CIF, FOB

The nature of a cif contract remains unclear. Discuss. - Justin Santiago

The discussion revolves around whether a CIF contract is a sale of goods or a sale of documents pertaining to the goods or both. A CIF contract is a cost, insurance and freight contract. Under a CIF contract the seller is required to arrange the carriage of the goods and their insurance in transit, and the cost of those arrangements is included in the contract price. The seller obtains a bill of lading and a policy of insurance and forwards them to the buyer, together with an invoice for the price, and the buyer pays on receipt of the documents.

It has been argued that a CIF contract is a sale of documents in the lower courts in the case of Arnold Karberg v Blythe, Green, Jourdain and Co by Scrutton, J who said the contract was a sale of documents based on the fact goods can be paid for or sold on the strength of the documents. Support for Scrutton, J's judgement comes from the fact that a number of legal rights and liabilities are attached to the documents such as the buyer's obligation to pay against the tender of the documents or the right to reject the goods against a bad tender of documents.

However the correct definition of a CIF contract was later addressed in the same case at the level of the Court of Appeal and reiterated in Hindley & Co v East India Produce Co where it was stated that it was the contract of the sale of goods to be performed by the delivery of documents. The case of Kwei Tek Chao v British Traders it was stated there were 2 rights of rejection – rejection of documents and rejection of goods emphasised the point that two conditions needed to be fulfileed and that a cif contract meant both a sale of documents or a sale of goods. Additionally this rule is subject to the proviso that the documents tendered are strictly in conformity with the contract i.e. the goods correspond with the description.

Some cases will illustrate the duality of this definition. In Gill and Dufus v Berger – normal duty of the buyer to pay the price against the documents even though the seller has failed to perform his duty to ship conforming goods.
The rationale is that it is the buyer who will take benefit of insurance and eliminates difficult questions of proof of the actual time when the goods were lost/damaged. This is an exception to the provision on the allocation of risk is Section 20(1) in SOGA which states, "Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not."

The buyer is also protected in cases where it is physically impossible to deliver the goods. In cases like Manbre Sacharin where the goods did not exist or were destroyed before the passing of documents, the contract was invalid.

In contrast to a CIF contract, in an FOB contract, S20 of the Sale of Goods Act 1979 is applied and risk prima facie passes with property so that risk normally passes to the buyer when the goods are put across the ship’s rail – Pyrene v Scindia - the tender was at the sellers risk when it was dropped during loading prior to crossing the ship’s rail.

Risk of loss may also remain with the seller by virtue of he provisions of s32 of the Sale of Goods Act. Section 32 (3) provides that:

“where goods are sent by the seller to the buyer by a route involving sea transit under circumstances in which it is usual to insure, the seller must give to the buyer such notice as will enable the buyer to insure them during the sea transit”

If the seller fails to supply such information, the goods are at his risk during the sea transit. It has been argued that s32(3) can have no application to FOB sales because the contract requires the seller to deliver the goods “free on board” and delivery to a carrier is normally deemed to be delivery to he buyer.

In the alternative, risk may pass to the buyer prior to shipment. In Cunningham v Munro it was suggested that if the goods deteriorate because of the buyer’s delay in giving the seller shipping instructions (it is the obligation of the buyer to nominate an effective vessel and nominate the port of loading) or because the buyer induces the seller to deliver goods to the port before the goods can be loaded the buyer would be liable for such deterioration; he would be entitled to reject the goods for non-compliance with the implied conditions as to quality in the Sale of Goods Act, but would be liable to the seller in damages for the deterioration.

