SALE OF GOODS

The sale of goods is part of the law of contract, but is governed by its own statutory code, set out in the Sale of Goods Act 1979. The common law applicable to contracts applies in so far as it is not inconsistent with the Act and legislation of general application to contracts is also applicable to the sale of goods. In particular, a great deal of consumer protection legislation, much of which is derived from the European Union, has been enacted which is applicable to sales of goods.

The Sale of Goods Act 1979

Sale of goods is an area where the law has been codified for over a century. The present statute is the Sale of Goods Act 1979 and, unless stated to the contrary, references to section numbers are to sections of this Act. The Act was brought up to date in the 1990s.

The Sale and Supply of Goods Act 1994 modernised the conditions implied by s.14 of the 1979 Act, replacing the much loved but somewhat tautologous concept of “merchantable quality” with that of “satisfactory quality” (also widening its scope) and changed the rules relating to acceptance of goods and the right to reject.

Radical changes were made by the Sale and Supply of goods to Consumers Regulations 2002 (SI 2002/3045) which implemented Directive 1999/44 (the 2002 Regulations). The 2002 Regulations add substantially to the provisions of the 1979 Act and also to the provisions of the Supply of Goods (Implied Terms) Act 1973, the Unfair Contract terms Act 1977 (UCTA) and the Supply of Goods and Services Act 1982. There are really now two parallel sets of rules for sale of goods, one where the buyer is a consumer and the other where he is not. Both the substantive law and the available remedies for breach differ markedly between the two situations. The 2002 Regulations came into force on March 31, 2003. There are no transitional provisions and the assumption made in this section is that the 2002 Regulations will only apply to contracts made after that date.

The rules relating to exemption clauses in consumer contracts contained in the Unfair Contract Terms Act 1977 are now supplemented by a detailed code in the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083).

Consumer, producers and guarantors

A “consumer” for the purposes of the Act has to be a natural person (reg.2). Such a person is treated as a consumer if “in the contracts covered by these Regulations, [he] is acting for purposes which are outside his trade, business or profession”.

Contracts of sale by auction or competitive tender are no longer excluded from the definition by s.12(2) unless the buyer is an individual and the goods are second hand goods sold by a public auction which the individual has the opportunity to attend. Similar amendments are made to the term “consumer contract” by two new subsections added after s.24(1).

The Regulations introduce a new concept of “the producer” defined as the manufacturer of the goods, their importer into the European Union or any person who purports to be the producer by placing his name or trade mark on the goods. The term “guarantor” is used by the 2002 Regulations to connote any person who issues a consumer guarantee, itself defined as an undertaking given without extra charge to reimburse the price, or to replace, repair or handle goods which do not meet the specifications in the guarantee or in relevant advertising.

For the purposes of all legislation, apart from the Unfair Contract Terms Act 1977, a “consumer” must be a natural person. In a somewhat bizarre decision of the Court of Appeal, however, the court held that a limited company (indeed a public limited company) can be a “consumer” under s.12 of the 1977 Act: Feldarol Foundry Plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747. That case involved the acquisition of hire-purchase of a car for the use of the company’s chairman and the court took the view that as acquiring cars was not the ”business” of a steel foundry, the company had contracted as consumer. This remains, therefore, a pitfall for the unwary.

Sale of goods defined

A contract of sale is defined by s.2(1) as:

“a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.”

The essential elements are thus the transfer of property and the payment of a monetary price. Where property passes to the buyer on agreement, there is a “sale” (s.2(4)) and where property is to pass at some future time, there is an “agreement to sell” (s.2(5)).

“Goods” are defined by s.61 as including:

“all personal chattels other than things in action and money … and in particular ‘goods’ includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.”

“Things of action” includes shares, bills and cheques but although “money” is excluded, this does not affect the sale of coins and bank notes as collector’s items. In certain circumstances computer software may be treated as “goods” for the purposes of the Act (St Albans DC v ICL [1996] 4 All E.R. 481). The goods may be in existence at the time of the agreement or may come into existence at some future time (“future goods”): s.5.

Principal obligations

The principal obligations of the seller are to transfer property in the goods to the buyer and to deliver the goods. Those of the buyer are to accept the goods and to pay the price: s.27. Those obligations are concurrent and:

“the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods” (s.28).

The price

The parties may agree upon a price at the outset or may agree a manner of fixing the price or the price may be determined by the parties’ course of dealing but, if the price is not fixed in any of these ways, the buyer must pay a reasonable price (s.8). If the price is to be fixed by third party valuation and the valuation is not made, the agreement is avoided unless goods have been delivered to and appropriated by the buyer, in which case he must pay a reasonable price for them (s.9).

Passing of property as between buyer and seller

In general, property in the goods passes when the parties intend it to pass (s.17) but, if the goods are unascertained at the time of the agreement, property does not pass until they are ascertained (s.16). There is now an exception to s.16 where the goods form part of an identified “bulk” and the buyer has paid for some or all of the goods. In that case the buyer becomes an owner in common of the bulk and owner of an undivided share (s.20A, added by the Sale and Supply of Goods Act 1979, above).

Section 18 lays down rules for the passing of property in default of agreement to the contrary. The most important of these is Rule 1 whereby an unconditional contract for the sale of specific goods in a deliverable state passes the property to the buyer when the contract is made, even if delivery or payment are postponed. Rules 2 and 3 provide that where work has to be done to make the goods deliverable or where they have to be weighed, measured or tested to ascertain the price, property passes when this has been done and the buyer notified. Rule 4 makes provision for goods on approval or sale or return and Rule 5 provides that the property in unascertained or future goods passes when goods of that description are appropriated to the contract – delivery to the buyer or to a carrier for delivery to the buyer being, in most cases, an unconditional appropriation.

