68 GSN412: Business Law 1


explain the meaning of the implied conditions as to title, description,


fitness for purpose, merchantable quality and sale by sample


explain the statutory initiatives to prevent exclusion of the sellers liability


distinguish between specific and ascertained goods


understand the rules as to when ownership passes and why these rules


are important


understand the principle features of the Vienna Sales Convention


concerning international sale of goods contracts


Required Reading


G&F [2005] chapters 19 & 206


Additional Reading


Latimer (23rd edn) Ch 7, pp437-475


Turner (24th edn) Ch 14 and 15


Cases


Allied Mills Ltd v Gwydir Valley Oil Seeds Pty Ltd (1978) 2 NSWLR 26


Ashington Piggeries Ltd v Christopher Hill Ltd (1972) AC 441


Associated Midland Corporation v Sandson Motors Pty Ltd (1983) 3 NSWLR 395


Beale v Taylor (1967) 3 ALLER 253


Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd (1934) AC 402


Carpet Call Pty Ltd v Chan (1987) ATPRP 46-025


Crago v Multiquip Pty Ltd (1998) ATPRP 41-620


David Jones Ltd v Willis (1934) 52 CLR 110


Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd


(1987) 163 CLR 236


Gibbett v Forwood Products Pty Ltd (2001) FCA 290


Grant v Australian Knitting Mills (1936) AC 85


Griffiths v Peter Conway Ltd (1939) 1 ALLER 685


Folkes v King (1923) 1 KB 282


Hammer & Barrow v Coca-Cola (1962) NZLR 723


Healy v Howlett & Sons (1917) 1 KB 337


Henry Kendall & Sons v William Lillico & Sons Ltd (1968) 2 ALLER 444


Leonard v Ielasi (1987) 46 SASR 495


McWilliams Wines Ltd v Liaweena (NSW) Pty Ltd (1988) ASCP 55-695


Niblett Ltd v Confectioners’ Materials Co Ltd (1921) 3 KB 387


Pacific Motor Auctions Pty Ltd v Motor Credits (Higher Finance) Ltd (1965) 112


CLR 192


Pignataro v Gilroy (1919) 1 KB 459


6 G & F [2003] Ch 18 & 19



 


Module 5: Sale of Goods and International Sale of Goods 69


Qantas Airways Ltd v Aravco Ltd (1996) 70 ALJR 590


Rasell v Garden City Vinyl and Carpet Centre Pty Ltd (1991) 2 QRDR 323


Reynolds v Turner (1989) ASCP 55-922


Robinson v Graves (1935) 1 KB 579


Rowland v Divall (1923) 2 KB 500


Shipton, Anderson v Weill Bros & Co (1912) 1 KB 574


Steike v Edwards (1935) 8 ALJ 368


Tarling v Baxter (1927) 6 B&C 360


Toby Construction Products Pty Ltd v Computer Bar Sales Pty Ltd (1983) 2


NSWRL 48


Varley v Whipp (1900) 1 QB 513


Wardar’s (Import and Export) Co Ltd v W Norwood & Sons Ltd (1968) 2 KB 663


Wren v Holt (1903) 1 KB 610


Wallis v Downard-Pickford (North Qld) Pty Ltd (1994) 179 CLR 388


Appendices


Appendix (xii] Fitzgerald, G. “The Risk Issue in Sale” (1996) 9 JCL 206


Appendix (xiii] Shum, C. “Chinese Contract Law” (1998) 13 JCL 214



 


70 GSN412: Business Law 1


5.1 Sale of Goods (Summary of G & F [2005],


Chs 19 & 20)


5.1.1 Introduction


Sale of Goods Legislation only applies to contracts involving the sale of goods.


There is only limited statutory protection (and not in Queensland) for a


consumer in a contract for the supply of services. Legislation governing the sale


of goods is virtually identical in all the States and is also governed by Part V of


the Trade Practices Act 1974 (Cth). [The legislation of the States and Territories


and Commonwealth dealing with the sale of goods is set out in G&F].


The Trade Practices Act 1974 (which is Commonwealth legislation) is designed


to operate concurrently with state laws. (In the event of any inconsistency,


Commonwealth law would prevail under s.109 of the Constitution).


5.1.2 Formation of a Contract


A contract for the sale of goods is defined in Sale of Goods Legislation as being


a contract where the seller transfers, or agrees to transfer, the property and


goods to the buyer for monetary consideration (the price). So there must be:


goods


a price; and


a transfer of property (transfer of ownership).


5.1.3 What are Goods?


Goods are defined to mean all physical and moveable things but not:


land and fixtures


choses in action or rights eg. debts, negotiable instruments, IOU’s, shares


or patents; or


services, such as work and labour done or repairs.


5.1.4 The Price Paid for the Goods


This is the money paid for the goods. If there is no money, then there cannot be


a sale of goods contract. The Sale of Goods legislation does not capture either


barter or exchange. Where a car is traded in, however, it is considered as


money as it is the value of the car which is being traded in and not just the car


itself.


If the parties have not agreed on a price at the time of the contract, the price


can be fixed by some other means eg. a third party valuation or by how the


parties have agreed in the past to fix a price. If a price cannot be fixed by this


method, then the buyer is held to have agreed to pay a reasonable price.



 


Module 5: Sale of Goods and International Sale of Goods 71


5.1.5 Transfer of Ownership


There must be a transfer of ownership and these rules are important because


under Australian law, the risk of loss of the goods goes with the person who


has ownership (or property) in the goods.


The passing of risk in the goods under a sale of goods contract could be viewed,


however, as either passing with the property (eg. Australia and other common


Law systems where if you own it – it’s your risk) or passing with possession (eg


USA and Germany where if you have it – it’s your risk). See Fitzgerald, The Risk


Issue in Sale [Appendix (xii)] for an account of the benefits of each system and


the increasing trend for risk to pass with possession (rather than ownership).


5.1.6 Trade Practices Act


This will be dealt with in Module 6 but the Trade Practices Act defines both


goods and services (which are not caught under the sale of goods legislation


except in Victoria). The Trade Practices Act also defines who is a consumer


(s.4B).


5.1.7 When is it a Contract for Sale of Goods?


This depends on the main purpose of the contract. If the main purpose is the


transfer of title (ownership) to goods, then it is a contract for the sale of goods.


If the main part of the agreement is to retain the skill and experience of one of


the parties (and the transfer of goods is an ancillary or secondary part of the


contract), then it will not be a contract under sale of goods legislation.


This can create problems because many contracts involve both a transfer of


goods and also, services in respect of those goods. For example, if you buy a


washing machine, it may also be delivered and installed. See Toby Construction


Products Pty Ltd v Computer Bar Sales Pty Ltd (1983) 2 NSWRL 48 where the


sale of a computer system was held to be a sale of goods even though the


system included software application and continuing supply, maintenance and


training. See also Robinson v Graves (1935) 1 KB 579 where a contract to paint


the defendant’s portrait was held to be a contract concerning the skills of the


artist and not a contract involving the sale of goods.


