Summary Guide for Chapter 11
Foundations of
Australian Law
Fourth Edition
Callie Harvey
ISBN: 978-0-7346-1191-8 (print)
ISBN: 978-0-7346-2057-6 (ePDF)
Foundations of Australian Law, Fourth Edition
Chapter 11 – Sale of goods
Answer guide to questions on the sale of goods

In your introduction identify the relevant legislation.
State/Territory Legislation
NSW
Sale of Goods Act 1923
VIC
Goods Act 1958
QLD
Sale of Goods Act 1896
SA
Sale of Goods Act 1895
WA
Sale of Goods Act 1895
TAS
Sale of Goods Act 1896
ACT
Sale of Goods Act 1954
NT
Sale of Goods Act 1972
Refer to the text book for particular sections of the Act to answer problems
in particular states and territories.
It is important when answering a question relating to the sale of goods
that you identify the types of goods that are the subject matter of the sale
contracts.


existing goods - owned and possessed by the seller at the time that the
contract was made;

future goods - manufactured or acquired by the seller after the
contract of sale has been made;

specific goods - goods agreed upon and identified at the time that the
contract of sale is made;

unascertained goods – goods that cannot be identified with any
certainty or agreed upon at the time the contract of sale was made.
If the problem addresses a contract of sale of goods it is important to
identify whether it includes an executed contract and an executory
contract.
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An executed contract:
-
exists when actual sale of goods occurs where the ownership of
the goods is transferred to the buyer at the time the contract is
made;
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gives the seller the right to sue the buyer for the price of the
goods;
-
gives the buyer the right to claim damages against the seller if he
or she does not transfer the goods, and for interference with the
goods in other words, if the seller wrongly disposes the goods;
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imposes that after the sale, the buyer bears the risk of loss to the
goods.
Executory contract:
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arises where an agreement to sell involving unascertained goods
is formed;
-
does not involve the transfer of the goods at the time the contract
is made but at some future time, or the transfer is dependent
upon a condition(s) in the contract;
-
may involve an agreement to sell which becomes a sale when the
goods are delivered or the condition(s) is fulfilled;
-
imposes that the risk in the goods remains with the seller because
ownership of the goods has not been transferred to the buyer;
-
where the buyer defaults, the seller can sue the buyer and vice
versa;
-
where buyer defaults the seller and the buyer can sue for
damages.
If the problem asks you to explain when ownership has passed from the
seller to the buyer you will need to apply a number of rules:
When a good is bought, ownership passes from the seller to the buyer and
if the goods are damaged before they have passed to the buyer, the loss
suffered is endured by the seller. The general rule is that the seller endures
damage or loss suffered to the goods before they are passed to the buyer
unless an agreement to the contrary has been made. The Sale of Goods
Acts have also provided the following rules as a guide for judges:

Rule 1 – Unconditional Contract for Specific Goods - where an
unconditional contract for the sale of specific goods exists at a
deliverable state, ownership passes to the buyer at the point that the
contract is made.

Rule 2 – Conditional Contracts for Specific Goods - where a condition
is included in the contract of sale for specific goods requiring the seller
to perform an act to bring the goods to a deliverable state, ownership
does not pass to the buyer until this condition is fulfilled and the
buyer receives notice of it.

Rule 3 – Contracts for specific goods that require pricing - where in a
contract of sale of specific goods the seller must perform an additional
act in order to determine the price of the goods, ownership does not
pass until this act has been performed and the buyer receives notice of
it.

Rule 4 – Contract for goods on approval - where the goods are
delivered ‘on approval’ or ‘on sale or return’’ ownership passes when:
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the buyer expressly or impliedly by conduct accepts the goods or
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the buyer retains the goods beyond the agreed ‘approval time’ or
beyond a period of time that is considered to be reasonable or
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the buyer performs an act, which adopt the transaction such as
lends the goods to a third party.
Rule 5(1) – Contract for unascertained or future goods by description
Pignataro v Gilroy [1919] 1 KB 459. Where unascertained goods are sold
by ‘by description’ such as through an advertisement, ownership of the
goods passes when:
-
the goods are said to be at a deliverable state or
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they are unconditionally appropriated (chosen) by one
contracting party with the express or implied assent of the other.

Rule 5(2) Delivery to the buyer or carrier without a right of disposal where the seller delivers ascertained goods to the buyer or an authorised
representative of the buyer, ownership passes at the time the delivery
takes place: Wardar’s Import and Export) Co. Ltd v Norwood & Sons Ltd [1968]
2 QB 663

If the problem asks you to explain the right of disposal of goods you may
need to examine:

Romalpa clause used where the sellers of goods included this clause in
the contract to indicate that the legal ownership of the goods remain
with the seller until such time as the buyer has made a full payment
for the goods.

The Sale of Goods Acts, imply that the seller is said to have reserved the
right of disposal where the goods are shipped by sea through the bill of
lading or where payment has been made through a negotiable
instrument.
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Where a problem raises the issue of risk of passing goods- the general rule
is where the goods are lost, damaged, deteriorated or destroyed the risk
passes with the property.

Where a problem raises the issue as to whether goo title can be passed by
a person who did not own the goods in the first place then the nemo dat
rules should be applied.
Nemo dat rules - A buyer receives the same rights to the goods as the ones
possessed by the seller. This is called the nemo dat rule the transferee
(buyer) cannot receive a better title than the transferor (seller) had.
However, it is important to note that there are some exceptions to the
nemo dat rule:
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Special powers of sale - pawnbrokers, sheriffs, innkeepers or bailiffs
by court order.

Market overt - where goods are bought in a public market that is
usually regulated by local council.
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Estoppel may be used in a situation where a person with legal title to
goods have been wrongfully sold by a third party to an innocent
buyer.
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Sale under a voidable title under common and statute law a seller who
possesses goods under a voidable title at the time of sale, he or she
may pass on good title to the buyer if the goods had been bought in
good faith and were not notified of the original sellers defect in the
title. Seller is in possession of goods but sells them to a third party:
Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd[1965]
112 CLR 192.

Buyer in possession where the buyer acquires possession of the goods
without title and then sells them to a third party.
A factor or mercantile agent is given possession of the goods or title
documents from the owner with the purpose for the consignment of sale.

If the problem addressed issues with the terms of the contract of sale it is
important to consider possible implied terms

Implied conditions as to title without title the seller cannot transfer
ownership to the buyer and thus total failure of consideration:
Rowland v Divall [1923] 2 KB 500.
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Implied conditions as to the sale of the goods by description - an
obligation on the seller and the manufacturer where the sale was
made in the course of business. The following criteria must be satisfied
where goods are sold with sample and description:

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most of the goods must correspond with the sample;
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the buyer must be given the opportunity to compare the sample
with the goods;
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the goods must not have any defect that would not be found
upon examination of the goods.
Implied condition as to fitness for purpose - the buyer must inform the
seller expressly or impliedly of the particular purpose for which the
goods are to be used and relies on the advice given by the seller then,
the goods must be ‘reasonably fit for the purpose’ for which they are
bought: Grant v Australian Knitting Mills.
Section 71(2) of the Trade Practices Act 1974 and state legislation places
obligations upon a seller or manufacturer who supplies the buyer
during the course of business that the goods are reasonably fit for any
purpose that the goods are to be used even where the goods are not to
be used for their common purpose.
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Implied conditions as to merchantable quality in other words that the
good is reasonable for the purpose described.
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Merchantable quality of goods bought by description – the
description matches the goods;
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Foundations of Australian Law, Fourth Edition
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Merchantable quality of goods bought by sample most of the
goods must correspond with the sample quality and satisfy the
following criteria:

the buyer must have a reasonable opportunity to judge the
sample against the goods delivered;
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the goods must not have any defect that is not possible to
detect upon examination of the sample.
If a contracting party breaches a condition (usually the defendant) the
plaintiff has the option to terminate the contract by not accepting the
goods being delivered and sue for damages.

Implied warranty quiet possession - the buyer is to enjoy a quiet and
undisturbed possession of the goods.
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Implied warranty goods are free from any charge or encumbrances
thus, the goods are free from any charge or encumbrance in other
words there is no third party unknown to the buyer that has a
financial interest in the goods.
If a contracting party (usually the defendant) breaches the warranty, the
plaintiff can only sue for damages but they do not have the right to
terminate the contract.
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Where the problem deals with the types of rights that an unpaid seller
where the goods have not passed to the buyer, consider the following:
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Right to lien;
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Right to withhold goods;
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Right to stop goods in transit;
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Right to re-sell the goods.
Where the problem deals with the types of rights that an unpaid seller
where the goods have passed to the buyer, consider the following:

The seller has a right to bring an action against the buyer for the price
of the goods.

If the unpaid seller chooses to sue for the price of the goods he or she
cannot claim loss of profit.

If the seller has already resold the goods they can claim damages for
the difference between the contract price and the actual price the
goods were sold.

The seller cannot sue the buyer for the full price of the goods because
he or she can no longer deliver the goods to the buyer as they are
already re-sold.
Where the problem deals with the types of rights that buyer has consider
the following:
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Damages for non-delivery of goods or breach of warranty of quality;
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Specific performance; and
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Recision.
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