Role of a Revised Sale of Goods Act 2000



APPENDICES

APPENDIX 1 POSTWAR UNITED KINGDOM SALES AND RELATED LEGISLATION

(a) Introduction

The following is a short summary of the main sale of goods law reform measures in the United Kingdom over the past three decades.

(1) Supply of Goods (Implied Terms) Act 1973 (“SOGIT 1973”)

SOGIT 1973 made three main changes.

It amended the implied terms provisions of the Sale of Goods Act 1893 among other things by:

  • adding implied terms governing the right to sell, and so on for cases involving the transfer of limited title;

    introducing a statutory definition of merchantable quality; and

    amending the implied condition of fitness for purpose to take account of case law developments.

It limited the seller’s right to exclude or restrict liability for breach of the implied terms.

It enacted implied terms for hire-purchase agreements governing the right to sell and so on, correspondence with description, merchantable quality, fitness for purpose and sample.

(1) Consumer Credit Act 1974 (“CCA 1974”)

CCA 1974 substituted new hire-purchase implied terms provisions in SOGIT 1973. The changes were all minor or consequential.

(1) Unfair Contract Terms Act 1977 (“UCTA 1977”)

UCTA 1977 is a general contract measure for the control of exclusion clauses. It includes provisions relating specifically to exclusion clauses in sales, hire-purchase agreements and other contracts for the supply of goods. The sale and hire-purchase agreement provisions derive from SOGIT 1973. UCTA 1977 provides in relevant part as follows.

In the case of sale and hire-purchase agreements, the implied terms governing right to sell and so on cannot be excluded or modified. The other implied terms cannot be excluded or modified as against a person dealing as a consumer. As against a person dealing otherwise than as a consumer, these implied terms can be excluded or modified by contractual provision, but only if the provision passes a reasonableness test according to criteria set out in UCTA 1977 Schedule 2.

In the case of contracts for the supply of goods other than sales and hire-purchase agreements, liability in connection with the right to transfer ownership or give possession, quiet possession, and so on can be excluded or modified by contractual provision subject to the statutory reasonableness test. The other implied terms cannot be excluded or modified as against a person dealing as a consumer. As against a person dealing otherwise than as a consumer, the implied terms can be excluded or modified, subject again to the reasonableness test.

For the purposes of the Act, a person deals as a consumer if:

  • she does not make the contract in the course of a business;

    the other party does make the contract in the course of a business; and

    in the case of a sale or hire-purchase agreement, the goods are of a type ordinarily supplied for private use or consumption.

(1) Supply of Goods and Services Act 1982 (“SGSA 1982”)

SGSA 1982 incorporates three initiatives.

  • It enacts implied terms for contracts for the transfer of goods. A transfer of goods is a contract for the transfer of property in goods otherwise than by sale or hire-purchase.

    It enacts implied terms for contracts of hire. A contract of hire is a contract for the bailment of goods, not including a hire-purchase agreement.

    It enacts implied terms for contracts for the supply of services.

(1) Consumer Protection Act 1987 (“CPA 1987”)

CPA 1987, Part I deals with product liability. It is based on the European Community Product Liability Directive. Part II deals with product safety. Part III deals with misleading price indications.

(1) Sale of Goods (Amendment) Act 1994 (“1994 Amendment Act”)

The 1994 Amendment Act repealed the market overt rule.

(1) Sale and Supply of Goods Act 1994 (“SSGA 1994”)

SSGA 1994 implements the recommendations of the English and Scottish Law Commissions in their report on the Sale and Supply of Goods (Cm 137, May 1987). It amends:

  • GA 1979;

    SGSA 1982; and

    the SOGIT 1973 hire-purchase-agreement provisions (as substituted by CCA 1974).

The Act changes the law in relation to:

  • implied terms (merchantable quality);

    buyer’s remedies (minor breaches);

    buyer’s remedies (acceptance);

    buyer’s remedies (delivery of wrong quantity); and

    buyer’s remedies (partial rejection).