5.1.8 Sale or Agreement to Sell


A contract for the sale of goods includes two types of contract:


a sale of goods where ownership transfers from the seller to the buyer at


the time of the contract (it is an executed contract); and


an agreement to sell where property and the goods are to be transferred at


some later date, or where the contract has a condition that needs to be


fulfilled eg. payment of the price. An agreement to sell is an executory


contract and will only become effective when the time comes for the goods


to be transferred or the conditions are fulfilled. The agreement to sell then


becomes a sale.



 


72 GSN412: Business Law 1


To illustrate, if a person goes into a shop and buys goods then that is a sale


and ownership and risk pass immediately to the buyer. If, however, a person


orders goods to be brought in for them, that is an agreement to sell and


ownership and risk remain with the seller until the sale is concluded.


The difference between a sale and an agreement to sell is important as it affects


the rights of both the buyer and the seller.


5.1.9 Condition or Warranty


A condition is a term that is vital to the contract. It is so important that its nonperformance


can be considered as amounting to a substantial failure to honour


the contract enabling the injured party to set the contract aside and/or sue for


damages.


A warranty is a term of the contract that is of lesser importance to the main


purpose of the contract. If it is breached, then the injured party must still


perform their part of the contract but they have the right to sue for damages for


any loss which they suffer as a result of the breach of warranty.


It is not always easy to distinguish a condition and a warranty. It is determined


by an objective test looking at the contract as a whole and considering the


importance of the breach and whether the term breach was essential to the


contract. This can be looked at in either of two ways, whether the term was


serious enough to induce the plaintiff to enter into the contract or alternatively,


the affect that the breach has on the contract. If it is a serious breach, then the


term breach will be treated as a condition. If the term breach does not have a


serious effect on the contract, then it will be treated as a warranty.


The distinction between conditions and warranties is kept under sale of goods


legislation.


5.1.10 Where Property Has Passed


Generally, a buyer can treat a breach of condition as a breach of warranty and


sue for damages rather than ending the contract. This is the buyer’s choice.


However, under sale of goods legislation, if the buyer has accepted the goods


then the buyer must treat any breach of a condition as a breach of warranty.


This entitles the buyer to sue for damages only. [However, the Commonwealth


and some States do allow buyers a reasonable opportunity to rescind.]


5.1.11 Exclusion of Implied Conditions and Warranties


The implied conditions and warranties under sale of goods legislation can be


excluded. However, there are statutory modifications under the Trade Practices


Act and Fair Trading Legislation which prevents these terms being excluded.


The terms implied into every contract for the sale of goods are:


the right to sell the goods (that is, the right to title)


quiet possession (that is, once the buyer has the goods no third party will


be able to claim any ownership in them)


goods are free from encumbrances (that is, they have not been pledged to


a third party and a third party does not have the right to claim the goods


because of a debt or other liability of the seller)



 


Module 5: Sale of Goods and International Sale of Goods 73


where goods are sold by description then the goods will correspond with


that description


where goods are sold by sample, then all the goods must correspond with


that sample


the goods must be fit for their purpose


the goods must be of merchantable quality.


5.1.12 Sale by Description and Sample


Where goods are sold by description there are implied conditions that the goods


shall correspond with the description. This applies where the buyer has not


seen the goods and is relying on the seller’s description.


This also applies where the buyer has actually seen and examined the goods


but the goods have been bought as corresponding to a description.


If a sale is by sample as well as description, then all of the goods must


correspond with both the sample and the description.


There is a sale by description where the consumer selects goods on the basis of


the description of the goods or the consumer agrees to buy goods made to their


specification.


All sales of unascertained goods are sales by description as are many sales of


specific goods particularly where the buyer has not seen the goods.


The implied term is concerned with descriptions that relate to the identity of


the goods rather than their quality. This means that if the goods are not of the


expected quality but still conform to the contract description, then there is no


breach of the implied conditions.


If goods are sold by reference both to a sample as well as description, then the


goods must correspond with both of these implied conditions.


5.1.13 Fitness for a Particular Purpose


Where the buyer expressly or by implication makes known to the seller the


particular purpose for which the goods are required, and relies upon the


judgement and the skill of the seller, then the goods must be reasonably fit for


that purpose.


The following conditions need to be met:


the buyer must make known to the seller the particular purpose for which


the goods are required (where the goods have only one purpose, then the


description of the goods is enough to indicate their purpose);


if the goods are required for a special purpose, then that special purpose


must be made clear to the seller (if the consumer suffers from any


particular condition that the seller should be made aware of, then that


condition must be disclosed or the right to recovery is lost);


the buyer must show some reliance upon the judgement and skill of the


seller. This need only be a partial reliance but it must be clear to the


seller, either expressly or impliedly, at or before the contract is made, that


the buyer is relying on the sellers skill and judgement;



 


74 GSN412: Business Law 1


if the buyer has goods made to their own specifications, then the seller


will not be liable if the goods meet those specifications but are still not fit


for the buyer’s particular purpose. However, if the seller has some choice


as to how products are to be manufactured and the goods fail to meet the


purpose (because of what the seller has chosen to do), and then the seller


can be liable;


the goods must be of a description which the seller normally sells; and


the buyer must not specifically request the goods under their patent or


trade name (if the buyer did, then he would not be relying on the sellers


skill and judgement).


So for the implied condition of fitness for purpose to apply there must be:


the buyer making known either expressed or impliedly the particular


purpose for which the goods are required


the buyer relying upon the sellers skill and judgement (even if only


partially)


the goods being of a description which it is in the course of the sellers


business to supply


the buyer not ordering goods under their patent or trade name


5.1.14 Merchantable Quality


Where goods are bought by description, there is an implied condition that the


goods must be of merchantable quality unless the buyer has had the


opportunity to examine the goods. This implied condition applies only where


there is a sale by description from a seller who deals in goods of that


description. So the rules in relation to sale by description apply as well.


Providing the buyer has bought the goods as corresponding to a description,


then there will be a sale by description even where the goods have been seen


and examined.


See David Jones Ltd v Willis (1934) 52 CLR 110 where shoes had been bought


by description and there was a breach of the implied condition of merchantable


quality.


Merchantable quality means that the goods must be reasonable for the purpose


described. This applies even where the goods are sold under their trade or


patent name. As to what is reasonable, depends on the following factors:


the price you pay


the description applied to the goods


whether the purpose of the goods have been made known to the seller;


and


any other relevant circumstances


The nature and purpose of the goods determines how long they must remain of


merchantable quality. It must be for a reasonable time after sale taking into


account the above factors, especially the price.


If the goods are fit for several purposes and only unfit for one, then there is no


breach of merchantable quality. The goods would be of merchantable quality if


they are fit for any one of the purposes for which the goods can be used. See


Henry Kendall & Sons v William Lillico & Sons Ltd (1968) 2 All ER 444 where a


nut extract was suitable for cattle and older poultry but not for younger



 


Module 5: Sale of Goods and International Sale of Goods 75


poultry. As it had several purposes and was suitable for those, there was no


breach of an implied condition of merchantable quality merely because it was


not suitable for younger poultry.


However, if the goods sold under the contract can only be used for one purpose,


then there will be a breach of the implied condition of merchantable quality if


the goods cannot be used for that purpose. See Wren v Holt (1983) 1 KB 610


where beer containing arsenic was held not to be of merchantable quality


because there was only one purpose for beer namely, drinking it.


It is possible to breach both the implied conditions of fitness for purpose and


merchantable quality in the same transaction. See McWilliams Wines Ltd v


Liaweena (NSW) Pty Ltd (1988) ASCP 55-695 where faulty corks breached both


fitness for purpose in that McWilliams relied on the seller to deliver corks for


the purpose of sealing wine (so they were not fit for their purpose) and further,


the corks were not of merchantable quality as their only purpose was to seal


bottles of wine and prevent spoilage.


There are four conditions which must be satisfied in order to take action for a


breach of the implied condition of merchantable quality:


sale by description;


buying goods from a seller who deals in goods of that description;


the buyer not examining the goods so that the defects are not revealable


on reasonable examination; and


do the goods have one purpose or several purposes. (If the goods have


more than one purpose and are only unfit for one, then the goods are of


merchantable quality).


5.1.15 Sale by Sample


There are three implied conditions in contracts of sale by sample:


the bulk shall correspond with the sampling quality. [Minor differences


not affecting the quality of the goods, does not breach the condition];


the buyer shall have a reasonable opportunity of comparing the bulk of


the goods with the sample. [Once there has been a reasonable


opportunity, if the buyer has not rejected the goods, then the buyer is


deemed to have accepted them. This means that the buyer’s remedy, if the


goods do not correspond, is to sue for damages for breach of warranty];


and


the goods must be free from any defect which would not be revealable on


reasonable examination.


Not only must goods correspond with the sample, but they must still be of


merchantable quality. The three conditions are independent and the breach of


any one of them will enable the buyer to reject the goods and treat the contract


as ended. (See Drummond v Vaningen (1987) 12 AC 284 where the sale of cloth


corresponded to the sample in terms of quality. However, the cloth was


unsuitable in that clothing made from it, split at the seams on wearing. It was


held that the seller could reject the goods.



 


76 GSN412: Business Law 1


5.1.16 Exclusion of Seller’s Liability


Sale of goods legislation enables the buyer and seller to exclude the operation of


the implied conditions. Effectively, this means they are excluded by the seller


because it is the seller who drafts the standard term contract for the


transaction. This was based on the idea that under freedom of contract, the


seller and the buyer could each negotiate a freely entered into bargain.


However, there is an inequality of bargaining position in relation to consumer


transaction. The seller’s terms and conditions (often printed on the back of


invoices) mean that the buyer does not have any real opportunity of negotiating


a separate agreement. This has led to both the Commonwealth and the States


and Territories enacting legislation to protect consumers by prohibiting the


exclusion of the implied condition. There are differences between the


Commonwealth and State and Territory legislation and these are detailed in


Gibson and Fraser (2005) pp.389-391.


5.1.17 Sale of Goods: Transfer of Property


It is important to know the difference between property and goods and


possession of goods because:


risk in the goods (that is, who is to bear the loss if the goods are damaged


or destroyed) passes with the property in the goods; and


for the sale of goods legislation to apply, property or ownership of the


goods must pass to the buyer. (This means in the absence of any further


agreement between the parties, that the risk in the goods passes on the


transfer of ownership of those goods under sale of goods legislation).


It is a general rule that a seller can only sell what he has the right to sell (that


is, what he owns) but there are exceptions to this.


5.1.18 Property and Possession


Although people assume that someone in possession of the goods may own


them, this can be dangerous. There is a difference between owning property


(that is, the goods belongs to you) and being in possession of the property (that


is, you have control or custody of the goods).


It is important, therefore, to know when property passes under a sales contract


because:


risk of loss of damage rests with the owner (although the owner may have


the legal right to take action against the person who has damaged or lost


the goods);


if the ownership of property is passed to the buyer, then the buyer may no


longer be able to reject the goods for breach of a contract condition (but


will have the right to take action for a breach of warranty);


once property has passed to the buyer, then the buyer can on sell that


property even if he has not paid for the goods. (This applies when the


seller has transferred ownership before payment but the buyer still has


the obligation to make the payment);



 


Module 5: Sale of Goods and International Sale of Goods 77


if a seller or buyer goes bankrupt, it is necessary to establish if ownership


has passed in the goods to see who owns the goods for the purpose of


seeing whether the goods will form part of the bankruptcy administration;


whether ownership has passed will determine the right of a seller if he


longer wishes to deliver the goods or alternatively, the right of a buyer to


reject goods by refusing delivery; and


it affects who has the right to sue a carrier if the goods are lost or


damaged in transit.


5.1.19 When Does Property Pass


The general rule is that any damage or loss to the goods before property passes


to the buyer, is the responsibility of the seller. Once property and the goods are


transferred to the buyer, then the risk in those goods passes to the buyer.


The problem arises when delivery is to take place later and the goods are


damaged or lost before delivery. Under sale of goods legislation, this depends on


when ownership of the goods is meant to pass. If it is on the entering into the


contract (before delivery), then the ownership of the goods will pass to the


buyer at the time of the contract. If ownership is meant to pass on delivery,


then the risk in those goods will be borne by the buyer only on delivery.


The simplest way of avoiding this problem is to make sure that the


contract of sale specifies when ownership is to pass and further, who is to


bear the risk and who has the responsibility to arrange insurance for that


risk.


5.1.20 Passing of Ownership for Particular Type of Goods


The type of goods determines when property and risk pass. Goods are classified


into:


existing goods


future goods


specific goods


unascertained goods; and


ascertained goods.


What are Existing Goods?


These are goods owned or possessed by the seller at the time of the contract.


What are Future Goods?


These are goods to be manufactured or acquired by the seller after the making


of the contract.


What are Specific Goods?


These are goods identified and agreed upon at the time of the contract of sale.


[These can also be existing goods.]


What are Unascertained Goods?


These are goods which are described only. They are not identified when the


contract is made and so they may or may not be future goods. Because the


goods have not been ascertained, any contract is only an agreement to sell. It


cannot become a contract to sell until the goods are ascertained.



 


78 GSN412: Business Law 1


What are Ascertained Goods?


These are unascertained goods which have later become identified or agreed


upon by the parties.


5.1.21 General Rules Concerning the Passing of Property


For specific, existing and ascertained goods, property passes at the time agreed


to by the party. For unascertained goods and future goods, property passes


when the goods are ascertained (that is, identified).


