Commercial Law Lecture 1 Introduction To Sale of Goods

lOMoARcPSD|2509867
Commercial Law Lecture 1 - Introduction To Sale Of Goods
Commercial Law (King's College London)
StuDocu is not sponsored or endorsed by any college or university

Downloaded by Lady Diana Minto (ddandan612@gmail.com)
lOMoARcPSD|2509867
Commercial Law Lecture 1 – Term 2
English Sale of Goods: The Foundations
Sale of Goods Act 1979 (SGA) - Replaced SGA 1893 which codified the existing common law rules
Bank of England v Vagliano Bros [1891] AC 107 – 144-145: First instance is to examine the language
of the statute and to ask what is its natural meaning..... Where provision have a technical meaning it
may be permissible to look at prior case law to interpret the relevant provision.
◦ S 62(2): ‘… 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’
◦ Usages and customs
-Freedom of Contract: S 55(1): ‘where a right, duty or liability would arise under a contract of sale of
goods by implication of law, it may (subject to the Unfair Contract Terms Act 1977) be negatived or
varied by express agreement, or by the course of dealing between the parties, or by such usage as
binds both parties to the contract’
What is a contract for the sale of goods?
 ‘A contract of sale of goods is 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.’ (s 2(1))
-If the seller is transferring the property, then that is a ‘sale’ (S. 2(4)
-If the seller AGREES to sell then that is an ‘agreement to sell’ - where under a c-t of sale transfer of
property is to take place in the future or subject to some condition later to be fulfilled (s 2(5))
S 2(6): ‘An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled
subject to which the property in the goods is to be transferred’
Sale v Agreement to sell:
-Breach of agreement to sell leads to damages. In the case of a sale: can only bring an action where
the property in the goods has passed to the buyer (S. 49(1))
-Risk of loss/damage also lies with the owner (S in an agreement of sale; B in a sale) –Risk passes
with transfer of property as general rule (S. 20(1))
PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2015] EWCA Civ 1058 – Number of parties in
the chain and the chain involved gasoil supplies (‘the bunkers’). OWBM is the supplier to the vessel
owners (PST Energy). The payment had to be made within 60 days after delivery; the contract also

lOMoARcPSD|2509867
contained a retention of title clause. The contract also allowed the buyer to consume the goods
before them being paid for. OWBM went into restructuring and payment was never made, and the
goods were consumed. The supplier was trying to get the price from the owner of the vessel. Buyer
argued that the property had not passed under s. 49(1), the seller continued to hold the title.
Held: Their descriptive of the contract is not decisive. The essence was the owners did not contract
for the transfer of property, they contracted for the delivery of the quantity of bunkers and had an
immediate right to use for which they had 60 days to pay. So it was not a sale contract and they
could not claim the price back
Sale contracts for work:
-The provision of services is normally subject to obligation to provide with care and skill. Whereas
provision of goods is subject to strict obligation of quality
Distinguishing goods and services -
Lee v Griffin (1861) 1 B&S 272, 278: Involved obligation of dentist to make and fit artificial teeth, the
lady who ordered them died so it was claim against her executive. ‘If the party has done work and
labour which ends in nothing that can become the subject of a sale, the party cannot sue for goods
sold and delivered...’ here it was decided it was a sale of goods contract
Robinson v Graves [1935] – General test is one of determining the substance of the contract. –If it is
all to do with the skill then it is likely the provision of a service as it was in this case.
‘If you find … that the substance of the contract was the production of something to be sold … then
that is a sale of goods.
But if the substance of the contract…is that skill and labour have to be exercised for the production
of the article and that it is only ancillary to that that there will pass from the artist to his client or
customer some materials in addition to the skill involved in the production of the portrait, that does
not make any difference to the result, because the substance of the contract is the skill and
experience of the artist in producing the picture”’
Can also look at comparative value(although this was rejected in Lee v Griffin, Robinson v Graves can
be said to support it): It looks at the value of the goods and the value of the services and then
compare and see what the substance of the contract is
 Is a mixed contract possible? Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR
1129, 1148: ‘The obligations…were not confined to selling the vessel but they included
designing and building it and there were special provisions…that the contract price ‘shall
include payment for services…’’ BUT ‘the shipbuilding contract has little similarity with a
contract of sale and much more similarity with…contracts in which the party…had either
performed work or provided services’
-Cammel laird case

lOMoARcPSD|2509867
 First, the transaction may be seen in substance or essence as one or the other;
 secondly, a comparative value test may be applied to determine whether the goods or the
labour have the greater financial value;
 or thirdly, the transaction may be seen as a sale of goods contract if the property in some
goods is conveyed and these goods are not wholly incidental to the transaction…
 In the current state of English law, it is impossible to say which test is predominant’ (MG
Bridge)
Definition of ‘Goods’
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;
-Is software goods? St Albans DC v International Computers [1996] 4 All ER 481 (CA): Local
authority was buying software to help collecting a community charge. The software was faulty as it
overestimated the number of people and the charge calculated was wrong and they suffered losses:
population was overestimated and the charges set at a low rate, resulting in losses.
Held: Software per se is not goods; not subject to the SGA implied terms. BUT if it is on a physical
medium it can be. ‘ A computer disc onto which a program is designed and intended to instruct or
enable a computer to achieve particular functions has been encoded’ is ‘goods’ – But in this case it
was held to be goods
London Borough of Southwark v IBM UK Ltd [2011] EWHC 549 (TCC) - Purchase of software by
London Borough of Southwark. Claim that the software was unsatisfactory and unfit for purpose
Held: Is it goods? No! No transfer of property – rights to use software are licensed. It was a licensing
arrangement rather than a sale.
 BUT: ‘In principle, a licence to use, if that is all it is, may well not transfer any property or
title in the goods in question. However, if the arrangement between the parties can be said
to involve the transfer of property to the buyer, I see no reason why in principle software
that is so transferred cannot be "goods" for the purposes of the Act. ’(para. [97])
-It is an arbitrary distinction between the physical medium and non physical software
-Tangibility and moveability are the key characteristics of goods
Classification of goods:

lOMoARcPSD|2509867
 Existing and future: ‘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’ (S 5(1)).
◦ ‘Where by a contract of sale the seller purports to effect a present sale of

future goods, the contract operates as an agreement to sell the goods’ (s
5(3))
 Specific and unascertained
◦ ‘“specific goods”: 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]’ (s 61(1))
◦ Varley v Whipp [1900] 1 QB 513 (reaping machine: specific, but future goods
in the SGA sense)
‘Ascertained goods’ are specific goods but are identified at a later point
-Significance of the distinction:
Ss 6 & 7 SGA – only apply in the case of specific goods
S. 6: ‘Goods which have perished: Where there is a contract for the sale of specific goods,
and the goods without the knowledge of the seller have perished at the time when the
contract is made, the contract is void’.
S. 7: ‘Goods perishing before sale but after agreement to sell: Where there is an agreement
to sell specific goods and subsequently the goods, without any fault on the part of the seller
or buyer, perish before the risk passes to the buyer, the agreement is avoided’.
-Also, property can only pass if the property is specific or ascertained (this means the
passage of risk also depends on this)
-Specific performance: S. 52(1): ‘In any action for breach of contract to deliver specific or
ascertained goods the court may, if it thinks fit, on the plaintiff’s application, by its
judgment or decree direct that the contract shall be performed specifically, without giving
the defendant the option of retaining the goods on payment of damages’
-Distinction is also important when it come to the right to cure (if goods are specific,
replacement is not possible)
AerCap Partners 1 Ltd v Avia Asset Management Ab [2010] - Buyer argued the goods had
to be specific goods, a specific aircraft and because the seller leased that aircraft to a third

lOMoARcPSD|2509867
party, they made themselves incapable of performing the contract and therefore repudiated
it. The buyer says he then accepted that repudiation and refused to pay.
Held: The engines were not specific goods because their contractual definition did not
extend to their serial numbers.-There was also no apparent commercial reason why the fate
of an agreement should hinge on the supply of a specific engine. The CPs’s obligations
would not terminate provided the engine was replaced.
The Price
-Price in money paid or promised. Means legal tender, not ‘money’s worth’.
Three ways of fixing price:
S. 8(1) SGA: ‘The price in a contract of sale may be fixed by the contract, or may be left to be
fixed in a manner agreed by the contract, or may be determined by the course of dealing
between the parties’.
S. 8(2): ‘Where the price is not determined as mentioned in sub-section (1) above the buyer
must pay a reasonable price.’ (McBridge criticized this provision, saying it is ambigious and
makes it uncertain how far law is prepared to go in enforcing uncertain contracts)
May & Butcher v The King [1934] – contract stated that the price was to be determined
‘from time to time’. There was also an arbitration clause in the contract. Relationship
between parties broke down and could not decide price. Buyer sought to enforce the
agreement at a ‘reasonable price’.
Held: There was no contract, the term regarding the price was too uncertain. –All essential
terms must be agreed for there to be a contract.(including price) –Had the agreement
been silent about the payment, the price could have been fixed by the SGA. –A ‘reasonable
price’ was not the same as the mechanism of agreeing the price from time to time, and
therefore making a reasonable price would be contrary to the intention of the parties. –The
arbitration clause was also inapplicable because there was no agreement from which issued
arised which could be sold by arbitration.
Watford v Miles [1992] – Agreements to negotiate are unenforceable
Cases with more liberal approach:
Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 – There was an option for buyer to
purchase another ‘100,000 standards for delivery in 1931’. It was argued that this was too
uncertain.
Held: There was a contract; there was intention of parties for contract to exist. The option
was binding and could be given reasonable meaning, they relied on the previous agreement
they had (for 22,000 standards) which helped give meaning to the clause. Both parties were

lOMoARcPSD|2509867
experienced in this trade. As long as they have intention to be bound, then it should be
supported
Foley v Classique Coaches Ltd [1934] 2 KB 1 (CA) – The seller was owner of petrol station
and some adjoining land. Had agreed to sell peice of land to buyer on agreement that the
buyer would purchase petrol on an exclusive basis. The price was to be agreed ‘from time to
time’. This arrangement lasted for 3 years until the buyer found a cheaper deal on petrol
and refused to pay. Buyer argued it was too uncertain.
Held: The agreement was valid and binding on both parties. Emphasis on their intention to
be bound. This was inferred because the agreement lasted for three years, there was an
exclusivity arrangement which showed an intention to be bound. The court said they ahd to
imply a term to give effect to the parties intention, the price was a ‘reasonable price’. An
arbitration clause applies as a mechanism to decide price if the parties cannot reach an
agreement of what a ‘reasonable price’. –May & Butcher case distinguished as applying on
its particular facts
 Tension in case law (against which s. 8 operates)?
 Intentions of parties is crucial(!)
 It can be argued that, on balance, s. 8(2) should only operate where the c-t is silent on the
determination of the price (according to May & Butcher) – in Foley and Hillas there were
additional circumstances (eg, prior conduct)
 At the same time, it can also be argued that the May & Butcher approach contradicts the
scheme of s. 8. Under s 62(2) SGA, s. 8 should prevail over the conflicting common law.
S. 8(3): ‘What is a reasonable price is a question of fact dependent on the circumstances of each
particular case’.
S. 9(1): ‘Where there is an agreement to sell goods on the terms that the price is to be fixed by the
valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided;
but if the goods or any part of them have been delivered to and appropriated by the buyer he must
pay a reasonable price for them’.

lOMoARcPSD|2509867

lOMoARcPSD|2509867
Duty of Seller and Buyer:
 S. 27 SGA: ‘It is the duty of the seller to deliver the goods, and of the buyer to accept and
pay for them, in accordance with the terms of the contract of sale’.
S. 28: ‘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
Note: S and B are only required to be ‘reading and willing’; S does not have a duty to actually
deliver the goods before S becomes entitled to sue B for the price
What is delivery?
S. 61(1): ‘“delivery” means voluntary transfer of possession from one person to another; [except
that in relation to sections 20A and 20B…it includes such appropriation of goods to the contract
as results in property in the goods being transferred to the buyer];’
-There is actual(S transfers physical possession of the goods to B) and constructive delivery
Constructive delivery: 1. S does not have physical possession of the goods and transfers control
(or right to possession) to B
2. Transfer of a document of title: S 1(4) of Factors Act 1889: ‘The expression “document of title”
shall include any bill of lading, dock warrant, warehouse-keeper’s certificate, and warrant or
order for the delivery of goods, and any other document used in the ordinary course of business
as proof of the possession or control of goods, or authorising or purporting to authorise, either
by endorsement or by delivery, the possessor of the document to transfer or receive goods
thereby represented
3. Attornment. S 29(4) SGA: ‘Where the goods at the time of sale are in the possession of a third
person, there is no delivery by seller to buyer unless and until the third person acknowledges to
the buyer that he holds the goods on his behalf; but nothing in this section affects the
operation of the issue or transfer of any document of title to goods’.
Attornment - Sterns Ltd v Vickers [1923] 1 KB 78 (CA):
◦ 120,000 gallons of white spirit, part of a larger quantity lying in a tank belonging to a
storage company. S handed to B a delivery warrant, whereby the storage company
undertook to deliver the said quantity to B’s order. The Buyer accepted the warrant
and agreed to pay storage charges. The goods deteriorated before the goods were
severed from the bulk. The buyer then refused to pay
Held: Risk passed to the Buyer, even if property in the undivided portion did not.
The buyer had accepted the delivery, S could no longer access the goods. There was