Risk may also remain with the seller under the following circumstances :-

1.Seller has reserved the right of disposal by retaining the bill of lading
2.Contract goods are unascertained

Sale of Goods by Non-Owners

Situations involving sale of goods by non-owners

a. Stolen goods

If the goods turn out to have been stolen, the buyer is entitled to the return of the whole of the purchase price – breach of condition implied by S12(1) – right to sell the goods must have a title that can be conveyed - Rowland v Divall. It is not only breach of an implied condition but there is no consideration as the buyer has paid the purchase money without any corresponding detriment on the seller's part. The whole object of a sale to transfer property from one to another has been defeated.

b. Imitation goods

Property is in the goods but no title and therefor there is no sale as there is no title to convey – Niblett v Confectioners’ Materials.

c. Mistake as to identity

Whether the title is voidable or void - the real test lies in the intention of the original seller. If his intention was deal with and pass title to the original buyer, regardless of the fraud, then the contract will merely be voidable : Ingram v Little. If his intention was to pass title not to the original buyer but to someone else, but was defrauded into dealing with the original buyer then the contract will be void – Shogun Finance Ltd v Hudson . A however can void B’s title by making a report to the police : Car & Universal Finance Ltd v Caldwell.

The original owner word argue that the title transferred by the seller was not merely voidable but void in order to continue to assert his right as owner.

References

Battersby and Preston The concepts of property, title and owner used in the Sale of Goods Act 1993

Graham Battersby A Reconsideration of Property and Title in the Sale of Goods Act

David Tiplady When is a seller not a seller

Nemo dat rule

In what ways does commercial law protect a bona fide purchaser of personal property? - Justin Santiago

In commercial transactions, balance has to be made between rights of a bona fide purchaser and the strict application of the nemo dat quod non habet rule – no one can give a better title than he himself possesses enshrined under common law and under statute - Sale of Goods Act 1979 S21(1). This is exemplified in Lord Denning’s judgement in the case of Butterworths v Kingsway North Finance - in the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is for the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title.

From the historical point of view, the law has leaned towards the owner. However more recently the priority is given to security of transactions and the innocent purchaser has been given slightly more protection. The reason for the alteration might be owed to the following two realities :-

Firstly, it is often the case that the owner voluntarily transfers possession to the fraudster and he is certainly able to assess the risks inherent in the transaction, eg the fraudster’s creditworthiness. The buyer, on the other hand, rarely has either the time or the ability to investigate the title to the goods as, unlike real property, there is no certain method of ascertaining such title.

Secondly, the owner is frequently insured against the loss of his goods and will be able to claim on his insurance policy.

There are several exceptions to the nemo dat rule

1. Estoppel

An estoppel, when successfully raised, prevents the true owner from claiming that the sale of goods was unauthorised. An estoppel arises when the true owner leads the innocent purchaser to believe that the unauthorised seller has the right to sell the goods. In such a case the owner of the goods is precluded (estopped) from denying the seller’s authority to sell : S21(1) of the Sale of Goods Act. In order to be successful in estoppel, the following points must be established:-

(i) The true owner intentionally or negligently represents that the seller has the owner's authority to sell the goods as his agent;
(ii) The innocent buyer acts in reliance on the representation; and
(iii) The innocent buyer buys the goods.

However the scope of estoppel has been narrowed :-

Moorgate Mercantile Co Ltd v Twitchings – for estoppel by negligence to take effect there must be a duty owed, carelessness in handing over possession of goods or documents of title is not enough. The significance of the case lies in the fact that the court treated the existence and the nature of the duty to take care in such circumstances as the same as those which arise in the ordinary law of negligence. In other words, negligence must be more than mere carelessness and amount to a disregard of the owner’s obligation towards a person setting up the defence. The bona fide purchaser must be able to show that the owner owed him a duty of care.

Mercantile Credit Co Ltd v Hamblin – there was no estoppel by negligence because although there was a duty of care there was no breach of that duty, additionally the proximate or real cause was the fraud of the dealer

Shaw v Metropolitan Police Commissioner the estoppel principal did not apply where there was only an agreement to sell.

Debs v Sibec Development Ltd suggested that, even though the owner’s statement may be an unequivocal representation of the seller’s authority to sell the goods, it will be insufficient unless it is made voluntarily.

2. Factors Act 1889

This exception applies where a mercantile agent is, with the consent of the owner, in possession of goods or documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this act, be as valid as if he were expressly authorised by the owner of the goods to make the same, provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition noticed that the person making the disposition has no authority to make the same.

In order to pass a good title to the innocent purchaser, the following must be established:

(i) The mercantile agent must be in possession of goods or of the documents of title to goods. A bill of lading is a document of title but not the registration documents for a motor vehicle. Furthermore, it is generally accepted that a person must be a mercantile agent at the date he receives the goods and it is insufficient that he subsequently becomes one, unless there is further consent to this possessing the goods at the date when he has become a mercantile agent.