Risk is an area where a major change has been made by the 2002 Regulations. For non-consumer sales the old rule is retained whereby the risk in the goods remains with the seller until property passes to the buyer when the risk also passes to the buyer, whether or not delivery has been, made (s.20). If either party is at fault in relaying delivery, the risk of loss that would not have occurred but for that fault is on the party at fault (s.20(2)). For consumers, however, the new s.20(4) of the Act provides that the risk remains with the seller until the goods are delivered.

Passing of title

The general rule is that a seller who is not the owner or is not selling with the owner’s consent or authority, confers no better tile on the buyer than he had himself (unless the owner is estopped by his conduct from denying the seller’s authority to sell: s.21). This rule, sometimes called the rule that nemo dat qui (or quod) non habet, is subject to several exceptions. With the disappearance of the rule relating to market overt, the principal remaining exceptions are:

  • a seller who has a voidable title to the goods (e.g. because he has obtained them from the true owner by fraud) will pass a good title to a bona fide purchaser provided he sells them before the true owner avoids his title (s.23); and see, for example Lewis v Averay [1972] 1 Q.B. 198: note that a seller whose title is void abinitio (e.g. under a contract that is illegal or ultra vires the seller) cannot pass title under this section;
  • a seller who remains in possession of the goods after a sale and delivers or transfers the goods under a sale, pledge or other disposition to a bona fide recipient, will pass title to that recipient (although the original buyer will have an action in damages against the seller for non-delivery: s.24). He must, however, remain in possession of the goods in his capacity as seller; a seller who sells to a finance company on a sale and leaseback arrangement while remaining in possession of the goods throughout is treated as notionally having delivered the goods to the finance company as seller will not pass title: Michael Gerson (Leasing) Ltd v Wilkinson [2001] Q.B. 514; [2001] 1 All E.R. 148;
  • a buyer who is let into possession of the goods with the consent of the seller and delivers or transfers the goods under a sale, pledge or other disposition to a bona fide recipient will pass title to that recipient (s.25(1)); and see National Employers’ Mutual General Insurance Association Ltd v Jones [1990] A.C. 24; it should be noted that this section does not apply where the buyer is a buyer under a conditional sale agreement regulated by the Consumer Credit Act 1974 s.25(2);
  • a mercantile agent who is in possession of the goods with the consent of the owner and delivers or transfers them in the ordinary course of his business as a mercantile agent under a sale, pledge or other disposition to a bona fide recipient, will pass title to that recipient (Factors Act 1889 s.2(1)); the mercantile agent must be in or let on hire-purchase to him in his private capacity: Belvoir Finance Co Ltd v Harold G Cole & Co Ltd [1969] 1 W.L.R. 1877;
  • where the goods consist of a vehicle, a hirer under a hire-purchase agreement and a buyer under a conditional sale agreement can pass title (directly or indirectly through a dealer) to a private purchaser acting in good faith without notice of the hire-purchase or conditional sale agreement, under Pt 111 of the Hire-Purchase Act 1964.

Delivery

As with the passing of title, the Act contains rules for delivery of the goods, subject to the overriding consideration that what the parties have actually agreed about delivery will prevail (s.29(1)). In default of agreement:

  • the place of delivery is the seller’s place of business or residence or, if specific goods are to the knowledge of the parties in some other place, that place is the place of delivery (s.29(2));
  • if the goods are to be sent by the seller, they must be sent within a reasonable time (s.29(3));
  • if the goods are in the hands of a third party, delivery is when the third party acknowledges that he holds them on behalf of the buyer (s.29(4));
  • demand for and tender of delivery must be at a reasonable hour (s.29(5));
  • the expenses of putting the goods into a deliverable state must be borne by the seller (s.29(6)).

If the seller delivers more or less goods than contracted for, or mixes the contract goods with others, the buyer has the choice of rejecting the whole consignment, of accepting those goods which are in accordance with the contract and paying the contract rate for them or (in the case of over-deliveries) of accepting the whole delivery and paying for the excess at the contract rate (s.30). In non-consumer sales, the buyer may not be entitled to reject if the difference is “so slight that it would be unreasonable for him to do so” (s.30(2A)).

A buyer is only obliged to take delivery by instalments if he agrees to this (s.31(1)). Where instalments have been agreed and each instalment is to be paid for separately, it will be a question of fact in each case whether failure by the seller to make proper delivery of one or more instalments or failure by the buyer to pay for one or more instalments entitles the other party to treat the whole

contract as repudiated or simply to treat the breach as severable and giving rise to a claim for what the Act calls “compensation” (s.31(2)). “The main tests to be considered in applying for sub-section … are, first, the ratio quantitatively which the breach bears to the contract as a whole, and secondly the degree of probability or improbability that such a breach will be repeated” (Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 K.B. 149 at 157, per Lord Hewart C.J.).

Where the goods are to be sent to the buyer, the rules now diverge. In non-consumer sales, delivery to a carrier is deemed to be delivery to the buyer and the seller may make any reasonable contract with the carrier for the carriage. If he fails to do so and the goods are lost or damaged in transit, the buyer may refuse to accept delivery or sue the seller in damages (s.32). For consumers, none of these rules apply: under the new s.32(4), delivery of the goods to a carrier is not delivery of goods to the buyer: only actual delivery will suffice.

Acceptance

A buyer has the right to reject goods tendered or delivered otherwise in accordance with the contract but, once he has accepted them, the right of rejection is lost. The buyer is entitled to examine the goods before deciding whether to accept or reject them and must usually be given a reasonable opportunity for examination by the seller (s.35(2)). Until he has had a reasonable opportunity for examination, the buyer will not be taken to have accepted the goods (s.35(1)). Acceptance occurs when the buyer notifies the seller he has accepted the goods, when (after an opportunity for examination) he does an act inconsistent with the rights of the seller or when he retains them after a reasonable time has elapsed without telling the seller he has rejected them (s.35). If the buyer rejects the goods he is not obliged to re-deliver them to the seller (s.36).

