Terms of the contract under a sale of goods transaction

1. Terms of the Contract under
SOGA, 1979
Lyla Latif, PhD

2. What are these terms?
• Classification:
• Conditions
• Warranties
• Innominate Terms
• Expressly set out in the contract
‘This contract is subject to the following
conditions: THAT the vendor has the right to
sell the goods’
‘It is a condition of the contract that the
purchaser shall arrange for inspection of the
goods prior to purchase’
• Implied (sections 12-15)

3. Conditions
Fundamental preconditions on which the whole contract is based
Actions or steps that one or both parties
are to do to fulfill their side of the
contract
If a condition is breached by the seller,
the buyer has:
the right to reject the goods,
repudiate the contract,
and claim damages

4. Warranties
• Is a guarantee as to the quality of the goods and
services described in the contract (e.g., goods are
free of any charge or encumbrance, buyer will
enjoy quiet possession)
• Is a guarantee that the seller commits to repair or
replace the product in case of any fault in the
product
• If a warranty is breached by the seller:
• the buyer is NOT entitled to terminate the
contract but
• can only claim damages

5. Difference between conditions and warranties
• Difference between conditions and warranties lie in the remedies that are available
• Condition: reject the goods, terminate the contract and claim damages
• PROVISO 1: Buyer can waive the condition and treat the breach of a condition as a
breach of a warranty (no repudiation, only damages)
• PROVISO 2: Where a condition is breached, but the breach is so SLIGHT that it
would be UNREASONABLE to reject the goods, buyer can only claim damages
(ONLY AVAILABLE FOR BUYER WHO IS A TRADER AND NOT A CONSUMER)
• Warranty: only claim damages

6. Innominate Terms
These are terms in a contract that are not classified as conditions or
warranties
They are also known as ‘intermediate terms’ or ‘intermediate
stipulations’
When there is a breach of an innominate term, its consequences will
depend on the nature of the breach and the circumstances of the
case

7. Examples of Innominate Terms
The Mihalis Angelos
•This was a case on delay in performance, which delay was not significant.
Held: the delay was not a breach of a condition or a warranty. Because
the delay was insignificant – it was to be considered as a breach of an
innominate term. The buyer would be entitled to claim damages but not
terminate the contract.
1971
EN Tuzet
•The delay in this case was significant. Despite this, the significant delay was
held to be a breach of an innominate term but here the buyer was entitled
to terminate the contract and claim damages.
1995
The CMA CGM Libra
•Innominate terms are usually delays in performance and since these can
be serious, it goes to the root of the contract thereby allowing the
innocent party to terminate the contract even if the delay is not
significant and also claim damages.
2010

8. Innominate terms and SOGA, 1979
The terms implied by SOGA are expressly classified as
being either conditions and warranties
Innominate terms are excluded and are irrelevant – all
implied terms are to be deemed either as conditions or
warranties and NOT as innominate terms

9. Express v Implied Terms
Express
• Written into the contract
• Rules of interpretation apply
Implied
• Unwritten but are presumed to be agreed upon
• Intended to be part of the contract
• Are implied into the contract either by common law or by statute

10. Implied Terms under SOGA, 1979
• (1) seller has the right to sell the goods
• (2) (a) goods are free of any charge or encumbrance
• (2) (b) buyer will enjoy quiet possession of the goods
Sec 12:
Sec 13: goods will correspond with their description
• (2) goods will be of satisfactory quality
• (3) goods will be fit for purpose
Sec 14:
Sec 15: bulk will correspond with sample

11. Section 12
Right to Sell
Free from Charge or Encumbrance
Quiet Possession

12. Reflection 1
• Issue to do with infringement of a
patent – goes to the root of title
and the right to sell
• Encumbrance detected
• Impacts quiet possession
• To prevent such instances, SOGA
has set out some implied terms
under:
• Sec 12 (1): right to sell - Condition
• Sec 12 (2) (a): free from encumbrance
- Warranty
• Sec 12 (2) (b): quiet possession –
Warranty
* Sec 12 (5) (A): answer to why 12(1) is a condition and
the rest warranties

13. Section 12 (1)
– The Right to
Sell the Goods
Note:
• Right to sell here does not require
seller to be the owner or to have
good title to the goods being sold
• Right to sell here does not refer to
ownership – it is merely the right
to sell (even an agent has the right
to sell goods for his principal)
• If a contract: right to sell the goods
at the time of making the contract
• If an agreement: right to sell at the
time when the property is to pass

