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2. Sale of Goods (UK): SGA 1979 - Goods vs Services

Updated on April 18, 2017

Contents

  1. Introduction
  2. (Case Law) Lee v Griffin [1861]
  3. (Case Law) Robinson v Graves [1935]
  4. Goods vs Services - 3 Competing Tests
  5. Definition of 'Goods' Under s61(1)
  6. Is Software 'Goods' Under the SGA 1979?
  7. (Case Law) St Albans DC v International Computers [1996]
  8. (Case Law) London Borough of Southwark v IBM [2011]

Introduction

  • UK law creates a very important distinction between the supply of goods and the provision of services.
  • A contract for the sale of goods will of course fall under the purview of the Sale of Goods Act 1979, whereas a contract for the provision of services will not.
  • This makes 'mixed' contracts - those involving both the delivery of goods and the provision of services - rather difficult to work with. The courts have always opted to treat them as one or the other.
  • This means applying the Sale of Goods Act or the statutes covering services contracts at any one time (rather than attempting to apply both).
  • Historically this distinction was always very important because there has always been a statute of fraud requirement that sale of goods contracts be made in writing, whereas contracts for the provision of services did not have to be.
  • That requirement no longer exists, but the distinction between goods and services is now important because of the SGA 1979.
  • Moreover, in the past, when it came to the delivery of the goods, a seller of good's liability was strict, but a provider of services only had to answer to a standard of reasonable care and skill only. These days we have the Supply of Goods and Services Act 1982 which holds that in a mixed contract, the delivery of goods part is held to a strict liability standard whereas the provision of services part is held to a standard of reasonable care and skill.
  • It may also be important to make the distinction because the property and risk in goods/services may pass at different times.
  • Moreover, the remedial consequences differ greatly depending on whether there is a sales contract or a contract for the provision of services.
  • For example, in a sales contract (goods contract), if the buyer has already made some payments in advance of receiving the goods, but failed to pay the full price and so never received any goods, the seller can bring the contract to an end (repudiation) and the buyer is able to claim back the part-payments he had made. Since there consideration failed (the buyer never received anything for his part payments) he is able to retrieve his payments.
  • If this were a contract for the provision of services (with a goods element), however, the buyer would not be able to claim back any advance payments he had already made because he would have received some consideration due to the services he received in the seller's making of the goods, even though the buyer didn't actually receive any goods to show for his money.

Lee v Griffin (1861) 1 B&S 272

Facts:

  • An old lady contracted with a dentist for him to construct a set of artificial teeth for her. This was not written down.
  • The old lady died before the teeth were finished.
  • The dentist sued the old lady's executor for the price of the teeth.
  • This was at a time where the writing requirement was still applicable for contracts of sale of goods, so the dentist needed the supply of the teeth to be considered as services in order for there to be a contract.

Held:

  • Since there was a tangible product at the end of the dentist's labour this was a contract of sale of goods and not services.
  • The contract was invalid because it was not made in writing as was required for the sale of goods, the dentist was unable to get any reward from the old lady's executor.
  • Interestingly, the judge held that even if the cost of labour exceeded the raw materials of the goods, there would be a contract for the sale of goods and not services.

  • Chattel = an item of property other than freehold land, including tangible goods (chattels personal) and leasehold interests (chattels real).

278:

'If the contract be such that, when carried out, it would result in the sale of a chattel, the party cannot sue for work and labour; but if the result of the contract is that 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...

if a sculptor were employed to execute a work of art, greatly as his skill and labour, supposing it to be of the highest description, might exceed the value of the marble on which he worked, the contract would, in my opinion, nevertheless be a contract for the sale of a chattel.'

Robinson v Graves [1935] 1 KB 579

Facts

  • A portrait was comissioned.
  • Before the painting was completed, the contract was cancelled by those who ordered it.
  • The artist sued for the price of the labour he had already poured into the painting.
  • This was at a time where a contract of goods needed to be in writing, whereas a contract of services did not.
  • The artist needed the contract to be one of services, since he had made an oral contract with the portrait's commissioners.

Held:

  • The substance of the contract test was used (overturning the test set out in Lee v Griffin - see above) and it was held that the substance of the contract was the artist's work.
  • The raw materials needed to create the painting were considered ancillary to the skill and labour that was being paid for the painting's creation.
  • This case is used as support for the relative value test where one looks to the monetary value of the service and compares it to the monetary value of the materials. If the value of the services is greater than the materials, then it is a goods contract.

587:

'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 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.'

Goods vs Services - Three Competing Tests

Michael Bridge in The Sale of Goods, 3rd Edition (OUP 2013) para. 2.48 sets out three different tests that have been used to determine whether a contract is one of the sale of goods or one of the sale of services.

  1. The transaction may be seen in substance or essence as either a sale of goods or a sale of services.
  2. A comparative value test asking which element - goods or services - is worth the most money.
  3. Asking if property in some goods has passed and whether these goods are not wholly incidental to the transaction.

There he also states that:

'In the current state of English law, it is impossible to say which test is predominant'.

  • However, the second and third tests Bridge sets out could arguably be important considerations of the broader first 'substance' test.
  • Though the law is far from decided on this matter, it seems that the majority of commentators seem to lean towards the Robinson v Graves substance test and it does not seem like like the courts have ever embarked on inquiring into the specific costs of each element of goods/services in the case law.


The Definition of 'Goods' in s61(1) SGA 1979

s61(1):

'"Goods" includes all personal chattels other than things in action and 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;'

  • The two basic points to take from this definition is that the definition of goods in the SGA is looking for:
  • Tangibility (possessing physical form) with things in action and money both being excluded, and also:
  • Movability, with things attached to or forming part of the land only considered goods if it is has been agreed that it will be severed (cut off) to make it movable.

Is Software 'Goods' Under the SGA 1979?

  • In the modern world we are starting to see complications arising from new technologies that the law must attempt to deal with.
  • Computer programs have recently been a hot topic of discussion.
  • At times they are located on something tangible and movable (CDs, external hard drives).
  • Other times, software is downloaded straight from the internet onto a device one already possesses, and it can be asked what 'goods' have been obtained without pointing to something tangible.

St Albans DC v International Computers [1996] 4 ALL ER 481 (CA)

Facts

  • A local authority bought software to help collect community charges.
  • The software turned out to be faulty, and the area's population was overestimated resulting in charges being set too low.
  • This resulted in financial loss for the local authority who sued the seller.
  • The question of whether the Sale of Goods Act 1979 arose.

Held:

  • Software per se is not goods and so the SGA implied terms could not be relied on here.
  • However, if the software is encoded on a CD (or presumably any other tangible object) then it becomes goods:

'...a computer disc onto which a program designed and intended to instruct or enable a computer to achieve particular functions has been encoded [is goods]'

  • On the facts there were no goods in this case because the software was not sold on any physical medium.
  • (The Seller was found to be in breach of an express term, however, and the court went even further to say that there would have been an implied term of reasonable fitness for the intended purpose were the express term not in existence. Do not confuse the term implied here with the SGA implied term which was not applied because there were no goods in this case.)

London Borough of Southwark v IBM UK LTD [2011] EWHC 549 (TCC)

Facts:

  • London Borough of Southwark purchased some software.
  • The rights to use this software was licensed by the seller.
  • They then claimed the software was unfit for its purpose.
  • Once again the question of whether the SGA implied terms could be applied arose.

Held:

  • This time the court found that the licensing provisions in the contract meant that no property was ever passed to the buyer, and so the SGA could not apply.
  • However, the court also said obiter:

'In principle, a license 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 can not be "goods" for the purposes of the [Sale of Goods] Act.' (Paragraph 97) (Emphasis added)

  • The court in paras 96-97 also agreed with St Albans that sotware on a CD will always be goods under SGA.

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