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- Law & Legal Issues
1. Sale of Goods (UK): Basics
- Historical Background
- Statutory Interpretation
- Lex Mercatoria
- Freedom of Contract
- What is a Contract for the Sale of Goods?
- Significance of Sale vs Agreement to Sell
- (Case Law) Hughes v Pendragon 
- (Case Law) PST Energy vs OW Bunker 
- The sale of goods is an area of contract law, so if you’re already familiar with general contract law rules you will find this topic very easy.
- The main statutory source of law governing sale of goods transactions will always be the most recent Sale of Goods Act (currently 1979).
2. Historical Background
- The first statute on the sale of goods was adopted in 1893.
- It was changed significantly in 1979 to form the current version in force today.
- There have been a number of important amendments to the 1979 version, such as the replacement of the merchantable quality test with the satisfactory quality test - but it is, at its core, the same as the original 1979 version.
3. Statutory Interpretation
i) Fundamental Rules
- Before embarking on the Sale of Goods Act itself, it is worth remembering that in English law statutes are interpreted in accordance with the natural meaning of the words used.
- A quote from Bank of England v Vagliano Bros  AC 107, 144-145 puts it best:
‘...the proper course is in the first instance to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view…’ (Emphasis added).
- However, there are circumstances where knowledge of the previous state of the law is relied upon for interpretation, and the quote goes on to list two of them:
- Where it is uncertain what the significance or meaning of a provision actually is i.e. where it has ‘doubtful import’,
- Where certain words had acquired a technical definition under previous provisions.
- Although not mentioned in the quote, naturally, if the statute is completely silent on an issue we must look to prior case law to inform us where it can.
‘I am of course far from asserting that resort may never be had to the previous state of the law for the purposes of aiding in the construction of the provisions of the code. If, for example, a provision be of doubtful import, such resort would be perfectly legitimate. Or, again, if in a code words be found which have previously acquired a technical meaning, or been used in a sense other than their ordinary one, … the same interpretation might well be put upon them in the code.’ (Emphasis added).
- Keep this in mind when looking at the Sale of Goods Act 1979.
4. Lex Mercatoria - Sale of Goods Act 1979 s62(2) - One needs to know the law merchant to fully understand the law on the sale of goods.
‘The rules of the common law, including the law merchant… apply to contracts for the sale of goods ... 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, misinterpretation, duress or coercion, mistake, or other invalidating cause’. (Emphasis added).
- The law merchant or ‘lex mercatoria’ is the totality of unwritten usages and customs that business people regard as binding. s62(2) leaves no doubt that these laws are still applicable insofar as they do not contradict the Act.
5. Freedom of Contract
- The cardinal principle of the contract of sales is freedom of contract – the parties decide what rights, duties and risks they will each undertake under a contract.
This is encapsulated in s55(1) SGA 1979 which states that:
‘...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’. (Emphasis added)
6. What is a Contract for the Sale of Goods?
- s2(1) explains that 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.’ (Emphasis added)
- s61(1) emphasises that a contract of sale includes an immediate sale, but also an agreement to sell at a future date.
- Thus there is a distinction made here between the outright transfer of property in goods after payment and specifying a future date for transfer of property to occur.
- s2(6) explains that:
‘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.'
- To reiterate the most important point here, in a sale of goods property passes immediately whereas in an agreement to sell property does not pass until the agreed date is reached. The transfer of property is very relevant for many important matters (see below).
7. Significance of Sale vs Agreement to Sell: Remedies
i) Action for the Price of the Goods
- The only remedy for a breach of an agreement to sell is damages for breach of contract.
- For the breach of a contract of sale damages are also available but many other remedies are as well.
- For example, an action for the price of the goods is available for the breach of a contract of sale:
· s49(1) ‘Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods’. (Emphasis added)
- The clear wording of s49(1) seemingly leaves no room for maintaining an action for the price of the goods without property first passing to the buyer, but the very recent Supreme Court decision of PST Energy 7 Shipping LLC v OW Bunker Malta LTD  UKSC 23 casts doubt on this.
ii) Remedies in Tort
- If property has passed, the buyer becomes owner of the goods and so also has remedies in tort for wrongful interference with his goods (against the seller or a third party).
iii) Risk of Loss/Damage
- The Act makes it clear that the risk of loss or damage to the goods lies with the owner of the goods. Thus in an agreement to sell it is still the seller who bears this risk since property has not passed (he still owns the goods). Likewise, once property has passed, the buyer becomes the risk bearer.