14. Right to Sell -
conditions
• Limited by operation of law
• Strict liability – knowledge on the part of
the seller as to whether he has or has no
right to sell does not matter
• Right must exist at the relevant time:
• Specific goods – at the time the contract is
made
• Unascertained goods – at the time the
property in the goods would be transferred to
the buyer under sec 18, rule 5

15. Remedies for breach of sec 12 (1)
• Breach of a condition – sec 15
(5)
• Buyer entitled to:
• Reject the goods
• Repudiate the contract
• Recover damages
• See: Rowland v Divall (1923):
• D purchased a stolen car. Sold it to
R. R painted it and sold it to X.
Police repossessed the car and
returned it to the owner. X
recovered purchase price from R. R
sued D and won at the Court of
Appeal:

16. Remedies for breach of sec 12 (1): chain of
transactions - Butterworth v Kingsway Motors Ltd
(1954)
B --> R (car on instalment and HP terms) --> K --> H --> Kingsway --> Butterworth
• R sold car to K without having paid all the instalments and had not exercised option
to purchase – no right to sell, so all sales from K to Butterworth in breach of sec 12
(1)
• Letter to Butterworth after a year from B to return the car
• Butterworth writes to Kingsway claiming purchase price
• A week later R finalizes instalment payment and exercises option to purchase
• Is Kingsway still liable to Butterworth?

17. Remedies for breach of sec 12 (1): chain of
transactions - Butterworth v Kingsway Motors Ltd
(1954)
B --> R (car on instalment and HP terms) --> K --> H --> Kingsway --> Butterworth
• Kingsway argument:
• This act vested valid title in all sellers.
• Butterworth therefore not entitled to purchase price – there was no failure of
consideration
• Court: ‘Relevant time’ – at the time Butterworth wrote to Kingsway, Kingsway
was in breach of sec 12(1) – R only obtained valid title a week after
Butterworths wrote to Kingsway

18. Section 12 (2)
(a) – Free from
charge or
encumbrance
Note:
• Goods must be free
(proprietary and possessory
interests) and should remain
free until property passes
(there should be no third-party
claim – sale of a car in
possession of the police or as
collateral with the bank)
• If buyer is aware of the charge
or encumbrance the term is no
longer implied and the buyer
cannot rely on it to claim
damages later

19. Section 12 (2)
(b) - Quiet
possession
Note:
• Protective clause – continues to
impose obligations on seller even
after passing of property to the
buyer – quiet possession to be
enjoyed throughout
• Rubicon Computer Systems Ltd v
United Paints Ltd (2000):
• R sold computer system to U, dispute
arose, U withheld payment and R
activated a time lock preventing U
from accessing the system. R sued U
for balance. U countersued R for price
paid and damages. Held: seller’s
interference, U did not get to enjoy
quiet possession.

20. Remedies for breach of sec 12 (2)
(a) and (b)
These terms are warranties, therefore buyer can only claim damages

21. Exclusion of sec 12 (1) and (2)
• Section 12 (3) excludes the three implied terms: (1) right to sell, (2.a) free from any charge or
encumbrance and (2.b) quiet possession from a contract of sale in instances where:
• the seller’s title to the goods is impaired or limited or
• the seller is unaware of the full extent of his title
• the seller can only transfer the title that he actually has
• Example: Chapman v Speller (1850)
• A sheriff seized goods from a debtor and sold them at an auction. Speller bought the goods and sold them to
Chapman
• True owner demanded return of goods from Chapman, Chapman sued Speller to return the purchase price
• Held: In a case like this – what was transferred was the assignment of the right. Speller acquired this right at
the auction and Chapman paid for the right Speller had acquired and not the goods. So Chapman’s claim
against Speller failed. Sheriff could not know that the debtor’s title was defective
• Without section 12 (3), Speller would be in breach of sec 12 (1), (2) (a) and (b) – to prevent
complexities where law enforcement is involved sec 12 (3) is brought in as a proviso to sec 12 (1)
and (2).

22. Section 13
Sale by Description

23. Reflection 2: Correspondence with
Description
• Do the goods correspond with
the description?
• What is the buyer’s remedy in
this instance?

