be sold “by will have a right to sell the goods at the time when the description”. Sometimes it is difficult to distinguish property is to pass. between statements that concern the identity of the goods, and describes them as such, from statements that The following warranties as to title are also implied: are about the quality of the goods. This may have a That the goods are free from any charge or encumbrance significant bearing on any right to rescind. A neat example in favour of any third party not declared or known to the follows from the sale of a “breeding bull” subsequently buyer before or at the time when the contract is made; found to be sterile: Elder Smith That the buyer shall have and enjoy quiet possession of Goldsbrough Mort Ltd v the goods. This amounts to an indemnity against the McBride. See Turner at consequences of a defective title and of any disturbance [14.250] that might result. But note that recission There can be an issue as whether or not the particular must take place within a breach falls under the implied condition and so enabling reasonable time, this repudiation or under the implied warranties so enabling a being a relatively short claim for damages only. The court held that there was a time in view of the commercial need for finality. See the breach of condition in Rowland v Divall [1923] 2 KB 500 discussion of Russo v Belcar Pty Ltd (2011) 111 SASR 459 where the goods (a car) turned out to have been stolen in Turner at [14.205]. and notwithstanding the use of the car by the buyer for sometime before the police took possession. Compare cases where a third party claimed correctly that the goods Merchantable quality infringed their intellectual property: Microbeads v Vinhurst Road Markings Ltd [1975] 1 All ER 529. It appears Where goods are bought by description from a seller who to be an important factor that in the former case the deals in goods of that description there is an implied seller never had title whereas in the latter case the seller condition that the goods are of merchantable quality did have title that was subsequently challenged. provided that, if the buyer has examined the goods, there is no implied condition as regards defects that such examination ought to have revealed. It can be seen that the application of this implied condition depends on proof of a number of elements two of which are (1) the meaning of “merchantable quality” 14025236, 17276725 and (2) the meaning of “sale by description”.

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 vii patent or other trade name there is no implied condition as to its fitness for any particular purpose. The buyer must establish purpose and reliance but the two elements may go hand in hand: Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd (1990) 2 NSWLR 820. The seller need not be informed of the particular purpose when such purpose is the ordinary use for which such goods are used. The trade name exception applies only where the buyer orders the goods under their trade name in such a way as to show that the buyer does not rely on the seller’s skill and judgment. There has been much litigation concerning fitness for purpose, some of which may be found in Turner at [14.290]-[14.370]. The cases include Aqua-Marine. The prawns were not fit for the purpose of on sale to Woolworths. Turner at [14.345] A neat case that illustrates both the intersection of claims made for misleading or deceptive conduct (in this case in breach of the Fair Trading Act 1999 (Vic) and for breach of 4552365 the relevant Sale of Goods Act is Khuu and Lee Pty Ltd v Micropos Pty and others [2010] SADC 14. The claim of There have been many attempts to define the expression misleading or deceptive conduct failed on the facts but “merchantable quality”: see for example Henry Kendall & the plaintiff did succeed in establishing purpose and Sons v William Lillico & Sons Ltd [1969] 2 AC 31 and breach of fitness for purpose. See Turner at [14.270]. In essence the expression is concerned with quality and this relates to the description http://www.austlii.edu.au/au/cases/sa/SADC/2010/14.ht of the goods. So a wrecked and burnt out car would not ml be of merchantable quality if sold as a car, but would be of merchantable quality if sold as scrap. The usual use of Sale by sample the goods, the price paid for the goods and the other circumstances of the sale will be relevant. A contract of sale by sample is where there is a term in The goods must be bought by description but this the contract express or implied to that effect. In such requirement has been interpreted broadly by the courts. contracts there is an implied condition that: There is such a sale even if the buyer has seen or The bulk will correspond with the sample in quality; examined the goods such as in a shop. The buyer will have a reasonable opportunity to compare An interesting recent case is Aqua-Marine Marketing Pty the bulk with the sample; and Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] The goods will be free from any defect rendering them FCA 908, which concerned the sale of prawns by unmerchantable which would not be apparent on description, but including an examination, held to be reasonable examination of the sample. superficial and insufficient to reveal the latent defects in the product. See Turner at [14.286] Exclusion of the terms implied by the Fitness for purpose Sale of Goods Acts

Where the buyer, expressly or by implication, makes The Sale of Goods Acts themselves provide that where any known to the seller the particular purpose for which the right, duty or liability would arise under a contract of sale goods are required, so as to show that the buyer relies on by implication of law, it may be negatived or varied by the seller’s skill or judgment, and the goods are of a express agreement or by the course of dealing between description which it is in the course of the seller’s business the parties or by usage, if the usage is such as to bind both to supply, there is an implied condition that the goods are parties to the contract. reasonably fit for such purpose provided that in the case A clause may be included in the contract excluding liability of a contract for the sale of a specific article under its as follows: “All conditions, warranties and liabilities implied by statute, common law or otherwise are

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 viii excluded”. Such a clause does not protect the seller to know when ownership passes to the buyer for a against any express warranty that may be included in the number of reasons. One is that risk of loss in respect of contract. the goods vests in the owner or the goods and therefore passes with ownership. Another flows from the insolvency A recent illustration of the effectiveness of an exclusion of one of the parties, the question then being whether the clause is found inVictorian Alps Wine Co Pty Ltd v All goods are part of the debtor’s property and therefore Saints Estate Pty Ltd [2012] VSCA 81, (2012) 34 VR 397. subject to insolvency rules. Another relates to on sales by All Saints and Vallunga produced wine for sale. All Saints a buyer to a third party. As we have seen the status of engaged the appellant to process much of its grapes. In parties in claims relating to goods is also affected by the that process the appellant used tartaric acid, which it had transfer of property in those goods. purchased from the second respondent, Redox. Following The general rule is that property passes in accordance its use it was discovered that the tartaric acid was with the intention of the parties. In the absence of any defective. In consequence, the wine produced was such intention 5 rules set out in the Sale of Goods Acts tainted and unsaleable. The wine had the plastic taste of apply, as follows: beach balls. The losses were huge. Redox successfully relied on a clause contained in the contract for supply of Rule 1. Where there is an unconditional contract for sale the acid, “all statutory and implied conditions and of specific goods in a deliverable state, property passes to warranties except as to title are excluded.” See also the buyer when the contract is made, irrespective of time Turner at [14.390] of delivery or payment. This rule and the implications of it, when the buyer became insolvent, are well-illustrated in Bodilingo Pty Ltd v Webb Projects Pty Ltd (1990) ASC 56- When a condition is to be treated as a 001 noted in Turner at [14.460]. warranty Rule 2. Where there is a contract for sale of specific goods Where a contract of sale is subject to any condition to be and the seller is bound to do something to the goods for fulfilled by the seller, the buyer may waive the condition the purpose of putting them in a deliverable state, or may elect to treat the breach of such condition as a property does not pass to the buyer until such thing is breach of warranty and not as a ground for treating the done and the buyer has notice of it. contract as repudiated. Rule 3. Where there is a contract for sale of specific goods Where a contract of sale is not severable and the buyer in a deliverable state, but the seller is bound to weigh, has accepted the goods or part of them, the breach of any measure, test, or do some other act or thing with condition to be fulfilled by the seller can only be treated reference to the goods for the purpose of ascertaining the as a breach of warranty and not as a ground for rejecting price, property does not pass to the buyer until such thing the goods and treating the contract as repudiated, unless is done and the buyer has notice of it. there is an express or implied term of the contract to that Rule 4. Where the goods are delivered to the buyer on effect. approval, or on “sale or return”, or other similar terms, In Russo v Belcar, referred to above, the breach of the property passes to the buyer (a) when the buyer signifies seller was treated as a breach of warranty. approval or adopts the transaction; or (b) the buyer retains the goods without giving notice of rejection and Caveat Emptor after a time fixed for return or after a reasonable time. Rule 5 relates to unascertained or future goods. As a Apart from the conditions and warranties already referred general rule property in such goods does not pass until to, there are no implied warranties or conditions at such goods are ascertained and in a deliverable state. common law as to the quality or fitness for any particular There are two sub-rules. purpose of goods supplied and the doctrine “caveat Where there is a contract for sale of unascertained or emptor” or “let the buyer beware” applies. Of course this future goods by description, and in a deliverable doctrine is modified in respect of consumers by the ACL. state are unconditionally appropriated to the contract by either party with the assent (express F) TRANSFER OF PROPERTY or implied) of the other, property passes to the buyer at the time of such appropriation. We are concerned with transfer of ownership in the Where in pursuance of the contract the seller delivers goods, not with transfer of possession of goods. This is the goods to the buyer or to a carrier or other sometimes referred to as transfer of the property in the bailee (whether named by the buyer or not) for goods. It is possible for goods to be in the possession of the purpose of transmission to the buyer and one party to the contract or a third party whilst the does not reserve the right of disposal, the seller is ownership of the goods is in another party. It is important

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 ix deemed to have unconditionally appropriated the require registration under that Act in order to be goods to the contract. enforceable. This rule and the consequences with regard to risk is illustrated in Wardar’s (Import & Export) Co Ltd v W Title of transferee Norwood & Sons Ltd [1968] 2 QB 663 noted in Turner at [14.520]. See also in respect of risk Turner at [14.610] and The general rule is that the transferee (buyer) of goods [14.620]. cannot obtain a better title than the transferor (seller) (nemo dat quod non habet). There are significant Problems have arisen with the supply of unascertained implications for third parties who deal with either the goods in bulk, the sale of grain being a good example. So seller or the buyer that have resulted in extensive now in the Victorian Goods Act and New South Wales Sale litigation found in the many cases set out in the of Goods Act there are specific provisions that allow paragraphs in Turner noted below. These case concern transfer of title. See Turner at [14.530]. exceptions to nemo dat, which may arise in the following For an indication of just how complex this issue can be, circumstances: see Gail Pearson “Constructive Possession and A sale where the owner is estopped from denying the Constructive Delivery in Transfer of Title to Goods” [2003] authority of the seller (Turner at [14.640]- [14.660]); UNSWLJ 6, which may be found at: A sale by a mercantile agent or a sale under special http://www.austlii.edu.au/au/journals/UNSWLJ/2003/6.h common law or statutory power of sale (Turner at tml [14.670]); A sale by a person having a voidable title (Turner at Reservation of right of disposal [14.680]-[14.690]); or In a contract for the sale of specific goods or a later A sale by a seller or buyer in possession after the sale appropriation of unascertained goods to the contract, the (Turner at [14.700]-14.750]). seller may by the terms of the contract or appropriation reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding G) PERFORMANCE OF THE the delivery of the goods to the buyer or to a carrier, the CONTRACT property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. It is the duty of the seller to deliver the goods and that of For example, the buyer may be required to accept certain the buyer to accept and pay for them in accordance with bills of exchange or pay cash before obtaining property in the terms of the contract. Delivery may be actual or the goods. constructive. In recent years reservation of title terms in contracts of The Sale of Goods Acts set out general rules as to the sale of goods have become common and sophisticated. delivery of goods under a contract of sale that apply if An effective retention of title clause allows the seller to there is no agreement to the contrary. These are largely take back the goods (or even the proceeds of sale where common sense and anticipate particular fact situations. resold by the buyer) in the event of the buyer’s insolvency Ten such rules are collected in Turner at [14.770]. and thereby prevent the goods from becoming part of the Usually there is actual delivery and transfer of the goods property or assets of the buyer available for distribution but sometimes delivery is constructive or symbolical such amongst the buyer’s other creditors. Such terms are often as giving the key to the premises where the goods are called “Romalpa” clauses. kept. In such cases delivery is construed from the The viability and significance of such clauses is illustrated particular circumstances. in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in Where the seller delivers fewer goods than the seller contracted to sell, the buyer may reject them. If the buyer liq) (2000) 202 CLR 588 noted in Turner at [14.560]. The accepts the delivery, the buyer must pay for them at the issues that may arise have been the subject of much contract rate. recent litigation indicated in the discussion and cases Where the seller delivers a larger quantity of goods than found in Turner at [14.540]-[14.590]. the seller contracted to sell, the buyer may accept the It is necessary to note a new and significant development: goods included in the contract and reject the rest, or the that retention of title clauses are likely to constitute a buyer may reject the whole. If the buyer accepts the “security interest” for the purposes of the Personal whole of the goods so delivered the buyer must pay for all Property Securities Act 2009 (Cth) and therefore now of them at the contract rate.

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 x Where the seller delivers to the buyer the goods the seller to prevent the goods becoming part of the buyer’s contracted to sell mixed with goods of a different property assets? description not included in the contract, the buyer may a) Rompus Clause accept the goods that are in accordance with the contract and reject the rest, or the buyer may reject the whole. Rolling Clause Unless otherwise agreed, the buyer of goods is not bound Romalpa Clause to accept delivery by instalments. Where the contract Romputus Clause provides for instalment delivery and each delivery is to be paid for separately and the seller makes defective deliveries or the buyer makes default in respect of one or (3) Which of the following can apply the nemo dat rule? more instalments, it is a question in each case depending on the terms of the contract whether the breach is a a) Sale by a seller or buyer in possession after the repudiation of the whole contract, or whether it is a sale severable breach, giving rise to a claim for compensation Goods sold by a person who is not the owner of the but not to a right to treat the whole contract as goods without the owner’s consent repudiated. The cases indicate that a crucial factor is the Sale where the owner is estopped from denying risk or otherwise of repeated breach. If so the contract authority of the seller may be rescinded as to further deliveries. Goods obtained by a contract induced by fraud As mentioned it is the duty of the buyer to accept and pay for the goods in accordance with the terms of the © 2012 Thomson Reuters (Professional) Australia Limited contract. A buyer’s failure to accept the goods renders them liable for breach of contract unless there is a right to Answers to Activity 2 reject them for breach of condition. Question 1: (b) A buyer is deemed to have accepted the goods: Question 2: (c) when the buyer intimates to the seller that he or she has accepted them; or Question 3: (b) and (d) when the goods have been delivered and the buyer does any act in relation to them which is inconsistent with the H) REMEDIES FOR BREACH ownership of the seller, or OF CONTRACT OF SALE when the buyer retains the goods after the lapse of a reasonable time without intimating to the seller that OF GOODS he/she has rejected them. The Sale of Goods Acts deal separately with remedies of For more about acceptance and amendments made to the the unpaid seller on the one hand and of the buyer for the Sale of Goods Acts of New South Wales, Victoria, South seller’s breach of the contract of sale on the other hand. Australia and ACT mainly relating to the inspection of goods, see Turner at [14.830]. Remedies of the unpaid seller

Activity 2 The seller of goods is deemed to be an unpaid seller where: Chose the correct answers to the following multiple choice questions: The whole of the price has not been paid or tendered; or (1) How many sub-rules do the Sale of Goods Act set out A bill of exchange or other negotiable instrument has in relation to ownership of property or goods? been received as conditional payment, and the condition has not been fulfilled. a) 3 The unpaid seller has two classes of rights: 5 Against the goods; and 7 Against the buyer. 2

(2) What is the name given to the clause that allows a seller to recover goods if a buyer becomes insolvent, and

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 xi Rights of the unpaid seller against the goods

Each of these rights is straightforward as between seller and buyer. Complications can arise if third parties acquire rights in respect of the goods. An example is where the buyer sells goods that are subject to a delivery order to a third party while the goods are in transit. In that case the seller must deliver to the third party and is deemed to have lost their lien. See Turner at [14.860]-[14.940].

Rights of the unpaid seller against the buyer Action for the price: unless otherwise agreed, usually delivery of the goods and payment of the price are concurrent. Where the property in the goods has passed to the buyer and they wrongfully neglects or refuses to pay, the seller may sue the buyer for the price. Damages for non-acceptance: the general rule is that on a buyer’s non-acceptance of the goods, the measure of damages recoverable by the seller is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract. This may be the amount of the loss of profit. Awards of damages are generally conservative and the seller will be required to act reasonably to mitigate their loss. Turner at [14.950] – [14.1010]

Remedies of the buyer

The buyer’s remedies are of four kinds namely, repudiation of the contract of sale, damages for breach of warranty of quality, damages for non-delivery, and specific performance.

Repudiation The buyer is entitled to rescind the contract and reject the goods where there is a breach of a condition. The purchase price can be recovered if there has been a total failure of consideration. Recall Rowland v Divall.

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 xii The right of repudiation may be lost to the buyer where: contract would be the amount of injury which would ordinarily flow from a breach of contract under those The buyer has waived the breach of condition or elected special circumstances so known and communicated. to treat it only as a breach of warranty; The contract of sale is not severable and the buyer has Specific performance accepted the goods or part of them; or Where there is failure by the seller to deliver specific or The contract is for specific goods and the property in ascertained goods, the court may direct specific them has passed to the buyer. performance of the contract on such conditions as it thinks fit. Damages for breach of warranty of quality As a general rule the court will not enforce specific Where there is a breach of warranty of quality by the performance of an agreement to sell and deliver chattels seller, or where the buyer elects or is compelled to treat unless the goods are unique or of a special kind, and any breach of a condition on the part of the seller as a where the award of damages would not be an adequate breach of warranty, the buyer is not by reason only of compensation to the buyer. The classic example is the such breach of warranty entitled to reject the goods but purchase of a particular portrait by a famous artist. the buyer may: Set up against the seller the breach of warranty in Activity 3 diminution or extinction of the price; or Maintain an action against the seller for damages. Chose the correct answers to the following multiple choice questions: The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the (1) What does Caveat Emptor mean? ordinary course of events from the breach of warranty. a) Let the buyer beware. Pursuant to the Sale of Goods Acts the loss is prima facie Let the seller beware. the difference between the value of the goods at the time of delivery and the value they would have had if they had Let the trader beware. answered to the warranty. Let the owner beware. But, this rule is only appropriate where the buyer’s claim is in respect of an actual defect in the goods. Where the buyer is claiming for the damage caused by the defective (2) A seller’s right to retain possession of goods until the goods, the measure of damages is the estimated loss price is paid, particularly when if the buyer becomes directly and naturally resulting in the ordinary course of insolvent is known as events from the breach of warranty. a) Stoppage in transit You will not be surprised to know that the assessment of Lien damages is a vexed and often litigious task, illustrated by the cases discussed in Turner at [14.1050]-[14.1080]. Withholding delivery Cases concerning latent defects in goods are particularly Resale difficult.

Damages for non-delivery (3) Which of the following are remedies available to a buyer? (Select more than one, if appropriate.) The contract of sale may contain certain stipulations as to time of delivery and the buyer is entitled to have these a) Damages for a breach of quantity stipulations carried out. Where the seller wrongfully Damages for late delivery neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for Damages for non-delivery damages for non-delivery. Damages for breach of quality The measure of damages is the estimated loss directly and © 2012 Thomson Reuters (Professional) Australia Limited naturally resulting in the ordinary course of events from the seller’s breach of contract. In some cases a buyer may Answers to Activity 3 be entitled to special damages arising from their particular requirements in respect of the goods. If the Question 1: (a) special circumstances under which the contract was Question 2: (b) actually made were communicated and known to both parties, the damages resulting from breach of such Question 3: (c) and (d)

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 xiii I) AUCTIONEERS AND J) INTERNATIONAL SALES AUCTION SALES CONTRACTS

Auctioneers are agents employed to sell real property Such contracts are a topic in itself as indicated by the (land) and personal property (goods) in a particular separate chapter in Turner (Ch 15) but the curriculum manner. An auction is a sale in public where the sensibly does not permit that. Therefore the aim of the auctioneer calls for bids and the property is generally sold following treatment is to make you aware of such to the highest bidder. A contractual offer is made by the contracts and of some of the significant features. Also an bidder making a bid and acceptance occurs when the exporter will need to know about the relevant licensing auctioneer’s hammer falls. regimes and about the way in which international sales are financed, particularly where the goods themselves are Such sales are sale of goods subject to the Sale of Goods used as security (the bill of lading). Acts and those Acts contain provisions specific to sales by auction. The five provisions are set out in Turner at Goods are often traded overseas and are the subject of [14.1110]. It should also be noted that other legislation export sales. Increasingly such sales are governed by regulates and controls the activities of auctioneers and standard forms and by the activities of agents who are auctions. For duties of auctioneers see Turner at [14.1120] particularly expert in such sales. Obviously a feature of and for implied warranties by auctioneers see Turner at such sales is the transport of goods overseas by ship or air [14.1130] –[14.1150]. There are interesting cases arising transport. The following paragraphs will cover briefly the from livestock auctions. nature of such contracts, the Vienna Sales Convention and a few of the rules specific to export sales.

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FOB and CIF contracts

Free on Board and Cost, Insurance and Freight are two 8140777 types of international contract commonly used when contracting for the sale of goods to be carried by sea. The general rule is that once the goods are placed on board ship, the risk is on the buyer and they must rely on insurance for protection against loss. When the documents are handed over the buyer takes property in

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 xiv the goods subject to a condition that the goods are in And as mentioned above the important matter of passing accordance with the contract. The buyer has the right to of risk and ownership in respect of goods is usually reject the documents and the goods. governed by the specific terms of FOB and CIF contracts. There also are contracts governed by standard Where the goods have been quoted “FOB” (free on board) INCOTERMS. it is the seller’s duty to put the goods on board the ship at the port of shipment and to pay all expenses incurred in Some of the more significant differences between the doing so, the buyer being responsible for subsequent Sale of Goods Acts and the Vienna Convention are now charges such as freight and insurance. It is the duty of the highlighted: seller to notify the buyer of the shipment to enable the 1. It will be recalled that the Sale of Goods Acts buyer to insure, otherwise the goods are at the seller’s permit repudiation for breach of a condition. The risk. Convention permits this where there has been a When the goods have been quoted “CIF” (cost, insurance fundamental breach. The emphasis is on the and freight) the seller’s duties are to: nature of the breach rather than the nature of the term. Make arrangements for the transport of the goods; 2. The Convention allows for the issue of notices of Ship the goods and pay the costs thereof; breach by either seller or buyer and consequences Effect upon terms current in the trade an insurance of the for non-compliance. goods and to pay the premium; and 3. The Convention is stricter on the seller with Tender, within a reasonable time after shipment, the regard to latent defects. shipping documents to the buyer. 4. The Convention is more generous to the seller in Obviously all the additional costs are factored into the respect of the right to sell. price. At the time of handing over of the documents 5. Implied term enabling fixing of the price and place property in the goods passes to the buyer. This gives rise for payment of the price in the absence of to dual rights of rejecting the goods and rejecting the agreement is more extensive. documents. 6. The passing of risk is linked to the control of See for further detail Turner at [14.820]. goods rather than to the passing of property, of course subject to specific terms often seen in such Vienna Sales Convention contracts. 7. Damages are fault-based under the Convention so The Vienna Sales Convention 1980 is a generally successful providing a let-out if the party in breach can point attempt to regulate international trade in goods. Australia to matters beyond that party’s control. is a party to the convention and its terms have been adopted by the States and Territories notably the Sale of 8. The Convention provides strict rules for Goods (Vienna Convention) Act 1986 (Qld). From the preservation of goods pending resolution of a Australian perspective it should not be assumed that all dispute. regional countries are parties: India, Indonesia, Malaysia A recent case that illustrates the complex and specialized and Vietnam are not. This may change. The Trans Pacific nature of international sales contracts is Attorney-General Partnership (TPP) is likely to affect the regulation of of Botswana v Aussie Diamond Products Pty Ltd (No. 3) international trade. [2010] WASC 141 which may found at However it is essential to note that the terms of the http://www.austlii.edu.au/au/cases/wa/WASC/2010/141. particular contract govern the rights of the parties. Such html. contracts can and commonly do exclude or vary the provisions of the Convention. The Convention, like the Sale of Goods Acts, is designed to fill in gaps not covered k) Review by the express terms of the contract. And see Turner at [15.40] re matters not governed by the Convention, Tutorial problems Turner at [15.50] re the exclusion of application of the Convention and Turner at [15.60] re interpretation of the Problem 3 Convention. Explain and discuss the distinction between: Much of Turner Ch 15 sets out rules in respect of the Sale and agreement to sell; and formation and performance of international sales contracts and remedies for breach. There is also an A sale of goods and a contract for work and materials. extensive list of further reading at pages 302-303.

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 xv [Effort 20 min]

Problem 4 Jack enters into a contract with Speedy homes Pty Ltd for the purchase of a relocatable home. The cost is $120,000 and Justin tells Speedy that the house is to be used in the Snowy mountains and so needs to be extra warm. The house is built in Speedy’s factory and then transported to Justin’s land. It is impossible to heat properly because of the materials used in construction. Justin wants to know if he has remedies under the Sale of Goods Act. Advise Justin.

[Effort 40 min]

Debrief

In Topic 2 you have learned: The characteristics of a transaction covered by the Sale of Goods Acts; The rules relating to the legal relationship between seller and buyer in respect of terms, transfer of property and remedies for breach; The particular rules relating to auction sales; and Significant aspects of contracts for the international sale of goods.

LAWS 13015 Principles of Commercial Law: Study Guide Week 2 2016 xvi