Sale of Goods Act

Description I

The Sale of Goods Act provides that a description applicable to goods is a contract condition. Therefore, its breach entitles the other party to terminate the contract and recover damages.

The description identifies the goods as such. Generally, statements in relation to the quality of the goods are covered by the implied statutory conditions as to quality rather than description. However, in particular cases, there may be a fine line between a description of the goods and descriptions of their quality.

The description goes largely to the issue of identity. If the goods correspond in the broad sense to the description, the identification condition is usually met, even if they are defective,

It is possible that terms in relation to quality may be part of the description in the particular circumstances. Statements as to the location, age and use of goods, dimensions and status in transit have been held to be descriptions in particular cases.


Description II

Where a statement is a description, it must be strictly complied with. The fact that the goods are useable does not necessarily mean that they conform to their description.

Any significantdifference in their quantum, size or other features, such that they are in substance different to what was described, may constitute a breach and non-compliance with the description requirement.

Clauses in written contracts proposed by the seller commonly provide that the description is by way of identification only. The clause may be effective in reducing the seller’s duties in many cases. The clause is not necessarily effective in avoiding the compliance with description obligation.

The statutory conditions cannot be nullified in a consumer contract. It may be modified in non-consumer contracts only is so far as the variation is fair and reasonable.


Conformity Requirements

The Sale of Goods Act implies conditions that goods must conform with any sample, be of merchantable quality and be reasonably fit for purpose. The concept of merchantability is somewhat old-fashioned that has been abandoned in the UK. In the UK the merchantable quality is now “satisfactory” quality, which is likely to have much the same meaning. The nature and age of the goods are relevant. Less is expected of used goods.

EU derived legislation provides that in deciding whether goods meet the requisite standard of conformity and quality, public statements including advertisements about their specific characteristics are taken into account. The buyer must have been aware of them. They must not have been withdrawn, with the withdrawal brought to the buyer’s attention.

The statutory warranties and conditions apply to goods supplied under the contract. They may be the goods subject matter of the contract or other goods supplied with them. This is the case even though the item, for example, packaging or a bottle may not be central to the transaction. The seller may even retain title to the goods concerned.


Merchantability

The requirement of merchantability of goods embraces their fitness for general usual purposes. It may be less than that required for fitness for a specific purpose, which is the subject of a separate statutory condition. The goods may be of merchantable quality notwithstanding that they do not meet statutory requirements.

Where a statement is made about key characteristics which are obvious from inspection, the buyer may be deemed not to have relied on it.

Latent defects at the time of purchase may later manifest themselves. They may be evidence that the goods were not of merchantable quality at the relevant time. It is relevant whether or not the goods are second hand. It is relevant what price is paid. It is relevant what cost would be involved in remediation and what the purchaser can reasonably expect in these circumstances.

The inclusion of clauses in consumer contracts which purport to exclude the key statutory consumer rights are not only void but may have criminal and administrative enforcement consequences. (Check Act)


Known Defects

The general conditions as to merchantability and quality are not applicable

  • where the defect is specifically drawn to the buyer’s attention in advance
  • where the buyer has examined the goods, and this has revealed the defect
  • where the goods conform with the sample.

Goods must be reasonably fit for purpose. If there is one or a principal or usual purpose, the seller has taken to know it. The burden is on the buyer to prove that the goods are not fit for purpose.

A seller can   disclose defects and bring matters to the buyer’s attention in some circumstances so as to negate its obligations under the implied conditions. The seller is not liable on the obligations in respect of fitness for purpose if the buyer did not, in fact, rely on the seller’s skill and judgment, or it would be unreasonable for the buyer to do so. This will rarely be the case in consumer contracts. It may be the case in business to business contract.

Where the defect aberration or breach of the description, quality, fitness for purposes, is slight is such that it is unreasonable for the buyer to reject the goods. The buyer remedy is to sue for damages only. A consumer purchaser has other remedies


Sample

It is an implied condition of a sale by sample that the bulk corresponds with the sample in quality and that the goods will be free from any defect rendering the quality unsatisfactory, not apparent form a reasonable examination of the sample.

The question may arise as to what is a sale by sample. In some cases, sellers disclaim that the exhibition of goods represents a sample and it is declared that they are exhibited solely for the buyer to judge himself in relation to the quality of the bulk and not so as to constitute a sample for the purpose of the statute.


Limiting Statutory Rights

Under the Sale of Goods Act, clauses which limit or exclude the supplier’s obligations must be fair and reasonable in accordance with the statutory criteria. The provisions apply to clauses which seek to exclude or limit liability for breach or which allow substantially different performance from that which is reasonably expected or which allow no performance at all.

Clauses which seek to exclude or limit the key Sale of Goods Act title provisions are void. Clauses which seek to exclude or limit the description, quality and conformity conditions are void in a consumer case. The purported exclusion of consumer rights constitutes an offence under consumer protection legislation.

A person deals as a consumer when he neither makes the contract in the course of a business or holds himself out as so doing, the other party deals in the course of business and the goods are of a type ordinarily supplied for private use or consumption.


Risk and Title

The issue of risk is important, in particular in cases where the goods must be transported from the seller to the customer. Where the risk has passed to the customer at a particular point, loss or damages is thereafter his economic risk and must be borne by him.  Insurance is often appropriate for the person who carries the risk.

The property in the goods usually passes at the same time as the risk, although this is not necessarily the case. There are default rules in respect of the sale of goods, which can be displaced by the express or implied agreement of the parties.