5.1.22 The Difference Between Unascertained and


Ascertained Goods


No property in unascertained or future goods passes until the goods are


ascertained (identified). If the identification of goods requires them to be


weighed or tested, or measured or counted, or certified or inspected, then they


are treated as unascertained goods until the requirement is met. See Healy v


Howlett & Sons (1917) 1 KB 337 where part of a consignment of fish (20 boxes


out of 190 boxes) were to go to the buyer. Before the 20 boxes had been


identified, the consignment was spoiled. It was held that the 20 boxes for the


buyer had not been identified and so, the goods were unascertained goods.


Accordingly, ownership in the 20 boxes remained with the seller (because they


were part of the general consignment) and so property and risk remained with


the seller.


Goods are ascertained when they are identified as the goods agreed on after the


contract has been made. This is different from specific goods, which are goods


identified at the time the contract is made. Where there is a contract for the


sale of specific goods, the property and the goods is transferred to the buyer at


the time agreed to between the parties.


5.1.23 Rules for Determining the Passing of Property


Where there is an unconditional contract for specific goods which are in a


deliverable state, property passes at the time of making the contract.


Where there is a conditional contract for the specific goods to be put in a


deliverable state, then property passes when the goods are put in that


deliverable state by the seller.


When there is a contract for specific goods that requires something to be done


to determine the price, the property passes when the seller has completed that


action required to obtain the price for the goods.


Where there is a contract for goods on approval, then property passes once the


buyer gives that approval or alternatively, where their actions show that they


have impliedly approved the goods such as keeping them.


Where there is a contract for unascertained goods or future goods, then


property passes when the goods are ascertained and in a deliverable state and


unconditionally given over to the contract as agreed by the parties.


In the absence of any other conditions or agreement between the parties,


property passes when goods are delivered to the buyer or a carrier for delivery


to the buyer.



 


Module 5: Sale of Goods and International Sale of Goods 79


5.1.24 Intention as to When Property is to Pass


The parties are able to agree as to when property will pass. This can be shown


by:


the terms of the contract


the conduct of the parties; and


all the circumstances relating to the sale including trade usage.


If the intention of the parties is unclear, however, there are a number of rules


which are used.


5.1.25 Specific Goods


Rule 1: Unconditional contract for specific goods


The buyer will own the goods if:


there is an unconditional contract


the contract is for the sale of specific goods; and


the goods are in a deliverable state.


The time of delivery or payment does not matter. [See Tarling v Baxter (1827) 6


B&C 360 where the buyer bought a haystack and it remained on the seller’s


land until the buyer could remove it. The haystack was destroyed by fire and it


was held that property had passed at the time of the contract and not on


delivery. Accordingly, the buyer was responsible for the loss.]


What this means is that if there is an unconditional contract for the sale of


specific goods in a deliverable state, the buyer should take out insurance to


protect the goods against damage while they are in the seller’s possession.


Although it is possible to provide in the contract that the goods remain at the


seller’s risk until delivery, a seller is unlikely to agree to it.


Rule 2: Conditional contract for specific goods


If the seller is required to do something to put the goods into a deliverable


state, then property on the goods does not pass until that act is done and the


buyer is given notice that the act has been done.


Rule 3: Contract for specific goods that require pricing


If the seller has to do something to determine the price of the goods, then


property does not pass until that act is done. For instance, if a sale of dry bulk


goods such as wheat, requires them to be weighed in order to set the price,


then property does not pass until the seller has weighed the goods and


determined the price.


Rule 4: Contract for goods on approval


Property only passes to the buyer where the approval is given. This can be done


by:


the buyer giving their approval through words or conduct eg. using the


goods



 


80 GSN412: Business Law 1


when the buyer does an act showing that they are acting as the owner of


the goods eg. lending them to another; or


if the buyer keeps the goods beyond a reasonable time so that the


possession of the goods is deemed to be acceptance.


Rule 5(1): Contract of unascertained or future goods sold by


description


Where there is a contract for the sale of unascertained goods or future goods by


description, and goods of that description in a deliverable state are


unconditionally given over to the contract by agreement, then the property


passes to the buyer. [See Pignataro v Gilroy (1918) 1 KB 459 where the buyer


purchased 140 bags of rice from a large consignment in a warehouse. As soon


as the seller received the buyer’s cheque, he sent him a delivery order telling


him where the rice was located and could be collected. The buyer did not ask


for the rice until four weeks later when it was discovered it had been stolen. As


the buyer had taken too long to collect the rice, it was held that the goods had


been ascertained and delivered over to the buyer at the warehouse.]


What this means is that once the seller notifies the buyer that the goods have


been identified as part of the contract, then the goods will be deemed to have


passed to the buyer if the buyer does not object within a reasonable time.


Rule 5(2): Delivery to the buyer or carrier without a right of


disposal


If the seller delivers goods to the buyer or a carrier to deliver to the buyer, and


the seller does not reserve the right of disposal of the goods, then the delivery is


an unconditional appropriation of the goods to the contract. [See Wardar’s


(Import and Export) Co Ltd v W Norwood & Sons Ltd (1968) 2 KB 663 where the


buyer sent a carrier to pick up 600 cartons of kidneys from cold storage. When


the carrier arrived, the 600 cartons were stacked outside the warehouse ready


for loading by the carrier who gave a delivery note and started loading. The


loading took four hours and the cartons had spoiled in the meantime. The issue


was who would bear the loss, the seller or the buyer? This depended on when


the goods were ascertained as once they were ascertained, then risk passed to


the buyer. It was held that the goods were ascertained once the carrier handed


over the delivery order to load the cartons. Accordingly, as deterioration


occurred during the loading process, it was the buyer’s risk.


5.1.26 Reservation of Right and Disposal


In business, you may come across Romalpa clauses which reserve title or legal


ownership until the buyer has fully paid for the goods. This clause is used in


case the buyer goes into liquidation or insolvency so that the seller does not


lose the right to reclaim the goods if they have not been paid for.


Sale of goods legislation allows for reservation of title clauses because the


parties can agree when ownership is to pass. The parties agree that ownership


does not pass until final payment. However, this will not be effective where


goods are sold which are incorporated in a production process. A seller cannot


reserve the title to goods which are mixed with other goods. For instance, a


supplier of cloth might reserve title until the buyer fully pays for the rolls of


material. However, if the rolls of material are used to make suits or clothing,


then the goods have been mixed or transformed and so, the seller would not


have the right to claim back the suits or the clothing as the original goods.



 


Module 5: Sale of Goods and International Sale of Goods 81


Romalpa clauses are no longer as effective as they once were because the High


Court in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) HTA 25


has determined that they cannot be used to defeat the normal priorities which


apply in the case of corporate insolvency under the Corporations Law.