lOMoARcPSD|2509867
an attornment. The buyer had also started to pay the storage charges. The seller had
delivered the goods, when attornment has taken place, delivery had also taken
place.
‘The vendor of a specified quantity out of a bulk in the possession of a third party
discharges his obligation to the purchaser as soon as the third party undertakes to
the purchaser to deliver him that quantity out of the bulk’ (Scrutton LJ, 85
Physical(actual) delivery:
1. The parties may agree that S will hold the goods as B’s agent or bailee
2. Physical transfer of the goods to the buyer
3. Delivery to a carrier - S 32(1): ‘Where, in pursuance of a contract of sale, the seller is
authorised or required to send the goods to the buyer, delivery of the goods to a carrier
(whether named by the buyer or not) for the purpose of transmission to the buyer is prima
facie deemed to be a delivery of the goods to the buyer.’
S. 32(2): ‘Unless otherwise authorised by the buyer, the seller must make such contract with
the carrier on behalf of the buyer as may be reasonable having regard to the nature of the
goods and the other circumstances of the case; and if the seller omits to do so, and the
goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to
the carrier as a delivery to himself or may hold the seller responsible in damages.’
What is a ‘reasonable’ contract of carriage? Thomas Young & Sons v Hobson & Partner (1949)
65 TLR 365 (CA) – It was a sale of electric engines to be delivered by rail. The seller loaded
engines in box wagons, but failed to secure them adequately as a result the goods arrived
damaged. When the seller made a contract of carriage the provision provided that the engines
were to be carried at owner’s risk but they could have been dispatched at the same cost at
carrier’s risk (by putting in such a clause). The buyer then refused to accept the goods from the
railway.
Held: The seller failed to perform his duty under s. 32(2), the contract of carriage was not
reasonable in the circumstances. The buyer was entitled to refuse the delivery (as it was not
actually a delivery)
Place of delivery
 S 29(1): ‘Whether it is for the buyer to take possession of the goods or for the seller to send
them to the buyer is a question depending in each case on the contract, express or implied,
between the parties.’
 S 29(2): ‘Apart from any such contract, express or implied, the place of delivery is the seller’s
place of business if he has one, and if not, his residence; except that, if the contract is for
the sale of specific goods, which to the knowledge of the parties when the contract is made
are in some other place, then that place is the place of delivery.’
S 29(6): ‘the expenses of and incidental to putting the goods into a deliverable state must be
borne by the seller’

lOMoARcPSD|2509867
◦ Galbraith & Grant Ltd v Block [1922] 2 KB 155: Contract required seller to deliver
(champagne) to the buyers premises. G engaged a carrier to deliver the goods
(champagne) to B (victualler). The goods were delivered to a man at a side entrance
of B’s premises; that man signed the delivery note in B’s name and left with the
goods. The buyer said the goods were never received and he never authorized
anyone to sign the note.
Held: If the Seller, who is told to deliver goods to B’s premises, delivers them, without
negligence, to a person apparently having authority to receive them – he fulfils its
obligation
‘If the purchaser has been unfortunate enough to have had access to his premises obtained
by some apparently respectable person who takes his goods and signs for them in his
absence, the loss must fall on him, and not on the innocent carrier or vendor’
 Computer 2000 Distribution Ltd v ICM Computer Solutions plc [2004] EWCA Civ 1634: A
fraudster ordered goods from the Seller to be delivered to AMEC Plc. Purchase order: the
address given was not one of AMEC; the goods were to be collected by: Richard Cole (RC);
payment to be made at the end of the month, following delivery . The goods were delivered
to the given address – taken by a security guard, from whom a person, calling himself RC,
collected the goods. The goods disappeared; RC was never found. The Sellers claimed for
payment against AMEC.
Held: ‘The right question…is: whom did [S] hold out to the suppliers as a person authorized to
receive goods dispatched to AMEC Plc’? – RC. Even if RC had not collected the goods, the goods
would’ve still been delivered because the security guard ‘could be expected to have the
authority to receive the goods… There was no indication to the courier that AMEC was not
carrying on business there’. All parties are innocent, but someone has to bear the loss
Delivery to a wrong place: Is it a breach of a condition, warranty or an innominate term?
 In international trade, in the context of CIF and FOB terms, port of shipment = condition (eg,
Bowes v Shand (1877) 2 App Cas 455, 467)
 In other cases, a place of delivery is likely to be an innominate term: the consequences for B
will have to be evaluated to determine whether B can terminate the c-t
Time of delivery:
 Whether a stipulation as to time is of the essence of the contract depends on the terms of
the contract (s 10(2))
 BUT Hartley v Hymans [1920] 3 KB 475: common law looks not to the c-t terms, unless they
are express, but to the nature of c-t and goods
 Usually, interpreted as being of the essence in commercial contracts (eg, Bunge Corporation
v Tradax Export SA [1981] 1 WLR 711 (HL))

lOMoARcPSD|2509867
 B can waive the strict nature of stipulations as to time (eg, by extending a delivery period),
but can then revive its right to terminate (if goods are not delivered by the end of the
extended period)
Charles Rickards Ltd v Oppenheim [1950] 1 KB 616: Order for body of a car to be built on
chassis. C-t: delivery to be done in 6-7 mths; time of the essence. The B uyer waived
stipulation and kept extending the time; all in all, waited for 10 months. He then gave the
seller 4 weeks to deliver and S again failed to deliver
Held: B’s waiver of the initial stipulation making time of the essence did not prevent B from
having the right to give a reasonable notice to S, again making time of delivery of the
essence. B was entitled to terminate.
-The buyer is not prevented from making time of the essence again if he was previously
waived that right.
S 29(3): ‘Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them within a
reasonable time’
 This provision is a particular instance of a general rule that, if c-t is silent as to time of
delivery, goods must be delivered w/in a reasonable time (eg, SHV Gas Supply & Trading
SAS v Naftomar Shipping and Trading Co Ltd Inc [2005] EWHC 2528 (Comm) – had to ship
goods, bad weather in port and buyer argued it was late delivery. Court rejected this saying
it could not be compared with ordinary circumstances, was not sellers fault. Seller delivered
within reasonable time)
Delivery of the wrong quantity
Shortfall - S 30(1): ‘Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them, but if the buyer accepts the goods so
delivered he must pay for them at the contract rate.’
Excess – S 30(2): ‘Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the contract and reject the
rest, or he may reject the whole.’
Rejection of the whole is not possible if the shortfall/excess ‘is so slight that it would be
unreasonable’ for B to do so (s 30(2A)) or unless shortfall/excess is ‘material’ (s 30(2D))
Shipton, Anderson & Co v Weil Bros & Co [1912] 1 KB 574 - Sale of wheat, contract required
delivery of 4,500 tonnes (+ or – 10%). The seller delivered 55 lbs more than 4,950 tonnes.
The seller did not claim payment for the extra 55lbs. The buyer rejected the whole cargo on
basis that it exceeded the contract quantity.
Held: The seller could recover damages and the buyer did not have the right ot reject the
whole thing. Excess quantity ‘trifling’ – no effect on the ‘substance of the contract’; de
minimis . S did not claim payment for the excess – no burden on B

lOMoARcPSD|2509867
 S 30(3): ‘Where the seller delivers to the buyer a quantity of goods larger than he contracted
to sell and the buyer accepts the whole of the goods so delivered he must pay for them at
the contract rate’.
Delivery in instalments
 Unless otherwise agreed, The buyer is not bound to accept delivery of goods by instalments
(s 31(1))
 Even if the contract is for delivery by instalments, it may be an entire/indivisible contract, if

the contract is so construed.
 If c-t is entire:
◦ prima facie, full and complete delivery of the total quantity of goods = a condition
precedent to B’s liability to pay any part of the price
◦ Even where some installments are delivered, B can reject them if total quantity is
not delivered – the whole contract can be terminated
 BUT instalment c-ts often construed as severable/divisible. Severable contracts are NOT
THE SAME as separate contracts
 If the contract is severable/divisible and B accepted one or more of the instalments, B is not
prevented from rejecting later instalments for breach of condition
Jackson v rotax Motor and Cycle Company [1910] – There was a sale of motor horns, the
contract provided for ‘delivery as required’, this was deemed a severable contract rather
than an entire contract. The goods were to be delivered in 19 cases over two months. The
buyer accepted the 1st instalment but rejected later instalments as they were not of the
required quality.
Held: ‘delivery as required’ was interpreted for to make it a severable contract. The
payments were intended to be made by instalments. The buyer was entitled to reject further
instalments.
-Even if the buyer has accepted 1 or more prior instalments, under the same severable
contract then the buyer is not prevented from rejecting further instalments under that same
severable contract.
 Can the whole severable/instalment contract be terminated, with all instalments being
rejected? S 31(2): ‘Where there is a contract for the sale of goods to be delivered by stated
instalments, which are to be separately paid for, and the seller makes defective deliveries in
respect of one or more instalments, or the buyer neglects or refuses to take delivery of or
pay for one or more instalments, it is a question in each case depending on the terms of the
contract and the circumstances of the case whether the breach of contract is a repudiation

lOMoARcPSD|2509867
of the whole contract or whether it is a severable breach giving rise to a claim for
compensation but not to a right to treat the whole contract as repudiated.’
-In a severable contract it is in principle possible for the buyer to reject the whole of the
instalments
Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1KB 148 (CA): UFP
agreed to buy from MF 100 tonnes of rag flock; it was a severable c-t with goods to be
delivered by instalments . The 16th instalment was defective, so UFP sought to terminate the
whole contract.
Held: The buyer could not in these circumstances reject the whole contract. S 31(2) – the
main tests: (a) the quantitative ratio which the breach bears to the contract as a whole; (b)
the degree of probability that such a breach will be repeated.
-In this case the delivery complained of was no more than 1 ½ ones out of the 100 tonnes.
The likelihood of a repeated breach was also negligible.
Payment and Acceptance
S. 27 SGA: ‘It is the duty of the seller to deliver the goods, and of the buyer to accept and
pay for them, in accordance with the terms of the contract of sale’.
S. 28: no need to pay until delivery is made.
 Seller to paid be in cash – unless, CPs have agreed otherwise
 Payment by cheque is only a conditional discharge of the payment obligation – total

discharge only after the cheque has been honoured
 L/c – also a conditional payment; B’s debt not discharged if bank went insolvent, even if B
paid the bank
◦ ED & F Man Ltd v Nigerian Sweets & Confectionery Co [1977] 2 Lloyd’s Rep 50 (QB)
 If B has paid the price and S has not delivered, B will be entitled to recover the price +
interest – consideration for B’s payment will have failed. -If goods damaged, destroyed or
stolen whilst at B’s risk, B must pay.
 Is time of payment a condition? NO:
◦ S. 10(1) SGA: ‘Unless a different intention appears from the terms of the contract,
stipulations as to time of payment are not of the essence of a contract of sale.’
 Under s. 28 payment and delivery are concurrent conditions. Time of delivery is normally a
condition, but time of payment is not under s. 10.
◦ Is this a problem?

lOMoARcPSD|2509867
◦ The impact of s. 10 is restricted by s. 48(3):
‘Where the goods are of a perishable nature, or where the unpaid seller gives notice to the buyer of
his intention to re-sell, and the buyer does not within a reasonable time pay or tender the price, the
unpaid seller may re-sell the goods and recover from the original buyer damages for any loss
occasioned by his breach of contract.’
Acceptance/taking delivery
 Acceptance normally at takes place at S’s place of business (the general rule in s. 29(2))
 Just like time of payment, the time of acceptance is not of the essence
 If failure to take delivery is accompanied by words/conduct, evincing an intention not to

perform the contract = repudiation under the general contract law
 S. 20(2) SGA: ‘But where delivery has been delayed through the fault of either buyer or seller
the goods are at the risk of the party at fault as regards any loss which might not have
occurred but for such fault’.

lOMoARcPSD|2509867
Commercial Law Lecture 3 – Term 2 – Implied Terms
-Implied terms in fact and implied terms in law
S 14(1): ‘there is no implied [term] about the quality or fitness for any particular purpose of goods
supplied under a contract of sale’.
 However, SGA implies a number of terms imposing obligations on S:
◦ S’s right to sell goods (s 12(1)) (Condition)
◦ Goods to be free from charges/encumbrances (s 12(2)(a)) (W)
◦ B to enjoy quiet possession of the goods (s 12(2)(b)) (W)
◦ Goods to correspond w/ description (s 13) (C)
◦ Goods to be of ‘satisfactory quality’ (s 14(2)) (C)
◦ Goods to be fit for purpose (s 14(3)) (C)
Goods to correspond with a sample (s 15) (C)
Right to sell - Condition
S 12(1): ‘In a contract of sale…there is an implied [term] on the part of the seller that in the case of a
sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right
at the time when the property is to pass’.
Rowland v Divall [1923] 2 KB 500 (CA): D bought a car from a person who, w/out D’s knowledge,
had stolen it. D sold it to R, a motor dealer, for £334; R painted the car and sold to a customer for
£400. Car repossessed by police and returned to the original owner. Customer recovered £400 from
R; R sought to recover £334 from D .
CA: R had contracted to receive property in and right to possession to the car, which it did not
receive. Therefore there was a total failure of consideration: price can be recovered. The right to
possession to the car was not passed because the seller did not have the right to sell the goods
 See, similarly, Butterworth v Kinsway Motors [1954] 1 WLR 1286
-Criticism of Rowland and Butterworth:
◦ B gains unjustifiable and substantial benefit
 Law Commission recommendations (1967, 1969 and 1983): B should not be able to recover
more than its actual loss; credit for benefit received through having the goods must be
given . Law Commission 1987 – recommendation reversed: Quantifying benefits is difficult
and uncertain. -Reducing damages based on benefit would require B to pay S for the use of
someone else’s goods

lOMoARcPSD|2509867
Even if the seller is the owner of the goods he may not have the right to sell the goods:
Niblett v Confectioners’ Materials Co Ltd [1921] 3 KB 387: There was sale of 3000 cases of
condensed milk of three brands (one of which was Nissly). B paid for hte goods and the
goods were delivered but they were seized by customs because the use of ‘Nissly’ infringed
a trademark belong to ‘Nestle’. Nestle argued B could only sell the good if the labels on the
tins are removed, that would reduce the value substantially.
Held: S had title ot the goods but because of the trademark infringement, had no right to
sell. ‘If a vendor can be stopped by the process of law from selling, he has not the right to
sell.
Freedom from charges/encumbrances - Warranty
S 12(2)(a): ‘In a contract of sale…there is…an implied [term] that…the goods are free, and will
remain free until the time when the property is to pass, from any charge or encumbrance not
disclosed or known to the buyer before the contract is made’
Breaking down this provision:
◦ Charge or encumbrance: a proprietary/possessory, not c-l, right
◦ Freedom: from the conclusion of the c-t until passage of property
◦ Only applicable if charge/encumbrance is not disclosed or made known to B
-This obligation is not dependent on whether the charge/encumbrance is enforced or asserted;

mere existence sufficient.
Enjoyment of quiet possession -Warranty
S 12(2)(b): ‘the buyer will enjoy quiet possession of the goods except so far as it may be disturbed
by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or
known’
-This term continues into the future; its operation does not stop at the point of the passage of
property
Interference by the Seller:
◦ Rubicon Computer Systems Ltd v United Paints Ltd (2000) 2 TCLR 453 (time lock;
duty a continuous one) – Seller selling computer system to buyer, dspute about the
price arose. Whilst they were disputing the seller activated a time lock devise which
prevented the buyer from accessing the computer system. This went on for several
years. The question was whether the seller was in breach of its duty to let the buyer
enjoy quiet possession of the goods. Held: Yes he was in breach, it is a continuous
duty

lOMoARcPSD|2509867
◦ Empresa Exportadora de Azucar v Industria Azucarera Nacional SA, (The Playa