The rules for acceptance and rejection have been clarified by the case of J&H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9; [2007] 2 All E.R. 353 which decided that the buyer’s right to reject was a right which the buyer could not be expected to exercise until he had the information that he needed to make an informed choice. The seller could not refuse to give him the information that he needed to exercise it. If the information were refused (in Ritchie by the seller refusing to tell the buyer of the nature of the faults the seller had found in the goods and remedied), the buyer would not be taken as having accepted the goods and thus having lost the right to reject them.

In consumer sales, the practical effect of the rules relating to acceptance and rejection has been considerably eroded by the rules introduced by the new Pt 5A of the Act.

The “all or nothing” rule for rejection often operated harshly so the Sale and Supply of Goods Act 1994 added s.35A, whereby a buyer who has the right to reject goods by reason of a breach by the seller affecting only part of the goods but accepts some or all of the unaffected goods, does not lose the right to reject the affected goods.

Claims by the seller

Action for the price

Clearly the most important action open to a seller is to sue the buyer for the sale price.

Where the property in the goods has passed to the buyer or where a date for payment has been agreed (irrespective of delivery) and the price is not paid on that date, then the seller may maintain an action for the price (s.49). Provided that he is prepared to deliver the goods against payment of the price, the seller is not obliged to attempt to resell the goods to mitigate his loss nor is he restricted to a claim for damages for his actual loss.

Damages for non-acceptance

Instead of suing for the price, the seller can choose to sue the buyer for non-acceptance and prima facie the measure of damages will be the difference between the contract price and the market or current price at the time for acceptance or the time of refusal to accept (s.50).

Other remedies

The unpaid seller has available various other remedies such as a lien over the goods and a right of stoppage in transit. These rights will almost always be exercised by way of a defence to a claim by the buyer.

Claims by the buyer

Claims by the buyer fall into two main categories: claims based on the failure of the seller to make proper delivery of the goods; and claims based on the delivery of goods which do not conform to the terms of the contract. Claims in the latter category will, in turn, depend on whether the term broken is a condition or a warranty.

Non-delivery

The most common remedy sought for non-delivery of goods is an action for damages for non-delivery and, as with damages for non-acceptance, the measure of damages will prima facie be the difference between the contract price and the market or current price of the goods at the time for delivery or of the refusal to deliver (s.51). If delivery is simply delayed then the measure of damages will be the fall in the market or current value between the contractual time for delivery and the actual time for delivery: see for example Koufos v C Czarnikow Ltd [1969] 1 A.C. 350.

If the buyer has already paid all or part of the purchase price, the payment is recoverable either as damages for non-delivery or as money paid on a consideration which has wholly failed.

The actual resale price of the goods by the buyer (as where the buyer has sub-sold in advance of delivery) may be irrelevant to the assessment of damages based on the market price on the delivery date (see Williams Brothers v Ed T Agius Ltd [1914] A.C. 510) but if the seller has actual or imputed knowledge of the fact that the buyer has sub-sold or intends to sub-sell the goods, the actual loss sustained by the buyer on resale by way of lost profit or liability to the sub-buyer in damages may be recoverable as additional damages (see Hall v Pim [1927] 2 K.B. 535; Bence Graphics International Ltd v Fasson UK Ltd [1998] Q.B. 87; Total Liban SA v Vitol Energy SA [2001] Q.B. 643).

In exceptional cases involving a failure to delivery specific and ascertained goods, the court may grant the buyer specific performance of the sale contract and compel the seller to delivery without giving him the option to retain the goods and pay damages (s.52).

Action for breach of condition or warranty

The law in this area has been revolutionised by the 2002 Regulations. These Regulations substantially amend the provisions of ss.13 to 15 of the Act and add a wholly new part, Pt 5A, which contains new and drastic remedies for the consumer.

Conditions and warranties

In general whether an express or implied term of a sale contract is a condition or a warranty is, as with all contracts, a matter of construction of the contract (s.11(3)) and where the Act implies terms into a sale contract, it is careful to specify which are conditions and which warranties, although the mechanism whereby the Act does this was refined somewhat by the 1994 update. Where there is a breach of condition, the buyer may treat the contract as repudiated or he may elect to treat the breach of condition as a breach of warranty and sue for damages (s.11(2)). In a non-severable contract, once the buyer accepts all or part of the goods (in the absence of an express or implied term in the contract to the contrary), the buyer can no longer reject the goods but must treat the breach of condition as a breach of warranty (s.11(4)). This is, however, subject to the rule concerning partial rejection in s.35A, and to the right of the buyer to proper information before deciding whether to accept or reject.

In consumer sales, however, the range of new remedies available to the buyer has somewhat overtaken the often mechanistic application of the rules relating to conditions and warranties. The law in this area remains the same for both categories of sale but the practical effect for consumers is greatly diminished.

Title and quiet possession

The basic rule is that there is an implied condition on the part of the seller that, in the case of a sale, he has the right to sell the goods and, in the case of an agreement to sell, that he will have that right at the time when property is to pass (s.12(1)). There are warranties that the goods are free from all charges and encumbrances unless disclosed by the seller or otherwise known to the buyer and that the buyer will enjoy quiet possession of the goods (s.12.(2)). There are similar warranties applying to sales where the seller is transferring only such title as he or a third party may have (s.12(3), (4) and (5)).

The condition in s.12(1) is regarded as fundamental by the courts. If it turns out, long after the goods have been delivered, that the seller had no right to sell, the buyer may treat the contract as repudiated and recover back the price and he need give no allowance for the value of any use of the goods he may have enjoyed in the meantime: Rowland v Divall [1923] 2 K.B. 500; Karflex Ltd v Poole [1933] 2 K.B. 251; Barber v NWS Bank Plc [1996] 1 W.L.R. 641.