(1) Sale of Goods (Amendment) Act 1995 (“1995 Amendment Act”)

The 1995 Amendment Act deals with:

  • the sale of an undivided share in goods;

    the sale of unascertained goods forming part of a larger bulk; and

    ascertainment by exhaustion.

It is based on the recommendations of the English and Scottish Law Commissions in their report Sale of Goods Forming Part of a Bulk (Law Com. No. 215 and Scottish Law Com. No. 145, 1993).

Sections (b) and (c), below discuss in more detail the changes made to SGA 1979 by SSGA 1994 and the 1995 Amendment Act.

(a) The SSGA 1994 reforms

  • (i) Implied terms (merchantable quality). Before SSGA 1994, SGA 1979 incorporated an implied condition of merchantable quality as follows:

“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition –

(a) as regards defects specifically drawn to the buyer’s attention before the contract is made; or

(a) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal”.

In relation to merchantable quality, the Act said:

“Goods of any kind are of merchantable quality … if they are fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances”.

This definition derived from SOGIT 1973. It was a modified version of the judicially developed “purpose test”: Henry Kendall & Sons Ltd v Wm Lillico & Sons Ltd [1979] 2 A.C. 31.

The Law Commissions were critical of the SGA 1979 provisions on a number of grounds. Among other things:

  • the expression “merchantable quality” was thought to be archaic and inappropriate to consumer transactions;

    there were doubts about whether the statutory definition of “merchantable quality” adequately covered minor or cosmetic defects; and

    the provisions made no reference to the issues of product safety or durability.

SGA 1979 section 14(2A) now provides as follows:

“For the purposes of this Act, 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”.

Section 14(2B) says:

“For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,

(a) appearance and finish,

(a) freedom from minor defects,

(a) safety, and

(a) durability.”

(ii) Buyer’s remedies (minor breaches). SGA 1979 implied in a sale of goods “conditions” of correspondence with description, merchantable quality, fitness for purpose, and so on. A “condition” means a term of a contract breach of which entitles the buyer to treat the contract as repudiated. The Act drew no distinction between major and minor breaches. The consequence was to facilitate opportunism on the buyer’s part. The seller’s breach of an implied condition could get the buyer out of an unprofitable contract regardless of whether the breach actually mattered to the buyer. The courts could avoid this result only by saying that minor defects did not breach the implied condition, but the consequence of doing this would have been to deny buyers any remedy at all, including damages. The dilemma was the function of a too rigid condition/warranty distinction. The courts had come up with the “innominate term” concept to break down the distinction at common law: Hong Kong Fir Shipping Co. v. Kawasaki Kisen Kaisha [1962] 2 Q.B. 26; Reardon Smith Line Ltd v. Hansen-Tangen [1976] 1 WLR 989. However, in the sale of goods context, the express statutory references to “conditions” and “warranties” precluded a parallel development: Cehave NV v. Bremer Handelsgesellschaft mbH [1976] Q.B. 44. SSGA 1994 addressed the problem in the context of non-consumer sales. New SGA 1979 section 15A reads in relevant part as follows:

“(1) Where in the case of a contract of sale –

  • (a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14 or 15 above, but

    (b) the breach is so slight that it would be unreasonable for him to reject them, then, if the buyer does not deal as a consumer, the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.

(2) This section applies unless a contrary intention appears in, or is to be implied from, the contract.

(3) It is for the seller to show that a breach fell within subsection (1)(b) above”.

SGA 1979 section 61(4A) says that references in the Act to “dealing as a consumer” are to be construed in accordance with UCTA 1977.

(iii) Buyer’s remedies (acceptance). New SGA 1979 section 35 provides in relevant part:

“(1) The buyer is deemed to have accepted the goods subject to subsection (2) below –

  • (a) when he intimates to the seller that he has accepted them, or

    (b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

(2) Where goods are delivered to the buyer and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose -

  • (a) of ascertaining whether they are in conformity with the contract, and

    (b) in the case of a contract for sale by sample, of comparing the bulk with the sample.