Retention of title may be provided for by the sale contract, in order to create security for the seller in respect of the payment of the price of the goods. Retention of title clauses usually provide that the title does not pass until after payment. There are limits to the effectiveness of the clause where the goods are transformed, and in some cases where they are sold to third parties who act in good faith.


Exculpatory Clauses

The scope of the doctrine of frustration is very narrow. Almost always, the parties unconditionally undertake their obligations under the terms of the contract. The parties are, of course, free to make their obligations less absolute, by exclusions, exemptions and limitations, on the basis of which, they be may be discharged from or undertake modified obligations.

A force majeure clause may provide that if delivery is delayed on account of strikes, lockouts, fires, accidents, defective materials, delays in the receipt of raw materials or by reason of another cause beyond the reasonable control of the seller, an extension of time for performance may be given to the seller.

It may be provided in some cases that the seller shall pay extra charges incurred by the buyer by reason of the delay. It may be provided that if the delay persists for such period as the seller considers unreasonable, that it may terminate its obligations under the contract.

It may be provided that if delivery is delayed for reasons beyond the seller’s control or reasonable control, that the buyer is entitled to a reduction in price unless it is shown that no loss is suffered. There may be a maximum cap on the reduction.


Frustration I

A contract is said to be frustrated when the obligations become incapable of being performed due to circumstances in which the performance that is possible is radically different to that which the contract contemplated. Frustration discharges the parties from their further obligations. Restitution and the unwinding of existing positions may be permitted.

The doctrine of frustration is narrow. It must not relate to any matter which could be foreseen or is a risk which is expressly or impliedly undertaken by a particular party.

The Sale of Goods Act provides that where there is an agreement for the sale of specific goods which perish before the risk has passed, the agreement terminates. The buyer who has prepaid the price may recover it. This provision can be varied by terms of the contract. The point of time for the passing of the risk can be varied.


Frustration II

Parties commonly make specific provision in respect of frustration and frustrating circumstances. They define matters and risks which have the effect of discharging and releasing the parties’ contractual obligations if they occur. They may include, for example, some of the matters which may qualify as frustration at common law.

It is helpful to specify events which allow termination, in particular where they are risks of nature which apply to the contract in the circumstances. For example, the events may include the inability to obtain licences, war, acts of government and the inability to obtain material or supplies due to strikes or other circumstances out of the control of parties.

It is thought to be difficult to avoid the application of the doctrine of frustration entirely. It is possible for parties expressly to undertake specific risks such that that party is liable and common law frustration does not apply.


Exemption of Liability Clauses

The seller / supplier commonly seeks to limit or exclude its liability for breach of contract. In consumer cases, the extent to which such clauses may take effect is limited. The clauses must meet a “fair and reasonable test” in contracts for the sale of goods to consumers.

The clause may provide for a fixed or maximum amount of damages in the event of a breach. If the amount is fixed and too high, it may be rendered void as a penalty. Conversely, if the fixed or maximum amount is too low there may be an unfair contract term in a consumer contract, or it may not meet the fair and reasonable requirement.

It is a basic principle of contract law that damages are measured by reference of the state of knowledge of the party who has breached the contract, at the time of entering it. An exemption clause may restrict or limit liability by reference to a known position at that date or hypothetical circumstances, which may not in fact apply.

Exemption clauses may seek to reduce the time limit for making a breach of contract claim. At law, the Statute of Limitations provides a six-year time limit for commencement of proceedings for breach of contract. Questions may arise in relation to how fair and reasonable, shorter timelines for initial complaint and commencement of proceedings might be.


Liquidated Damages I

Liquidated damages are pre-agreed amounts for payment in respect of a breach or a particular breach of contract. They have the advantage from the trader’s perspective and (possibly the customer’s perspective) that there is certainty as to the amount payable in the event of a breach. In particular, it is not necessary to try a legal action to ascertain damages either by trial in the context of a settlement with reference to what may be awarded at trial.

If liquidated damages are excessive, the relevant provision may be invalid as a so-called penalty. It is presumed that when the same lump sum is payable by way of compensation with reference to several events, some of which are serious and others of which are trivial, that the clause is a penalty.

The liquidated damages must be a genuine pre-estimate of the loss or damage. In some cases where it is difficult to estimate the financial cost of a breach, the courts allow greater latitude to the parties to set a broad measure of liquidated damages. They take the view that the parties are in a better position than the court to agree on the relevant amount.


Liquidated Damages II

A number of techniques are used to avoid a fixed sum obligation or other contract term being deemed a penalty. Clauses may tailor the amount of the liquidated damages to the loss. Accordingly, liquidated damages accrue at a daily rate for a delay in completion of the buildings works under many building contracts.

An acceleration clause may be used where the contract obligations comprise a number of instalments or steps. The parties may provide that the full amount is due at the outset, and thereafter reduces in steps. A default removes the entitlement to pay in steps and accelerates the full liability. This appears to be less likely to be characterised as a penalty, as it does not create a new liability.

Case law supports the view that a sum is not a penalty where it becomes payable on an event other than breach, such as on insolvency or leaving the jurisdiction.

Where money is paid in advance, it may be characterised as a prepayment, payment in an instalment or a deposit. In the case of a pre-contract payment, the monies are readily returnable. Where the buyer has defaulted, and a sum is paid as a deposit, it is more readily forfeited, than if it is characterised as a prepayment or payment in advance under the contract.