24. Section 13 – Sale
by Description
Berger & Co Inc v Gill & Dufus SA (1984): Lord Diplock –
‘one must look to the contract as a whole to identify the
kind of goods that the seller was agreeing to sell and the
buyer to buy’ – since SOGA contains no definition of what
it means by a ‘sale by description’

25. Sale by Description: Conditions
1. There must be a sale by description of the goods (esp. when buyer is
purchasing goods which he has not seen)
2. The description must identify the goods
3. The buyer must rely upon the description given
4. Only those descriptive words that identify the goods will form part of the
sale by description (e.g., 32GB, lasting 8-10hours) – in other words, the
description must constitute a term of the contract, not a mere
representation or puff

26. 1. There must be
a sale by
description –
usually when
goods are bought
without the
buyer having
seen them but
sec 13 also
applies where
buyer has seen
the goods and
selected them

27. 2. The goods sold
were indeed
Norwegian herring
meal and so the
words that
identified the
goods
corresponded with
their description

28. 3. The use of
descriptive
words is not
enough – it is
necessary to
show that the
buyer relied on
those
descriptive
words

29. 4. Description must
constitute a term of
the contract.

30. Section 13
conditions
met, what
next?
• Goods sold be description, have been identified,
buyer has relied on the description, the description
is expressed as a term in the contract – NOW TO
WHAT EXTENT SHOULD THE GOODS ACTUALLY
CORRESPOND WITH THE DESCRIPTION?

32. Yard No 354 at Osaka –
not intended to be part
of the contract
description of the
vessel – these words
did not form part of
the contract
Flexible approach –
unascertained goods
Strict approach –
specific goods (Moore
and Arcos)

33. Remedies for
breach of sec 13

34. Section 14
Satisfactory Quality

35. Goods must be saleable in the market ->
merchantable quality (SOGA 1893)-> satisfactory
quality (SOGA 1979)
• Common law standard expressed in Gardiner v Gray: contract of goods must be ‘saleable
in the market’.
• First statutory expression of adopting the common law standard under SOGA 1979 as
‘merchantable quality’: whether quality of goods would be regarded as suitable
• Problem: M1 purchasing goods that are unsatisfactory for one purpose can often sell them to M2
for another purpose, thereby rendering them merchantable – see Henry Kendall & Sons v William
Lillico & Sons Ltd (1969) and contrast with Rogers v Parish Ltd (1987)
• Problem with MQ is that it concentrated too much on fitness for purpose. Freedom from minor
defects in appearance and finish were irrelevant - MQ needed to be replaced with a modern an
appropriate standard
• Satisfactory quality

36. Reflection 3 – satisfactory quality
• For SQ to apply, the sale must
be one in the course of
business
• No definition of ‘business’ in
SOGA – therefore scope is wide
and courts give it a liberal and
purposive interpretation (A
buying goods through his
company but for personal use
and enjoyment and not for
business purposes)

37. Section 14

38. Satisfactory Quality (cont’d): sec 14
Note:
• Particular purpose should be
communicated – Griffiths v Peter
Conway Ltd (1939): tweed coat
and dermatitis
• Reasonably fit for that purpose –
Bartlett v Sidney Marcus Ltd
(1965): second hand Jaguar,
minor defect in clutch, on repair
engine trouble noted
• Buyer’s reliance on seller’s skill
and judgement – if no such
reliance, sec 14(3) doesn’t apply
– Tehran v St Belton (1968):
mobile air compressors
unsuitable for re-sale under
Iranian law

39. Remedies for breach of sec 14
• Condition: sec 14(6)
• If minor defects: sec 14(2)(B)– and goods can be replaced – Buyer not
entitled to repudiate: Egan v Motor Services (Bath) Ltd

40. Section 15
Sale by
Sample

41. 1. Sample will (not MUST) correspond to
the bulk – buyer must exercise due
care and diligence: James v
Drummond
a. Visual exam may reveal no
differences, detailed exam will
reveal any significant, material
differences
b. What type of examination
should be used? Reasonable or
ordinary examination that the
sample corresponds to the bulk:
James v Drummond
2. Free from defects: if defect could have
been discovered by engaging in
reasonable examination of the sample,
sec 15.2.c does not apply (different
from sec 14.2C.c - free from minor
defects – only applies if examination
takes place). See Godley v Perry
(1960): catapult
3. Remedies?

42. Next Week: Rights, Duties and Remedies of
the Parties