(ii) The possession must be with the consent of the owner. Consent is presumed in the absence of evidence to the contrary, and withdrawal of the consent is not effective as against a third party who takes without knowledge of the withdrawal of consent and under a disposition which would have been valid if the consent had continued. At Common law, if I deliver my car to a motor dealer for sale, I entrust my car to him as a mercantile agent. Then I leave my car for the purpose of repair, then even though he is a mercantile agent I have not consented to his possession of the car in that capacity and the section will not apply to a wrongful disposition made by him. Consent obtained by fraud is nevertheless an effective consent with the meaning of this section.

(iii) The sale must be in the ordinary course of the mercantile agent’s business. As to this question, I think Buckley LJ has given the best explanation in Oppenheimer v. Attenborough & Son. It reads as follows: ‘acting in such a way as a mercantile agent acting in the ordinary course of business of a mercantile agent would act’; that is to say, within business hours, at a proper place of business, and in other respects in the ordinary way in which a mercantile agent would act, so that there is nothing to lead the buyer to suppose that anything wrong is being done, or to give him notice that the disposition is one which the mercantile agent had to authority to make.

(iv) The person taking under the disposition must act in good faith and without notice of the mercantile agent’s lack of authority. The onus of proof on these issues lies upon the buyer.

3. Voidable contract (S23)

Under this exception a voidable title that has not been avoided yet could be transferred to a buyer that did not know about the deficiency of the title. If a contract is voidable, but sold before it is avoided the 3rd party would have good title.

4. Seller in Possession (S24)

Basically, a seller who is possession of the goods that he sold, can sell them again to a 2nd buyer and that buyer can acquire a good title if he receives them in good faith and without notice of the first sale. To a great extent, this exception derives from the fact that it is difficult to establish ownership in respect of goods, and therefore possession of goods is to be taken as prima facie evidence of ownership. Here several aspects have to be considered before the exception applies.

Firstly, in relation to possession, it should be noted that this exception applies not only in the situation where the seller ‘continues’ in possession but also where he is ‘in possession’ at the time of the second disposition. In Worcester Works Finance Ltd v. Cooden Engineering Co Ltd, Lord Denning MR considered that this phrase referred to the situation where the seller did not have possession when he sold the goods but ‘they came into his possession afterwards’.

Secondly, as to the delivery or transfer of goods or documents of title, it is not the document itself or the issuing of such a document of title which confers rights of ownership; it is the transfer to a second buyer of a document of title which is already in the possession of the seller, and which he was not parted with under the first contract of sale, that defeats the claims of the first buyer. The second buyer will not acquire title unless there is a delivery of goods or transfer of documents of title. For the second buyer to acquire good title, the seller must deliver possession of the good or documents of title, merely contracting a sale is not sufficient to give title to the second buyer : Michael Gersno v Wilkinson.

Thirdly, when we turn to look at good faith and want of notice, this exception mostly resembles the above exceptions. Furthermore, this good faith and want of notice must exist at the date of delivery of the goods, or transfer of documents title, as well as at the date of the seller’s disposition. If the seller wrongfully resells the goods to an innocent purchaser but before the delivery of the goods to him that purchaser becomes aware of the previous sale, then he is subordinated to the rights of the original buyer and does not acquire title. His remedy is to rescind the contract of sale and/or claim damages for breach of the condition of title.

5. Buyer in Possession (S25)

This exception allows a buyer who has been allowed by the seller to take possession of the goods or documents of title before property has passed, and then resells. Provided that there is actual delivery, the new purchaser who takes in good faith and without notice will obtain a good title. In terms of detailed discussion on seller in possession, here I just would like to add little difference of buyer in possession. The goods must be with the buyer with consent from the seller, it does not matter if he acquired the goods by a criminal offence as long as the owner consented and does not matter if the owner revoked his consent later. Another requirement is that the buyer must obtain possession of the goods or the documents of title to the goods. Constructive possession is sufficient here if the first buyer requested the seller to deliver the goods directly to the 2nd buyer. Also, the nature of the possession does not matter even temporary would suffice : Marten v Whale. It also seems possible for delivery to take place in an undivided bulk, although it would seem to conflict with s16 which does not permit a transfer of property in an undivided bulk of goods except in the circumstances set out in s20 inserted by the 1995 Act.

6. Part 3 of the Hire Purchase Act 1964

A bona fide purchaser for value of a motor vehicle from a person in possession under a hire-purchase agreement or a conditional sale agreement obtains a good title. This protects purchasers of motor vehicles who buy cars from hirers of cars on hire-purchase terms.

The details of Part 3 are quite complex, but the most important points are as follows:

(i) In respect of motor vehicles, the seller must be someone who is hiring the vehicle under a hire-purchase agreement or buying it under a conditional sale agreement.
(ii) The sale must be to a private purchaser, who must not be a dealer (or a finance house) carrying on business in the motor trade. This is so even where the dealer acquires the car for his own private purposes : Stevenson v Beverly Benticle Ltd.
(iii) Only the first private purchaser from the hirer (or ‘debtor’, as he is termed in the Act) is protected.

The onus of proof is on the purchaser to prove that he bought the car in good faith : Barker v Bell and without notice, if he succeeds, the HP company might want to show that B1 was not a purchaser in good faith, so that no title can pass from the start, or it might want to claim that the car was not disposed by the hirer at all, but was, for example, stolen from him, or was disposed by someone else.

It is elementary learning to identify nemo dat quod non habet as the most important conveyancing principle in English commercial law, however, that the innocent purchaser who buys in good faith needs some protection, and so there are various exceptions to the nemo dat rule. The main difficulty with the legislative response is that on the one hand it is too extensive in terms of legal consequence whilst on the other it is too restrictive in its scope because the protection to the innocent buyer is somewhat piecemeal.

Some reforms have been suggested, such as the adoption of uniform treatment for all transactions whereby a security interest is reserved in relation to goods, and the introduction of a system of registration for non-possessory securities. The most fundamental proposal might be the creation of an ‘entrusting’ principle. That is, whenever an owner has entrusted his goods to another or acquiesced in their possession by that other (‘the possessor’) in a wide range of contractual situations, any sale of goods by the possessor in the ordinary course of business to an innocent buyer would confer a good title on the latter.

Reform in this area of law is found in the judgement of Devlin LJ in Ingram v Little Devlin LJ as he then was, suggested that it might be possible to apportion the loss which occurs when an innocent owner and an equally innocent bona fide purchaser are left to dispute over the title to goods after some dishonest middle party has quit the scene. However this was rejected by the Law Reform Committee on the bases where the goods pass through several hands.

Comparison between different legal systems

Although the nemo dat rule is firmly entrenched in English law, many people hold the opposite view and they believe that the bona fide purchaser should be equally protected or even prior to the owner. In fact, many European systems invert nemo dat and consider the dominant principle to be protection of the bona fide buyer of goods.

In France, the sale of a thing belonging to another is treated as being voidable, which may give rise to damages if the buyer is ignorant that the thing belonged to another. Nevertheless, the sale may be treated as valid if the buyer has dealt with someone he considered to be capable of selling and both parties were induced by a common and legitimate error into concluding the sale. Where the buyer sues for rescission and damages from the would-be seller, a judge may decide not to award damages if in his opinion the seller has acted in good faith. This may be contrasted with the situation prevailing in the United Kingdom which are remarkably complex and subject to many common law and statutory exceptions.

Property

The significance of property in commercial transactions. - Justin Santiago


Property as a concept is not the physical goods themselves but the proprietary right or legal interest in the goods. The importance of property pertains to the passing of property and correspondingly the passing of risk and the rights of buyers and sellers.

The Sale of Goods Act sets out the rules for determining when property passes from the seller to the buyer. The importance of determining when the property passes is :-

i) that the risk of accidental loss or damage passes to the buyer when the property passes unless otherwise agreed.

ii) once the ownership passes the owner can sue for the price, under the provisions of s49 (1). S.O.G.A.

iii) If the seller resells the goods once ownership has passed then the subsequent buyer does not take title to the goods unless he comes under an exception to the Nemo Dat Rule under s24 S.O.G.A.1979.