5.1.27 Passing of Risk


If there is a sale of specific goods and those goods have been destroyed before


or at the time the parties enter the agreement (and this is not known by the


seller), then the loss falls upon the seller and the contract is void. It is a


contract which could not be fulfilled. Similarly, if there is a sale of specific


goods and the goods are subsequently lost (without the fault of either party)


and this is before risk is passed to the buyer, then the contract is void and the


seller bears the risk.


In the case of unascertained goods, this is different as the seller has the


opportunity to find other goods which will satisfy the contract and which can


be subsequently identified and given over the contract.


Remember the general rule is (unless the parties have agreed otherwise) that if


goods are lost, damaged, destroyed or deteriorate then risk passes with the


property. What this means is that:


if the property is not passed, the goods are at the seller’s risk; but


once property is transferred, the goods are at the buyer’s risk, even if


delivery has not yet been made.


This is subject to two limitations:


where delivery has been delayed by the fault of one of the parties, then


the goods are at the risk of that defaulting party; and


where the goods are in the possession of the other party but at the risk of


the other, that is they are held by one party on behalf of the other, then


the party holding those goods must exercise reasonable care.


5.1.28 Transfer of Title by Non-owner


You will recall that a person cannot sell what they do not have. This means that


generally a buyer can get no more that what the seller is able to give. If the


seller has no right to sell the goods, then the buyer does not generally get good


title. This is the rule nemo dat quod non habet (one cannot give what one does


not possess).


If the buyer does not get good title, then the true owner can recover those


goods. For instance, if a thief steals my computer and sells it to a third party, I


can (if I can establish that it is my computer) recover it from the third party.


The third party cannot get good title to the computer because the thief never


had it.


This rule is subject to a number of exceptions where title can be given by


people who are not the true owners. The exceptions are set out in G&F (2005)


pp.404-407.



 


82 GSN412: Business Law 1


5.1.29 Performance of the Contract


To complete a contract for the sale of goods:


the seller must be ready to deliver or give possession of the goods; and


the buyer must be ready to accept and pay for them in accordance with


the terms of the contract.


What constitutes delivery? It can be an actual physical delivery of the goods or


giving something which shows that the buyer is entitled to get the goods such


as handing over a title certificate or bill of waiting.


5.1.30 Seller’s Duties in Respect of Delivery


In the absence of agreement between the parties, there are a number of duties


imposed on the seller in respect of delivery. These are:


any expenses for getting the goods into deliverable state rests with the


seller


the place of delivery is usually the sellers business unless the parties


know the goods are stored somewhere else in which case it is that other


place;


if at the time of sale, the goods are with a third party, then there will not


be effective delivery until the third party acknowledges that the goods are


held for the buyer;


if no time is fixed for delivery, then the goods must be delivered within a


reasonable time;


if a certain quantity of goods is required to be delivered, the seller must


deliver that quantity. [Note that a trifling shortfall will not give the buyer


the right to rescind];


a buyer must agree to accept delivery by instalments; and


if the seller arranges a carrier to deliver to the buyer, then the seller must


make a contract with the carrier that is in the buyer’s interest. If the


carrier is the agent of the seller, delivery occurs when the goods are


delivered to the buyer. If the carrier is the agent of the buyer, then the


goods are delivered to the buyer once delivered to the carriers.


5.1.31 Duties of the Buyer


The duty of the buyer is to accept and pay for the goods in accordance with the


terms of the contract. The buyer is not bound to return goods which they did


not accept but if the buyer accepts part of the goods, then they cannot refuse to


accept further deliveries which conform with the contract. If they do, then the


buyer is liable to the seller for any losses that result.


5.1.32 Remedies of the Parties for Breach of Contract


The seller’s remedies against the buyer are damages and to sue for the price.


An unpaid seller can also withhold the goods or stop them in transit.



 


Module 5: Sale of Goods and International Sale of Goods 83


The rights of an unpaid seller depend on whether property or possession of the


goods have passed to the buyer.


If the goods are yet to be delivered to the buyer that is, they are still being held


by the seller or they are still in the process of being delivered to the buyer (in


transit), then the seller can hold the goods (retain possession) until the goods


are paid for. Alternatively, the seller can stop the goods in transit and refuse to


deliver them to the buyer and either have them held for the seller at the place


where they are stopped or have them returned. The seller has the right to resell


the goods to recover the price.


If the buyer owns the goods and has possession, then the unpaid seller only


has rights against the buyer and will need to sue the buyer for the price.


If the buyer wrongfully refuses to accept the goods, the seller can sue the buyer


for damages.


5.1.33 Buyer’s Remedies


The buyer’s remedies depend on whether the goods have been delivered or not.


If the goods have not been delivered, then the buyer can sue for specific


performance that is, compel the seller to supply the goods. Alternatively, the


buyer can sue the seller for damages for nondelivery.


If the goods have been delivered and are defective, then if it is a breach of


condition, the buyer can rescind the contract. But the buyer will lose this right


where:


the buyer elects to treat the breach of condition as a breach of warranty,


or waives the breach;


where the sale is part of a wider contract and the contract of sale is not


severable from the other parts of the contract;


if the breach of condition is under s.75 of the Trade Practices Act 1974;


and


in Queensland, if the contract is for specific goods, where the property


has passed to the buyer already.


Where the buyer is entitled to rescind the contract and reject the goods due to a


breach of a condition, then the buyer may recover the full purchase price. The


buyer, however, may elect to treat the breach of condition as a breach of


warranty and can then reduce the price or claim damages.


The damages are the difference between the value of the goods at the time of


delivery and the value that the goods would have been had there not been a


breach of warranty.



 


84 GSN412: Business Law 1


5.2 The Vienna Sales Convention [Summary of


Turner 24th edn ch 15]


Sale of goods legislation is a good example of laws that will be applied when the


parties do not agree differently. This becomes more complicated in international


trade as it may not be clear which laws govern the contract of sale, if the


parties have not considered that issue. Also, it will be time consuming and


inefficient if the parties need to negotiate individual transactions for every


contract. To overcome these types of difficulties and to provide a model for


trade usage, the United Nations established the Vienna Convention on the


International Sale of Goods (Vienna Sales Convention). The convention applies


to contracts for the sale of goods between parties in those countries adopting


the convention unless the parties agree that it does not apply.


5.2.1 When does the Vienna Sales Convention Apply?


It applies between those countries signing the convention concerning a sale of


goods internationally. Major countries which have signed the convention


include the United States, China, Russia, Germany, France, Italy, Canada and


Australia. Major trading nations that have not signed the convention are the


UK, Japan, South Korea, India, Indonesia, the Philippines, Malaysia, Vietnam


and South Africa.


Although the convention does not apply if the parties exclude it from their


contract, it may not be sufficient merely to say that the convention is not


applicable. It is probably necessary (and therefore, essential to avoid


uncertainty) for the contract to expressly state not only that the convention


does not apply but also to specify what law does apply. Often in international


trading agreements, this will be the laws of England or the laws of the State of


New York as these are centres of international finance and trade. Alternatively,


the contract may specify that the law of a contracting party is to apply.


The convention applies to contracts for the sale of goods between individuals or


corporations whose places of business are in different signatory countries. It is


also possible for the convention to be applied by contractual agreements. For


instance, a contract between a business in Australia and a business in Japan


could contractually apply the convention even though Japan is not a signatory


country.


5.2.2 What is not covered by the Convention?


The convention does not regulate all matters relating to the international sales


contract. It does not apply to:


goods that are bought for personal, family or household use;


auction sales;


sales authorised by law;


sales of stocks, shares, investments securities, negotiable instruments or


money;



 


Module 5: Sale of Goods and International Sale of Goods 85


sales of ships, vessels etc or aircraft; and


sales of electricity.


You might wonder why the convention deals with electricity. Although Australia


does not supply electricity internationally, this does occur between landlocked


countries in Europe and North America particularly.


The convention does not apply to contracts for the supply of goods which are to


be manufactured or produced where the buyer undertakes to supply a


substantial part of the necessary material. Nor does the convention apply to


contracts where the main part of the contract is the supply of services or


labour. The convention is limited solely to the sale of goods and does not apply


to other areas which might impact on the sale of goods such as agency,


franchise or distributor agreements, product liability or tort claims.


5.2.3 Interpretation of the Convention


Because it is an international agreement, the convention is to be interpreted


taking into account its international character and its need to promote


uniformity in international trade. This means that court decisions in signatory


countries will be treated as persuasive authority in other countries.


More importantly, the convention also takes into account the requirement to


observe good faith in international trade.


Like a number of international conventions, the drafting is a result of


compromise to accommodate the needs of a variety of countries which are


signatories. For this reason, the convention states that if matters it deals with


are not expressly settled (that is, there may be some room for interpretation)


then regard is to be had to the general principles on which the convention is


based. These principles are the UNIDROIT Principles for International


Commercial Contracts. If this does not resolve the issue, then the matters are


to be settled under the law applicable to the contract which depends on what


the parties intended and where the contract is made.


5.2.4 Formation of the contract


The convention is different from common law and Australian contract law. For


instance, consideration is not a necessary element to form a contract under the


Convention. However, offer an acceptance and intention to be legally bound are


necessary elements.


5.2.5 Offer


Similar to Australian contract law, an offer must be sufficiently definite and


indicate an intention to be bound. This means that the price must be


determined or capable of being determined. A proposal not addressed to


specific persons is only an invitation to make offers (and is therefore not an


offer) unless the maker of the proposal clearly indicates that it is to be regarded


as an offer.


An offer is effective when it reaches the offeree and it can be withdrawn if the


withdrawal reaches the offeree before or at the same time as the offer. Even an


irrevocable offer can be withdrawn.



 


86 GSN412: Business Law 1


Until a contract is concluded, an offer may be revoked if the revocation reaches


the offeree before they have accepted. If the offeree has received an irrevocable


offer, then the offer cannot then be revoked. It needs to be rejected.


5.2.6 Acceptance


Acceptance can be made by the offeree indicating consent to an offer either by a


statement or by conduct. Silence or inactivity does not constitute acceptance


although this can depend on the prior dealings between the parties. If an


offeree has a duty to make a timely objection to an offer, it may be held that the


offeree has accepted the offer if it does not make that timely objection.


An acceptance is effective once it reaches the offeror and if no time is fixed for


acceptance, then it must be within a reasonable time. If there is a time limit for


acceptance, then it is not valid acceptance if the time limit is missed.


A purported acceptance which puts other terms or attempts to modify an offer


is a counter offer and constitutes rejection of the offer. This is the same as


Australian contract law. However, an acceptance which contains additional or


different terms which do not materially alter the terms of the offer, constitutes


an acceptance. This will be valid unless the offeror objects to the additional


terms without undue delay. If the offeror does not make any objection, then the


terms of the contract include those additions. It will be a material alteration if


the additional terms relate to price, payment, quality and quantity of the goods,


place and time of delivery or the means of settling disputes.


5.2.7 Use of other Evidence


Under Australian contract law, the parties are bound by the terms of the


contract. This is known as the “four corners” rule. That is, the parties can only


rely on what is within the terms of the contract. The convention, however,


allows an inquiry into what the parties intended and the statements and


conduct of a party can be given in evidence to show that intention. This means


that the terms of the negotiations (and what has happened in prior


negotiations) is likely to be admissible as evidence in determining what the


parties intended.


5.2.8 Form of the Contract


Contracts for the international sale of goods do not need to be in writing or


evidenced in writing under the convention. This is the same as Australian


contact law.


5.2.9 Modification or Termination of the Contract


The parties can agree to modify or terminate their agreements. Any


modification of a contract does not require further consideration.



 


Module 5: Sale of Goods and International Sale of Goods 87


5.2.10 Trade Usage


The parties are bound by any practices which they have established among


themselves. Also, the parties are bound by any international trade usage which


they know, or ought to have known, applies to their contracts. The parties are


however, able to exclude trade usage if they both agree.


5.2.11 Conformity of the Goods


The seller is required to deliver goods which are of the quantity, quality and


description required by the contract. If the contract requires particular


containers or packaging, then the seller must use these.


In the absence of contrary agreement, goods do not conform to a contract


unless they:


are fit for the purpose which goods of the same description would


ordinarily be used;


are fit for any particular purpose expressly or impliedly made known to


the seller at the time of the contract (except where the buyer did not rely


on, or if was unreasonable for the buyer to rely on, the seller’s skill and


judgment);


conform with sample; and


are packaged in the usual manner for such goods or if there is no usual


packaging, in a manner that will protect and preserve the goods.


Under the convention, the law relating to fitness for purpose is the law of the


seller’s jurisdiction unless the seller was informed of the buyer’s foreign


standards or alternatively, the parties agree otherwise.


If the goods are nonconforming:


the seller is not liable if the buyer knows, or ought to have known, the


goods were nonconforming at the time of the contract;


the seller is liable after risk has passed to the buyer if the nonconformity


is due to a breach of the seller’s obligations; and


the seller is liable for any nonconformity existing at the time when risk


passes to the buyer even though it may only become apparent later that


there was a nonconformity.


If the seller has delivered goods early and there is a nonconformity, the seller is


entitled to remedy that nonconformity up until the actual time that the goods


were to be delivered. The seller is, however, liable for any damages caused to


the buyer by delivering the goods in that nonconforming state even though the


goods were delivered earlier than expected.


If the goods are nonconforming, then the buyer may reduce the price to reflect


the difference in value.


5.2.12 Examination of the Goods


The onus is on the buyer to examine the goods for nonconformity within the


shortest period practicable in all the circumstances. The relevant factors in


determining this period are:



 


88 GSN412: Business Law 1


the size of the buyer’s company;


the type of goods to be examined;


their complexity or character; and


the efforts needed to examine them.


In assessing what is reasonable, if the buyer has found nonconformity in


previous shipments, then it is reasonable to expect that the buyer will take


greater care in inspecting later deliveries.


If the buyer does not notify the seller of any nonconformity within a reasonable


time, the buyer loses its rights to a remedy unless there is a reasonable excuse


for that non-notification. [There is a limitation period of two years on notifying


the seller unless the contract between the parties specifies a different time.]


In notifying the seller, the buyer must give sufficient particulars to describe the


nonconformity so that the seller is made aware of the defect. It is not necessary


for the buyer to notify the seller of the suspected cause of the nonconformity.


5.2.13 Performance of the Contract


The buyer must pay the price for the goods and must take the necessary steps


to make that payment. [See Downs Investment Pty Ltd v Perwaja Steel Stn Bhd


(2000) QSC 421 where the contract provided that the buyer would pay for the


goods by letter of credit. The buyer did not obtain the letter of credit and it was


held that the failure to obtain those letters of credit constituted a breach of the


Convention since the obligation to pay for the goods included taking necessary


steps to enable payment to be made.


If the contract does not fix the price or make provision for determining the


price, then the parties will be considered to have agreed to the price generally


charged for those goods under comparable circumstances in the particular


trade at the time the contract was made.


5.2.14 Delivery


The seller is obliged to deliver the goods and transfer property in the goods. It


would be usual for the place of delivery to be specified in the contract but if it is


not, the obligation to deliver is:


handing the goods to the first carrier for dispatch to the buyer (if carriage


is involved);


if there is no carriage, and the parties know the goods are at a particular


place, then when the goods are placed at the buyers disposal at that


place; or


in other cases, the goods are placed at the buyer’s disposal at the seller’s


place of business.


The goods must be delivered as agreed or alternatively, within a reasonable


time if no time has been agreed.



 


Module 5: Sale of Goods and International Sale of Goods 89


5.2.15 Passing of Risk


Loss or damage to the goods after the risk has passed to the buyer does not


discharge the buyer’s obligation to pay for the goods unless the loss or damage


is caused by the seller’s act or omission. The risk passes to the buyer when the


goods are handed to a carrier although if the buyer specifies a carrier, the risk


will only pass if the goods are delivered to that carrier. Where goods are sold in


transit, the risk passes to the buyer at the time the contract is made.


5.2.16 Preservation of the Goods


If the buyer delays taking delivery, then the seller must take reasonable steps


to preserve the goods but the seller is entitled to reclaim reasonable expenses


from the buyer.


Similarly, if the buyer has accepted the goods and intends to reject them, then


they must take reasonable steps to preserve them and is entitled to be


reimbursed for those reasonable expenses by the seller. The goods can be


stored at a third party warehouse providing it is not an unreasonable expense.


Where a party is preserving goods and the other party unreasonably delays in


reclaiming them, then the goods can be sold to reclaim the reasonable expenses


of preservation and the balance must be accounted for to the other party. If the


goods are:


perishable;


subject to unreasonable deterioration; and


are unreasonably expensive to preserve, then the party holding them can


sell them.


Any sale must be subject to prior notice to the other party.


5.2.17 Additional Time


Under the Convention, a buyer or seller is given a further period for performing


their contractual obligations after the contract has expired. Where a party gives


the other reasonable time to perform their obligations, they are entitled to claim


damages for the delay. Where a notice of additional time is given, the party is


stopped from exercising any contractual remedies for breach of contract until


that further period has expired.


5.2.18 Exemption from Performance


A party is not liable for matters beyond its reasonable control which have


prevented it from performing its obligations under the contract. The exemption


applies only for the period of the intervening circumstance. It is also subject to


reasonable notice being given to the other side about what has happened.



 


90 GSN412: Business Law 1


5.2.19 Anticipatory Breach


If a party becomes aware that the other party is not going to perform a


substantial part of its obligations arising from its inability to perform or its


creditworthiness, then the party can suspend performance immediately.


However, the party must give notice to the other that is suspending its


performance and will be required to reinstate its contractual performance if it


receives adequate assurances that the other party will perform its side of the


bargain.


5.2.20 Fundamental Breach


The convention defines fundamental breach as resulting in such detriment to


the other party as to substantially deprive that party of what they are entitled


to expect under the contract. This is providing that the effects of the breach


were foreseeable. The most common form of fundamental breach is nonpayment.


5.2.21 Buyer’s Remedies for Breach by the Seller


Where the seller fails to perform an obligation, the buyer can:


require performance;


give the seller extra time to inform;


require ready nonconformity in the goods to be remedied;


avoid the contract; or


reduce the price.


and claim damages.


If the goods do not conform, the buyer may require the delivery of substitute


goods where the nonconformity constitutes a fundamental breach.


Alternatively, the buyer may require the seller to repair or make good any


nonconformity except where that would be unreasonable in the circumstances.


5.2.22 Sellers Remedies for Breach by the Buyer


If the buyer fails to perform an obligation, the seller can:


require performance;


give additional time for the buyer to perform;


avoid the contract;


and claim damages.


5.2.23 Avoidance of the Contract


The contract will remain in force until a party declares it has been avoided.


This then releases both parties from their contractual obligations but it does


not deprive a party of the right to claim damages or to engage in dispute


resolution nor does it change any obligations which a party may have on


avoidance of the contract. A declaration of avoidance is simply a party telling


the other that it no longer considers itself bound by the contract.



 


Module 5: Sale of Goods and International Sale of Goods 91


5.2.24 Avoidance by Buyer or Seller


If it becomes apparent that one party is going to fundamentally breach the


contract, then the other party may declare that the contract is avoided. This is


subject to reasonable notice if time permits. A declaration of avoidance is only


effective if notified to the other party.


5.2.25 Avoidance by the Seller


The seller can declare the contract avoided, if the buyers failure constitutes a


fundamental breach of the contract. Similarly, if the buyer has been given


additional time to perform its obligation, then the seller can declare the


contract avoided if the buyer fails to pay the price or take delivery (or fails to


tell the seller what they are going to do) within that additional time.


If the buyer has, however, paid the price, then the seller loses the right to


declare the contract avoided except where:


if the buyer has been late in performing its obligations, the declaration


takes place before the seller becomes aware that performance has been


made; or


in respect of any other breach, within reasonable time after the seller


knew or ought to have known of the breach or after the end of any further


time that has been granted to the buyer.


5.2.26 Avoidance by the Buyer


The buyer can declare the contract avoided if the seller’s failure constitutes a


fundamental breach of contract or alternatively, if the seller has been given


additional time to perform its obligations and fails to perform them within that


additional time.


Where the seller has delivered the goods, then the buyer has a reasonable time


to declare the contract avoided in relation to the breach.


In instalment contracts, a failure to deliver an instalment (or delivering a


nonconforming instalment) may constitute a fundamental breach which will


entitle a party to declare the contract avoided.


5.2.27 Recovery of Damages


Under the Convention, damages are supposed to provide the equivalent of the


benefit of the contract. They are assessed as the amount of the loss suffered


arising from the breach including loss of profits, providing the damages are


foreseeable. That is, the damages were within the contemplation of the party.


If there is a breach, and the buyer has had to source goods from elsewhere


because of the breach, then the buyer can claim any higher price and expenses


in getting those other goods. Similarly, if the buyer defaults and the seller has


had to sell goods at a loss, the seller can claim the difference in price.


Like common law, a party must mitigate its loss.



 


92 GSN412: Business Law 1


5.2.28 Recovery of Interest


If a party owes money to the other and fails to pay it, then interest is


chargeable. The Convention does not, however, specify the interest rate to be


charged. This is a matter for the domestic law applicable to the contract.


Similarly, the right to require specific performance of the contract is a matter


for domestic law. The Convention specifically allows for this.


5.2.29 Private International Law (Domestic Law): Contracts


with a Foreign Element


It should not be difficult to determine which domestic law applies to a contract


in relation to international sales. This is matter which should be specified


exactly and precisely in the contract. Nevertheless, even if the parties have been


specific, it may not prevent courts in another country hearing a legal claim if


there is sufficient nexus (connection) between the contract and that


jurisdiction. This can create conflict of laws issues and it may be difficult to


determine what the proper law of the contract is. The tests set out in Bonython


v Commonwealth (1951) AC 201 is that in determining the proper law, it is the


system of law by reference to which the contract was made or that with which


the transaction has its closest and most real connection. So if the parties have


expressed the law that is to apply to the contract, then that law is regarded as


the “proper law”. [However, there may be foreign jurisdictions where this does


not apply.] If the parties have not expressly chosen the law to apply to the


contract, then the law infers that they intended that the proper law should be


the system of law which is most closely connected to the contract.


Generally, this is the law of the place where the contract was made but there


can be other circumstances taken into account such as:


place of performance;


place of payment;


place of manufacture; and


place of receipt.


This has to be gathered from the circumstances of the case.


Some jurisdictions, including Australia, have made certain laws mandatory so


that they cannot be excluded and must always apply. For instance, the


Carriage of Goods by Sea Act 1991 (Cth) is made compulsory by Australian Law


in relation the shipment of goods from Australia overseas. The parties are held


to have contracted according to the laws of Australia and this cannot be


modified or limited.


5.2.30 Issues for Managers


For some of the difficulties which you may encounter in dealing with a contract


in a foreign legal system (without using internationally agreed rules or a


commonly agreed ‘proper law’), see the article by Shun, Chinese Contract Law


[Appendix (xiii)].


He outlines some major differences between Chinese and Australian contract


law, for instance:



 


Module 5: Sale of Goods and International Sale of Goods 93


1. There is no statute or codification setting out the principles of


Chinese Contract Law;


2. There is no common law doctrine of binding precedent in


China;


3. China distinguishes between ‘economic contracts’ and


‘individual Contracts’;


4. There are differences between domestic ‘Economic Contracts’


and international ‘Economic Contracts’ in China;


5. There can be inconsistent regulations/enactments in China


concerning contracts;


6. The Chinese have used a variety of legal systems in making


their regulations;


7. The Chinese can, and do, use international trade principles in


negotiating contracts;


8. There are regional variations; and


9. There are many administrative practices (which are complex)


in China.


What this means is that Chinese contract law is complex and different from


common law systems. It makes it imperative in international trade to find


out the basis of the competing legal systems so as to choose an agreed


model


 



 


Module 6: Consumer law under the Trade Practices Act 95


MODULE 6: CONSUMER LAW UNDER THE TRADE


PRACTICES ACT


Introduction


This module is a fundamental topic as it is important for business managers to


understand their legal rights and duties, when purchasing or supplying goods


or services, that arise other than by contractual principles at common law.


We have studied common law and equitable rules of contract applying to


general arrangements but what are the additional obligations of certain


business entities in dealing with consumers on an everyday basis? How are


consumers protected against misrepresentations, fraud, or faulty goods or


services under the Trade Practices Act 1974 (Cth) (‘TPA’)?


Because of the failure of many common law principles of contract when applied


to mass consumerism, and the lack of equal bargaining power that these types


of transactions entail, the consumer protection provisions of the TPA were


enacted to protect consumers, and provide remedies to them in certain


circumstances.


Preview


In this module, there is an examination of the law relating to consumer


protection. The source of this law is primarily found in the TPA. This Act was


passed by the Commonwealth Parliament in 1974 and was a comprehensive


attempt to give protection to consumers in contracts for the supply of goods or


services and to prevent unfair practices in relation to consumer transactions.


Learning objectives


At the conclusion of this module you should be able:


1. To understand when the Sale of Goods Acts and Fair Trading Acts enacted


by the states, operate in lieu of the Trade Practices Act.


2. To understand the provisions of the Trade Practices Act 1974 (Cth) in


relation to consumer transactions.


3. To have an understanding of the unfair practices prohibited under the


Trade Practices Act


4. To be aware of the remedies available to consumers and others under the


consumer provisions of the Trade Practices Act.


5. To understand the implied conditions and warranties in consumer


transactions for goods or services.



 


96 GSN412: Business Law 1


Topic 6


Required Readings


G & F [2005] Ch 21 (pp 416- 444)7


6.1 Constitutional Limitations on Consumer provisions of TPA


See Appendix A (vii) – diagram of operation of TPA.


Additional readings


Latimer (23rd edn), ch. 7, pp492-494,


Turner 24th edn pp 344-346


6.2 Misleading and Deceptive Conduct & Other Unfair Practices


Additional readings


Griggs & Ors, (2nd edn) Ch 5 (pp 171-173)


Latimer (23rd edn), ch. 7, pp 494-537,


Turner 24th edn pp 346-366


Vermeesch & Lindgren (10th edn), ch. 22, paras 22.69, 22.70, 22.72, 22.84,


22.85, 22.87, 22.89, 22.93–22.98.


6.3 Implied Conditions and Warranties


Additional readings


Griggs & Ors, (2nd edn) Ch 5 (pp 169-190)


Latimer (23rd edn), ch. 7, pp 437-475.


Turner 24th edn pp 376-383


Vermeesch & Lindgren (10th edn), ch. 22, paras 22.69, 22.70, 22.72, 22.84,


22.85, 22.87, 22.89, 22.93–22.98.


6.4 Other Provisions


Additional readings


Latimer (23rd edn), ch. 7, pp 544-551.


Turner 24th edn pp 366-376


7 G & F [2003] Ch 18 (pp346-369), Ch 20 (396-415)





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