(3) Where the buyer deals as a consumer … the buyer cannot lose his right to rely on subsection (2) above by agreement, waiver or otherwise.

(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them..

(5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above.

(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because –

  • (a) he asks for, or agrees to, their repair by or under an arrangement with the seller, or

    (b) the goods are delivered to another under a sub-sale or other disposition.

(7) Where the contract is for the sale of goods making one or more commercial units, a buyer accepting any goods included in a unit is deemed to have accepted all the goods making the unit; and in this subsection “commercial unit” means a unit division of which would materially impair the value of the goods or the character of the unit”.

This provision reforms the law in the following main ways.

  • It address the case where the buyer intimates acceptance of the goods before she has had a reasonable opportunity of examining them. The rule now is that an intimation in these circumstances does not constitute acceptance. The main concern was the potential prejudice to a buyer who signed a receipt for the goods containing an “acceptance note” or similar provision.

    The courts had made it clear that resale to a sub-buyer is not itself an act inconsistent with the seller’s ownership: Hardy & Co. v. Hillerns & Fowler [1923] 2 K.B. 490. The new provision codifies this rule.

    The courts had also held that if the buyer does an inconsistent act in relation to the goods before she has had a reasonable opportunity of examining them, there is no acceptance: Hardy & Co. v. Hillerns & Fowler. The new provision codifies this rule too.

    The new provision makes it clear that acceptance by lapse of a reasonable time is in part a function of the buyer’s reasonable opportunity to examine the goods.

    It is made clear that in the case of a consumer sale, the buyer cannot waive the reasonable opportunity of examination.

    The provision removes any suggestion that if the buyer attempts to have the goods repaired, she is deemed on that ground alone to have accepted the goods.

(iv) Buyer’s remedies (delivery of wrong quantity). In a case where the seller delivered less than the agreed quantity of goods SGA 1979 originally gave the buyer the option of rejecting the delivery or accepting it and paying for the goods at the contract rate. Correspondingly, if the seller delivered more than the agreed quantity, the Act allowed the buyer to either accept the goods included in the contract and reject the rest or reject the whole. The buyer could reject the whole delivery in either case even if the seller’s breach had not caused the buyer any harm. SGA 1979 section 30(2A) now provides:

“A buyer who does not deal as a consumer may not –

(a) where the seller delivers a quantity of goods less than he contracted to sell, reject the goods under subsection (1) above, or

(b) where the seller delivers a quantity of goods larger than he contracted to sell, reject the whole under subsection (2) above,

if the shortfall or, as the case may be, excess is so slight that it would be unreasonable for him to do so”.

The amendment parallels the changes made by section 15A in relation to minor breaches.

(v) Buyer’s remedies (partial rejection). Under SGA 1979, as a general rule, where a contract of sale was not severable and the buyer had accepted part of the goods, she could not reject the rest but was limited to a claim for damages. SSGA 1994 introduced a rule allowing for partial rejection. New section 35A reads as follows:

“(1) If the buyer –

  • (a) has the right to reject the goods by reason of a breach on the part of the seller that affects some or all of them, but

    (b) accepts some of the goods, including, where there are any goods unaffected by the breach, all such goods, he does not by accepting them lose his right to reject the rest.

(2) In the case of a buyer having the right to reject an installment of goods, subsection (1) above applies as if references to the goods were references to the goods comprised in the installment.

(3) For the purposes of subsection (1) above, goods are affected by a breach if by reason of the breach they are not in conformity with the contract.

(4) This section applies unless a contrary intention appears, or is to be implied, from the contract.”

  • (a) The 1995 Amendment Act reforms

(i) Sale of an undivided share in goods. The 1995 Amendment Act inserted a new definition of “goods” in SGA 1979 section 61. The new definition reads as follows:

“’Goods’ includes 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 and includes an undivided share in goods” (emphasis added).

The italicized words are new. The purpose is to make it clear that a part owner’s sale of an undivided share in goods is a contract for the sale of goods to which the Act applies.

(ii) Sale of goods out of bulk. SGA 1979 section 16 originally said that 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. This meant that a buyer who bought goods forming part of a larger bulk could have no interest in the goods unless and until they were separated out of the bulk. The rule was open to criticism on a number of grounds. For example:

  • it produced anomalies such as the following: (1) if the seller sold and delivered to other customers the entire bulk net of the buyer’s entitlement, then property in what was left would pass to the buyer under the doctrine of ascertainment by exhaustion, but if the residual bulk comprised goods even slightly in excess of the buyer’s entitlement, property would not pass (Re Wait [1927] 1 Ch. 606); (2) if the contract identified the buyer’s entitlement in terms of quantity, weight or some other measure, property would not pass until the goods were separated out but if the contract gave the buyer a fixed share of the bulk, the buyer became an owner in common of the bulk;

    the rule meant that if the buyer pre-paid the contract price and the seller became insolvent before the goods could be delivered, the buyer had no claim to the goods themselves against the seller’s trustee in bankruptcy, but was limited to proving in the bankruptcy for the amount of the payment: see, for example, Re Goldcorp Exchange Ltd [1994] 3 WLR 199. The Law Commissions thought that it was unjust that a prepaying buyer should stand to lose both the price and the goods on the seller’s insolvency;

    the rule was an impediment to freedom of contract. Parties may have wanted property to pass when the price was paid in exchange for documents, such as a bill of lading, but the rule prevented this outcome.

Section 20A was enacted to meet these concerns. It provides as follows:

“(1) This section applies to a contract for the sale of a specified quantity of unascertained goods if the following conditions are met –

(a) the goods or some of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties; and

(a) the buyer has paid the price for some or all of the goods which are the subject of the contract and form part of the bulk.

(2) Where this section applies, then (unless the parties agree otherwise), as soon as the conditions specified in paragraphs (a) and (b) of subsection (1) above are met or at such later time as the parties may agree –

(a) property in an undivided share in the bulk is transferred to the buyer, and

(a) the buyer becomes an owner in common of the bulk.

Subject to subsection (4) below, for the purposes of this section, the undivided share of a buyer in a bulk at any time shall be such share as the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time.

(1) Where the aggregate of undivided shares of buyers in a bulk determined under subsection (3) above would at any time exceed the whole of the bulk at that time, the undivided share in the bulk of each buyer shall be reduced proportionately so that the aggregate of the undivided shares is equal to the whole bulk.

(5) Where a buyer has paid the price for only some of the goods due to him out of a bulk, any delivery to the buyer out of the bulk shall, for the purposes of this section, be ascribed in the first place to the goods in respect of which payment has been made.

(6) For the purposes of this section, payment of part of the price for any goods shall be treated as payment for a corresponding part of the goods”.

Section 20B says that co-owner A is deemed to have consented to any dealing with goods in the bulk by co-owner B in so far as the goods fall within B’s undivided share. The purpose is to facilitate dealings in the individual shares.

Compare UCC section 2.105(4):

“An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold, although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller’s interest in the bulk be sold to the buyer who then becomes an owner in common”.

(iii) Ascertainment by exhaustion. The 1995 Amendment Act added the following provisions to SGA 1979 section 18 Rule 5:

“(3) Where there is a contract for the sale of a specified quantity of unascertained goods in a deliverable state forming part of a bulk which is identified either in the contract or by subsequent agreement between the parties and the bulk is reduced to (or to less than) that quantity, then, if the buyer under that contract is the only buyer to whom goods are then due out of the bulk –

(a) the remaining goods are to be taken as appropriated to that contract at the time when the bulk is so reduced; and

(b) the property in those goods passes to that buyer

(4) Paragraph (3) above applies also (with the necessary modifications) where a bulk is reduced to (or to less than) the aggregate of the quantities due to a single buyer under separate contracts relating to that bulk and he is the only buyer to whom goods are then due out of that bulk”.

The purpose is to codify the doctrine of ascertainment by exhaustion: Wait & James v. Midland Bank (1926) 31 Co. Cas. 172.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018