In the case of the passing of risk Section 20(1) in SOGA states, "Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not." Therefor we need to know whether property can pass, when does property pass and implications for buyers and sellers.

Whether Property Can Pass

The state that the goods are in will determine whether property can pass - if it is identified or scertained at the time the contract is made, then it is one for the sale of specific goods. If they are not identified at the time of the contract they are unascertained goods : Re London Wine Shippers. In this case the company was an insolvent wine dealer which had stocks of wine in several warehouses. Some of the wine had been sold to customers for laying down or investment purposes. Although it was clearly contemplated that the wine would belong to the purchasers and would be stored by the company, no appropriation from the bulk of the wine in storage had been made to answer any particular contracts. In the absence of appropriation by earmarking or otherwise setting aside each purchaser’s wine, legal property did not pass under S16 of SOGA 1979. Accordingly nor had the company created a completely constituted trust sufficient to pass the equitable title.

Property will only pass when it is know to what the property refers to as per Lord Mustill’s dictum in Re Goldcorp Exchange. The time for ascertainment is at the time the contract was made. However under Section 20A, a buyer who has paid all or part of the price of an unidentified part of an identified bulk will be an owner in common of the bulk.

When Does Property Pass

If the goods are specific or ascertained, the parties are free to make whatever agreement they like about when property is to pass S(17) which can be inferred from the terms of the contract, conduct of the parties and circumstances of the case. This is in line with the basic freedom of contract philosophy where the parties are free to decide for themselves what contract to make and what terms to incorporate.

If the terms are not clear then intention will be a governing factor. If this intention is not apparent there are several rules under S18 Rules 1 to 5 to determine this intention :-

Rule 1 : Goods in a deliverable state : Underwood Ltd v Burgh Castle – a machine that was attached to a factory floor and therefor was not in a deliverable state was deemed not to be intended to pass.
Rule 2 : Goods not in a deliverable state
Rule 3 : Price to be ascertained
Rule 4 : Sale or return
Rule 5 : Unascertained goods and appropriation : Unconditional appropriation – irrevocable identification of the goods and beyond the power fo the seller to substitute goods – Carlos Federspiel & Co SA v Charles Twigg & Co Ltd.

Another provision S35 SOGA 1979 provides that property must finally pass when the buyer has accepted the goods or where he indicates to the seller that he as accepted the goods or when the goods have been physically delivered and the buyer has had a reasonable chance to examine them and after a reasonable lapse of time keeps the goods not having said he is rejecting them or there is inaction : Pignataro v Gilroy.

Implication for buyers, sellers

The passing of property also has implications for the type of action that can be brought by the seller against the buyer.

If the property has passed to the buyer, the seller has either the right to sue for the price S49(1) if the buyer has accepted the goods or sue for damages if the buyer has not accepted or refuses to accept the goods. If property has not passed then the seller can only sue for breach of contract.

The passing of property would also have important implications in the passing of risk. If property is passed, the risk is passed along with the property and the party to whom the property passes bears the risk i.e. bears any loss should anything happen to the goods - lost or damage.

However the general rule will not apply in the following instances :-

1. Where parties have explicitly agreed that the risk should pass even thogh property has not passed : Head v Tatersall;

2. Where it involves a CIF contract which is an exception to the general rule in S20 - the goods are deemed to be at the buyer’s risk from the time of shipment even though property passes at the time the contract is made which may be after the shipment;

3. Where the seller has done all that he had undertaken to do by enabling the buyers to take delivery even if the goods are unascertained : Sterns v Vickers;

4. Where one party is the bailee of the goods and the loss occurs through their lack of reasonable care in which case that party will be liable : Wiehe v Dennis Bros.

Implications for third parties

The right of property can also have an effect on third parties - determines the ability of the party to bring an action under negligence against third parties who has carelessly inflicted damages upon the goods : Leigh & Sullivan Ltd v Aliakmon Shipping Co Ltd. However right of property alone will rarely be decisive. Usually it is combined either with a right to possession or with a contractual right against the third party for example the person who is entitled to sue in respect of goods damage at sea is usually the person who holds the bill of lading and that person has a contractual right both against the carrier and also the property.

Where the seller is required by contract to send goods to the buyer via a carrier, delivery to the carrier is presumed to constitute a delivery to the buyer and the buyer bears the risk of the loss S 32(1) – delivery to carrier buyer bears loss, S33 – delivery to a distant place and deterioration in the goods buyer bears loss.

The approach to passing of property as the determining factor in the allocation of risk has been abandoned by the Uniform Commercial Code (UCC) in the US. It was felt that there was an over reliance on property as the central organizing concept. The location of title was used to determine the risk of loss, insurable interest and place and time for measuring damages. The single title or “lump” title concept proved unsatisfactory because of the different policy considerations involved in each of the situations that title was made to govern. Furthermore the concept of single title although it worked well for cash on the barrel type sales it did not reflect modern commercial practices with the introduction of deferred payments, security arrangements, financing from third parties or delivery by carrier which required a fluid concept of title. The classic example of this was the rule
that property cannot pass to the buyer where he purchases goods in an undivided bulk – S16 SOGA 1979. The result of this statutory rule in cases where the seller has become insolvent is that the buyer loses both the money he has paid for the goods and the goods themselves to the seller’s creditors – hardly a just result – this was the reason for S20A.

It would be logical to link the passing of risk with physical possession of the goods :-

1. It is the person in possession who has the greatest ability to take care of the goods to see that they are not stolen, burnt, damaged, etc. If he has to bear the risk of any loss then he has the consequent incentive to exercise that care.

2. It is likely to be much easier to secure insurance cover for goods on your own premised or otherwise within your own possession.

Retention of Title

Retention of title clauses affords adequate protection for the seller. Discuss. - Justin Santiago

A retention of title clause (also called a Romalpa clause in some jurisdictions) is a provision in a contract for the sale of goods that property in the goods remains vested in the seller until certain obligations (usually payment of the purchase price) are fulfilled by the buyer. These clauses first appeared in Aluminium Industrie BV v Romalpa Aluminium.

Retention of title clauses are a device to protect the seller against the buyer’s insolvency. If the buyer becomes insolvent, a seller who has a valid retention of title clause will have a significantly improved position and enables the seller to recover goods that are unsold or moneys that have been paid into a separate account from the sale of goods.

However in practice they provide sellers with rather less protection than might be expected due to several obstacles namely difficulties in recognising such clauses and distinguishing them from charges, practical difficulties in identifying goods covered by the clauses and the fact that goods will remain at the seller's risk until additional clauses are inserted:-

1. Difficulties in recognising such clauses as incorporated in a contract

The use of Romalpa clauses has been criticised in Borden (UK) Ltd v Scottish timber Products Ltd where Templeman LJ said : It is therefore surprising that this court looked with sympathy on an invention designed to provide some protection for one class of unsecured creditors, namely unpaid sellers of goods although there is no logical reason why this class of creditor should be favoured as against other creditors such as the suppliers of consumables and services.

His argument also stems from the fact that Retention of title clauses are not required to be registered as a charge under S.365 of the Companies Act 1985 and are enforceable without being registered : Armour v Thyssen unlike the four types of consensual security: pledges, contractual liens, charges and mortgages which are created by the buyer and can be registered under Companies Act S395. The clauses are seen as an anomaly in that it gives a proprietary right and is enforeceable without being registered and that because the full legal title remains with the seller, the buyer simply does not have the capacity to create a charge.

Such clauses can be confused with charges that are not registered. This point was argued in the case of Re Bond Worth where the contract of sale provided that equitable and beneficial ownership of the goods remain in the sellers until the price is paid. It was held by Slade J that these provisions were consistent with the creation of a floating charge and it was void for non-registration as a charge under the Companies Act. Romalpa clauses can be thought as “sham devices” masquerading as equitable charges.

2. Practical difficulties in relation to the identity of the physical goods :-

a. Because possession is with the buyer problem of obtaining access to the buyer’s premises or other place where the goods are believed to be in order to identify them

b. Distinguishing the seller’s goods from those supplied by others or those that have been paid for from those that have not

c. Retention of title caluse will cease to be effective once the goods have lost their identity by becoming incorporated into something else : Borden v Scottish Timber Products – resin becomes incorporated into chipboard.

d. The goods may have been sold.

3. Goods will remain at the seller’s risk until property in them passes to the buyer

Therefore a clause stating that the goods will be at the buyer’s risk from the moment of delivery or else to cover by insurance for loss or damage caused after delivery by accident, act of God or act of a third party has to be inserted.

Additionally other clauses will have to be included :-

- ‘manufactured goods’ clause, whereby the seller retains title to the goods even after they have undergone a manufacturing process;
- ‘proceeds clause’, whereby the seller is entitled to the proceeds of a sale of the goods to a third party; and finally
- ‘all monies’ clause under which the seller retains to the goods until all the debts owed by the seller to the buyer are extinguished.

Decription and Satisfactory Quality

Description and satisfactory quality are ambiguous terms and need more clarity. - Justin Santiago

Knowledge of the distinction between description and satisfactory quality is essential in any sale of goods. The description is said to denote the essence of the goods whereas mere quality does not. The relevant case law is Ashington Piggeries Ltd v Christopher Hill Ltd – a term ought not to be regarded as part of the description unless it identifies the goods sold. Goods may comply with the description but be of unsatisfactory quality, or unfit for the purpose, unsafe, not durable, contain minor defects of have a defective appearance and finish. Alternatively, goods may be of satisfactory quality but fail to correspond to their description. Statements as to the quality are not normally descriptive but there may be an overlap, for instance. ‘A woollen suit’. If the suit is a mixture of wool and other fabrics it does not correspond to description. If the suit is not of a satisfactory quality then it is not of satisfactory quality.

The relevant law pertaining to description is found in SS13(1) and S13(1A) of the Sale of Goods Act 1979 there is an implied condition that the goods correspond with the description. If there is a breach of this implied condition the buyer has the right to reject the goods. The rule is very strict and a sale of goods is not prevented from being a sale by description solely because the buyer himself selects the goods S13(3), Grant v Australian Knitting Mills.

There are however difficulties in determining what amoungs to a description. In Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd the description must have a sufficient influence in the sale to become an essential term of the contract. If the buyers did not rely on the description of the painting as one by Gabriele Munche but instead relied on their own assessment then it will not be considered a sale of goods by description. In Gill & Dufus SA v Berger & Co Inc one must look to the contract as a whole to identify the kind of goods that the seller was agreeing to sell and the buyer to buy.

Test to determine breach of S13 have traditionally been very strict. In Re Moore an Landauer it was held that a consignment of canned goods although were in the correct quantity were packed in the wrong configuration failed to match the description. However the modern view is more toleant and in Reardon Smith Line v Yngvar Hansen Tangen it was held that where the ship was constructed did not make a difference as long as a ship was delivered - they were words of identification not words of identity. Also the comparison between the goods as described and the goods as delivered is made according to the assessment of a business person or a reasonable consumer and not that of a scientist : Ashington Piggeries v Christopher Hill. However this raises uncertainty in the law where for example a designer bag made in China may be construed differently from one made in Italy although it is essentially the same bag - what exactly amounts to identity and identification is not clearly defined.

S15A has further limited the scope for parties to avoid the contract based on slight variations in the description. Unless the contract now declares that the description is a condition entitling the innocent party to avoid the contract it would now be up to the court to decide whether or not the breach is so slight that it would be unreasonable to reject the goods.

In the case of satisfactory quality there is no general rule that the seller undertakes to guarantee the quality of goods and fitness for a particular purpose.
S14(1) confirms traditional broad principle of caveat emptor with regard to quality and fitness for purpose and only lays down exceptions under S14(2) when a seller sells in the course of business albeit even if it is only incidental : Stevenson v Rogers.

Under S14(2A) – satisfactory quality would depend on the opinion of a reasonable person taking into account all relevant circumstances : Rogers v Parish. Also the question was not whether the reasonable person would find the goods acceptable but was an objective comparison of the state of goods with the standard which a reasonable person would find acceptable: Clegg v Olle Andersson.

S14(2B) lays down what is meant by quality and includes fitness for the purpose, appearance and finish, freedom from minor defects, safety and durability.

There will be no breach of S14(2) if the defect was brought to the buyer’s attention : S14(2)(C)(a) and where the buyer examined the goods before the contract was made which that examination ought to reveal S14(2)(C)(b)

Fitness for purpose is defined under S14(3)to mean goods will be fit for any particular purpose made known by the buyer to the seller.

2 questions to be asked : Bristol Tramways etc Carriage Co Ltd v Fiat Motors Ltd

1. Did the buyer make fully known the particular purpose for which the goods would be required or could it have been reasonably foreseen : Griffiths v Peter Conway
2. The seller has to show that that the buyer did not rely on his skill and judgement and that it was unreasonable for him to do so.

However even the strictness of S14(3) is diluted and the seller can be absolved of responsibilty under the following circumstances :-

1. The generality of the stated purpose : Aswan Engineering v Lupdine
2. The abnormal features or the idiosyncracies of the goods not made known to the seller : Slater v Finning
3. Abnormal sensitivity of the buyer : Griffiths v Peter Conway

Rejection of Goods

Acceptance, Rejection, Delivery, Non-Payment - Justin Santiago

Acceptance

S34 – reasonable time and opportunity to examine, not deemed to have accepted the goods until buyer as had a reasonable opportunity of examining the goods in order to ascertain whether they conform with the contract

S35 - buyer is deemed to have accepted the goods in the following situations :-
S35(1)(a) - When he intimates to the seller that he has accepted the goods
S35(1)(b) - When the buyer does some act in relation to the goods inconsistent with the ownership of the seller
S35(2) - In a sale by sample whether the sample conforms with the bulk
S35(3) - Right to examine can be waived or excluded by the contract but not in consumer contracts
35(4) - Retaining the goods beyond a reasonable time
35(6)(a) - Buyer will not be deemed to have accepted the goods merely by agreeing to their repair S35(6)(a), buyer will lose the right to reject if the buyer agrees to the repair of the goods and the repair is properly effected : J&H Ritchie Ltd v Lloyd Ltd.
S35A – Right of partial rejection
S35A(3)- Where the contract is for a sale by installments, these rules apply to the right to reject each installment as if it were a separate contract of sale

Rejection

Rejection of goods by a buyer carries with it serious consequences as it would entitle the innocent party to treat the contract as discharged - S11(3)resulting in the termination of the contract and the awarding of damages for the breach.

A buyer can reject goods if there is a breach of an express condition or a breach of an implied condition.

Effect of rejection

a. Reject the goods and claim damages for any loss
b. Accept that part of the goods which conform to the sale contract and reject those that do not conform

Where the buyer rejects the goods, the property in them revests in the seller.

Express Condition - Wrong Quantity

S30(1) Right to reject goods unless for non-consumer buyer discrepancy in the quantity delivered is so slight as to render it unreasonable for the buyer to reject (S30(2A)– de minimis principle. The onus of proof is on the seller S30(2B). Secondly a buyer (whether or not dealing as a consumer) may not reject the whole delivery if the shortfall or excess is not material S30(2D).

Implied Condition

Implied by statute SOGA 1979 - satisfactory quality, fitness for purpose if goods are sold in the course of business.

Delivery

S29(2) Place of delivery is the seller’s place of business, S32 delivery to a carrier deemed to be delivery of goods to the buyer, at seller’s risk unless informs buyer

S29(3) Delivery at a reasonable hour

S29(4) Attornment situation, T becomes a bailee of the goods for B only if T acknowledges that he is now holding the goods on B’s behalf

S29(6) Putting in a deliverable state borne by seller

S51 Damages for non delivery or late delivery loss naturally and directly resulting in the ordinary course of events – Hadley v Baxendale, market price rule

Payment

1. Lien – S41(1) retain possession until price is paid or tendered
2. Stopping goods in transit – S44-46 buyer must also have been insolvent
3. Right of resale – S48(1),S48(3),(4) second buyer acquired a good title against the original buyer
4. S49 Action for the Price – property must have passed