Sale of Goods Act 1979 - Part II, Contract Formation

Part II, Contract Formation

Sections 2 to 15B concern how a contract is formed and, in particular, contains standardised implied terms in all contracts for sale.

Section 3(2) provides that if goods are sold and delivered to minors or those mentally incapacitated the minor will be liable to pay a reasonable price if the goods are necessaries. Necessaries are goods suitable to the persons' condition of life and actual requirements at the time of contracting. Under sections 6 and 7, concerning specific goods that perish, a contract is void where they perish before and avoided where they perish after contract formation. (See Mistake (contract law)). Under section 8(2) the price is a money consideration given in exchange for property in goods. If the price, or means to ascertain a price, is not agreed, the buyer will be required to pay a reasonable price.

Breach of these terms by the seller may give rise to an action for damages, and in the case of those terms which are also conditions, termination of the contract. Where the slightness of the breach renders it unreasonable for a non-consumer buyer to reject the goods, for breach of the implied terms as to description, quality or fitness or sample, then the buyer can only claim damages for a breach of warranty. This amendment moderates the traditionally strict approach of English Law to contractual breach in a commercial context.

Section 12 incorporates into the contract a term that the seller either has legal title to the property to be sold or that he will have title at the time when property is to pass. Section 13(1) provides that where the buyer is sold goods by description, the goods must correspond with this description. Harlingdon v Christopher Hull held that this implied term may only be breached if the buyer relied upon the description. Therefore if the buyer is an expert, reliance may not be established.

Section 14 states that terms are implied about quality and title and are only relevant where the seller is acting in the course of a business. There is no requirement as to the status of the buyer. The phrase "in the course of a business" has received much judicial consideration. Some judges have applied definitions found in other acts, but the recent case of Stevenson v Rogers gives a wide definition to this requirement. It will encompass activity which is ancillary or loosely related to the business of a company. To use Richards' example, a bank that sells a company car will be acting in the course of a business.

Satisfactory quality, s 14(2)

The quality of the goods sold must be satisfactory (prior to 1994, this provision required 'merchantable' quality; this requirement has been retained in most Commonwealth versions of the Act). The Act provides an objective test to determine satisfactory quality; the standard that a reasonable person would regard as satisfactory, taking into account the price, description and any other relevant factors. The courts have identified certain factors that may raise or lower the expectation of satisfaction. Second hand goods, per Bernstien v. Pamson Motors Ltd., will attract a lower expectation. On the other hand goods of a reputable brand may attract a higher expectation, the judge in Bernstien used the example of a small ping on a Rolls-Royce being unsatisfactory. 'Other relevant factors' may include advertising in the case of consumer contracts.

Fitness for purpose, s14(3)

If the buyer expressly or impliedly makes his purpose for the goods known to the seller, the seller is obliged to make sure the goods provided are fit for that purpose, if it is reasonable for the buyer to rely on the seller's expertise. An example of the application of this provision can be found in Godley v Perry

Under section 15, when goods are bought by bulk and the buyer has tested or examined a small number of those goods, the seller is obliged to make sure that every item in the bulk corresponds with the quality of the sample tested or examined.