Larga and Marble Islands) [1983] 2 Lloyd’s Rep 171 – There was a sale of sugar by a
Cuban state organization to a party in Chile. The vessels were shipped from Cuba
and then a change in government and the seller ordered the vessel’s to return and
not to deliver the goods. Held: The seller prevented the goods from being possessed
by the buyer and therefore it was a breach
Interference by a 3rd party:
◦ Microbeads AG v Vinhurst Road Marking Ltd [1975] 1 WLR 218 (CA) (patent; 3rd
party seeking in an injunction) – breach of s 12(2)(b), but not s 12(1) – There was a
contract involving the sale and purchase of road marking machines. Before the
parties made the contract a third party had applied for a patent in relation to the
machines (the parties did not know). Soon after they purchased the goods, the third
party obtained a patent and then applied for an injunction to stop them using the
goods.
 The terms discussed (ie, 12(1), (2)(a) & (b)) will not be implied where:
◦ ‘there appears from the contract or is to be inferred from its circumstances an

intention that the seller should transfer only such title as he or a third person may
have’ (s 12(3)).
◦ S 12(4) & 5 apply where a c-t of sale is made under 12(3) (ie, the transfer of a limited
title); modified forms of warranties are implied
Correspondence with description (s.13) - Condition
S 13(1): ‘Where there is a contract for the sale of goods by description, there is an implied term that
the goods will correspond with the description.’
S 13(2): ‘If the sale is by sample as well as by description it is not sufficient that the bulk of the goods
corresponds with the sample if the goods do not also correspond with the description’
What is a sale by description? –sale of unascertained goods –most sales of future goods (except
where B selected a specific item belonging to a third party)
-Specific goods? Varley v Whipp [1900]: Sale by description where S met B at Huddersfield and sold B
smthg described as a ‘second-hand self-binder reaping machine’, which was at another place –
future goods. Held: There is no reason why the sale by description can apply to specific future goods.
‘...so long as it is sold not merely as the specific thing but as a thing corresponding to a description,
e.g woollen undergarments, a hot water bottle.....’

lOMoARcPSD|2509867
-Not every descriptive word amounts to an item of description – is reliance by B on the description
necessary? Varley v Whipp, 516: ‘must apply to all cases where the purchaser has not seen the
goods, but is relying on the description alone.’
Harlingdon and Leinster Enterprises Ltd. v Christopher Hull Fine Art Ltd [1991] 1 Q.B. 564 – Nourse LJ:
it is possible that reliance is not there and it be a sale by description. ‘The description must have a
sufficient influence in the sale to become an essential term of the contract and the correlative of
influence is reliance. Indeed, reliance by the buyer is the natural index of a sale by description.’
-What is meant by ‘description’?
◦ Identity/essence of the goods, not means of identifying the goods (eg, their
location) - Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989: involved
construction of a vessel, the contract specified a ship yard place and number to
where the vessel was to be constructed. The vessel was constructed and the freight
rates collapsed and the buyer wanted to pull out of the contract. They argued the
place and number were items of description, because the vessel was constructed in
a different place to what was specified in the contract. Held: this was not an item of
description, they were merely ways of locating the vessel not of the identity of the
vessel.
Harlingdon: contract for the sale of two paintings described as being by Gabriele Münter.
Both S and B were professional art dealers. B viewed paintings and was told that S knew
little about the paintings and nothing about Gabriele Münter. The painting turned out to be
a forgery.
Held: It was said description must be Stuart-Smith LJ, 578: ‘a substantial ingredient in the
“identity” of the thing’. Here it was not a contract of sale by description under s. 13. There
description of the painting being by G Munter did not have sufficient influence on the sale, B
relied on its own assessment as a professional art dealer.
Strict compliance:
 Arcos Ltd v EA Ronaasen & Son [1933] AC 470: Sale of Russian timber, required by B, as S
knew, for making cement barrels. Timber precisely specified as to length, breadth and
thickness. Goods were not of the contract thickness. But to the buyer this did not matter at
all because it was suitable for the making of barrels. The markets went down and the buyer
sought to get out of the contract and argued it was an item of description and it did not
correspond.
Held: The conditions of the contract must be strictly performed. It was a sale by description and
the timber did not comply. - If they do not correspond with the description there seems no
business or legal reason why he should not reject them if he finds it convenient so to do’ (Lord
Atkin, 479-480)

lOMoARcPSD|2509867
Similar: Re Moore & Co Ltd and Landauer & Co Ltd [1921] – Contract was for cans of 24 in boxes,
but when delivered there was 30 in the boxes. Held it did not comply with description and the
biuyer could terminate.
De minimis rule applies: Said in Arcos
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441: Clause said the goods had to be ‘fair
and average quality’. Held the clause was NOT description. Lacks precision: does not identify goods.
Relaxation in Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604? - Provision on

impurities was said to be not part of description. Provision on impurities = innominate term, keeping
the contract alive.
Quality and Fitness (s.14) – Condition
 S. 14(1): ‘Except as provided by this section and section 15 below and subject to any other
enactment, there is no implied term about the quality or fitness for any particular purpose
of goods supplied under a contract of sale’
 Two tests: one of quality, a general fall-back test; AND the other – fitness for a particular
purpose made known to S (known as fitness for purpose)
Fitness for purpose:
S 14(3): ‘Where the seller sells goods in the course of a business and the buyer, expressly or by
implication, makes known…to the seller…any particular purpose for which the goods are being
bought, there is an implied term that the goods supplied under the contract 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’.
-Does not need to be stated with absolute precision, sufficient to be a stated purpose
Ashington Piggeries, HL (SGA 1893): B asked S to compound food according to B’s formula. The
foodstuff caused thousands of mink to die: The seller added an ingredient, Norwegian herring meal,
contained a toxic chemical (DMNA) which caused the mink to die. The seller knew that the food
would be fed to Mink but the Norwegian supplier (of the ingredient) did not know although he knew
it had previously been fed to Mink in Norway.
-Mink were more sensitive to DMNA than other animals. S and its supplier held liable under the
fitness for purpose test.
Held: The very fact of toxicity, raised a presumption that it was dangerous to all animals other than
mink. The burden of proof shifted to the seller to show that the mink was a very unusual or sensitive
species, which the seller did not show.
-The Norwegian supplier knew that it was being fed to mink in Norway and should have
contemplated that this consignment might be fed to mink.

lOMoARcPSD|2509867
-Therefore the inclusion of the herring meal in feeding stuffs constituted a particular purpose that
the herring meal had to be reasonably fit for use as food for animals (including mink)
Dissent by Lord Diplock: making known a particular purpose to S can be interpreted as requiring
unequivocal communication of the purpose—that is, that the goods would, and not might, be fed
to mink.
 -How can B truly rely on S to deliver the wanted goods if the purpose was not communicated
with sufficient precision?
 The decision of the majority indicates the alleviation of B’s BP and may well have been based
on a drive to push ‘liability up the distribution chain to the point where the defect was
created’ (MG Bridge, The Sale of Goods, 2013, 7.107)
Quality:
-Used to be ‘merchantable’ quality ( emphasis on goods being commercially saleable). Now it is

‘satisfactory’ quality
S. 14:
‘(2)Where the seller sells goods in the course of a business, there is an implied term that the
goods supplied under the contract are of satisfactory quality.
(2A)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’.
‘(2B) 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,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.
‘(2C) The term implied by subsection (2) above does not extend to any matter making the quality of
goods unsatisfactory— (a) which is specifically drawn to the buyer’s attention before the contract is
made, (b) where the buyer examines the goods before the contract is made, which that examination
ought to reveal, or (c) in the case of a contract for sale by sample, which would have been apparent
on a reasonable examination of the sample.
Harlingdon case – the painting fit for the purpose for which paintings were commonly bought (resale
and or aesthetic appreciation). No breach of quality

lOMoARcPSD|2509867
Henry Kendel v William Lillico [1969] - compound meal for poultry – contained groundnut
extraction: toxic substance. Meal could still be fed to many animals, including cattle but it was
deadly to certain types of poulty.
HL: no breach of MQ. The goods were still saleable and could be fed to different types of animals: to
cattle in certain quantities, but not poultry – scientific fact established long after contract was made
but before litigation. Should after-acquired knowledge have been taken into account (see dissent by
Lord Pearce)? Court held because of that knowledge the seller was not liable.
-However the seller was liable under the fitness for purpose test. The particular purpose was made
known (for cattle and poultry) and the presumption of reliance was not displaced by the seller.
Lord Peace argued that the parties did not know that at the time of the contract and it should not be
taken into account
Non-compliance with public law standards:
-Non-compliance with public law regulations/standards can lead to breach of SQ
◦ Lowe v W Machell Joinery Ltd [2011] EWCA Civ 794 (breach of fitness for purpose)
-What if public standards are not strictly enforced?
◦ Bramhill v Edwards [2004] EWCA Civ 403 (no breach of SQ) – There is regulation as
to width of certain vehicles. The goods in this case exceeded the state regulation for
width. The buyer argued there was breach of satisfactory quality because it breach
the regulations. Held: there was no breach of satisfactory quality. In reality the
regulations were not strictly enforced and therefore no breach of satisfactory
quality.
-The requirement of satisfactory quality is interpreted in the light of realism, what

happens in reality.
-What if goods are intended to be used in a different country and S knows about that?
◦ Sumner Permain & Co v Webb & Co [1922] 1 KB 55: Goods, described in c-t as
“Webb’s Indian Tonic”, they met the description but contained a percentage of
salicylic acid, which is banned in the country of destination (Argentina). Buyer
argued the goods were not merchantable quality.
Held: ‘it was impossible “to suggest that the seller under the warranty of
merchantable quality warrants that the goods shall be capable of being sold in the
particular place in which he knows that the buyer intends to resell them; in other
words, warrants that there shall be no local legislation in that place prohibiting their
sale’ (65, Atkin LJ) –The seller was not required to make sure the goods complied
with regulation in the other country, even if the know of the country.

lOMoARcPSD|2509867
Compliance with private industry standards:
Medivance Instruments Ltd v Gaslane Pipework Services Ltd, Vulcana Gas Appliances Ltd [2002]
EWCA Civ 500: The seller relied on its compliance with a British Standards Institution standard to
demonstrate that no breach of s. 14 terms (both MQ and Fitness for Purpose) has been committed
Held: compliance with an industry standard was ‘certainly an important factor which should be
taken into account, but it was not ‘necessarily a conclusive factor’, para. [34]. In this case the seller
was not in breach of the s.14 tests
Sale by Sample (s.15) – Condition
S. 15:
‘(1) A contract of sale is a contract for sale by sample where there is an express or implied term to
that effect in the contract.
(2) In the case of a contract for sale by sample there is an implied term —
(a) that the bulk will correspond with the sample in quality;
(c) that the goods will be free from any defect, making their quality unsatisfactory, which
would not be apparent on reasonable examination of the sample’.
(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 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.

lOMoARcPSD|2509867

lOMoARcPSD|2509867
Commercial Law Lecture – CIF Contracts
Trade terms:
 What is the purpose and function of trade terms?
◦ Common commercial and legal language – creates consistency and uniformity
◦ Functions: Delivery – physical and documentary -Documentary obligations (eg, what

is a good/bad document?) -Structure of the price -Passage of risk -Other obligations
(eg, notices of appropriation/declaration of shipment; who has to pay a customs
duty or procure an export/import licence?)
 CIF and FOB – the most widely used trade terms, although there are many. -Origins of CIF
and FOB
 INCOTERMS 2010 v English law on CIF and FOB c-ts: Separate lives or reciprocal influence?
CIF – Definition:
-Cost, Insurance, Freight ( C & F indicate what the price consists of and what the seller has to do,
procure contract of insurance. Freight incorporates part of the price, payment to carrier.)
 COMMODITIES TRADE, SPECULATION, CHAIN SALES, STANDARDISATION OF GOODS,

DOCUMENTS and C-TS, SIGNIFICANCE OF DOCUMENTS:
◦ Only the first S and the final B in the chain have a direct interest in goods
◦ Other parties in a chains are speculators, who do not see the goods – simply trade in
documents that represent goods and provide holders of documents with a bundle
of rights
5 Obligations in a CIF contract (of the seller)
-The seller can deliver by appropriating/allocating goods already in transit (he does not have
to physically ship the goods in a cif contract)
1. To ship OR appropriate/allocate goods that are already in transit (afloat)

(Johnson v Taylor Bros [1920] AC 144)
 These goods can be those that S itself has shipped earlier OR those
that someone else has shipped (purchase of goods afloat)
 The contract may require S to ship the goods; if not, S has a choice:
shipment or appropriation of goods afloat

lOMoARcPSD|2509867
 If one mode of performance becomes impossible (eg, shipment of

goods), c-t is not discharged if another mode is possible (eg,
appropriating goods afloat) (eg, JH Vantol v Fairclough Dodd & Jones
Ltd [1995] 2 All ER 519, 519).
2. To procure a contract of carriage in ac-ce with a sales contract (ie, to contract

destination and by a route specified in contract)
 if no route specified, usual and customary route
 If no usual and customary route – practicable commercial route

(Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93)
3. To procure insurance
4. Goods must be meet contractual description and other specifications, such as

those relating to quality
5. To tender documents in relation to c-t goods: Which documents? A bill of

lading (b/l), A commercial invoice, An insurance policy. (These three at
minimum) –All of these correspond to S’s physical duties. –The contract may
require additional documents (eg, a certificate of quality, quantity, weight or
a phytosanitary certificate)
-B has to pay against documents (!)
 Does the buyer have the right to examine goods before payment?
◦ NO (!): Pay now (against the doc-ts) sue later (As long as the documentary
requirements are met the buyer has to make the payment)
◦ IF the buyer insists on examination before payment, B is in breach of contract

and S is entitled to refuse to ship/perform.
◦ The rule has been criticised for lack of commercial realism (R Goode)
◦ Response: commercial convenience based on this clear allocation of risks
- if B were not bound to pay until examination, S would either have to provide
inspection facilities at destination (usually in a different country) or allow B to
have documents before payment (to enable access to goods for inspection)
and so run the risk of undermining security which retention of the documents
until payment is normally intended to provide.

lOMoARcPSD|2509867
- To give B the right to inspect before payment would be impracticable

because in the commodities trade, goods pass rapidly through many hands
while they are still afloat.
Passage of Risk:
◦ In CIF, risk is separated from property. Risk passes first
◦ ‘On shipment or as from shipment’ – Comptoir d’Achat et du Boerenbond

Belge S/A v Luis de Ridder (The Julia) [1949] AC 293
◦ Passage of property:
◦ If goods specific (eg, the entire cargo on a named ship), property may pass
when the contract is made (s. 18 r 1 SGA) – can be negatived by CPs’
intention for the seller to retain property until payment is made
◦ Usually, goods are unascertained – property cannot pass before

ascertainment. -Once goods are ascertained, property passes when it is
intended to pass (s 17(1) SGA)
◦ Courts will then usually look to docs to determine whether: S intended to

unconditionally appropriate the goods to the c-t or whether S intended to
reserve the right of disposal
◦ The transfer of a b/l for value – prima facie evidence of intention to pass
property
◦ Sanders Bros v Maclean & Co (1883) 11 QBD 327, 341: property in a

CIF contract passes by ‘such indorsement and delivery’
◦ Where ‘cash against doc-ts’ – normal inference is that property does not pass
until condition(s) as to payment satisfied
Price:
-Cost of goods, Insurance rate, and cost of transport (freight)
-Who bears the risk/benefit of variation in insurance and freight rates? Ireland v
Livingstone (1872): 406-407 – Any risk of the rate going up is with the seller. –The
benefit of a fall also lies with the seller
-Who pays freight? – ‘Pre paid’ or ‘collect’ freight. (On collect the cost of freight
will be deducted).

lOMoARcPSD|2509867
-Time of payment is NOT of the ssence (s. 10(1) SGA)
Meaning of ‘delivery’:
-Depends what contract says
◦ provisional (shipment) (If contract is silent then the seller does not have to do
shipment)
◦ symbolical (documents) (There will always be symbolical delivery in cif

contract)
◦ complete delivery (destination)
 -If c-t specifies time (date/period) of shipment, goods must be shipped within that
time
◦ Time of shipment - a ‘condition’ of contractt (Bowes v Shand (1877) 2 App.

Cas. 455 – Bulk of goods were shipped outside the shipment period, which
was a breach of condition. The time of shipment is also treated as an item of
description of the goods.
◦ Time of shipment = item of description – The price of goods is often linked to

the time when it is shipped (and the time of shipment is reflected in the bill
of lading. The courts want to promote certainty, strict compliance)
◦ If no date/period specified, shipment to be made within a reasonable time (s

29(3) SGA)
 The seller does not have a (positive) duty to ensure the delivery arrives at the
destination
◦ He has a negative duty to not interfere with the delivery. What is meant by a
negative duty? Empresa Exportadora de Azucar v Industria Azucarera
Nacional SA, (The Playa Larga and Marble Islands) [1983] 2 Lloyd’s Rep 171
CIF Variations:
Fragano v Long (1825)
-Is labeling the contract ‘CIF’ decisive? No – The Julia case – The parties called
the contract a CIF contract. The contract gave the seller an option to tender a
BoL or a delivery order(a document issued for part of the cargo). The goods were
destined to go to Belgium but it was war conditions (occupied by Germany)
because of this the goods were diverted and the buyer never got them even

lOMoARcPSD|2509867
though he had paid. Question was whether the documents were symbols of the
goods, which depended on if it was a CIF contract. The buyer only had a
merchant delivery order not a ship delivery order (which does not provide access
to the goods for the buyer). Because of this it was not a CIF contract, the
documents were not true symbols of the goods, they did not provide the buyer
access to the goods.
-(it is about interpreting the overall core of the contract to see if it fits the
structure of a CIF)
-Some cases suggest CIF is a sale of documents: Arnold Karberg & Co v Blythe,
Green Jourdain & co [1915]
-But it is not. It is a sale of goods to be performed by the medium of documents.

This is because the goods do have to be shipped, the seller has to ensure the
goods comply with quality, description etc.... –The seller must also not interfere
with the delivery of the goods (Empresa case)
Appropriation
 Contractual v proprietary (unconditional) sense. CIf is concerned with contractual

appropriation and the goods do not have to be ascertained (unlike they do is
proprietary).
 Appropriation = S’s selection of goods to be supplied to B (selecting which goods are

allocated to the buyer)
 Usually, CIF contracts require S to give notice of appropriation to the Buyer
 Where no such requirement is in the contract, it is not entirely clear as to whether

S’s conduct amounts to appropriation - Mere act of shipment the goods may amount
to appropriation. Conflicting statements in case law:
James v The Commonwealth (1939) 62 CLR 339 (shipment of a definite parcel

of unascertained goods by description ascertains the goods was demmed to be
an act of appropriation)
Produce Brokers Co Ltd v Olympia Oil and Cake Co. Ltd [1917] 1 KB 320 (mere
act of shipment does not appropriate goods)
Notice of appropriation:
 Important legal and commercial consequence: once given, S bound to perform the
c-t in the way specified in the notice

lOMoARcPSD|2509867
 Purpose: to enable the buyer to resell or put in place the discharging arrangements
 Validity (What is a valid notice?): depends on form(these are the content

requirements) and time, not factual accuracy. (Waren Import Gesellschaft Krohn &
Co v Toepfer (Alfred C) (Vladimir Ilich) [1975] 1 Lloyd’s Rep 322
◦ If form and time are OK, notice is valid, unless by its express terms it makes
clear that it is not contractual
-If the notice is valid, the buyer cannot reject it.
◦ Content of notice usually required by the contract: ship’s name, date of bill
of lading, the kind and quantity of the goods.
 The seller cannot amend the notice, unless the correction relates to an error in
transmission :
◦ ‘or better name’ clause means that only errors in transmission can be
corrected; in Vladimir Ilich – The seller gave notice of appropriation stating
the name ‘Vladimir’, the buyer knew that the vessel under that name did not
exist so he rejected the notice.
◦ Kleinjan & Holst NV Rotterdam v Bremer [1972] 2 Lloyd’s Rep 11: There was
name of vessel which did not exist. B did not reject the amended notice,
which was incorrect but valid, and waited till documents which do not
comply with notice are tendered, so as to reject them.
◦ If B rejects a valid notice (as in Vladimir Ilich) – S can tender a new one if
there is still time.
◦ If notice invalid – S can tender a fresh (valid) notice if there is still time to give
notice (Borrowman, Phillips & Co. v. Free and Hollis (1878) 4 QBD 500).
 Time of notice – a condition?
◦ The Post Chaser [1981] 2 Lloyd’s Rep. 695:
 Notice as required to be sent ‘asap’. Decision: a declaration of ship =

an essential step in S’s performance of c-l obligations. Therefore it
was a condition and the buyer had a right to reject
 Speedy declarations important. –Although this clause is

uncertain and should it be treated as a condition? -Precise
compliance required

lOMoARcPSD|2509867
◦ Erg Petroli SpA v Vitol SA (The Ballenita and BP Energy) [1992] 2 Lloyd’s Rep
455 - The seller had to nominate vessel but there was also a substitution
clause so it could change the nomination. This had to be done 3 days before
the arrival of the vessel, the second substitution was done 1 day late. It was
held the buyer did not have the right to terminate the contract on that basis
–The buyer and seller had past dealings with each other –They had a practice
by which the seller gave late notices to the buyer and he still accepted it. –
Therefore it was inferred that compliance with the time requirement was not
fundamental
CIF contracts part 2:
Bills of Lading – Multi functional document (Receipt, evidence of contract of carriage, document of
title)
A (good) Bill of Lading needs to:
(i) Provide Continuous documentary cover - Hansson v Hamel and Horley Ltd [1922] 2 AC 36 – two
leg journey. The goods had to go to Japan. The BL was issued upon commencement of second leg, it
did refer to the first leg. The BL called itself a ‘through’ bill of lading but it wasn’t a true through BL
because it didn’t cover the buyer for the whole journey (both legs).
(ii) To be unaltered and provide for c-t destination - SIAT di del Ferro v Tradax Overseas SA [1980] 1
Lloyd’s Rep 53 – goods had to go to venice but BL did not provide for that destination. When they
arrived, the word ‘Venice’ was added to the BL, it was altered. (Double documentary breach).
-If it is a Minor clerical error then it is not a documentary breach? -De minimis
(iii) Conform to contractual t requirements on its face - Berger & Co Inc v Gill and Duffus SA [1984] 1
AC 382 - -If document conforms on its face, the buyer has to pay. Otherwise the whole system of
commercial finance will be ruined (But this case was not about Bills of Lading, but another
document)
(iv) Genuine
James Finlay & Co Ltd v Kwik Hoo Tong [1929] 1 KB 400; Procter & Gamble Philippine Manufacturing
Corporation v Kurt A Becher GMBH & Co KG [1988] 2 Lloyd’s Rep 21 – Goods were shipped in
February but BL was dated January. –Say that there is implied term in CIf contract that a BL must
state the truth in all material respects.
-BL must conform on its face, and it must also be the truth.
v.
Berger & Co Inc v Gill and Duffus SA [1984] 1 AC 382

lOMoARcPSD|2509867
(iv) Clean - M Golodetz & Co Inc v Czarnikow Rionda Inc (The Galatia) [1980] 1 WLR 495 – Sales of
sugar, goods were shipped, but after they had been loaded fire occurred on the vessel and the goods
were damaged. Notation was made on the BL that they were damaged; question was did that render
the BL unclean. Held: No it didn’t because it happened after shipment (at which the risk passes). –If
it had occurred before the risk had passed then the BL would not have been clean
-Clean means any qualification as to the goods order or condition
(v) Valid and effective - Arnold Karberg & Co v Blythe, Green Jourdain & Co. [1915] 2 KB 379 – Was
also argued that CIf is a sale of documents in this case. A BL was issued by German carrier, GB was at
war with Germany and therefore the documents were valid and ineffective because it was being
traded with an enemy nation in a time of war.
(vi) To be issued on shipment and be a shipped bill – Hansson v Hamel(BL was issued later in
Hamburg); Diamond Alkali Export Corp v Fl Bourgeois [1921] 3 KB 443
(vii) Transferrable – Soproma SpA v Marine & Animal By-Products Corp [1966] 1 Lloyd’s Rep 367
(viii) It must provide for shipment by route specified in contract - Bergerco USA v Vegoil Ltd
[1984] 1 Lloyd’s Rep 440 – Said had to proceed to Bombay in contract,
The other documents of CIF:
 Insurance policy must be:
◦ Effective
◦ To cover c-t goods
◦ Continuous
◦ Usual policy
 C Groom v Barber [1915] 1 KB 316
A commercial invoice
 Time of tender
◦ C-l requirements as to precise time of tender – conditions?
◦ Can be implied (Toepfer Lenersan-Poortman NV [1980] 1 Lloyd’s Rep 143 – at the

same time as payment, ‘cash against doc-ts’)
◦ Imprecise c-l requirements (eg, ‘without delay’) – conditions?
◦ C-l silence – ‘asap’, ‘promptly’ after shipment (eg, C Sharpe & Co Ltd v Nosawa)
[1917] 2 KB 814

lOMoARcPSD|2509867

lOMoARcPSD|2509867
Commercial Law Lecture – FOB Contracts
FOB = Free On Board
-Basic duty of seller is that he has to place the goods on board the vessel
-The thrust of FOB:
◦ S bound at its expense to place the goods “free on board” a ship for transmission to
B
◦ Risk passes on shipment, once goods are placed on board
◦ Highly dependent on co-operation between CPs
Difference between CIF and FOB: parties rely on each other more in FOB. –FOB is a ‘flexible
instrument’: Pyrene Co. Ltd v. Scindia Navigation Co. Ltd [1954] 2 Q.B. 402, 424
1. Classic FOB:
-The buyer nominates the ship and then the seller puts the goods on board (seller’s delivery
obligation is dependent on the buyers nomination)
-The seller procures a bill of lading on terms usual in the trade
-The seller is then directly a party to the contract of carriage until it takes out the bill of
lading in the buyer’s name. The seller can also take the bill of lading in its own name and
later transfer it to the buyer. (they may do this for security for payment, because once it is in
the buyers name he cannot access the goods)
-The seller has no obligation to reserve shipping space on the vessel
-Once the seller ships the goods, the seller is not responsible for any costs incurred after.
(there are exception depending on what the contract says – ‘stowed and tripped’ for
example)
Essential features of classic FOB:

- S at some stage makes a c-t of carriage
- S holds a b/l which may be in B’s name
Underlying assumptions:
◦ B not able to make a c-t of carriage, just nominates a vessel
-A nominated ship ready to load any goods and no reservation of space is needed (this
probably does not correspond to modern realities)
2. FOB with additional duties:

-The buyer asks the seller to make all the shipping arrangement (and possibly insurance)
(similar to CIF).
-The contract may provide for the seller taking a bill of lading in the sellers name and
obtaining payment against the transfer of documents l in this case, S is a CP to the contract
of carriage until transfer of documents to B.

lOMoARcPSD|2509867
Difference with CIF:

-No sale of goods afloat (because every seller has to physically place the goods on board the
vessel which rules out sales of goods afloat).
-Risk of fluctuation in freight and insurance rates – are on the buyer!
Other differences (Scottish & Newcastle – 468-469): First, an fob contract specifies a port or
a range of ports for shipment of the goods. A c&f contract specifies a port or ports to which
the goods are consigned.
(ii) Secondly, an fob contract requires shipment (whether by or on behalf of the seller or the
buyer) of the goods at the port (or a port within the range) so specified; ie the seller cannot
buy afloat….
In contrast, under a c&f contract responsibility for shipment rests on the seller, and this can
be fulfilled by the seller either shipping goods or acquiring goods already afloat after
shipment, and moreover shipment can be at any port (unless the contract otherwise
provides).
(iii) Thirdly, and as a result, a c&f contract involves (subject to any special terms) an all-in
quote by the seller, who carries the risk of any increase (and has the benefit of any
reduction) in the cost of carriage. In contrast, under an fob contract, although the seller may
contract for and pay the freight, the buyer carries the risk (and has the benefit) of any such
fluctuation.
In Scottish & Newcastle: it was held - ‘So viewed, it is clear that the present contract was and
should be regarded as being in all essential respects an fob contract. All the indicia of an fob
contract are present.
Shipment was required to be made by S&N [S] at one of two ports of shipment
contractually specified by the buyer. Indeed, Ghalanos [B] went further and specified in the
contract the shipping line and Liverpool shipping agents, with whom S&N were to arrange
for carriage to Cyprus.
There was no question of buying afloat, and S&N never offered or agreed an all-in price.
On the contrary, Ghalanos had made an agreement on the freight rate with the line's Cyprus
agents which the sellers were to invoke when arranging carriage; further, the sale contract
specified that the invoices should show the fob price separately from such freight, and
required pro forma invoices showing only the fob prices, with final invoices showing the
total fob value and whatever freight was paid separately.
The price was in other words to be fob, with the actual freight rate to be added in the final
invoices, once it was ascertained.
3. Type 3:
-shipping arrangements made by Buyer/B’s agent who also books shipping space
-The seller merely put the goods on board and gets a mate’s receipt (MR) – (this is a first
receipt of the goods, the original receipt. It is this information which is transferred into a Bill
of Lading).
-MR is then handed to Buyer’s agent so it can get a bill of lading

lOMoARcPSD|2509867
Scottish & Newcastle International Ltd v Othon Ghalanos Ltd [2008] 1 Lloyd’s Rep. 462, 468:
‘[FOB] embraces (a) cases where the buyer arranges and nominates the ship, but the seller ships and
takes the bill of lading in his own name as consignor, (b) cases where the seller arranges shipment
and takes the bill in his own name as consignor, and (c) cases where the buyer arranges and
nominates the ship, and the seller ships but the buyer is named in the bill as consignor... Further, in
cases (a) and (b), the seller may be either the only party to the bill of lading or acting as agent for the
buyer as a (more or less undisclosed) principal…. In either of cases (a) and (b) the seller may of
course prepay the freight, and recoup himself by invoicing the buyer’.
Shipment
Classic FOB – there is no duty on S to ship until the buyer has given shipping instructions. If
instructions are given, the seller must ship by the end of the period set for the shipment in the
contract/ within reasonable time if time of shipment to be decided by B.
-If the contract is silent as to who has the option to set the time of shipment, under a ‘classic’ FOB, it
is the buyer who is normally entitled to call for a precise time for shipment within the contractual
shipment period.
-S is then obliged to put the goods on board a ship nominated by the buyer capable of receiving
shipment within the period -the seller does not have a duty to keep the shipment ready for loading
for the entire period, he is waiting for instructions from buyer. S not bound to have goods ready at
the port of shipment for the whole of the period. B has to nominate a ship and to give notice of the
nomination in good time to enable the seller to have the goods ready for shipment by the
nominated ship
‘the simple rule that time of shipment is of the essence of the contract is complicated by the fact that [S] has
no control over the carrier with which – at any rate before the beginning of the loading operations – it has no
contract. In fact the carrier’s punctuality is a matter for [B] to deal with while performing its duty to nominate a
ship capable of reaching the port of loading on time. This is because delivery under this type of c-t is a joint
operation. [S] must supply the goods, [B] – the means of transporting them...In this situation it often becomes
difficult to apply the rules which govern stipulations as to time of delivery generally….
Sassoon, para. 10-006
Tradax Export SA v Italgrani di Francesco [1986] 1 Lloyd’s Rep 112:
◦ S is under no obligation to have goods available and ready for loading at a date
earlier than the date on which the vessel is ready to receive the goods
◦ The words ‘at B’s call’ are simply there to ensure that B has the option of calling for
the goods to be loaded at any time during the shipment period, when the vessel
provided by B is ready to do so.

lOMoARcPSD|2509867
 Notice of vessel’s probable readiness to load (NOR) is often required by the contract to be
given by the buyer. Purpose: given in advance to enable the seller to load within the
shipment period + may specify rate of loading (although it may not be a breach if they do
not comply with the rate of loading, as long as it is shipped on time)
The Osterbek [1973] 2 Lloyd’s Rep 86: -Late tender of a vessel by the buyer(breach of condition).
The seller refused to deliver. It was held that time of shipment of the essence (condition); the seller
could refuse . - Extension exercised; if exercised, carrying charges may have to be paid
Bunge v Tradax Export [1980] 1 Lloyd's Rep. 294: a failure to give NOR on time was held to be a
breach of condition -
 Interdependence between NOR and S’s duty to nominate port of shipment:

the latter is a condition and since it depends on the former, the former must
also be a condition
 Certainty: would enable S to tell at once on receipt of NOR, whether NOR

was adequate and whether S bound to load
◦ If the c-t does not specify how much notice B must give of the ship's readiness to load, or at
what rate S is bound to load, B must give adequate notice to enable S to get the goods on
board within the shipment period.
Bunge v Tradax England Ltd [1975]: -The buyer nominated the ship the day before the expiry of the
shipment period which was too late for the seller to load. The seller could have rejected the
nomination but chose to load what he could load in that time.(the seller has no duty to continue to
load after the shipment period)
Port of shipment:
-Place of shipment is generally a condition (Petrograde Inc v Stiness Handel GmbH 1995)
-If a contract provides for a range of ports, it is the buyers duty/right to choose a specific port (Ian
Stach Ltd v Baker Boslev Ltd 1958)
-The contract will usually specify who is to nominate the port of shipment
 If the contract is silent: some uncertainty?
◦ David T Boyd & Co Ltd v Louis Louca [1973] 1 Lloyd’s Rep 209
 ‘good Danish port’
 Naming the port - B’s duty , but it had to be a good Danish port only.
-Can argue this shows : In FOB initiative has to come from the buyer, all the
seller does is place the good on the vessel, if following that logic then the buyer
should have the duty to load.
◦ Australian case, Cumming & Co Ltd v Hasell (1920) 28 CLR 508

lOMoARcPSD|2509867
 No stipulation as to port of shipment – void for uncertainty .
-If experienced parties, knowing the importance of place of shipment, decide to

leave it unmentioned, they face the risk of it being void for uncertainty.
Shipping instructions:
 To be given by B unless S undertook to find shipping space
 Purpose: S must be instructed how to perform his duty to put the goods on board
 To be valid and effective: must be possible and lawful for S to load
 Different from reserving shipping space; B’s failure to reserve shipping space – may lead to
the finding that B’s shipping instructions were ineffective
 What are shipping instructions? Probably these:
 Nominating a port of shipment, Nominating a port of destination (if S makes

carriage c-t and reserves shipping space), Nominating a vessel , Nominating
time of shipment , NOR, ETA?
Nominating a vessel:
 Nomination of a vessel:
◦ B’s duty normally, but c-t may require S to nominate a vessel (type 2?)
◦ Wimble Sons & Co v Rosenberg [1913] 3 KB 743
 S nominated the vessel
 B asked S to pay freight and to select vessel at B’s account
 32(3) SGA applies to FOB
 32(3) SGA 1893: ‘Unless otherwise agreed, where goods are sent by the
seller to the buyer by a route involving sea transit, under circumstances in
which it is usual to insure, the seller must give such notice to the buyer as
may enable him to insure them during their sea transit, and, if the seller fails
to do so, the goods shall be deemed to be at his risk during such sea transit’
 ‘before the goods were shipped the defendants had all information
necessary to enable them to insure, and that, therefore, there was no
obligation upon the plaintiffs, under sub-s. 3, to give notice to the
defendants of the shipment on a particular ship.’
-Can the buyer withdraw its original nomination?
Yes, if there is still time for the seller to load on a substituted vessel within the shipment period.
(Agricultores Federados Argentinos v Ampro SA [1965] 2 Lloyd’s Rep 157)

lOMoARcPSD|2509867
-What if the seller relied on the first nomination and incurred costs? J & J Cunningham Ltd v Robert
A Munro & Co Ltd (1922) 28 Comm Cas 42: The vessel nominated by the buyer arrived on the 28th
October. However, the goods had already deteriorated. The seller claimed that the buyer was
responsible for the deterioration because of his conduct and the lateness in arranging shipment. This
claim was rejected on the facts. The buyer did and said nothing to indicate that he would make
arrangements on the 14th October. This was forced upon him unilaterally. The buyer had rejected
the new conditions under protest and had not accepted the risk of the goods and had merely agreed
to arrange shipment as soon as possible. Risk in the goods remained with the seller till actual
shipment.
Avery J said obiter that if the buyer had said to the seller that he had arranged a vessel to arrive on
the 14th October and relying on it the seller had sent the goods to the docks on the 14th then if the
vessel had arrived on the 28th and the goods had deteriorated then the buyer might well be liable,
even though the damage occurred before shipment and at a time when such damage was normally
still at the sellerʹs risk. There were two reasons for this :-
i). The buyer by his conduct (a fortiori if the buyer had requested that the goods be made available
for shipping at that time) would have varied the contract to a contract of shipment on the 14th.
ii). Representation and reliance. The party making representation ie the buyer would then be
estopped from going back at a latter time. The buyer would be estopped even though the goods
were at the sellerʹs risk
-Basis for recovery unclear –Suggests in literature: an implied term

lOMoARcPSD|2509867
Commercial Law Lecture – Remedies
Rejection and Termination:
Meaning and effect of termination:
◦ brings c-t to an end; releases CPs from performing their duties under c-t from the
moment the c-t ceases to exist
Grounds for termination:
1. Repudiation of contract – an innocent CP can accept the repudiation, terminating the contract. 2.
Breach of a term that is classed as a ‘condition’ or an ‘innominate/intermediate term’, that
substantially deprives the innocent CP of its contractual benefit
Commercial motivation for terminating the c-t:
◦ Seller on a rising market –Buyer will want to terminate on a falling market
Economic effect of termination – shifting the market risk to the breaching party
-Are rejection and termination the same? They are distinct but very closely connected
◦ Effect of rejection = to nullify delivery
◦ Rejection as a separate remedy (At times the buyer may reject what has been
delivered but still wants to keep the contract alive)
◦ Rejection as part of the machinery of termination (terminating the contract

naturally results in rejection).
-Duality of rights to reject: -Rejection of goods -Rejection of documents. The two rights are
‘separate’, ‘distinct’ and ‘successive’ (Kwei Tek Chao v British Traders and Shippers [1954] 2 QB 459;
Berger & Co Inc v Gill & Duffus SA [1984] AC 382
-The two rights are not only distinct in law; they are also different commercial considerations which
may arise in the buyers mind:
 When B decides whether or not to accept doc-ts, the price is not yet paid
 -When B decides whether or not to accept goods, the price is already paid + B may have
already had dealing w/ the goods (eg, resale)
-The inter-relationship between rejection of goods and documents:
 The rejection of documents will necessarily entail the rejection of the goods (the CIF seller
cannot simply tender the goods physically on shore otherwise it would be a different kind of
contract)
 Likewise, the rejection of the goods will require the buyer to place any documents already
received at the disposal of the seller to enable the seller to collect the goods

lOMoARcPSD|2509867
When do these rights arise?
-The right to reject the documents arises when the documents are tendered (Kwei Tek Chao
case)
-The right to reject the goods ‘does not become exercisable until the seller has unconditionally
appropriated the goods to the contract. Under a c.i.f. contract this does not happen until his
reservation of the right of disposal of the goods by his withholding from the buyer the shipping
documents which represent them is terminated by his transferring the shipping documents to
the buyers’ (Berger & Co Inc v Gill & Duffus SA, 395, Lord Diplock)
-In practice, when the goods arrive at the destination and are examined is when they will be
rejected. (Kwei Tek Chao)
Loss of the right to reject
1. Waiver/affirmation: Waiver in the sense of election of remedies (they can waive the right
to reject but keep the right to claim damages). (S. 11(2) SGA)
-Preconditions of this: -There must be unequivocal communication by the buyer that he is
waiving his right to reject. –Secondly the buyer must be aware of: (1) the facts which have
given rise to the right to reject and (2) the existence of the right to reject
2. Waiver as an abandonment of right (broad sense of waiver): The buyer will be relinquishing
the right to reject/terminate and also the right to damages and the right to performance of the
promised duty. (Complete waiver)
-A way of establishing this waiver is ‘to show a separate agreement, binding on the buyer, by
which he had agreed to surrender the right to damages’ (Kwei Tek Chao) –Can be inferred
3. Estoppel (equivalent to waiver by abandonment): If B:
 (a) has made an unequivocal representation that B is relinquishing, not only

his right to reject, but also its right to damages in respect of a particular
breach
 (b) S has acted in reliance on it so as to:
 (c) make it inequitable for B to go back on the representation
 PANCHAUD FRERES SA v ETABLISSEMENTS GENERAL GRAIN COMPANY [1970] 1 Lloyd's Rep

53 - CIF Antwerp; shipment was due: June/July. The B/L dated 31 July; certificate of Quality
shows that the: goods were actually loaded in August. (Falsely dated bill of lading). The
Buyer accepted and paid against documents and later sought to reject thereafter
Held: The Buyer lost his right to reject. He has, by taking up the shipping documents without
objection, waived its right to reject the goods on the basis that the goods were not shipped w/in the
shipment period.

lOMoARcPSD|2509867
Lord Denning, MR, 57: ‘The present case is not a case of "waiver" strictly so called. It is a case of
estoppel by conduct. If a man, who is entitled to reject goods on a certain ground, so conducts
himself as to lead the other to believe that he is not relying on that ground, then he cannot
afterwards set it up as a ground of rejection, when it would be unfair or unjust to allow him so to
do’.
Winn LJ: ‘I respectfully agree with my Lord that what one has here is something perhaps in our law
not yet wholly developed as a separate doctrine - which is more in the nature of a requirement of
fair conduct - a criterion of what is fair conduct between the parties’
V Berg & Son Ltd v Vanden Avenne-Izegem PVBA [1977] 1 Lloyd's Rep 499 – The Seller wanted to
invoke the force majeure clause – to exempt themself from non-deliver. To do so, the clause
required S to specify port of shipment, but S did not do so. Question was whether B’s not
complaining (silent conduct) about port was estoppel by conduct (of B’s right on insisting on S’s
compliance w/ the f.m. clause)? It was held no.
◦ the fact that B did not complain or make any inquiry about the port of shipment did
not necessarily mean that B had in any way estopped itself from insisting on the
strict compliance with the force majeure clause
◦ Panchaud did not lay down any new principles of law
Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce

(Lorico) [1997] 2 Lloyd's Rep 386
◦ FOB: can the Buyer open L/c requiring freight pre-paid b/l? No (not in FOB contract).
If not, can S justify its failure to ship on the basis of B’s failure to do so? Answer was
Yes.
◦ S did not waive/was not estopped from its right to refuse to ship because of B’s
failure to open a conforming l/c . -S’s silence could not amount to waiver/estoppel
or acceptance: no unequivocal representation
◦ ‘(1) Panchaud…is authority for the application of the common law rule of
acceptance, now established in s. 35 of the Sale of Goods Act, in the comparatively
limited circumstances of a case where a c.i.f. buyer accepts documents but rejects or
purports to reject the goods’…
◦ ‘(2) The decision can equally be said to represent a form of "estoppel by conduct",
but there is no "separate doctrine" derived from Panchaud alone’.
◦ (3) Like all other forms of estoppel or waiver, the facts must justify a finding that
there was an unequivocal representation made by one party, by conduct or
otherwise, which was acted upon by the other’.

lOMoARcPSD|2509867
4. Acceptance (s. 35 SGA)
 B is deemed to have accepted the goods:
◦ when he intimates to the seller that he has accepted them…(s 35(1)(a))
(this is subject to the buyer having had a reasonable opportunity to examine the
goods – s. 35 (2))
◦ 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 (s 35(1)(b)).
(this is subject to the buyer having had a reasonable opportunity to examine the
goods – s. 35(2))
◦ when after the lapse of a reasonable time he retains the goods without intimating to
the seller that he has rejected them (s 35(4))
(This is not subject to the buyer having had a reasonable opportunity to examine but
it is relevant in determining if a reasonable time has lapsed – s. 35(5))
S 35(6): The buyer is not…deemed to have accepted the goods merely because—
 (a) it 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.
 S 35(2):
Where goods are delivered to B, and it has not previously examined them, it is not deemed to have
accepted them under subsection (1) above until it has had a reasonable opportunity of examining
them …
 S 35(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)
An act inconsistent with the ownership of the seller (s. 35(1)(b)):

lOMoARcPSD|2509867
-‘if the buyer has done any act which prevents [S] from…resuming possession that act is necessarily
inconsistent with his right’ (Hardy and Company v Hillerns and Fowler [1923] 2 K.B. 490, Bankes LJ,
496).
-‘The essence of an inconsistent act is that the buyer asserts proprietary rights in the goods or acts
unnecessarily in a way that is detrimental to the seller’s ownership rights’ (MG Bridge)
Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604: ‘The buyers plainly knew that
the documents certified that the barley was not strictly in accordance with the contract…Yet despite
this clear knowledge they continued with the discharge of the goods. Maybe wrongly, the goods
were in fact delivered to the buyers, and the buyers then did acts which…were inconsistent with the
rights of the sellers’ (Slynn J, 613).
Law of contract damages
Contract damages = monetary compensation for the loss suffered as a consequence of breach of
contract. –The protection of the expectation/performance interest:
◦ Placing the innocent party in the position, so far as money can do it, in which it
would have been had the c-t been properly performed (Robinson v Harman (1848) 1
Exch 850)
Pre-conditions for the right to claim damages:
-Breach + Loss - Causal connection between breach and loss: remoteness (Hadley v Baxendale
(1854)):
If losses are usual, arising in the ordinary course of things – then they are
recoverable
 If losses are unusual/special – recoverable if the parties contemplated them

at the time of contract
 Rationale: concern for limits of the breaching party’s liability – to prevent

losses the risk of which it could not have foreseen and assumed when it
entered into c-t
-If a party foresees a risk of liability for a particular loss at the time of
entering into a contract it can protect itself against it. If it has not done so
then it can be taken to have assumed that risk
 New test: The ‘Achilleas’ [2008] UKHL 48 – the assumption of

responsibility?
 ‘The critical question however is whether the parties must be

assumed to have contracted with each other on the basis that the
[breaching party was] assuming responsibility for the consequences
of that event’ (Lord Hope, para. [30])

lOMoARcPSD|2509867
 ‘Assumption of responsibility, which forms the basis of the law of

remoteness of damage in contract, is determined by more than
what at the time of the contract was reasonably foreseeable’ (Lord
Hope, para. [31])
 Foreseeability - ‘a prima facie assumption about what the parties

may be taken to have intended, no doubt applicable in the great
majority of cases but capable of rebuttal…’? (Lord Hoffman, [para. 9]
 ‘seems to me logical to found liability for damages upon the

intention of the parties (objectively ascertained) because all
contractual liability is voluntarily undertaken?’ (Lord
Hoffman, para. [12])
Uncertainty on impact of The Achilleas:
‘judgments since The Achilleas have emphasised that the decision in The Achilleas has not brought
about a major change: in the majority of cases in which a particular kind of loss was ‘not unusual’ the
defendant will be treated as having assumed responsibility for it unless the contract contains an
effective express term to the contrary’ (Chitty on Contracts, Vol 1, 31st edn, para. 26-104)
Mitigation:
◦ The innocent party to take reasonable measures to avoid or reduce its loss
◦ Policy: avoiding economic waste, prevent passivity and promote stoicism, altruism
(?), in the interests of the innocent party (?)
◦ Benefits arising from innocent party’s actions subsequent to the breach
 If an act is one of mitigation, if it is a transaction naturally/reasonably arising

from a breach, benefits arising from that subsequent act – will be taken into
account in assessing damages (ie, damages will be reduced by the amount
benefits)
 If an act is an independent transaction, not a consequence of mitigation, it

will be ignored (ie, benefits will not reduce damages)
 British Westinghouse Electric and Manufacturing Co v Underground Electric

Railway Co of London Ltd [1912] AC 673
 Questions: is a transaction ‘accidental to’, ‘independent‘ and ‘disconnected’

from the c-t w/ a breaching party? Is it within a range of reasonable
measures?
Calculation of damages:

lOMoARcPSD|2509867
Calculation/quantum = the process of translating loss into money -Calculation = a central place in the
law of damages -A close link with the mitigation rule
Four categories of case:
◦ Non-delivery and non-acceptance
◦ Breach of warranty
◦ Delay in delivery
◦ A documentary breach
Non delivery and non-acceptance:
Ss 50(2) & 51(2): ‘The measure of damages is the estimated loss directly and naturally resulting, in
the ordinary course of events, from the buyer’s breach of contract’; similarly s. 53(3)
◦ Restatement of the 1st limb of Hadley v Baxendale?
◦ Sub-sections (3) of ss 50, 51 and 53 – contain a prima facie formula of calculation
S 50(3) Damages for non-acceptance:
“Where there is an available market for the goods in question the measure of damages is prima
facie to be ascertained by the difference between the contract price and the market or current
price at the time or times when the goods ought to have been accepted or (if no time was fixed
for acceptance) at the time of the refusal to accept”
S 51 Damages for non-delivery:
“Where there is an available market for the goods in question the measure of damages is prima
facie to be ascertained by the difference between the contract price and the market or current
price of the goods at the time or times when they ought to have been delivered or (if no time
was fixed) at the time of the refusal to deliver”
-These formulas probably reflect the ‘breach date’ rule which is probably a reflection of hypothetical
mitigation.
Example 1:
◦ C-t price is £100 and MP at the due date for delivery is £110
◦ As soon as S failed to deliver, B re-purchased substitute goods at £105
◦ B’s loss is £5 (£110-£105)
◦ S. 51(3): £10 (MP of £110 – CP of £100)
◦ Does B get a windfall?

lOMoARcPSD|2509867
 Example 2:
◦ C-t price is £100 and B agreed to resell goods to its sub-B at £120, hoping to profit of
£20 (loss of profit if S fails to deliver)
◦ MP at due delivery date is £110; S. 51(3): £10 (MP of £110 – CP of £100)s
◦ Is B under-compensated by £10?
Williams Bros v Agius (ET) Ltd [1914] AC 510 (HL): - S failed to deliver. - B planned to resell but
claimed the difference between c-t and market prices (a higher amount since the market was
rising). - S: the sub-sale price should be the reference point (ie, difference between c-t price and sub-
sale price)
HL: market price is the appropriate measure
 What does of ‘delivery’ in s. 51 mean in the context of CIF c-ts?
C Sharpe & Co Ltd v Nosawa & Co [1917] 2 KB 814:
◦ Japanese peas, June shipment, CIF, CP = £10.15; S refused to ship
◦ Had goods been shipped: doc-ts would have arrived at the end of July, and MP
would have been £12; goods would have arrived at the end of August and MP would
have been £17.10
◦ Decision: time of delivery = when documents would have arrived (end of July)
◦ ‘The damages are to be assessed on the basis of reasonable conduct on the part of
the purchaser. In the circumstances of this case the reasonable thing for a merchant
to do who could not buy goods coming forward would be to go into the market and
buy goods on the spot. In that way be would put himself as nearly as may be in the
same position as if the contract had been fulfilled…’
◦ B could not have bought c-t quantity of Japanese peas of special quality; but could
have bought goods as near in quality as possible to the goods S contracted to sell.
 The approach in C Sharpe & Co Ltd v Nosawa – not an invariable rule.
 What is reasonable conduct will vary depending on the circ-s.
 That will, in turn, pre-determine the meaning of ‘delivery’ under s. 51 and, more generally,
the date w/ reference to which damages are to be assessed
◦ Eg, what if a CIF c-t requires notice of appropriation to be given and S fails to give
this notice?

lOMoARcPSD|2509867
 Arguably, it is from the time when notice ought to have been given that B
can be expected to go to the market to procure a substitute (Produce
Brokers Ltd v Weiss (1918) 118 LT 111)
 When will the presumptive formulae in ss. 50(3) and 51(3) be displaced?
 Probably, when one of the assumptions, underlying them, is not present:
◦ The innocent party is not aware of the breach at the relevant time
◦ It is not reasonable for the innocent party to go the market to make a substitute
transaction
◦ There is no relevant market for c-t goods:
 Eg, B’s sub-c-t requires the very same goods that S failed to deliver
 OR B passed the notice of appropriation for the goods to its sub-B and is
now bound to deliver the very same goods to its sub-B (Re Hall and Pim and
Co’s Arbitration (1928) 33 Com Cas 324)
◦ More generally, when it does not accurately reflect an injured party’s loss
Breach of Warranty
S. 53(3): ‘In the case of breach of warranty of quality such loss 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’.
-In the case of breach of warranty the buyer has the goods on hand, so the buyer is given the
difference between conforming goods and the non-conforming goods. –Value is different from
market price, but market price can be an indicator of value. (This is an ‘abstract approach’)
Slayter v Hoyle & Smith Ltd [1920] 2 KB 11 (CA) - defective delivery of cotton cloths – the goods
were accepted. The B resold the goods to sub-B at a full price (same price as the buyer was
expecting from conforming goods), higher price than market price.
Held: the sub-sale was not to be taken into account. The buyer was still to get the difference in value
between the conforming and non-conforming gogods. D-s based on the market differential formula
awarded. Scrutton LJ: “The rules of English law do not always give exact indemnity, and in this case I
think they do not”
 Compare with Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87:
◦ S produced vinyl film which B bought to use for making decals bearing words,
numbers or symbols to identify sea-borne bulk containers. B sold on decals to sub-B,
who then sold to sub-sub-B. Film defective - complaints from the end-users.

lOMoARcPSD|2509867
◦ Decision: The prima facie measure in s 53(3) to be displaced and the damages are to
be assessed with reference to the sub-sale: ‘where it had been in the
contemplation of the parties at the time the warranty was given that the goods sold
would be used in making a product which would be sold on’
 ‘in such a case the measure of damages would be based not on the
difference between the value of the goods as delivered and that warranted
but on the buyer's liability to the subsequent or ultimate users of the
product arising from the defects constituting a breach of the seller's
warranty’
 Auld LJ: ‘In my view, the time has come for [Slater] to be reconsidered at
least in the context of claims by a buyer for damages for breach of warranty
where he has successfully sold on the subject matter of the contract in its
original or modified form without claims from his buyers. ’
Reconciling these two cases:
-Assumption seems to be that the buyer has suffered no loss in Slater, but is this true? –The buyer in
Slater was paying for goods of higher quality, if he wanted goods of inferior quality the price
probably would have been lower. So he has made a loss in a sense because he paid the higher price
for defective goods. –Yes the buyer sold to a sub buyer, but there is no guarantee that sub buyers
would pay for that again and his reputation may even have suffered as a result. –The buyer had an
interest in performance which was damaged by him not receiving conforming goods, he did not get
what he contracted for which is in itself a loss.
Are the cases distinguishable?
-In Bence the seller knew exactly to whom the goods would be resold so he had precise
contemplation. In Slater he knew generally that the buyer would resell but did not have precise
contemplation as to whom the buyer would resell.
Choil Trading SA v Sahara Energy Resources Ltd [2010] - Damages be assessed with reference to the
B’s sub-sale when CPs contemplate that the goods which B will use to perform its sub-sale will be
the particular goods supplied by S
-The buyer did not have to use the sellers goods for the sub sale in Slater. Why should the seller
benefit from the buyers luck and business acumen?
Delay in delivery
-No section in SGA covering delay in delivery
Normal measure: difference between value of goods at due date and their value at time when they
ought to have been delivered (Taylor v Bank of Athens (1922))

lOMoARcPSD|2509867
Wertheim v Chicoutimi Pulp Co [1911] - late delivery. Value at the due date = 70; at the time of
actual delivery = 42. B managed to resell for 65
Held: The damages awarded were: 70 – 65 - It would be against all justice if B profited from a breach
‘when the delivery of goods purchased is delayed, the goods are presumed to have been at the time
they should have been delivered worth to the purchaser what he could then sell them for, or buy
others like them for, in the open market, and when they are in fact delivered they are similarly
presumed to be, for the same reason, worth to the purchaser what he could then sell for in that
market,
but if in fact the purchaser, when he obtains possession of the goods, sells them at a price greatly
in advance of the then market value, that presumption is rebutted and the real value of the goods
to him is proved by the very fact of this sale to be more than market value, and the loss he sustains
must be measured by that price, unless he is, against all justice, to be permitted to make a profit by
the breach of contract, be compensated for a loss he never suffered, and be put, as far as money
can do it, not in the same position in which he would have been if the contract had been performed,
but in a much better position.’
A documentary breach
James finlay – The goods were hsipped outside the shipment period which was September, it was a
CIF contract. But the Bill of Lading was dated within the shipment period, 30th September. The buyer
tried to resell to a sub buyer but the sub buyer rejected on the basis of the falsely dated bill of
lading. The buyer sold at auction at a loss.
-This was a double breach because the goods were outside the shipment period and the bill of
lading not being genuine because it concealed from the buyer the true shipment date.
Held: The buyer got damages for the loss of the right to reject and to terminate. Market loss
damages were awarded to the buyer to achieve the same effect that termination would have
achieved. The measure is the difference between the market price the buyer received and the
contract price.
A single documentary breach:
Procter & Gamble: CIf contract. The shipment period was January – February and the goods were
shipped in February. The documents were dated 31 January. This was a falsely dated bill of lading.
The buyer suspected that it was falsely dated but the seller insisted that it was correct. The buyer
paid against hte documents and sold at a reduced price.
Held: If there had been no breach, the bill of lading would have been dated February and B would
not have had the right to reject and to refuse to pay for the goods. The buyer had suffered no loss so
the buyer could not have been given damages for the loss of the right to terminate (as in James
Finlay).
-BUT this does not mean that in such cases no damages can be awarded:

lOMoARcPSD|2509867
‘a falsely dated bill of lading becomes effectively unmerchantable, in the sense of being non-
negotiable (or, more accurately, non-transferable) once its true date is known...In such
circumstances it may well be possible for the buyers to show that they suffered loss as the result of
this breach. ‘ -If the buyer becomes ‘locked in’ on a falling market then substantial buyers can be
given to the buyer
-The calculation of this will be: va comparison between the financial position of the buyers in the
events which happened and what their financial position would have been if the bill of lading had
stated accurately the date of shipment. ‘difference between the market value of the goods when he
ought to have been able to deal with them (viz. when the bill of lading was tendered and accepted)
and the market value of the goods when he became able to deal with them’
What date should Finlay damages be awarded:
-In Finlay it did not matter which date they picked because the price remained the same
-Given that damages are for loss of the buyers right to terminate, the relevant time should be the
time when the buyer would have terminated had a bill of lading been properly dated (This would be
the time of tender of documents because that is when the buyer would have seen the true shipment
date and would have rejected the documents/goods and terminated).

lOMoARcPSD|2509867
Commercial Law Lecture 7 – Contracts for the International Sale of Goods (CISG)
 The Uniform Law of International Sale of Goods (ULIS) and The Uniform Law on the
Formation of Contracts for the International Sale of Goods (ULFS) 1964
 Possible advantages of unification/harmonisation:
◦ Basis, order and rules, standards and values for the operation of a market
◦ Global markets require global law
◦ Removing legal barriers – eg, no need for conflict of law rules; no need to determine
content of foreign law
◦ Reducing transactions costs
◦ Law tailor-made to international transactions
◦ Neutrality
◦ Fills vacuum in domestic laws
◦ Predictability and certainty
◦ Triggers law reforms – reflects the most advanced legal thinking
Criticism – JS Hobhouse 106 LQR - Conventions, having been drafted as multicultural compromises,
lack certainty, coherence, and consistency – “They introduce uncertainty when no uncertainty
existed before”
“uniformity is a utopian not a practical concept in a world composed of independent states w/

widely differing legal traditions and institutions”
“to contemplate that conventions for world-wide adoption will actually produce a uniformity of decision
and approach in all countries across the world is illusory. The courts of each country will approach the
resolution of any dispute from a view point of its own legal and commercial culture and the divergent
influences will be far stronger than the influence of any convention.”
Conventions do not constitute a proper basis for commercial law: “Conventions which represent an
amalgam of inconsistent rules drawn from different systems differently structured w/ different
underlying assumptions do not make a satisfactory basis for a commercial code”
Utopianism should have no place in commercial law.
Other drawbacks: -The negotiation and drafting, a lengthy and costly process. –Difficult to introduce
changes.
Sales:

lOMoARcPSD|2509867
◦ the c-t of sale is a c-t in which S is obliged to deliver the goods, possibly hand over
any documents relating to them, and transfer the property in the goods, and B is
obliged to pay the price for the goods, take delivery and co-operate in the manner
required by the contract (Arts 30 and 53)
Goods: tangible and moveable
-Software? Koln (German case says custom-made software is not goods). Klobenz (says computer
chip is goods) -animals? Flensbury (German case said sheep are goods).
International sale of goods:
Art 1: This Convention applies to contracts of sale of goods between parties whose places of
business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting
State.
(2) The fact that the parties have their places of business in different States is to be disregarded
whenever this fact does not appear either from the contract or from any dealings between, or from
information disclosed by, the parties at any time before or at the conclusion of the contract.
-Note: The convention will not apply if the parties do not know that the other party is from a
different state in accordance with subsection 2
What is a place of business?
Art 10:
(a) if a party has more than one place of business, the place of business is that which has the
closest relationship to the contract and its performance, having regard to the
circumstances known to or contemplated by the parties at any time before or at the
conclusion of the contract;
(b) if a party does not have a place of business, reference is to be made to his habitual
residence.
 Honnold: ‘a permanent and regular place for the transacting of general business, and would
not include a temporary place of sojourn during ad hoc negotiations
-Could a hotel room be a place of business? In principle yes according to 10(a) but some
commentators argue it needs to be a place of permanence and stability.

lOMoARcPSD|2509867
 Germany, 28 February 2000, Appellate Court Stuttgart:
◦ Spanish B (installs floor covers in sports grounds); German S (manufacturer of floor

coverings); Spanish agent D, used by S. S: B failed to pay for several deliveries
◦ Question was Who was a contracting party and what was a place of business – S or
agent D? The buyer travelled to S in Germany to conduct contract negotiations. S
sent invoices directly to B; invoices were in S’s name. B knew about the nature of
the relationship between S and D. B sent requests to D, who forwarded them to S. B
paid partly to S and partly to D, but more to D (at S’s request).
Court held: the CISG applies; The seller is a party/place of business was with him in
Germany
Exclusions:
Art 2: Sale
(a) of goods bought for personal, family or household use, unless the seller, at any time before
or at the conclusion of the contract, neither knew nor ought to have known that the goods
were bought for any such use;
(b) by auction
(c) on execution or otherwise by authority of law;
(d) of stocks, shares, investment securities, negotiable instruments or money;
(e) of ships, vessels, hovercraft or aircraft;
(f) electricity
Vessels:
 Russia, 18 December 1998 Maritime Commission Arbitration 1/1998:
◦ Submarine struck off from the list of Russian Navy. Sold to a Canadian party for scrap
metal. The Canadian party did not do that but used it for an exhibition. It had lacked
some of its technical features but it was still capable of being afloat as a submarine.
Question of whether it was a vessel and therefore the convention would not apply.
Tribunal: it is a vessel; capable of being afloat.
Goods v services:
Art 3:

lOMoARcPSD|2509867
(1) Contracts for the supply of goods to be manufactured or produced are to be considered
sales unless the party who orders the goods undertakes to supply a substantial part of the
materials necessary for such manufacture or production.
(2) This Convention does not apply to contracts in which the preponderant part of the
obligations of the party who furnishes the goods consists in the supply of labour or other
services.
CISG advisory council:
Possible tests
(1) Economic/financial value;
(2) Volume (quantity, amount);
(3) Importance of respective contribution – how essential is an item?
Russia, 30 May 2000, ICAC Arbitration 356/1999:
Art 3(2) – preponderant = more than 50%
Scope of the convention:
Art 4:
This Convention governs only the formation of the contract of sale and the rights and obligations of
the seller and the buyer arising from such a contract. In particular, except as otherwise expressly
provided in this Convention, it is not concerned with:
(a) the validity of the contract or of any of its provisions or of any usage;
(b) the effect which the contract may have on the property in the goods sold.
Art 5: ‘This Convention does not apply to the liability of the seller for death or personal injury caused
by the goods to any person’.
Freedom of c-t - Art 6: ‘The parties may exclude the application of this Convention or, subject to
article 12, derogate from or vary the effect of any of its provisions’
◦ Is implied exclusion possible? Yes –But if the contract refers to the law of a country
which ratifies the convention that will make the convention applicable
Interpretation of the CISG:
Art 7 – the ‘heart’ of the Convention:
◦ Methods of interpreting the Convention
◦ Gap filling
◦ Identifies some of its key purposes (unification)

lOMoARcPSD|2509867
◦ Identifies the nature of this instrument (international character)
(1) In the interpretation of this Convention, regard is to be had to its international character and to
the need to promote uniformity in its application and the observance of good faith in international
trade.
(2) Questions concerning matters governed by this Convention which are not expressly settled in it
are to be settled in conformity with the general principles on which it is based or, in the absence of
such principles, in conformity with the law applicable by virtue of the rules of private international
law
Interpretation of contracts:
(1)…statements made by and other conduct of a party are to be interpreted according to his intent
where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party
are to be interpreted according to the understanding that a reasonable person of the same kind as
the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had,
due consideration is to be given to all relevant circumstances of the case including the negotiations,
any practices which the parties have established between themselves, usages and any subsequent
conduct of the parties.
Swiss Federal Supreme Court, 22 December 2000:
 German buyer, a trader in textile equipment, agreed to buy textile machines from a Swiss
seller. B’s manager viewed the S’s 2nd hand machine (14 years old). The contract provided: B
would buy “1 piece rotary printing machine, Rapportausrüstung 641 mm - 1018 mm”. The
buyer got the machine but the machine only equipped for a rapport length of 641 mm. B
complained that the stencil holders for a rapport length of 1018 mm were missing. The
seller argued: B had a chance to view the equipment and agreed to buy the machine
"complete and operating as viewed."
Held: Article 8(2) used to interpret the contract. The buyer accepted the equipment as it
was
-B/a reasonable person – was an expert who had an opportunity to examine the machine.
The c-l provision referred solely to the technical capabilities of machines of this kind; for
information only (it was not incorporated for the purpose of imposing an obligation on the
seller). This machine was 14 years old and could not have been expected to be able to
operate at a full range
Article 9:

lOMoARcPSD|2509867
(1) The parties are bound by any usage to which they have agreed and by any practices which
they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to
their contract or its formation a usage of which the parties knew or ought to have known
and which in international trade is widely known to, and regularly observed by, parties to
contracts of the type involved in the particular trade concerned.
-Practice: something established between the two contracting parties. Once this practice is
established it is binding on the parties. (Something more than twice is required to establish a
practice. Question is whether it is enough to generate an expectation that it will continue in the
future.
-Usage: Establish within the industry more generally, beyond the parties. (Art 9(2) – Must have
known or ought to have known about, -It is widely known to parties in international trade
generally, -Something parties in international trade regularly observe)
(Case law tells us that widely known to, refers to the majority of players in the sector.)
Seller’s Duties
Article 30: ‘The seller must deliver the goods, hand over any documents relating to them and
transfer the property in the goods, as required by the contract and this Convention’.
1. Delivery 2. Hand over of documents 3. Transfer property
Meaning of delivery - Article 31 – delivery consists of:
“(a) if the contract of sale involves carriage of the goods - in handing the goods over to the first
carrier for transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or
unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at
the time of the conclusion of the contract the parties knew that the goods were at, or were to be
manufactured or produced at, a particular place - in placing the goods at the buyer's disposal at
that place;
(c) in other cases - in placing the goods at the buyer's disposal at the place where the seller had
his place of business at the time of the conclusion of the contract”.
 Time of delivery - Article 33:
The seller must deliver the goods:
(a) if a date is fixed by or determinable from the contract, on that date;
(b) if a period of time is fixed by or determinable from the contract, at any time within that
period unless circumstances indicate that the buyer is to choose a date; or

lOMoARcPSD|2509867
(c) in any other case, within a reasonable time after the conclusion of the contract.
Documentary duties
 Art 34:
If the seller is bound to hand over documents relating to the goods, he must hand them over
at the time and place and in the form required by the contract. If the seller has handed over
documents before that time, he may, up to that time, cure any lack of conformity in the
documents, if the exercise of this right does not cause the buyer unreasonable inconvenience
or unreasonable expense. However, the buyer retains any right to claim damages as
provided for in this Convention.
-Can a document really be cured?
Conformity of goods:
Art 35(1): ‘The seller must deliver goods which are of the quantity, quality and description
required by the contract and which are contained or packaged in the manner required by
the contract.’
Germany, 13 November 2002, Appellate Court München (Organic barley) – Contract said:
Goods to be organic, as defined by Council Regulation EEC No. 2092/91. Goods delivered
were delivered without a certificate, so it was unknown whether they are organic or not.
Court: ‘an inseparable and unique link between goods and documents that prove the
organic origin’. The organic origin can only be proved by means of a certificate. Therefore
there was a Breach of 35(1) because they could only be considered organic with a certificate
 Terms as to conformity, implied under the CISG (Art 35):
(2) Except where the parties have agreed otherwise, the goods do not conform with the
contract unless they:
(a) are fit for the purposes for which goods of the same description would ordinarily be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller at the
time of the conclusion of the contract, except where the circumstances show that the buyer
did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a sample or
model;
(d) are contained or packaged in the manner usual for such goods or, where there is no such
manner, in a manner adequate to preserve and protect the goods.

lOMoARcPSD|2509867
(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any
lack of conformity of the goods if at the time of the conclusion of the contract the buyer
knew or could not have been unaware of such lack of conformity
1. fit for purpose which goods would ordinarily be used 2. Fit for any particular purpose
expressly or impliedly made known to the seller(These are the ones we will be examined
on)
Particular purpose (Art 35(2)(B):
-Does not have to be stated with absolute precision. A more specific purpose can be inferred
from a more generally stated purpose
Germany, 27 February 2002, District Court München (Globes) - Rotating globes (on a ceiling)
at B’s exhibition premises, the buyer was a well respected exhibition house. The Globes
stopped rotating after 3 months. It was argued this was in breach of the particular purpose
requirement
Court: The seller was in breach of Art 35(2)(b). -S knew about B’s purpose of using globes at
an exhibition house. Exhibits are known as being sophisticated and expensive. Globes were
intended to be acquired as permanent part of furnishing
PP = rotation for at least 3 years: ‘In the light of the high transportation costs to each of
[buyer]'s branches -- the large Globes weighed almost 290 Kg including their wrapping -- the
Court assumes an impliedly agreed operational lifetime of the Globes of three years on
average.’
Switzerland, 5 November 2002 Commercial Court des Kantons Aargau (Inflatable

triumphal arch): Collapse of an inflatable triumphal advertising arch on a racing track. Seller
ought to have understood that the arch ought not to have collapsed – it was dangerous. This
particular purpose was inferred from a more general stated purpose. PP = safety
 Art 35(2)(a) – ‘ordinary use’ (OP) - Germany, 2 March 2005 Federal Supreme Court (Frozen
pork) – Defined ordinary purpose as ‘ resaleable’. However this seems to be too narrow a
definition (not every buyer buys to resell).
Non compliance with public law regulations:
Germany, Supreme Court, 8 March 1995 (New Zealand Mussels) - The mussels delivered by
a Swiss seller to a German buyer did not comply with a recommendation of the German
health authorities as to their cadmium content. Question whether the Swiss seller was liable
for not complying with the German health authorities
SC held : The seller could not be expected to know about the regulations in B’s country,
UNLESS:(1) the regulations were the same in S’s country; (2) B specifically drew S’s attention

lOMoARcPSD|2509867
to the regulations; or (3) S had a good reason to know about them, such as where S had a
branch in the B’s country, had a long-established business relationship with B, or previously
exported the goods to or promoted them in B’s country
Time at which conformity is to be determined – Art 36(1): ‘The seller is liable in accordance
with the contract and this Convention for any lack of conformity which exists at the time
when the risk passes to the buyer, even though the lack of conformity becomes apparent
only after that time.’
 The Frozen Pork case: Belgium S – German B – sold to a customer in Bosnia-Herzegovina

(APRIL 1999). In June 1999 – suspicions arose that meat from Belgium contaminated w/
dioxin. In July 1999 – regulations adopted in Germany and EU, banning meat unless
accompanied by a ‘dioxin-free’ certificate. S was asked to present a certificate - S could not.
The Meat was destroyed by Bosnian authorities.
Held: The seller was liable in breach of fitness for ordinary purpose (Art 35(2)(a)). The goods
could not be sold if there are suspicions of contamination. Suspicions alone were enough to
make the seller liable (no one knew the truth because the meat was destroyed).
On 36(1) – The risk passed to the buyer in April but the suspicions didn’t arise until June?
The court held that the subsequent suspicions were evidence of the goods being non-
conforming at the time when the contract was made.
S conformity obligations and B’s notice requirement:
 Art 39:
(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give
notice to the seller specifying the nature of the lack of conformity within a reasonable time
after he has discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does
not give the seller notice thereof at the latest within a period of two years from the date on
which the goods were actually handed over to the buyer, unless this time-limit is
inconsistent with a contractual period of guarantee.
 Art 38 – direct link w/ Art 39:
(1) The buyer must examine the goods, or cause them to be examined, within as short a period
as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the
goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable
opportunity for examination by him and at the time of the conclusion of the contract the seller

lOMoARcPSD|2509867
knew or ought to have known of the possibility of such redirection or redispatch, examination
may be deferred until after the goods have arrived at the new destination.
 See also Art 44: ‘Notwithstanding the provisions of paragraph (1) of article 39…, the buyer
may reduce the price in accordance with article 50 or claim damages, except for loss of
profit, if he has a reasonable excuse for his failure to give the required notice.’
 The meaning of ‘reasonable time’ in Art 39(1) – a ‘1 month (noble?) period’?
See Germany, 11 April 2005, District Court Frankfurt (Used shoes): German S selling used shoes
to B in Uganda. Goods to be initially dispatched to Mombasa, Kenya (26 April 2004); B to
redispatch from Kenya to Uganda. The B/L was received by B on 24 May. The B examined goods
in Uganda (not in Kenya, because he said there was a customs seal and he would have had to
break it and be charged, he would also have had to pay for people to go to Kenya to examine) on
16 June. B sent notice to S on 17 June that the goods were unhygienic – destroyed by authorities
in Uganda on 24 June. There Seller argued: B failed to give the Art 39 notice in good time
Held: The notice was given too late. 3 weeks after the buyers receipt of the bill of lading was too
late. The buyer had a reasonable opportunity to examine the goods in Kenya (Art 38(3) was not
triggered). –It was not a problem that a custom seal would have had to be broken, other buyer
could have hired an agent in Kenya to inspect the goods.

lOMoARcPSD|2509867
Commercial Law Lecture 8 – CISG: Remedies
General principles: There is freedom of election (parties can choose any remedies it wants from the
list) AND non-inconsistency – there must be symmetry of remedies where possible.
Remedies available:
◦ Specific performance (Arts 46, 62, 28)
◦ The right to set additional period of time (Nachfrist) (Arts 47 and 63)
◦ Breaching S’s right to cure (Art 48; see also Art 37) – not strictly a remedy
◦ The right to avoid/terminate the contract (Arts 49, 64)
◦ B’s right to reduce the price for non-conformity (Art 50)
◦ Damages (Arts 74-77)
◦ Remedies for the so-called anticipatory breach – suspension and termination (Arts
71, 72, 73(2))
◦ Interest on payments in arrears (Art 78)
Avoidance(Termination):
-Brings contract to an end.-Notice must be given –Timing of avoidance is important (an innocent
party can speculate at the breaching party’s expense). It must be done within a reasonable period of
time
 Article 49 (B’s right to avoid):
(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this Convention
amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of
time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not
deliver within the period so fixed
 Art 64 (S’s right to avoid):
(1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention
amounts to a fundamental breach of contract; or
(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with
paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if
he declares that he will not do so within the period so fixed.

lOMoARcPSD|2509867
Fundamental breach:
Test for avoidance in Art 25:
‘A breach of contract committed by one of the parties is fundamental if it results in such detriment
to the other party as substantially to deprive him of what he is entitled to expect under the contract,
unless the party in breach did not foresee and a reasonable person of the same kind in the same
circumstances would not have foreseen such a result.’
2 components: 1. Detriment/deprivation of contractual expectation 2. Foreseeability
Note: Seller’s right to cure in art 48: ‘Subject to article 49, the seller may, even after the date for
delivery, remedy at his own expense any failure to perform his obligations, if he can do so without
unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of
reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any
right to claim damages as provided for in this Convention. ’ (Notice it is subject to art 49, the buyers
right to avoid, so that prevails over the seller right to cure).
The Triumphal Arches case: The breach is not fundamental if the seller can cure.
Exceptions: - Date of delivery is of fundamental importance (cure is not relevant here

because time is of the essence)
 Cure is unreasonable under Art 48(1)
 Not reasonable to expect B to agree to cure
 S refuses to cure
Switzerland, 28 October 1998, Supreme Court (Meat) - Excessive moisture in the meat; its value
dropped by 25%. B is a wholesale trader and wanted to avoid the contract.
SC: if meat is still useable (eg, can be processed) or resold, there is no fundamental breach. So the
buyer cannot avoid the contract
-Policy in these decisions: Avoidance is an exceptional remedy of last resort, they aim to keep the
contract alive (Although this is not said anhywhere in the convention)
Germany, 3 April 1996 Supreme Court (Cobalt sulphate) - Place of origin to be UK. Actual origin:
South Africa. The Certificate of origin stated: EU. Double breach?
◦ SC: There was no fundamental breach in relation to goods – the goods can still be
sold, despite their SA origin.
 As to a false certificate, it was held that the Buyer could itself procure a
correct certificate. So there was NO FB as to goods or documents
-Why should the buyer who paid for that certificate go an procure a correct certificate and be
deprived of his right to avoid the contract?

lOMoARcPSD|2509867
Damages:
 General measure – full compensation/protection of the expectation interest:
‘Damages for breach of contract by one party consist of a sum equal to the loss, including loss of
profit, suffered by the other party as a consequence of the breach’ (Art 74, first sentence)
 Foreseeability:
‘Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen
at the time of the conclusion of the contract, in the light of the facts and matters of which he then
knew or ought to have known, as a possible consequence of the breach of contract’ (Art 74, second
sentence)
-Does forseeability refer to the type of loss or to its extent?
ICAC Arbitration Case 406/1998, 6 June 2000 (Russia) (the amount of penalty is irrelevant; the type
of loss (i.e., penalty) was foreseeable) – breach by seller as a result buyer had to pay penalty to sub
buyer, seller argued the type of penalty was foreseeable but the amount/extent was not
foreseeable. Held: It is enough for the type of loss to be foreseeable, once the type of loss is
foreseen, the extent is irrelevant.
CIETAC Arbitration proceeding 3 June 2003 (Clothes) – Breach by the seller, the buyer lost profit
margin (which was 100%, very high). Seller said he knew there would be loss of profit but didn’t
know it would be 100% of the contract price because it is 20% profit margin which is normal and
foreseeable in their sector.
Held: 20% rather than 100% profit margin was awarded here, they agreed with the seller. The extent
of the loss was relevant. (Most cases take this approach)
-Foreseeability there likely concerns both type and extent of loss
Mitigation rule, Art 77: ‘A party who relies on a breach of contract must take such measures as are
reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the
breach. If he fails to take such measures, the party in breach may claim a reduction in the damages
in the amount by which the loss should have been mitigated.’
-Actual mitigation - Art 75: ‘If the contract is avoided and if, in a reasonable manner and within a
reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold
the goods, the party claiming damages may recover the difference between the contract price and
the price in the substitute transaction as well as any further damages recoverable under article 74.’
Hypothetical mitigation – Art 76: ‘(1) If the contract is avoided and there is a current price for the
goods, the party claiming damages may, if he has not made a purchase or resale under article 75,
recover the difference between the price fixed by the contract and the current price at the time of
avoidance as well as any further damages recoverable under article 74. If, however, the party

lOMoARcPSD|2509867
claiming damages has avoided the contract after taking over the goods, the current price at the time
of such taking over shall be applied instead of the current price at the time of avoidance.’
Relationship between these formulas:
CIETAC Arbitration, 1 March 1999 (Canned mandarin oranges): Sale of canned oranges, sale price
was $12 per box. The buyer refused to pay that price (even though that was contract price) but said
he would buy at $11 per box in breach of contract. The seller rejected the buyers offer and resold
the goods at $7, he then claimed damages under art 75, the difference between the contract price
and the substitute transaction (which was $5).
Held: Art 75 did not apply because the it must be done in a reasonable manner, the resale at $7 was
unreasonably low. The market price stood at $10. So question was whether damages should be
calculated by art 76 or 77.
-Art 77 can be interpreted as requiring the seller to accept the breaching buyers offer. If the seller
had done so the damages would have been $12-$11=$1. –Under Art 76 applied, then it would have
been $12-$10=$2. –It was held that damages were assessed on the basis of Art 76
-Could be argued that the mitigation rule should set the ceiling. Art 75 and 76 are set in a certain
order, art 75 should be used first and only if 75 does not apply then 76 should apply (concrete
approach). If it sets the ceiling then the seller should not have recovered more than $1 per box.

Commercial Law Lecture 1 Introduction To Sale of Goods

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Commercial Law Lecture 1 Introduction To Sale of Goods

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|2509867

Commercial Law Lecture 1 - Introduction To Sale Of Goods

Commercial Law (King's College London)

StuDocu is not sponsored or endorsed by any college or university

Commercial Law Lecture 1 – Term 2

English Sale of Goods: The Foundations

◦ Usages and customs

What is a contract for the sale of goods?

Sale v Agreement to sell:

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Sale contracts for work:

Distinguishing goods and services -

-Cammel laird case

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

-Tangibility and moveability are the key characteristics of goods

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

◦ ‘Where by a contract of sale the seller purports to effect a present sale of

 Specific and unascertained

◦ ‘“specific goods”: goods identified and agreed on at the time a contract of

-Significance of the distinction:

Ss 6 & 7 SGA – only apply in the case of specific goods

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Three ways of fixing price:

Watford v Miles [1992] – Agreements to negotiate are unenforceable

Cases with more liberal approach:

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

 Tension in case law (against which s. 8 operates)?

 Intentions of parties is crucial(!)

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Duty of Seller and Buyer:

Attornment - Sterns Ltd v Vickers [1923] 1 KB 78 (CA):

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Delivery to a wrong place: Is it a breach of a condition, warranty or an innominate term?

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Delivery of the wrong quantity

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

 Even if the contract is for delivery by instalments, it may be an entire/indivisible contract, if

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Payment and Acceptance

S. 28: no need to pay until delivery is made.

 Seller to paid be in cash – unless, CPs have agreed otherwise

 Payment by cheque is only a conditional discharge of the payment obligation – total

 Is time of payment a condition? NO:

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

◦ The impact of s. 10 is restricted by s. 48(3):

 If failure to take delivery is accompanied by words/conduct, evincing an intention not to

Downloaded by Lady Diana Minto (ddandan612@gmail.com)

Commercial Law Lecture 3 – Term 2 – Implied Terms

-Implied terms in fact and implied terms in law

 However, SGA implies a number of terms imposing obligations on S:

◦ S’s right to sell goods (s 12(1)) (Condition)

◦ Goods to be free from charges/encumbrances (s 12(2)(a)) (W)

◦ B to enjoy quiet possession of the goods (s 12(2)(b)) (W)

◦ Goods to correspond w/ description (s 13) (C)

◦ Goods to be of ‘satisfactory quality’ (s 14(2)) (C)

◦ Goods to be fit for purpose (s 14(3)) (C)

Goods to correspond with a sample (s 15) (C)

Right to sell - Condition

 See, similarly, Butterworth v Kinsway Motors [1954] 1 WLR 1286

-Criticism of Rowland and Butterworth: