English Commercial Law and Sale of Goods

A business when started by an individual or a group of people doing the business from the United Kingdom, the commercial law regulates its sales and purchases. It mainly deals with the commercial transactions. The commercial law is also known as ‘Lex Mercatoria [1] ’. During the nineteenth century the commercial law was further developed in all aspects and at the end of this century it was “illuminated by the statutory draftmanship of sir Mackenzie Chalmers, bills of exchange act 1882 and sales of goods act 1893 were adopted [2] “. There is no particular and clear definition for commercial law till today. Many scholars and lawyers tried to explain about the commercial law among which the leading commercial lawyer Roy Goode described commercial law as “that branch of law which is concerned with rights and duties arising from the supply of goods and services in the way of trade [3] ”

The sale of goods dominates the commercial law, and the important issue in this context is the contract between the seller and the buyer. It is the duty of the law to not only protect the interest of the sellers, as there are many other considerable issues like delivery, third party rights, same business competitions, liabilities etc., which goes well with the commercial law rather than sale of goods. Example: A person may either claim for any damages, injury, delay in delivery etc., either by the referring the statute [4] or by the common law i.e., file a suite for negligence.

CONTRACT IN COMMERCIAL LAW:

An agreement made between two or more parties, which is legally enforceable, to do or not to do something is called a contract. Offer and acceptance are the main elements for considerable contract. The contract between the parties may or may not be legally enforceable and can be in the written format or orally explained which includes expressed and implied terms. Depending on the terms, type and conditions a contract may be valid or void.

Expressed and implied terms [5] :

While making a contract it is not necessary that the parties cannot negotiate each individual term, so there are some terms which are not ‘included’ in the contract by the parties but are important as it makes no commercial sense without those terms to the contract. These terms are called implied terms. They are of two kinds:

Implied by the law and

Implied by the circumstances.

The important implied terms under sale of goods act 1979 [6] are:

Section 12: The seller should have the legal right to sell the goods.

Section 13: the goods if sold by the description, then they should match the actual description.

Section 14: the goods should be of the reasonable quality that can be accepted by any reasonable person.

Section 15: if the goods are sold by sample then the bulk ordered goods should be the same as the sample goods.

The terms of the contract which are specifically agreed between the parties are called expressed terms. It may be in the written format or verbally conveyed.

SALE OF GOODS [7] :

The sale of goods act 1893 is the first act implemented on contract of sales before the sale of goods act 1979 came into existence. This act mostly concentrated on the common law which mainly delt with trading of sale of goods, rather than dealing with the damages/compensation and entirely omitted the contract law. Almost at the end of the twentieth century it was realised that these principles does not protect and serve the necessities of the consumers. So, inorder to protect the consumers, the sale of goods act 1979 was implemented, which stated that it is for the buyer to take care of the goods not to suffer from any damages and it is the duty of the seller to make sure that the goods does not have any damages, if there are any also the seller should intimate such damages to the buyer.

According to the 1893 Act the goods should of the ‘merchantable quality’, i.e., the quality of the goods should be of their value in trade, which was later replaced by goods of ‘satisfactory quality [8] ’.

So, this sale of goods act 1979 applies to the sale of goods made on or after 1st January 1894 [9] .

CONTRACT OF SALE [10] :

(1)”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.

(2)There may be a contract of sale between one part owner and another.

(3)A contract of sale may be absolute or conditional.

(4)Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale.

(5)Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell.

(6)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”.

There is always a difference between a “Sale” and “an agreement to sell” defined in the sale of goods act 1979 [11] :

2(4) “Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale.

2(5) Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled the contract is called an agreement to sell.

2(6) 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”.

TITLE OR OWNERSHIP OF GOODS [12] :

The title or the ownership to the goods passes from the seller to the buyer in several ways, terms and conditions agreed upon by the parties to the contract of sale. Section 12(1) state’s in general that the seller should have the right to sell. Like, if there is no agreement between the parties the title of the goods passes to the buyer:

When the delivery of goods is completed by the time and place of the seller.

Sometimes during or at the time and place of shipment only.

Upon delivery of goods to the specific destination, if agreed.

At the time of the legal title being delivered.

The title can be passed to the ascertained goods only. There exists no contract to pass a title to the goods which are not identified before entering into the contract.

RISK [13] :

The Sale of Goods Act under chapter three had set out some important rules when the property passes from the buyer to the seller and its risk factors to protect the buyer as well as the seller. When an accidental loss or damage is done to the goods the risk should be taken by the owner of the goods, is the general principle, but in SGA the risk is not always taken by the owner in certain specific circumstances.

According to section 20(1) of SGA, unless and until the property is transferred to the buyer, the seller is responsible for the safety and risk of the goods. The goods are at the buyers risk when the property is transferred, whether the goods are delivered or not.

In general “the risk passes with the property.”

There are certain exceptions to passing of the risk if there is an agreement or an understanding between the parties at the time of the contract.

PAYMENT AND DELIVERY [14] :

The seller must be willing to deliver (transfer possession) the goods to the buyer, and the buyer should be ready to pay the amount for the possession of the goods.

Delivery in general means transfer of goods to the buyer from the seller. “According to section 61(1) “delivery” means voluntary transfer of possession from one person to another [15] .”

Sections from 27 to 37 of part IV of the SGA explains about the duties of the seller and buyer, payment, delivery, wrong quantity delivery, rejection of goods, acceptance, risk for long distance delivery etc., among which section 29 is important as it has rules about delivery like:

The possession of goods depends on the contract, may it be in implied or expressed terms between the parties.

The sellers place is the place of delivery if not specified.

The seller should send the goods in the reasonable time if the time is not fixed by the parties.

The goods being in a deliverable condition should be taken necessary care by the seller unless agreed.

The seller if send the quantity of the goods more or less than agreed the buyer can reject the goods or keep them and send back the excess goods.

ADVANTAGES AND DISADVANTAGES TO THE BUYERS AND SELLERS:

The buyers have more protection when purchasing a product, whether in store or online or by any other means, it means that the buyer is entering into a contract with the seller. If any damage or any fault occurs with the goods it is the seller’s liability depending on place and time of purchase.

There are four main protections provided under the sale of goods act 1979, which are an advantage to the buyers. They are [16] :

Section 12-the seller must have the right to sell the goods.

Section 13- the goods sold should match the description made/given.

Section 14- the goods must be of satisfactory quality.

Section 15- if the goods are sold by sample, they should match the sample quality.

Section 14 applies only to the contracts where goods are sold at the time of the business. The following are the advantages and disadvantages to the buyers and sellers in sale of goods act.

When the buyer pays the amount prior to the shipment of the goods:

The seller has an advantage to use the funds immediately, where as the buyer has a disadvantage because it involves lot of risk and is expensive as he has to pay the capital prior to receipt of G/S and there is no guarantee/assurance that he will get what was expected.

The buyer has an advantage while entering into a contract because according to the law the goods must be of the satisfactory quality, match the description and should be fit for the purpose.

When the goods are manufactured and delivered prior to the payment:

This is an advantage to the buyer as he can inspect the goods and then pay the amount after receiving the goods.

The seller has to release the title to the goods prior to the payment and spends his amount until payment is received from the buyer, which is a disadvantage.

Insolvency:

During the buyers insolvency the seller can, under 61(4) [17] of sale of goods act can exercise a lien or right of retaining the goods against non-payment. When the buyer becomes insolvent, the contract becomes terminated and will lead to anticipatory breach, where the seller can sue for the amount or can take back the goods. In this process he may get the full capitol or the pending amount or may not get anything back. This usually happens for the ‘unpaid seller’, which a disadvantage to the seller though there are remedies.

Possession of goods:

If the buyer must acquire a lawful possession of the goods according to section 43(1)(b) [18] . If he wrongfully or forcefully takes possession of the goods and sells it to another person the seller has the right to lien though the goods are sub-sold under section 47(1) [19] .

Partly delivered goods:

When the seller delivers only some quantity of the goods without receiving any payment he can claim for the delivered amount under section 42 of sale of goods act.

Constructive possession of the buyer:

At constructive possession the buyer may at any time remove the goods from the port of discharge which is an advantage to him as he defeats the seller’s right to stoppage.

Place and time of delivery:

According to section 29(2) of sale of goods act the seller should send the goods to the buyers place if not specified by the buyer at the time of the contract and “the seller is bound to send the goods in reasonable time”. If failed to deliver goods on time the buyer can claim for damages or can reject the goods which is a disadvantage for the seller.

The buyer if required should give the necessary details and information to the seller beforehand about where and when to deliver the goods. If he fails to do so the seller is relived from the liability.

Right quantity [20] :

The seller should supply the goods in the right quantity; he cannot give excuses for short delivery stating that he will deliver the remaining goods in due course.

According to section 31(1) of sale of goods act the buyer can reject the goods if delivered in instalments unless agreed. This is an advantage to the buyer as he can reject or claim for damages.

Negligence:

If there occurs any damage to the goods because of the negligence of the seller the buyer can sue the seller for damages or can return the goods or ask for a replacement.

Third party proceedings:

The doctrine of privity of contract applies to the third party proceedings. It states that no other person can sue on behalf of the person who incurs losses or damages i.e., neither the relatives, friends, family, employers etc., of the buyers cannot sue the seller for damages and vice-versa.

Unascertained goods:

Inorder to pass the title of the buyer the goods must be ascertained. According to section 16 and 17 of sale of goods act the title cannot be passed for unascertained goods unless when intended to pass where the goods are ascertained depending on the contract, conduct and circumstances of the parties.

Damages in transit/non-delivery of goods:

The seller cannot completely exclude himself from the liability of delivering damaged goods or not delivering the goods. Because section 32(1) of sale of goods act states that the seller is required to send the goods to the buyer. There can be a claim against the carrier if the goods are damaged in transit before delivering to the buyer or before passing the risk to the buyer.

Payment:

At the time of the contract if agreed about the time and type of payment the buyer should make the payment accordingly. Otherwise the payment can be made before or after or at the time of the delivery of goods. If the buyer fails to pay the amount the seller can sue or can add an interest on the due amount.

CISG [21] :

The UNCITRAL inorder to depreciate the gap between the different legal systems of the world, it prepared a document called CISG i.e., the United Nations convention on contracts for the international sale of goods at Rome. The CISG which came into force on 1st Jan 1988 mainly deals with the rights, duties and obligations of the buyers and sellers and also forms the contract of sale. It applies to the contract for sale of goods if the parties are doing the business from different countries and have different contracting rules. It may also apply depending upon the choice of the parties [22] . There are 76 member states in the CISG as of 1st September 2010.

The CISG convention is divided into four parts:

First part:

It deals with the general provisions of the convention and its scope.

Part two:

It deals with rules for forming the contract for international sale of goods.

Part three:

It deals with the buyers and sellers obligations and substantive rights.

Part four:

It is the final clause and deals with the permitted reservations and declarations, and the similar laws on the subject including when it came into force or being.

Article 1 [23] of CISG is the main article which explains about when CISG is applied. According to article 1(1)(a) the CISG applies when the parties doing business are from different contracting states and are members of CISG.

Article 1(1)(b) states that CISG does not bind on all contracting states. When parties entering into a contract to do a business, among which one party is a member of CISG (France) and the other is not (Indonesia), still CISG applies to their contract if agreed by both the parties.

ADVANTAGES AND DISADVANTAGES:

OPTING OUT [24] :

The parties entering into the contract should decide whether they should follow CISG or not. If they want to follow it they should include that in the contract, otherwise they may face problems at the time of dispute resolutions.

If the parties do not want to follow the CISG, they should be careful enough and check that they are not bound by its articles.

If any two or more parties entering into the contract are from the member states of the CISG they are automatically bound by its articles.

Article 6 [25] of CISG states that the parties can “opt out” of this convention i.e., CISG will not apply.

So it is an advantage for both the sellers and buyers as they can opt for CISG or may exclude it completely or partly.

TIME FOR ACCEPTING THE OFFER:

In CISG, according to Article 20(1) [26] , acceptance of the offer is very important. So, the acceptance time is fixed by the offeror in a letter or in a telegram or the date on the envelope to the offeree. Incase if the offer is made through telephone or fax or any other instant communications the time for the offeree to respond to the offer starts from the moment it reached him.

This is a disadvantage sometimes because the time given by the offeror may be ended or half the time may get wasted during the delivery process of the telegram or the letter to reach the offeree.

FRAUD [27] :

For the parties to enter into the contract under CISG, they don’t have to write the agreement compulsorily, which is a disadvantage to both the parties as the parties may cheat each other or fraud can take place.

OFFER:

According to Article 16(2)(a) [28] of CISG “an offer cannot be revoked if it indicates, whether by stating a fixed time for acceptance or otherwise that it is irrevocable”. So, once the offeror makes an offer and mentions the expiry date and time of the offer it cannot be withdrawn in between or cannot be revoked later which is a disadvantage to the seller.

LIABILITY:

Article 5 [29] of the CISG is an advantage to the seller as it states that the seller is not liable for the death or personal injury caused to any person by the goods.

NO PAROL EVIDENCE [30] :

The contracts made in CISG need not be in the written format which is a drawback for not only the sellers and buyers, but also for the courts. When a dispute arises the court has to look at the intention, language and understandings of the parties. Sometimes, the intentions of the parties may even trump the document signed by the parties. So, Article 8(2) of CISG interpreted that “statements made by other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.”

If the party is aware of the intention Article 8(1) applies, otherwise Article 8(2) applies.

DELIVERY [31] :

The seller must deliver the goods within the reasonable time if no time, place or date is mentioned according to article 31, 33 of the CISG.

If the goods are delivered before the date or if the quantity of the goods delivered is more or less, the buyer can refuse to take the delivery of the goods according to article 52 of CISG.

According to articles 41 and 42 of the CISG, when the goods are sold, it is the duty of the seller to deliver the goods which does not have any claims from any person or third party for infringement.

METHOD AND CURRENCY OF PAYMENT:

For international contracts the parties should discuss and decide about the currency and the method of payment. Otherwise it will become a problem to both the parties later.

RISK [32] :

When the seller performs his contract accordingly, the risk passes. Articles from 66 to 70 of the CISG deal with the risk and passing of risk from the seller to the buyer and from the buyer to the seller.

According to Articles 66 and 68, the risk passes to the buyer when the goods are delivered and he has to pay the price for the goods which are damaged also once risk is passed which is imposed by the Article 53 of the CISG. The Article 66 talks about the “passing” of the risk.

The buyer is not affected by the economic risk as the price is fixed at the time of the contract, which is an advantage.

An advantage to the buyer in CISG is that all kinds of risks like economic, legal and physical risk lies with the seller until the delivery of the goods.

If the seller acts negligently or omits his duties the risk stay or will return to the seller only which is an advantage to the buyer.

Article 70 is an advantage to the buyer as it gives remedies to the buyer if the seller commits any fundamental breach.

JURISDICTION [33] :

Articles 31 and 5(1)

UNIFORM COMMERCIAL CODE – SALE [34] :

The uniform commercial code is also known as UCC or the code. Inorder to harmonize the law of sales and commercial transactions between the 50 states in United States of America this uniform Act was published in 1952 [35] . In simple language it simplifies the law governing with the commercial transactions and helps make the law uniform between different jurisdictions.

The Uniform Commercial Code not only distinguishes between “sale” and “contract for sale” same as the sale of goods act 1979. It also distinguishes between a “present sale”, a “contract to sell goods at a future time”.

“’Contract for sale’ includes both a present sale of goods and a contract to sell goods at a future time. A ‘sale’ consists in the passing of title from the seller to the buyer for a price (Sect. 2-401). A ‘present sale’ means a sale which is accomplished by the making of the contract.”

The uniform commercial code deals with different articles covering different subjects. They are [36] :

Article 1- General provisions and definitions.

Article 2- Sales i.e., sale of goods.

Article 2A- Lease i.e., lease of goods.

Article 3- Negotiable instruments like drafts, promissory notes etc.

Article 4- Bank deposits like banking and check collection.

Article 4A- Funds transfers like transferring money between the banks.

Article 5- Letters of credit i.e., transactions involving letters of credit.

Article 6- Bulk transfers and bulk sale like auctions and liquidation of the assets.

Article 7- Warehouse receipts, bill of landing and other documents of title like bailment and storage of goods.

Article 8- Investment securities i.e., securities and financial assets.

Article 9- Secured transactions like security interests.

Most of the articles names are changed and revised accordingly.

ADVANTAGES AND DISADVANTAGES: