AF3513 Business Law

Lecture 7 Sale of Goods

 A contract for sale of goods is governed by:
◦ General principles of contract law;
◦ The Sale of Goods Ordinance (Cap 26)
◦ Other Ordinances which have impact on sale of goods
contract: e.g. CECO, LARCO
 Scope of application of SOGO: “contract for the sale of
goods”
◦ Goods (s.2(1) SOGO)
 All kinds of personal property other than things in action and
money.
◦ Contract of sale (s.3(1) SOGO)
 Transfer of ownership in goods (hire contract?)
 The goods must be exchanged for money (barter?)

2
 Express terms vs implied terms
◦ How can a term be implied into a contract?
 By past course of dealing, trade usage, intention
of the parties, etc.
 By legislation: e.g. SOGO

 Conditions vs warranties
◦ What is the difference between these two?

3
 Right to sell (s.14)

 Correspondence with description (s.15)

 Merchantable quality (s.16(2))

 Fitness for purpose (s.16(3))

 Correspondence with sample quality (s.17)

4
 In every contract of sale, there is an implied condition
that the seller has a right to sell the goods. (s.14(1)(a))
◦ Selling a stolen item? Rowland v Divall [1923]
◦ A car sold by the hirer of the car?

5
 Where there is a contract for sale by description, there
is an implied condition that the goods shall correspond
with the description. (s.15(1))
 Sale by description applies to:
◦ Where the purchaser has not seen the goods, but is relying on
the description alone;
◦ Where the purchaser has seen the goods and the seller gives
some description on the goods;
◦ Where the goods are described on the packaging.

6
Description must be fully complied with
 Beale v. Taylor [1967]
◦ The seller advertised his car for sale as a Herald
Convertible, white, 1961’.
◦ The car was in fact made up by two separate car body parts
which had been welded together.
◦ Only one of the car body parts used to create the car was a
1961 model.
◦ Held: The words ‘Herald 1961’ were part of the description
and therefore the car did not correspond with the contract
description. The buyer could reject the car.
 Arcos Ltd v Ronaasen and Son [1933]
◦ The buyers contracted to buy timber for making barrels.
Most of the timber delivered were slightly thicker than the
ordered size, but still suitable for making barrels.
◦ Held: A condition was breached. The buyers were entitled
to reject the goods for breach of s.15.

7
 Sometimes, a description may not be part of
the contract, but only a representation.
◦ Harlington & Leinster Enterprises v. Christopher Hull
Fine Art Ltd. (1990)
 Two oil paintings were sold after being described as
painted by a certain artist.
 The seller made it clear he was not an expert in the style
of painting in question.
 It was later discovered they were forgeries.
 Held: the paintings were not sold by description. The
parties had not intended that the name of the artist
should become a term of the contract.

8
 Where the seller sells goods in the course of business,
there is an implied condition that the goods are of
merchantable quality (s.16(2))
◦ “In the course of business”
 The courts had required some degree of regularity to fall within the
meaning of “course of business”.
 This requirement has been discarded. “One off” sale in the course of
business is now sufficient.
 Stevenson v. Rogers (1999)
◦ “Merchantable quality”
 S.2(5) SOGO

9
 Reasonably fit for the purpose(s) for which goods of
that kind are commonly bought;
◦ Aswan Engineering Establishment Co. v. Lupdaine Ltd. [1987]
 Of such standard of appearance and finish as it is
reasonable to expect;
 Reasonably free from defects;
◦ Failure to comply with the non-functional aspects of quality may also
entitle the buyer to rely on s.16(2). Rogers v. Parish [1987]
 Reasonably safe;
 Reasonably durable.

1
0
 The plaintiff bought plastic pails in order to contain
waterproofing compound for shipment to Kuwait.
 The pails were stacked five or six high in shipping containers.
 On arrival in Kuwait, the containers were left standing on the
quayside in full sunshine.
 The temperature inside the containers became so high that
the pails collapsed.
 Held: The pails were merchantable. The pails have been
bought for the purpose of exporting the compound and were
suitable for that purpose notwithstanding their collapse
under extreme climatic conditions.

