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Lecture

Implied Terms - Sale of Goods

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Law
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JSB171
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Nick Dowse Sale of Goods – Implied Terms Implied Terms (Sale of Goods) – Structure of Answer 1. “[Buyer] may get a remedy against [seller] on the basis that it breached a term implied by statute. This will depend on which statute applies, if any, and what terms can be implied.” 2. Does the Sale of Goods Act (Qld) (SGA), or the Trade Practices Act (Cth) (TPA) apply, or SGA SGAboth? SGA a. NOTE: Both the TPA and the SGA can apply simultaneously to the same transaction SGA because of s 75(1) TPA. SGA b. SGA i. SGA prima facie applies to all sales within Queensland or where the buyer is not a SGA “consumer” under the TPA. SGA ii. Applies where there is: SGA SGA 1. A contract of sale SGA 2. Of goods SGA 3. By which property passes SGA 4. For money consideration SGA 5. SGA not excluded by agreement SGA iii. Contract of Sale SGA SGA 1. Written or oral contract to sell something, or an agreement to sell something SGA in the future (s 3 SGA) SGA 2. If goods are not ascertained, there must be an agreement to sell as opposed SGA to a sale (s 4(3)) (Jansz) SGA 3. If there is no reference to money consideration, or it is by reference to barter, SGA exchange or trade-in, it is not a sale of goods (s (4)(1)). SGA a. However, if the parties value the respective goods in money terms, SGA SGA and then transfer equally valued items, this may constitute a sale SGA (Aldridge v Johnson). SGA 4. If it is a hire-purchase agreement under which the hirer merely as an option to SGA purchase, then it is not a sale of goods. SGA a. But if it can be construed as a sale condition on payment, then that is a SGA sale of goods. SGA 5. If it is under a floor plan, where an agent in possession is authorised to buy SGA SGA and sell goods on behalf of a financier, then it is not a sale of goods (Motor SGA Credits v Pacific Motor) SGA 6. If it is under a bailment, this is not a sale of goods, because property in the SGA SGA is defined to mean the general property in goods (s 3), not some special SGA interest as a mere bailee. SGA iv. Of Goods SGA 1. The term ‘goods’ is defined in s 3(1) SGA to mean all chattels personal, other SGA SGA than things in action and money, but includes emblements and things SGA attached to or forming part of the land, which are agreed to be severed before SGA sale, or under a contract of sale (s 3(1) SGA) SGA a. Emblements = crops and fruit, but not crops/fruit growing naturally on SGA the land – must be sown by human hand (Scully v South). SGA 2. Includes clothes, jewellery, cattle, and furniture etc – any physically moveable SGA object. SGA SGA 3. Can extend so far as to include fixtures, if parties agree to sever from the SGA land a chattel which would otherwise be a fixture (Symes v Laurie) SGA 4. Can include things like timber, minerals, sand and gravel SGA a. Agreement to fell timber on land is contract of sale: Egmont Box v RG SGA of Lands SGA b. Agreement to sever a known and defined mound of rock/mineral is a SGA SGA sale of goods: Mills v Stokman (1st scenario) SGA c. Agreement to locate and extract sand, gravel, or minerals for an SGA Page 1 of 17 SGA Nick Dowse Sale of Goods – Implied Terms agreed price per ton from soil is NOT a sale of goods: Amco Enterprises v Wade. It is a profit a prendre. d. HC in Mills v Stokman set out three scenarios, here it is the [first/second/third] that applies: i. If the residue is still separate from the realty, it can be transferred under the SGA. ii. If the residue has become reintegrated (the mound has sat there for a long time and it looks as though it is part of the earth again) then it can only be a contract for a sale of goods if under the contract the buyer is obliged to sever the mound and that is stated in the contract. iii. Where a mound over time has become indistinguishable from land, then no contract for its sale can be a sale of goods contract whether or not there is an obligation to sever – it is a profit a prendre rather than a sale of goods. 5. Does not apply to choses in action, such as shares, debts, negotiable instruments, copyrights, patents, trade marks etc (s 3(1) SGA). 6. Does not apply to a contract for services a. SGA does not apply to contracts for the supply of services, only goods. b. There are two tests for distinguishing goods from services: i. Substance test: is the substance of the K the production of something to be sold, and the exercise of skill, though high, is primarily for the purpose of merely producing the goods? 1. If so, then the K is one for the sale of goods (Robinson v Graves; applied in Re Amlink) 2. Painting of portrait = not SOG (Robinson) 3. Blood transfusion, billed itemised = not SOG (Perlmutter) 4. Meal in restaurant = SOG, service incidental to supply of meal (Lockett) 5. If mass produced hardware + software = SOG (Toby Products) a. But would be different for customised, specially written software ii. Alternative test: Where the end result is the sale of a chattel, then no matter how great the skill involved, it is a SOG” (Lee v Griffin) 1. Sale of dentures by test = SOG (Lee v Griffin) 7. Contracts for the installation/work and supply of materials: a. Prima facie not a SOG (Robinson v Rothfield) b. However, if property passes at the time the K is made and then the goods are simply installed later, there will be a SOG (Aristoc). c. i.e. where build and install cocktail cabinet = not SOG because cabinet became a fixture (Robinson v Rothfield) d. i.e. where supply and install lifts into building, or where supply and fit special seats for theatre = SOG, if built first, property passes, then installed (Aristoc). 8. Classify the type of goods a. Specific i. Goods that are identified and agreed upon at the time a K of sale is made (s 3 SGA) 1. Eg a particular item from the seller 2. But need not exist, can be future 3. But need not be in seller’s title or possession (seller can acquire title and possession later) Page 2 of 17 Nick Dowse Sale of Goods – Implied Terms b. Ascertained SGA SGA i. Not defined in SGA SGA ii. Is goods which are not specific at the time of K, but have SGA become identified and/or apparent and/or appropriated to the K SGA after the K of sale was made (Staplyton v Fletcher). SGA 1. i.e. where K of sale for 100 tonnes of wheat, 200 tonnes in silo, becomes ascertained after 100 tonnes loaded into SGA SGA the buyer’s vehicle SGA iii. If there is to be no delivery, and merely a segregation in the SGA seller’s hands, upon such segregation, the goods will become SGA ascertained (Staplyton v Fletcher) SGA c. Unascertained SGA i. Not defined in SGA ii. At CL: not identified or agreed upon at the time a K of sale is SGA SGA made (Re Goldcorp Exchange) SGA iii. Applies to generic goods which are sold as generic goods, i.e. SGA where sold on terms allowing seller to obtain them from any SGA source/stock, as opposed to particular stock (Re Goldthorpe) SGA iv. Applies to quasi-specific, ex-bulk sales, i.e. where sold a portion SGA of a fixed and predetermines source but from which the seller may make their own choice (eg “I sell you 60 of the sheep now SGA SGA on my farm which has 500”) SGA v. Cannot transfer property in these unascertained goods, SGA because the buyer cannot acquire title to things which are SGA unascertained (s 19 SGA). SGA d. Future i. Are goods to be manufactured or acquired by the seller after the SGA making of the K of sale (s 3, s 4(3); s 8(1) and (2) SGA) SGA SGA ii. i.e. goods not yet in existence, or which the seller does not yet SGA own. SGA iii. Under s 8(3) SGA, where the seller purports to effect a K of sale SGA of future goods, the K operates as an agreement to sell, not a K SGA of sale. v. By Which Property Passes (don’t mention unless necessary) SGA 1. Property must pass from the seller to the buyer SGA SGA 2. Means both the legal and equitable title, not some specific or limited interest SGA such as that of a bailee or a security interest (s 3(1) SGA). SGA vi. For Money Consideration (Price) SGA 1. Transfer of goods must be for money consideration SGA 2. Consideration can be a. Fixed in the contract (s 11(1) SGA) SGA SGA b. Fixed by a formula in the contract (s 11(1) SGA) SGA c. Determined by a course of dealing between the parties (s 11(1) SGA) SGA d. If not in contract, must pay a reasonable price (s 11(2) SGA) SGA i. Question of fact, depends on circumstances (s 11(3) SGA) SGA 3. No money consideration where there is a trade in, because the consideration SGA is the seller’s partial release of a debt (Warmings Used Cars v Tucker) 4. In the sale of goodwill and assets of business, description of price as “at SGA SGA valuation” is sufficient under s 11(1) SGA (Wenning v Robinson). SGA vii. SGA Not Excluded By Agreement SGA 1. The implied terms and conditions in the SGA are all capable of being SSGA excluded by express or implied agreement between the parties: s 56 SGA (by SSGA either express agreement or by course of dealing between parties) SGA viii. Overall conclusion: does the SGA apply? SGA SGA Page 3 of 17 SGA Nick Dowse Sale of Goods – Implied Terms c. TPA i. TPA is the proper statute for interstate sales, or sales by a corporation engaged in trade and commerce, or sales via the post, telegraph or the internet (s 51(1), (5) and TPA (20) Commonwealth Constitution) TPA ii. Applies to: TPA 1. A contract TPA 2. For the supply TPA 3. Of goods or services TPA 4. To consumers TPA iii. A contract TPA 1. Offer, acceptance, consideration, i.e. based on general principles of K law TPA iv. For the Supply TPA 1. The term “supply of goods” is wider than “sale of goods” under the SGA. TPA 2. Includes contracts of sale, exchange, lease, hire or hire-purchase (s 4(1) TPA TPA) TPA v. Of Goods and Services TPA 1. Goods: sames as SGA + ships, aircraft and other vehicles, animals, fish, TPA minerals, trees and crops, whether on, under or attached to the land or not, TPA and gas and electricity (s 4 TPA) TPA 2. Services: rights, benefits, privileges or facilities provided, granted or TPA conferred in trade or commerce TPA a. Includes supplying blood (E v Aust Red Cross) TPA vi. To consumers TPA 1. Goods or services must be supplied to a consumer. TPA 2. Consumer is defined in s 4B TPA (exhaustive). TPA 3. Essentially, a consumer is a person/corporation where either: TPA a. The price of the goods does not exceed $40K (s 4B(1)(a)(i)); OR TPA b. If they do exceed $40K, then they are of a kind ordinarily acquired for TPA personal, domestic or household use or consumption (regardless of TPA price) (s 4B(1)(a)(ii)) TPA i. OA4PDOHUOC is a Q of fact (Carpet Call) TPA ii. Focus is on ordinary use, not the actual intended use TPA iii. Things not OA4PDOHU: TPA 1. Airseeder (Jillawarra) 2. Large tractor (Atkinson) TPA TPA 3. Reduction photocopier (Four Square Stores) TPA 4. Prime Mover (Minchillo) TPA 5. Ostrich egg incubator (Crago) TPA 4. May be a consumer even where goods are purchased second hand TPA (Atkinson v Hastings Deering) TPA 5. Not a consumer if the goods are purchased for resale, or to be used in the TPA process of production or manufacture (s 4B(1)(a)) TPA 6. Just because something is used on a farm or purchased for a nightclub, does TPA not make it lose its character as OA4PDOHUOC (Carpet Call) TPA a. And just because used in a business does not make it lose those TPA qualities (Crago) TPA vii. Operation of the TPA can be extended: TPA 1. Non-corporate traders engaged in TPA a. interstate or overseas trade or commerce (s 6) TPA b. trade or commerce within or involving a Territory (s 6) TPA c. dealings with the Cwth govt or any of its instrumentalities (s 6) TPA 2. Conduct of individuals using postal, telegraphic, telephonic or internet (s 6) TPA 3. Persons who aid, induce or conspire in a contravention of the TPA may incur TPA liability (s 75B TPA) TPA Page 4 of 17 Nick Dowse Sale of Goods – Implied Terms a. Includes employees, salespersons, or ISPs TPA viii. The TPA cannot be excluded: TPA 1. Section 68 prevents the ousting of the TPA TPA 2. However, s 68A, in some circumstances, allows the seller to limit the scope of TPA liability when in breach of an implied condition (s 68A TPA) ix. Overall conclusion: does the TPA apply or not? TPAd. NOTE: Both the SGA and the TPA can apply simultaneously to the one transaction TPA TPA because of s 75(1) TPA. Section 109 of the Constitution does not invalidate the SGA to the extent of any inconsistency in the SGA with that of the TPA. 3. What terms are implied by the statute? a. SGA i. Express stipulations in the contract may render the need to imply a term redundant! SGA 1. Point out express terms of the K that mean a term need not be implied under SGA the SGA. SGA SGA ii. Implied Condition That Seller Has The Right To Sell (s 15(a) SGA) 1. Breached where seller has no title to the goods (Rowland v Divall) SGA 2. Liability imposed is strict and does not depend on the knowledge of the seller. SGA 3. If the seller does not have title, they may perfect their title later but before the SGA buyer rescinds the K, in which case there is no breach of s 15(a) (Patten v SGA Thomas) SGA 4. If the seller does not have title because: SGA SGA a. Goods stolen, then breach of s 15(a) (Rowland v Divall) b. Goods under hire-purchase and option to purchase not exercised, SGA unless title later “feeds” down, breach of s 15(a) (Butterworth) SGA 5. If seller does have title, but cannot sell because: SGA a. Infringing a trademark, then breach of s 15(a) (Niblett) SGA b. Goods impounded at time of sale, then breach of s 15(a) (Egekvist) SGA c. Some other fact restricts their sale, then breach of s 15(a) SGA SGA (Microbeads). 6. Remedy for breach: SGA a. As a condition, the implied term is fundamental to the K, and a breach SGA will entitle the buyer to rescind the K and claim for damages (Rowland SGA v Divall) SGA b. Section 14(3), which otherwise converts a condition to a warranty in SGA these circumstances, has been held not to apply to s 15(a) (Rowland v SGA SGA Divall; Butterworth v Kingsway) iii. Implied Warranty That Buyer Shall Have Quiet Possession (s 15(b) SGA) SGA 1. “Quiet possession” includes, but extends beyond, freedom from physical SGA interference with the goods by the seller SGA 2. The goods are the buyer’s to have and enjoy at and after the sale (Keetley) SGA 3. Will be breached where: SGA SGA a. Goods are sold and delivered on credit, but still within the terms of credit, the goods are seized by the seller wrongfully (Healing v Inglis) SGA b. Patentee of a patent affecting the goods claims infringement by buyer SGA against patent (Microbeads) SGA c. Buyer must modify goods in order to avoid copyright infringement SGA against a 3 party (Niblett) SGA 4. This implied warranty is often relied on together with s 15(a) (above). SGA SGA 5. Remedy for breach: a. As a mere warranty, the buyer is limited to a claim for damages, and SGA cannot rescind the K (s 54 SGA). SGA i. The quantum of damages is the estimated loss directly and SGA naturally resulting from the breach of warranty: s54(2). SGA iv. Implied Warranty That Goods Are Free From Encumbrances (s 15(c) SGA) SGA Page 5 of 17 Nick Dowse Sale of Goods – Implied Terms 1. Breached where the seller does not disclose a tax owing or a charge etc over SGA the chattel (Steinke v Edwards) SGA 2. Will not be breached where encumbrance disclosed to buyer by seller SGA 3. Remedy for breach: SGA a. As a mere warranty, the buyer is limited to a claim for damages, and SGA cannot rescind the K (s 54 SGA). SGA i. The quantum of damages is the estimated loss directly and SGA SGA naturally resulting from the breach of warranty: s54(2). SGA 1. But is limited to amount of expenditure required to SGA discharge the encumbrance or charge plus any legal SGA costs (Steinke) SGA v. Implied Condition That Goods Correspond With Their Description (s 16 SGA) SGA 1. STOP: Check if there is an express or implied stipulation as to conformity SGA with description. If the parties intended for spoken words to that effect were to SGA SGA form part of the contract, the court will give effect to it (Oscar Chess). SGA 2. Section 16 requires a sale by description before the condition is implied. SGA 3. Were the goods sold by description? SGA a. Will be a sale by description where the basis for goods being selected SGA or identified is their correspondence to a description (Aust Knitting). SGA b. If the goods are unascertained, usually sold by description, otherwise SGA there would be nothing to determine the subject matter of the contract SGA SGA c. If the goods are future goods, usually sold by description, but not SGA necerdarily (i.e. where seen and requested by the buyer in the hands SGA of a 3 party and then later obtained by the seller). SGA d. If specific goods: SGA i. Usually sold by description, but not necessarily so. SGA ii. Sale in a self-service store will constitute a sale by description, SGA provided the goods are described in some way on the outside of SGA SGA the packaging or by sign, notice or label (Grant v Aust Knitting) SGA iii. There is no distinction between self-selection and a sales SGA assistant handing over an article in response to a request SGA (Pacific Tea v Walker) SGA e. Examples: SGA i. Bull seen and described as breeding bull = SBD (McBride) SGA ii. Buy underwear self-selected from shelf, packaging described as SGA SGA underwear = SBD (Aust Knitting) SGA iii. Buy painting described as “Munter” but seller professes not to SGA be an expert, turns out to be fake = artist does not form part of SGA description (Chris Hull) SGA 4. Did the buyer rely on the description? SGA a. Not strictly correct in principle to say that reliance is required, but SGA SGA relevant as far as intention of parties for description to form part of the SGA K (Chris Hull). SGA 5. What words form part of the contractual description? SGA a. The words must go to the kind, class or species of the goods, and not SGA to their quality, state or other attribute (Taylor v Combined Buyers). SGA b. Must go to their identity, not quality (Ashington Piggeries) SGA c. Examples: SGA SGA i. If K to buy “cask of port wine” but get beer = difference of kind, SGA so breach SGA ii. If K to buy “cask of port wine in sound condition” but get in poor SGA condition = difference is only in quality, therefore no breach SGA iii. If K to buy specific chairs described as “antique mahogany SGA chairs” but receive modern imitations = difference in kind, SGA SGA Page 6 of 17 SGA Nick Dowse Sale of Goods – Implied Terms breach iv. If K to buy stud bull (breeding bull) but bull sterile = breach of condition because essential 1. But if desc “pedigree Jersey bull” and sterile = pedigree does not equal fertile, therefore no breach (Dell v Quilty) SGA v. If K to buy 14-horse-power engine, but get less horse-power = SGA difference in quality, no breach (Parson v Sexton) SGA SGA vi. If K to buy specific “stock of coal or Cumberland and small SGA Welsh coal mixed” but get mixture of inferior coal = difference of quality only, therefore no breach (Kirkpatrick v Gowan) SGA vii. If K to buy a new machine, from the previous year, only used for SGA 50 acres but machine doesn’t work = difference as to kind, SGA qualitative description may form part of description (Ashington SGA Piggeries) SGA nd SGA viii. If K to buy new car, but receive 2 hand car where technology SGA has changed = goes to kind, not quality ix. If K to buy a particular model of car, but car received is two SGA bodies of same model welded together = breach (Beale v SGA Taylor) SGA 1. Even though this prima facie goes to quality, it was so SGA important to the parties to the TX that it was considered SGA SGA to go to the identity of the goods. d. Words that describe the purpose for which goods are suitable will SGA usually not form part of the description, but if something is described SGA as “oysters, fit for eating” and they are not, will not conform with their SGA description SGA e. Go through and state which words form part of the description, which SGA words do not. SGA SGA 6. Do the goods in fact correspond with their description? a. This is a question of fact, determined my reference to the particular SGA circumstances (Ashington Piggeries) SGA b. If order food to be made of “fair, average quality of the season” and SGA receive toxic food for mink = description goes to quality, not kind, SGA therefore no breach of this implied term (Ashington Piggeries) SGA 7. Remedy for breach: SGA SGA a. Go to Remedies for Breach of Implied Terms on page 15. vi. Implied Condition That The Goods Will Be Fit For Their Purpose (s 17(a) & (b) SGA) SGA 1. The buyer must have made known, expressly or by implication, the particular SGA purpose for which he wanted the goods SGA a. The seller is entitled to know the purpose so they can ensure the SGA goods are fit for that purpose. SGA SGA b. Go through circumstances surrounding the TX and examine them. SGA c. The purpose can be a narrow or general purpose (Regal Pearl) i. Important which purpose the court adopts as it can affect SGA whether or not there has been a breach SGA ii. i.e. in Regal Pearl trial judge defined it as “prawns for cooking in SGA prawn dishes for customers to eat” (narrow), but appellate court SGA defined it as “prawns for human consumption” (general) SGA SGA iii. If too general/broad, might not be enough to enable the seller to exercise its skill and judgement (Hardwick) SGA d. If the goods have multiple purposes, it is enough for the goods to be fit SGA for at least one of those purposes, not all (Hardwick Game Farm) SGA e. Even if the buyer does not make the purpose for which they are buying SGA the goods expressly known to the seller, the purpose can be inferred if SGA SGA Page 7 of 17 SGA Nick Dowse Sale of Goods – Implied Terms the goods are suitable for only one normal purpose (Priest v Last). i. i.e. if buy hairbrush, obviously to brush hair ii. i.e. if buy ship propeller, obviously for propelling ship (Cammell) iii. i.e. if buy underwear, obviously to be worn (Aust Knitting) iv. i.e. if buy carton of milk, obviously to be drunk by human (Frost) SGA f. But if the buyer has an abnormality which is not disclosed to the seller, SGA then there can be no implication (Griffiths v Peter Conway) SGA SGA g. If the parties have a sufficient history of dealings together, this may be SGA enough to imply a disclosure for purpose by the buyer (Hardwick Game Farm) SGA 2. The particular purpose must be disclosed in such a way that it is clear that SGA the buyer is relying on the seller’s skill and judgement, and, does in fact rely SGA on it. SGA a. Must disclose the purpose to the seller with a sufficient degree of SGA SGA particularity. SGA b. There must be actual reliance on the seller’s skill and judgement and this must be evidence to a reasonable seller at or before the time the K SGA is formed (Frank v Grosvenor) SGA i. i.e. it is an objective test. SGA c. There is no presumption of reliance (Claude B Fox), but can arise by SGA implication from the surrounding circumstances (Ashington Piggeries) SGA SGA d. Reliance can be inferred from the fact that a buyer goes to a shop in the confidence that the tradesmen selected the stocked goods with SGA skill and judgement – the better the shop, the easier it is to draw this SGA inference (Grant v Aust Knitting) SGA i. However, this inference does not apply between two traders SGA who are equally knowledgeable (Hardwick Game Farm) SGA e. Total or exclusive reliance on the seller’s judgement is not required SGA SGA (Ashington Piggeries), but must be the effective inducement to
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