If between the sale and the buyer’s decision to avoid the contract under s.12(1), a seller who had no title at the time of sale acquires title, this will “feed title” to the buyer and preclude him from treating the contract as repudiated by the seller: Butterworth v Kingsway Motors Ltd [1954] 1 W.L.R. 1286.

Non-conformity with the contract

Sections 13, 14 and 15 of the Act contain provisions as to the quality and condition of the goods sold. Traditionally, breach of any of the conditions implied into the contract of sale by those sections afforded the buyer the right to reject the goods or, where appropriate, to sue for damages for breach. This remains the law but in consumer sales, breach of the conditions implied by the three sections give rise to additional and alternative remedies. Part 5A of the Act creates the concept of non-conformity with the contract of sale (s48A(1)(a)) which is defined by s.48F as arising if “there is in relation to the goods a breach of an express term of the contract or a term implied by s.13, 14 or 15 [of the Act]”.

Correspondence with description

Section 13 implies into a contract for the sale of goods by description a condition that the goods will correspond with the description. In practice, most sales are sales by description. There can also be difficulties where the seller has made statements about the goods prior to purchase, in determining what statements form part of the contractual description and what are pre-contractual representations not subsequently incorporated into the contract: see for example Oscar Chess Ltd v Williams [1957] 1 W.L.R. 370. It is worth noting that selling a work of art as by a named artist is not necessarily a sale by description: Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1991] 1 Q.B. 564.

A sale is not precluded, however, from being a sale by description by the fact that the goods are exposed for sale or hire and are selected by the buyer (s.13(3)).

The condition of the goods

Section 14 starts by providing that there are no implied terms about the quality or fitness for purpose of goods beyond those set out in the Act (or in other enactments: s.14(1)). Such a term may be annexed to a contract by usage under s.14(4) but the most important conditions are those of satisfactory quality and reasonable fitness and contained in s.14(2) and (3). These conditions will be implied only where the seller is selling in the course of a business. If the seller is agent for another, the conditions will only be excluded if the agent’s principal is not selling in the course of a business and this is known by the buyer or reasonable steps are taken to bring it to his attention (s.14(5)). It should be noted that for a sale to be “in the course of a business”, it is not necessary to show that the seller’s business is that of selling goods of the description in question. A sale by a business enterprise of its old or surplus equipment can attract s.14: Stevenson v Rogers [1999] 1 All E.R. 613.

Satisfactory quality. Under s.14(2) there is an implied condition that the goods are of “satisfactory quality”. This term is widely defined by s.14(2A):

“… goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.”

The aspects of quality include s.14(2B):

  • “fitness for all the purposes for which goods of the kind in question are commonly supplied;
  • appearance and finish;
  • freedom from minor defects;
  • safety; and
  • durability.”

To this is added, in, consumer sales, new provisions contained in s.14(2D) and (2E). Section 14(2D) and includes within the “relevant circumstances” determining satisfactory quality “any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or on labelling”. The seller can avoid this provision if he can show that he was unaware of the public statement, or that it had been publicly withdrawn or corrected before the sale or that it could not have influenced the decision to buy the goods. Note that this is “could not” and not “did not”. The existing rules relating to representations about the goods are expressly preserved for all categories of sale by s.14(2F).

Satisfactory quality is thus a great deal wider than its predecessor merchantable but the revamp is s.14(2) has preserved the exception for defects specifically drawn to the attention of the buyer or, if the buyer examines the goods before the contract is made, defects which that examination ought to reveal or defects in a sale by sample which an examination of the sample would reveal.

Reasonable fitness. Under s.14(3), where the buyer expressly or by implication makes known to the seller or, where the price is to be paid by instalments, to the credit-broker, the purpose for which the goods are being bought there is an implied condition that the goods:

“are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker.”

Comparison between the provisions. As both subsections employ the concept of “reasonable fitness”, there is an obvious overlap between them. Satisfactory quality, however, relates to the ordinary purposes for which goods of that type are bought, whereas reasonable fitness imposes on the seller a duty to see that the goods are fit for the particular purposes of the actual buyer, which may be a higher duty. The purpose for which the buyer requires the goods may be impliedly represented, which will usually be the case if they are being bought for their normal purpose (e.g. a hot-water bottle: Preist v Last [1903] 2 K.B. 148). If a special purpose is communicated to the seller and the goods are not fit for that purpose, it is no defence to say that the goods would have been fit for the normal purposes to which buyers might put them: Bristol Tramways Carriage Co Ltd v Fiat Motors Ltd [1910] 2 K.B. 831. Reliance on the skill and judgment of the seller or credit-broker will be presumed and it is for the seller or credit-broker to rebut it.

The subsections are not confined to manufactured goods: Frost v Aylesbury Dairy Co Ltd [1905] 1 K.B. 608 (milk); and also cover foods made up for the buyer: Ashington Piggeries Ltd v Christopher Hill Ltd [1972] A.C. 411; and second hand goods: Bartlett v Sidney Marcus Ltd [1965] 1 W.L.R. 1013; Stevenson v Rogers [1999] 1 All E.R. 613.

Correspondence with sample

Where goods are sold by sample, s.15 creates what are, in effect, two separate conditions:

  • a condition that the bulk will correspond with the sample in quality (s.15(2)(a));
  • a condition that the goods will be free from any defect, rendering them unmerchantable which would not be apparent on reasonable examination of the sample (s.15(2)(c)).

The second condition brings in the concept of satisfactory quality as defined by s.14(2A) above. As with correspondence with description, this condition is not confined to sales made in the course of a business.

Trivial defects

A new provision, s.15A, was added in 1994 for non-consumer sales. Where a buyer would otherwise have the right to reject goods for breaches of ss.13, 14 or 15, the breach will be treated as a breach of warranty and not as a breach of condition if “the breach is so slight that it would be unreasonable for him to reject them”.

New remedies for consumers

The objective of the new Pt 5A is to provide “additional rights of buyer in consumer cases”. Sections 48A to 48F apply where the buyer is a consumer and the goods do not conform to the contract of sale at the time of delivery. Goods which do not confirm to the contract at any time within six months of delivery to the buyer are presumed not to have conformed at the date of delivery subject to the right of the seller to prove that they did conform on delivery or that the six-month rule is incompatible with the nature of the goods or of the breach (e.g. perishable goods). This will have obvious practical effects on arguments about acceptance of defective goods.

The primary right of the buyer is to require the seller to repair or replace the goods – s.48B(1) – and if he does, the seller must repair or replace the goods within a reasonable time “but without causing significant inconvenience to the buyer” and bear any necessary costs of doing so (including postage) – s.48B(2). This right is not absolute. It cannot be exercised if the remedy is impossible or if the remedy chosen is disproportionate to the other (e.g. it is cheaper to repair than to replace) or if the remedy is disproportionate to having a reduction in the purchase price or to rescission of the contract – s.48B(3). Disproportionality is assessed by taking into account the value of the goods if they had conformed to the contract, the significance of the breach and whether the other remedy could be effected without significant inconvenience to the buyer – s.48B(4). Questions both of reasonable time and significant inconvenience are to be judged by reference to the nature of the goods and the purpose for which they were acquired – s.48B(5).

The buyer may require the seller to reduce the price or may rescind the contract, if he is precluded by s.48B(3) from demanding repair or replacement or if he is required repair or replacement and the seller has failed to do so within a reasonable time and without significant inconvenience to the buyer – s.48C(1) and (2). If the buyer rescinds, an allowance may be made against reimbursement of the price to reflect any use the buyer has had of the goods before rescinding – s.48C(3). If the buyer has required the seller to repair or replace the goods, he must give him a reasonable time to do so and cannot reject the goods or terminate the contract (or go for the other remedy) until that time has elapsed – s.48D.

The courts are given powers to implement these remedies under s.48E. The court may grant specific performance of the obligation to repair or to replace but has wide powers in any case involving repair, replacement, abatement of the purchase price or rescission to award one remedy in place of another and to make orders subject to any conditions it thinks fit (including ordering the buyer to make an allowance for use of the goods).

Consumer guarantees

Regulation 15 of the 2002 Regulations introduces the concept of the enforceability of consumer guarantees defined as “any undertaking to a consumer by a person acting in the course of his business, given without extra charge to reimburse the price or to replace, repair or handle goods which do not meet the specifications in the guarantee or in relevant advertising” (reg.2).

Where the goods are offered for sale with the consumer guarantee, this operates as a contractual obligation owed by the guarantor to the buyer under the conditions set out in the guarantee and its “associated advertising”. There are strict rules for the drafting of consumer guarantees and guarantees made in transitory form (e.g. television advertisements) must, on request, be supplied in writing or other “durable medium”. The terms of reg.15 apply not only to the guarantor himself but to “any other person who offers to consumers the goods which are the subject of the guarantee for sale or supply”. Thus a manufacturer’s guarantee is enforceable by the buyer against both the manufacturer and the seller.

Exclusion of the statutorily implied conditions

The right to exclude the conditions implied by ss.12 to 15 although in general preserved by s.55(1), has been greatly curtailed by the Unfair Contract Terms Act 1977 (UCTA). UCTA created the two categories of contracting party, those who “deal as consumer” and those who do not. In respect of sale of goods a person “deals as consumer” if:

  • he neither makes the contract in the course of a business nor holds himself out as doing so; and
  • the other party does make the contract in the course of a business; and
  • the goods are of a type ordinarily supplied for private use or consumption (s.12(1) of UCTA).

Under reg.14 of the 2002 Regulations, however, the condition in (c) is to be disregarded if the buyer is an individual. Thus there are three categories of buyer for the purpose of s.12 of UCTA: non-consumers; individual consumers where (a) and (b) only apply and corporate consumers where (a), (b) and (c) all apply.

A corporate buyer at a sale by auction or competitive tender is never a consumer (s.12(2) of UCTA). Under the substituted version s.12(2), however, an individual buyer may be a consumer unless the goods are second hand goods sold by a public auction which he has the opportunity to attend. UCTA is excluded from application to most international supply contracts (s.26). A limited company can be a “consumer” for the purposes of UCTA: R & B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 W.L.R. 321; Feldarol Foundry Plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747.

How far the restrictions in the rules in UCTA relating to auction sales and international supply contracts are relevant to individual consumers may be doubted because the provisions of the Unfair Terms in Consumer Contracts Regulations 1999 have a wider application than UCTA. In these Regulations, there is no exclusion for auction sales or international supply contracts.

The rules governing the exclusion of implied conditions laid down by s.6 of the 1977 Act are:

  • s.12: in no contract can these obligations be excluded or restricted;
  • s.13-15: where the buyer deals as consumer, these obligations cannot be excluded or restricted; where the buyer does not deal as consumer, these obligations can be excluded or restricted but only to the extent that relevant term satisfies the requirement of reasonableness.

The onus both of proving that the buyer did not deal as consumer and of proving that the exclusion or restriction clause was reasonable rests on the seller. The criteria for determining reasonableness are set out in s.11 of and Sch.2 to UCTA.

Damages for breach of condition or warranty

Where there has been a breach of condition and the buyer has accepted the seller’s repudiation of the contract, the measure of damages will normally be the amount of the price paid together with any consequential loss assessed in accordance with the normal principles of ascertainment of contractual damages (e.g. loss of profit on sub-sale). Where there has been a breach of warranty, the buyer may either sue for damages or set up the damages as a set-off against the price (to the extent that it remains unpaid: s.53(1): it can thus found a cause of action or a defence. Prima facie, the measure of damages for breach of warranty will be the difference between the value of the goods at the time of their delivery to the buyer and the value they would have had if they had fulfilled the warranty (s.53(3)). Here again consequential loss can be recovered, for example loss of profit: Richard Holden Ltd v Bostock & Co Ltd (1902) 18 T.L.R. 317; liability to a sub-buyer: Hammond v Bussey (1887) 20 Q.B.D. 79; Total Liban SA v Vitol Energy SA [2001] Q.B. 643; or physical injury to the buyer or to any other person or property: Godley v Perry [1960] 1 W.L.R. 9.

Auction sales of goods

Auctions are within the code of the Sale of Goods Act 1979. The auctioneer sells as agent for the vendor and his authority will be limited by his instructions from the vendor.

Subject to those special rules which arise from the nature of auction sales, a sale of goods at auction is subject to all the rules governing other sales of goods, including the implication of the terms in ss.12 to 15.

Under s.57(1), where goods are sold in lots, each lot is prima facie the subject of a separate contract of sale. The analysis of an auction is that each bid is an offer which will be accepted when the auctioneer announces the completion of the sale “by the fall of the hammer or in any other customary manner” but until that occurs the bid can be withdrawn (s.57(2)). Similarly, the vendor may withdraw goods in advance from an advertised auction without exposing himself to an action from potential bidders and can withdraw them during the auction itself at any time up to the fall of the hammer.

Reserve prices. Under s.57(3) “a sale by auction may be notified to be subject to a reserve or upset price”. Where a seller gives authority to an auctioneer to sell subject to a reserve price, the auctioneer has no authority to accept a lower price: McManus v Fortescue [1907] 2 K.B. 1. If no reserve has been set, the auctioneer must knock the goods down to the highest bidder, however low the bid. If he fails to do so, the auctioneer will be personally liable in damages to the highest bidderon an analogy with s.57(4) (see para.25-37): Barry c Heathcote Ball & Co (Commercial Auctions) Ltd [2001] 1 A.E.R. 944.

Bids by the seller. Patently, if the seller himself can bid, he can push the price up and, if he (or his nominee) does it in secret, it is, in effect, a fraud on genuine bidders. The Act provides that the seller can reserve the right to bid (s.57(3)) but this must be announced before the sale and, if the right is reserved and notified, the seller or “any one person on his behalf” may bid at the auction (s.57(6)). If the seller’s right to bid is not notified to the other bidders, it is unlawful for the seller or his nominee to bid or for the auctioneer to accept such a bid (s.57(4)) and if it happens, the sale “may be treated as fraudulent by the buyer” (s.57(5)).

Defences

Section 18 of the Act provides:

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

The basic rule is, therefore, that, before one party can enforce his rights under a sale contract, he must be willing to perform his own obligations under the contract. If the seller is ready and willing to deliver against payment of the purchase price, it is not necessary for him to prove actual tender of the goods before he can sue for the price: Boyd v Lett (1845) 1 C.B. 222. In many cases the agreement will provide for payment and delivery not to be concurrent, as where the seller agrees to deliver on a certain date on terms that payment of the price will be made a given number of days after delivery or after invoice. Conversely, the buyer may agree to make payment in advance before the seller commences work on the manufacture of the goods. In these cases once the due date for the delivery or payment has passed, an action can be maintained even though at that time the other party is not required to be ready or willing to perform his obligation.

Defences of the seller

Claims by the buyer will normally fall into one or both of two categories, claims for non-delivery or late delivery of goods and claims based on breaches of conditions or warranties in the sale contract (the latter being frequently coupled with allegations of misrepresentation).

Claims by the buyer will normally fall into one or both of two categories, claims for non-delivery or late delivery of goods and claims based on breaches of conditions or warranties in the sale contract (the latter being frequently coupled with allegations of misrepresentation).

Claims for non-delivery or late delivery. Apart from denial of the facts relied on by the buyer, defences to claims for non-delivery or late delivery will normally be based on an express or implied term which would permit non-delivery or later delivery in the circumstances which have occurred (e.g. failure by or inability of the buyer to pay the purchase price) or on some external event preventing delivery but not involving fault on the part of the seller (e.g. loss or destruction of the goods at a time when the goods were at the risk of the buyer).

An unpaid seller is given certain rights by the Act, a seller being “unpaid” for these purposes if either the whole price has not been paid or tendered or a bill of exchange or other negotiable instrument has been received as conditional payment and the condition has not been met (either by dishonour or otherwise) (s.38).

An unpaid seller may exercise a lien over the goods until payment or tender of the price, where the goods have been sold without any agreement as to credit or where the agreed term of credit has expired or where the buyer becomes insolvent (s.41) and a seller who has made part-delivery can, unless he has waived his lien, retain the undelivered balance against payment (s.42). The lien is lost by delivery to a carrier for transmission to the buyer, by the buyer or his agent lawfully obtaining possession of the goods and by waiver (s.43).

An unpaid seller who delivers goods to a carrier or other bailee for transmission to the buyer can stop them in transit if the buyer becomes insolvent and resume his lien (s.44) by retaking possession of the goods or by notifying the carrier or other bailee in possession of them (or if he is an agent, by notifying his principal) (s.46).

Exercise of the lien or the right of stoppage in transit does not of itself rescind the contract of sale (a.48(1)) but, if the goods are perishable or if the seller gives notice of his intention to resell and the buyer does not pay or tender the price within a reasonable time, the seller can resell the goods and claim damages for breach of contract from the original buyer (s.48(3)).

Defences of the buyer

Where there has been an outright sale, the seller’s action will generally be for all or part of the purchase price or for damages for non-acceptance.

In a high proportion of cases, however, the buyer will want to set up as a defence the breach of some obligation of the seller, particularly the obligations created by ss.12 to 15. In these circumstances, the buyer must decide whether:

  • he is alleging a breach of condition (with or without a pre-contract misrepresentation) which entitles him either to rescind the contract or to treat it as having been repudiated by the seller;
  • whether he is alleging a breach of warranty which entitles him to damages alone; or
  • in consumer cases, he is seeking to assert one of the remedies afforded by Pt 5A.

In (a), in addition to any damages which may be payable, the buyer is normally entitled to repayment of any part of the purchase price which has already been paid. In that what the buyer is alleging would be a complete defence to the seller’s claim, any claim for damages or the repayment of money must be included in a counterclaim.

In (b), any damages for breach of warranty can be set off “in diminution or extinction of the price” (s.53(1)) and the measure of damages is the “estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty” (s.53(2)). In the case of the breach of obligations under ss.13 to 15, the measure of damages is “prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty” (s.53(3)). This prima facie presumption can be displaced (e.g. if the goods are sold to a buyer known to the seller to be intending to use them in manufacturing other goods which would be sold on: Bence Graphics International Ltd v Fasson UK Ltd [1998] Q.B. 87; see also Total Liban SA v Vitol Energy SA [2001] Q.B. 643).

If, therefore, the damages for breach of warranty are unlikely to exceed the balance of the price due, the alleging of breach of warranty can, technically, be relied on as a defence alone, without the need for a counterclaim. It is usually wiser, however, in cases of breach of warranty to include a counterclaim, for the damages alleged.

Section 21(1) of the Sale of Goods Act 1979 defines a contract of sale of goods as “a contract by which the seller transfers, or agrees to transfer, the property in goods to the buyer for a money consideration, called the price”. As a consequence the analysis in this article is of the contracts which amount to a “sale” within the Sale of Goods Act 1979, and what for the purposes of the Act amounts to “goods”.

The Law Governing Sale of Goods: The sale of goods is part of the law of contract, but is governed by its own statutory code, set out in the Sale of Goods Act 1979. The Act is retrospective in effect, applying to all contracts on or after 1 January 1894 (the date when its predecessor, the Sale of Goods Act 1893 came into force) – see s.1(1)). It applies to the whole of the United Kingdom, although some provisions apply only to specific parts of it.

Since 1979, the Act has been the subject of a series of amendments so as to reform the code, in particular the Sale of Goods Amendment Act 1994, the Sale and Supply of Goods Act 1994, and the Sale of Goods (Amendment) Act 1995.

The rules of common law apply where the Act is not inconsistent with them. Section 62(2) of the Act provides:

” The rules of the common law, including the law merchant, except in so far as they are inconsistent with the provisions of this Act, and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake, or other invalidating cause, apply to contracts for the sale of goods. “

The reference to the common law in the section is generally regarded as also preserving the principles of equity (see Benjamin’s Sale of Goods, 8th Ed, paras 1-008 to 1-009).

As part of the law of contract, other contract legislation is also applicable to the sale of goods, for example the Unfair Contract Terms Act 1977. In particular, this includes consumer protection legislation, much of which is derived from the European Union, for example the Unfair Terms in Consumer Contracts Regulations 1999/2083, the Consumer Protection (Distance Selling) Regulations 2000/2334, the Sale and Supply of Goods to Consumers Regulations 2002/3045, the Electronic Commerce (EC Directive) Regulations 2002/2013 and the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008/1816. Criminal and regulatory sanctions apply to sellers of goods to consumers through the Consumer Protection from Unfair Trading Regulations 2008/1277.

Savings from some earlier legislation is also made by the Sale of Goods Act 1979, in particular the Bills of Sales Acts of 1878 and 1882 (see s.62(3): “Nothing in this Act or the Sale of Goods Act 1893 affects the enactments relating to bills of sale, or any enactment relating to the sale of goods which is not expressly repealed or amended by this Act or that”). The effects of the Factors Act 1889, replacing and extending earlier Factors Acts, is also expressly preserved by s.21(2)(a): “Nothing in this Act affects… the provisions of the Factors Acts or any enactment enabling the apparent owner of goods to dispose of them as if he were their true owner”. However, the Sale of Goods Act also substantially reproduces parts of the Factors Act 1889, but with slight changes of wording.

Certain goods also have specific legislation applying to them, for example ss.27-29 of the Hire Purchase Act 1964 (covering the transfer of title for motor vehicles), ss.68 and 72 of the Agriculture Act 1970 (creating a warranty for certain feedstuffs), and for goods covered by regulations made under the Consumer Protection Act 1987, an actionable statutory duty is imposed by that Act in relation to the supply of non-compliant goods.

The Definition of the Sale of Goods: Section 2(1) of the Sale of Goods Act 1979 defines a contract of sale of goods as “a contract by which the seller transfers, or agrees to transfer, the property in goods to the buyer for a money consideration, called the price.” The definition requires an analysis of what is a sale for money consideration and what are goods.

“Sale”: Under Ss.2(4) of the Sales of Goods Act 1979, a contract of sale under which the property in the goods is transferred from the buyer to the seller is called a sale. Under s.2(5) an agreement under which property in the goods is to be transferred at a future time or subject to a condition later to be fulfilled is called an agreement to sell. It becomes a sale when the time elapses or the conditions are fulfilled (s.2(6)). The sale is therefore more than just a contract; it invests the buyer with rights in the goods themselves.

Before there is a sale, there is a right to damages; once the sale has taken place, the seller can sue for the price and the buyer may claim for wrongful interference with the goods.

Sale does not cover transfers of property such as gifts or transfers which are not by way of consensual agreement. Nor does it cover exchange or barter, where the consideration is not a money consideration. “Money” is not the same as “money’s worth”. It does not even extend to the extinguishment of a money debt: Simpson v Connolly [1953] 1 W.L.R. 911 (a transfer of land in consideration of a debt being excused was not a contract to pay money for the land).

A payment by credit or debit card, or a cheque, is the means by which the money consideration is paid to the seller. A sale paid for by such means is a payment for a money consideration.

A contract for an option to buy is not a contract of sale and there is no agreement to buy until the option is exercised. Similarly, the Sale of Goods Act 1979 does not cover hire-purchase. Until the option to purchase is exercised, this is not a contract of sale, but of hire. However, a conditional sale is a sale of goods, since both parties are bound by their agreement to sell and buy respectively (s.2(3) provides that a contract of sale may be absolute or conditional).

conditional sale is a sale of goods, since both parties are bound by their agreement to sell and buy respectively (s.2(3) provides that a contract of sale may be absolute or conditional).

A delivery of goods on sale or return is not a sale of goods, as the recipient by definition has the option to return them. However, the Act does make specific provision in relation to such transactions, providing for the passing of property where no notice of rejection is given in accordance with the contract or in a reasonable time (s.18(r.4)).

An apparent sale of goods intended to operate by way of security (for example where there an option to repurchase in reality intended to act as a security, or the goods apparently sold to the buyer outright are bailed to the seller) will not be a sale of goods; rather it will be caught by the Bills of Sale Act 1882. Section 62(4) of the 1979 Act provides:

” The provisions of this Act about contracts of sale do not apply to a transaction in the form of a contract of sale which is intended to operate by way of mortgage, pledge, charge, or other security. “

“Goods”: The sale must be one of goods. It will therefore not cover a contract for performance of services. A contract for performance of services where incidental materials are supplied is not a sale of goods under the Act; it will fall under Pt II of the Supply of Goods and Services Act 1982. It may be a difficult question whether a particular contract is one which is in substance a sale of goods (see the discussion in Benjamin’s Sale of Goods 8th Ed, paras 1-041 to 1-047).

The word “goods” is defined in s.61(1):

” ‘goods’ includes all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular “goods” includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale and includes an undivided share in goods. “

“Goods” will include solid and liquid minerals (including water), vapours and gases (even air, as in bottled air), but probably not formless forms of energy such as heat or electricity. Personal chattels include large items, such as ships or aircraft (to the extent that they are not governed by other legislation). It includes living animals (unless still wild).

Section 61(1)expressly allows a sale of a part share in goods (and see also s.2(2), which provides “There may be a contract of sale between one part owner and another”).

Things in action are not “goods”: therefore shares, negotiable instruments, bills of lading and insurance policies, for example, are not “goods”. Computer software per se is not considered goods, although the disc on which it is stored is (see St Albans City and DC v International Computers Ltd [1996] 4 All E.R. 481). However, in Southwark LBC v IBM UK Ltd [2011] EWHC 549 (TCC); 135 Con. L.R. 136 the view was expressed that a disc and the software on it was “goods”.

While money is excluded from the definition, currency and banknotes which are merely collector’s items and treated as a commodity in themselves rather than a means of exchange will be “goods”. If a current note or coin can be exchanged as such, even if sold as a collectible item, it may be that it is not within the Act (see the discussion in Benjamin’s Sale of Goods, 8th Ed, at para.1-084).

There is a distinction between a sale of land and a sale of goods, but the distinction can cause difficulties. The definition of “goods” in the Sale of Goods Act 1979 as including “emblements and industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” means that the sale of things such as crops to be severed from the land may be both “goods” within that Act and a sale of an “interest in land” covered by the Law of Property (Miscellaneous Provisions) Act 1989, and therefore subject to greater formality. The reference to “emblements” and “industrial growing crops” is apparently a reference to “fructus industriales”, which at common law meant crops produced by labour and therefore in any event treated as chattels (in contrast to fructus naturales, or plants naturally growing on the soil, such as timber).
A contract can be for future goods, which either do not exist at all or which exist but are not in the sellers possession. Section 5(1) of the Act provides that:

” The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods. “

A speculative contract for future goods can be a contract for the sale of goods, but this is to be distinguished from a contract for differences where delivery is in fact not contemplated by either party (whatever the contract may say).

A contract for future goods is an agreement to sell, not a sale, so that the buyer does not own the goods until property passes. Even though goods of the type described in the contract are subsequently acquired, if not appropriated to the buyer’s contract by the seller so that there is a sale, they do not become the buyer’s property (see Goldcorp Exchange Ltd (In Receivership), Re [1995] 1 A.C. 74).

As a contract of sale may be conditional (see s.2(3) of the Act), there will be no breach by the seller if the sale is conditional on the goods coming into existence or being acquired. This is matter of construction.

The Act also distinguishes between specific goods and unascertained goods. “Specific goods” are defined by s.61(1) and means “goods identified and agreed on at the time a contract of sale is made and includes an undivided share, specified as a fraction or percentage, of goods identified and agreed on as aforesaid”. Specific goods are therefore goods whose individual identity is so identified that only their supply is a performance of the contract. Future goods sufficiently identified would appear to be capable of being specific goods.

Although not a defined term, “unascertained goods” are goods which are not specific. Such goods can be the subject of a contract for the sale of goods. However, if the goods are unascertained goods, whether generic goods, or part of a bulk, or goods not yet in existence, property cannot pass until they are ascertained. Section 16 of the Act provides “Subject to section 20A below, where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained.” (Section 20 applies to contracts of specified quantities of unascertained goods, where the goods form part of an identified bulk). The effect of the contract being one for unascertained goods on the passing of property are dealt with in the chapter dealing with passing of property.