8. Hughes v Pendragon Sabre Ltd T/A Porsche Centre Bolton  EWCA Civ 18
- There was an agreement for a car dealer to sell a particular car to a buyer, B.
- The agreement was silent about the price of the car and any potential delivery date.
- There was an assurance by the dealer that, if a manufacturer allocates one of these rare cars to his dealership, B would be the first buyer in the queue to buy it as he was the first one to pay a deposit.
- Such a car was allocated to the dealer, but he sold it to someone other than B.
- B claimed specific performance or alternatively damages for breach of contract.
Held at first instance:
'There was no vehicle. There was no price. There was no delivery date... I am entirely satisfied that the payment of the deposit was no more than an "agreement to agree" and is unenforceable.' (Emphasis added)
Held at Court of Appeal:
'Under the Sale of Goods Act 1979 there can be an agreement to sell what are called future goods, which include goods to be acquired by the seller after the making of the contract of sale and there can be a contract for the sale of goods the acquisition of which by the seller depends on a contingency which may or may not happen: ss. 5(1)-(2). That there was no vehicle at the time of any agreement to sell, and that Pendragon might not be allocated one, were not fatal, therefore, to the existence of a contract.'
- The Court of Appeal therefore overturned the judgement at first instance and awarded B damages for breach of contract.
- The provisions seem to relate so perfectly to the facts of Pendragon that one wonders how the lawyers, and judge, missed the application of them at first instance.
s5 SGA 1979:
'(1) The goods which form the subject of a contract of sale may... be manufactured or acquired by [S] after the making of the contract of sale, in this Act called future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends on a contingency which may or may not happen.
(3) 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.' (Emphasis added)
- It should be noted that the distinction between a sale and an agreement to sell is further refined under s5 with s5(2) clearly stating that an agreement to sell existing goods depending on a contingency is treated as a sale and not an agreement to sell.
- Meanwhile, s5(3) states that a sale of future goods is to be treated as an agreement to sell and not simply a sale like existing goods are treated in s5(2).
9. PST Energy Shipping LLC v OW Bunker Malta Ltd  EWCA Civ 1058
- OW Bunker Malta supplied gas oil ('bunkers') to the buyers, B.
- The contract between them stated that payment was to be made within 60 days after delivery. (This is known as a sale on credit because payment was not immediate).
- The contract included a retention of title clause stating that property in the oil does not pass to B until the price was paid in full.
- The contract did allow for B to consume the goods for the purpose of fuelling their vessels.
- B did consume the oil shortly after receiving it and never paid OW Bunkers.
- OW Bunkers became bankrupt and sued B for not paying by the 60 day period.
- The reason why B never paid OW Bunkers was because they knew that OW Bunkers went bankrupt and failed to pay its own suppliers (Rosneft) for that oil. Since Rosneft also had a retention of title clause in their contract with OW Bunkers and since they were also never paid, Rosneft also had a claim against B for the price of the goods.
- B worried that if they did pay OW Bunkers then Rosneft would sue them for the price of the oil as well and they would end up paying twice for the oil!.
- B argued that 1. The contract between them and OW Bunker was a sale of goods and so the Sale of Goods Act 1979 applied and 2. In order for OW Bunkers to successfully claim the price of the goods under s49(1) SGA property would have had to have already passed to B, but due to the retention of title clause this was not the case.
Held in the Supreme Court:
- This was not in fact a contract for the sale of goods and thus s49(1) did not apply.
- Annoyingly, the Supreme Court refrained from categorising this contract (other than referring to it as 'sui generis' - unique).
- The court simply stated that because the seller retained title to the goods while at the same time allowing the buyer to consume them without paying anything, it could not be a sale of goods.
'In its essential nature, it offered a feature quite different from a contract of sale of goods - the liberty to consume all or any part of the bunkers supplied without acquiring property in them or having paid for them. The obligation on the part of OWBM to be able to pass the property in respect of any bunkers not so consumed against payment of the price for all the bunkers cannot make the agreement as a whole a contract of sale.' (para.). (Emphasis added)
One Big Criticism:
- This ruling does not take into account the commercial consequences that flow from it.
- As it stands, parties like B in OW Bunkers risk paying two times (or even more!) for the same goods and this level of risk is inherently very unfair.