1
1
12
500 kg

13
14
15
 The contract in question was a sale of a new Range Rover
car at a price exceeding £14,000.
 The vehicle had a number of defects, including defects in
the bodyworks.
 Despite numerous attempts to make good the defects,
the defects remained after six months.
 Held: The vehicle was not merchantable. Mustill J.
commented that not only the driver’s purpose of driving
the car from one place to another is covered, but also
the appropriate degree of comfort, ease of handling,
reliability and appearance.

1
6
 The price paid by the buyer is a relevant factor in determining
merchantable quality.
◦ Goods sold at a discounted price?
◦ Luxury goods?
◦ Beecham & Co Pty Ltd v. Francis Howard & Co Pty Ltd [1921]
 The buyers bought spruce timer for making pianos.
 They selected the timer by themselves but later found it to be affected by
dry-rot, not observable on external examination.
 The sellers argued that the timber was of merchantable quality because it
was still saleable as timber for making boxes which was one of the uses to
which spruce timber was commonly put.
 But the buyer paid 80 shillings per 100 feet of timber while spruce timber
for box making was only worth 30.
 Held: the timber was not of merchantable quality because no
businessperson would have bought the timber, knowing its condition, at
80 shillings per 100 feet.

1
7
 Where the defects are specifically drawn to the buyer’s
attention before the contract is made. (s.16(2)(a))
 Where the buyer has examined the goods before the
contract is made as regards defects which that
examination ought to reveal. (s.16(2)(b))
◦ You bought a jacket and had checked it before you paid, what
if
 a big hole was found in the jacket when you wore it (patent
defect).
 you got skin rashes after you wore it (latent defect).
1
8
19
Latent defect~~~

20
 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 condition 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 seller's skill or
judgment. (s.16(3))

2
1
22
23
24
 It only applies to sale made in the course of business of
the seller
 It can be used when the buyer has a specific purpose for
the goods, provided that such a purpose is made known
to the seller expressly or impliedly.
◦ Griffiths v Peter Conway Ltd. [1939]
 It does not exclude the common purpose for which the
goods are bought (implied purpose).
◦ Grant v Australian Knitting Mill Ltd. [1936]
 It does not apply if the buyer has no reliance on the
seller’s skill or judgment.

2
5
 The buyer purchased a woollen coat and got a skin
disease from wearing it.
 The woman had unusually sensitive skin and the coat
would not have injured anyone with normal skin.
 Held: the buyer’s sensitive skin required a coat with a
special use and that, as the buyer had not made known
the required use to the seller the coat was held to be
fit for its purpose.

2
6
 Dr. Grant selected and bought a pair of long woollen
underpants in the defendant’s shop.
 The underpants had been badly manufactured in that a
chemical had not been rinsed out properly.
 The presence of this chemical caused Dr. Grant to suffer
dermatitis which hospitalised him for several months.
 Held: The terms as to merchantable quality and fitness
for purpose had both been breached.

2
7
 In the case of a contract for sale by sample there is an implied
condition that the bulk shall correspond with the sample in
quality. (s.17(2)(a))
 A contract of sale is a contract for sale by sample where there
is a term in the contract, express or implied, to that effect.
(s.17(1))
◦ Only being shown with a sample during negotiation is not sufficient.
Oracle Enterprises Ltd v The Gosho Co Ltd (1962)
 During negotiation the buyer was shown two samples for the
purpose of indicating the color and softness of the fabric.
 Held: merely showing a sample does not constitute a sale by
sample.
2
8
 The right to reject the goods (rescission of contract)
◦ Not available if the buyer is deemed to have accepted the
goods. (see next slide)
 Damages
 Specific performance

2
9
a. the buyer indicates to the seller that he has accepted the goods
(s.37(1)(a));
b. the goods have been delivered and the buyer treats the goods as
an owner would (s.37(1)(b));
For a. and b., the buyer would not be deemed to have accepted the
goods until he has a reasonable opportunity of examining them. In
relation to a buyer who deals as a consumer, the right to examine the
goods cannot be excluded by agreement, waiver or otherwise.
c. the buyer retains the goods for longer than is reasonable without
indicating to the seller that he has rejected them (s.37(4)).
Whether the buyer is given a reasonable opportunity of examining the
goods is a relevant factor.

3
0