8 The Sale of Goods
Learning Objectives
- Understand the scope and applicability of the Sale of Goods Act in transactions.
- Explain the key provisions and requirements of the Sale of Goods Act.
- Apply the passing of property rules in practical scenarios to determine ownership and resolve disputes.
- Understand the significance of implied terms in protecting buyers’ and sellers’ rights.
- Explain the legal tests for the various implied terms under the Sale of Goods Act.
In commercial law, few old Latin phrases command as much judicial respect as caveat emptor:
“caveat emptor” = “let the buyer beware”
As a principle, caveat emptor places the responsibility for discovering defects in a product or property on the buyer rather than the seller. Ultimately, the buyer is expected to exercise due diligence in inspecting the product or property before purchasing it, and any dissatisfaction with the transaction should therefore, be the buyer’s problem.
Given the significant consequences of caveat emptor, over time, legislatures have passed certain qualifications or restrictions on its use. Most notable of these qualifications has been the 1893 Sale of Goods Act (SGA) passed by the United Kingdom Parliament. The purpose of the original Sale of Goods Act was to set out a series of rights and duties relating to the sale of goods and provide a legal framework for resolving disputes. It also helped to address the power imbalance that buyers have with sellers who are the ones who typically have access to greater information about the products they deal in.
Functions of the Sale of Goods Act
At its core, sale of goods legislation tends to accomplish three main things:
- Implied Conditions and Warranties – The legislation sets out various implied conditions and warranties that apply to the sale of goods, regardless of whether they are explicitly stated in the contract. These implied terms help to protect buyers by ensuring that they receive goods that meet certain standards, and sellers are obligated to fulfill these requirements.
- Allocating Responsibility on the Seller – The legislation places a responsibility on the seller to accurately describe the goods being sold and provide any relevant information that may affect the buyer’s decision. If the buyer relies on the seller’s statements or descriptions and suffers a loss as a result, they may have legal recourse under the legislation.
- Remedies for Buyers – the legislation provides buyers with various remedies in case the goods they purchase do not meet the required standards or are in breach of the implied conditions and warranties. These remedies can include options like the right to reject the goods or claim damages.
Given how sale of goods legislation ensures legal protections for buyers and ensures fairness and transparency in transactions, it’s no surprise that versions of the original United Kingdom Sale of Goods Act have been codified throughout Canada.
All Canadian provinces and territories have sale of goods legislation and, in many respects, the provisions of those statutes mirror each other. While there are some important differences from province to province (certainly in Quebec), given that the statutes are rooted in the old English legislation, they have key overlaps.
The following table identifies the key sale of goods legislation in each province and territory:
Alberta – Sale of Goods Act, R.S.A. 2000, c. S-2
British Columbia – Sale of Goods Act, R.S.B.C. 1996, c. 410
Manitoba – The Sale of Goods Act, R.S.M. 1987, c. S10
New Brunswick – Sale of Goods Act, R.S.N.B. 2016, c. 110
Newfoundland and Labrador – Sale of Goods Act, R.S.N. 1990, c. S-6
Nova Scotia – Sale of Goods Act, R.S.N.S. 1989, c. 408
Ontario – Sale of Goods Act, R.S.O. 1990, c. S.1
Prince Edward Island – Sale of Goods Act, R.S.P.E.I. 1988, c S-1
Quebec – Governed by the Quebec Civil Code
Saskatchewan – The Sale of Goods Act, R.S.S. 1978, c. S-1
Northwest Territories – Sale of Goods Act, R.S.N.W.T. 1988, c. S-2
Nunavut – Sale of Goods Act, R.S.N.W.T. (Nu.) 1988, c. S-2
Yukon – Sale of Goods Act, R.S.Y. 2002, c. 198
The remaining parts of this chapter will focus on the specific provisions of the British Columbia Sale of Goods Act, R.S.B.C. 1996, c. 410 (the “SGA”). Again though, readers should be aware that many of the SGA discussion points will be crucially similar to those of the other provinces or territories.
The following discussion of the British Columbia SGA will track through an analysis of: when the SGA applies, what are some of the key implied terms, how the SGA treats the “passing of property”, and lastly, some of the statutory remedies available to buyers and sellers.
When Does the SGA Apply?
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.
“goods” includes(a) all chattels personal, other than things in action and money, and(b) growing crops … and things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale.
As a starting point then, goods are generally physical objects that can be touched, seen, and transferred from one party to another; for example, vehicles, appliances, electronics, clothing, furniture, and other consumer goods.
There are some categories of assets which are not goods and therefore, the SGA does not apply to transactions involving them. Transactions involving money, services, and real estate are not considered a sale of “goods”. Accordingly, if a consumer had an issue with a contract they entered for services or real estate, they would have to find redress through another legal framework.
The SGA also defines goods in a different way — goods include both “existing” and “future” goods. Existing goods refer to those that are already in existence and are owned or possessed by the seller at the time of the sale. Existing goods may also be “specific” goods in that the goods are identifiable and agreed on at the time a contract of sale is made. Future goods, on the other hand, are goods that are yet to be produced or acquired by the seller but are intended to be sold under the contract. This distinction between existing and future goods will have implications on certain rights that are discussed later in this chapter.
Myth-Busting
Myth: “If I bought something and the return policy expired, there’s nothing I can do.”
The store’s return policy is a contractual agreement between the store and the buyer. The policies outline the terms and conditions under which the buyer can return or exchange a purchased item. However, these policies do not override the rights granted to buyers by sale of goods legislation. Therefore, as a buyer, you likely still have statutory rights that you can use against the store even if the return policy has expired.
Implied Terms in the SGA
The very heart of the SGA is the implication of terms (conditions and warranties) into contracts for the sale of goods. Even if parties do not discuss such terms or potentially, do not even want such terms, they can, nevertheless, be implied into the agreement by the legislation.
Implied terms are contractual terms that are not explicitly stated in the contract but are automatically understood to be part of the agreement based on the SGA. Importantly, if an implied term is breached, the buyer will have legal rights against the seller in the same way as if the term had been stated in the contract.
The SGA includes several very important implied terms that are designed to protect the interests of both buyers and sellers. These implied terms range from ensuring valid ownership of the goods being transferred to those which deal with defects in the goods. The following discussion will canvass the major implied terms along with noting the specific associated sections of the SGA.
Section 16 – Implied undertaking as to title, and implied warranty of quiet possession
When a seller enters into a contract to sell goods, the buyer expects to receive full ownership of the goods without any competing claims or encumbrances. Section 16 of the SGA ensures that the buyer will receive good and marketable title to the goods being sold.
Section 16 of the SGA states the following:
In a contract of sale or lease, unless the circumstances of the contract are such as to show a different intention, there is:
(a) an implied condition on the part of the seller or lessor that
(i) in the case of a sale or lease, the seller or lessor has a right to sell or lease the goods, and
(ii) in the case of an agreement to sell or lease, the seller or lessor will have a right to sell or lease the goods at the time when the property is to pass or the lessee is to take possession of the leased goods,
(b) an implied warranty that the buyer or lessee is to have and enjoy quiet possession of the goods, and
(c) an implied warranty that the goods are free from any charge or encumbrance in favour of any third party, not declared or known to the buyer or lessee before or at the time when the contract is made.
According to 16(a), the seller needs to have the legal right to sell the good they are selling. This implied term acts as a guarantee or assurance that the seller possesses valid ownership rights and has the legal authority to transfer those rights to the buyer. In practical terms, this means that the seller warrants that they have the right to sell the goods.
For example, examine the following news headline from British Columbia:
Imagine if you were to purchase a bicycle only to find out that it had been stolen and the seller was the thief. This would be a clear breach of 16(a) because the thief does not have legal title to the bicycle and therefore, cannot sell it.
16(b) and 16(c) of the SGA deal with related, but different concerns about title. These two provisions are meant to ensure that there are no undisclosed legal issues, liens, or claims that could affect the buyer’s ownership rights. Ultimately, the buyer is entitled to enjoy quiet possession of the purchased goods, without interference from any third party.
For example, imagine you purchase a used car from a dealership. After a few weeks, you receive a notice from a bank claiming that the car was used as collateral for a loan by the previous owner and the bank now demands the return of the vehicle. In such a purchase, you never received quiet possession of the goods as they were subject to a legal claim or encumbrance from the bank.
Section 17 — Sale by Description
Section 17(1) of the SGA states:
In a contract for the sale or lease of goods by description, there is an implied condition that the goods must correspond with the description.
Accordingly, when goods are sold by description, the ultimate goods received should have the same qualities and characteristics as what was initially described to the buyer. If the goods do not match the description, the buyer may be able to claim that the seller has breached section 17.
Legal Test for Sale by Description
In order to be successful on a claim under section 17, the plaintiff must establish the following three elements:
- Is this is a sale by description?
- What do the words used in the description mean?
- Do the goods correspond to the description?
Leone Industries Inc. v. International Adjusters (Western) Ltd., [1994] B.C.J. No. 2832
For example, imagine a person purchases a smartphone online based on the description provided by the seller — this description includes that the phone is the latest model. However, when the smartphone is delivered, it turns out to be an older model. In this case, the seller has breached the implied term of description because the goods do not match the description (the model) provided.
The implied term of description applies regardless of whether the description was given by the seller orally or in writing. However, the implied term only refers to the identity or description of the goods and does not protect against quality issues in the goods (such as defects or poor construction).
In the online environment, there are numerous product descriptions which are routinely displayed. Take a look at the following ad from Best Buy and note the way in which the products is described by the seller:
In this advertisement, there are numerous descriptions relating to product including, brand, size, colour, and other specifications. If any of these turned out false or misdescribed then the buyer could pursue a claim under section 17 of the SGA.
Section 18 – Implied Conditions as to Quality or Fitness
I. Section 18(a) – Fitness for Intended Purpose
(a) if the buyer or lessee, expressly or by implication, makes known to the seller or lessor the particular purpose for which the goods are required, so as to show that the buyer or lessee relies on the seller’s or lessor’s skill or judgment, and the goods are of a description that it is in the course of the seller’s or lessor’s business to supply, whether the seller or lessor is the manufacturer or not, there is an implied condition that the goods are reasonably fit for that purpose; except that in the case of a contract for the sale or lease of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose.
Put more simply, section 18(a) requires the goods to be suitable for the specific purpose for which the buyer intends to use them. Implying such a term is advantageous because buyers frequently rely on the expertise of sellers to select products or confirm that the product is suitable for the buyer’s intended use. If the seller’s statements about fitness for purpose are wrong, seller’s should be held accountable.
For example, if a buyer contacts the seller and indicates that they need an exterior paint for a wood fence, the ultimate goods sold by the seller (and received by the buyer) should be one that is suitable for that purpose – namely, exterior use for a wood fence. If the seller actually sold an interior wall paint to the buyer, the SGA would say that section 18(a) has been breached.
Legal Test for Breach of Fitness for Intended Purpose
To establish a breach of the implied term of fit for intended purpose, buyer’s need to demonstrate the following factors:
the buyer made known to the seller the purpose for which it required the goods;
the buyer relied on the seller’s skill or judgment; and
the goods are of a description that is in the course of the seller’s business to supply.
Clayton v. North Shore Driving School et al., 2017 BCPC 198 at para. 93
Firstly, the buyer needs to demonstrate that they communicated or made known to the seller the particular purpose for which the goods were intended to be used. This purpose must be specific and known to the seller at the time of the sale.
Secondly, the buyer must establish that they relied on the seller’s expertise and advice regarding the suitability of the goods for the intended purpose. This reliance may be explicit or inferred from the circumstances.
Lastly, the goods being sold should fall within the usual scope of the seller’s business operations. In other words, the goods being supplied should be of a type or description that is commonly associated with the seller’s trade or line of business.
Foundational Law — Clayton v. North Shore Driving School et al., 2017 BCPC 198
Clayton, a truck driver, filed a claim against North Shore Driving School (NSDS), alleging that the truck he purchased from them was not reasonably fit for its intended purpose.
In January 2015, Clayton responded to an online advertisement for the Kenworth truck priced at $18,000. He met with Tom Huynh, who represented NSDS’s truck division, and decided to buy the truck based on its engine type and the reputation of the Kenworth brand. However, in June 2015, Clayton discovered a crack in the truck’s structure. The recommended repairs were estimated to cost between $11,000 and $20,000.
Clayton brought a claim against NSDS on the basis of section 18(a) of the Sale of Goods Act. In order to be successful, Clayton had to expressly or implicitly communicated the purpose for which the truck was required, demonstrated reliance on the seller’s skill or judgment, and that the truck was of a kind typically supplied by NSDS in the course of their business.
While there was some uncertainty regarding Clayton’s intended use of the truck, the evidence indicated that he had mentioned his plans to work as an owner-operator or haul materials in the future. However, the court found that Clayton had not sufficiently established reliance on NSDS’s skill and judgment. The evidence suggested that he was primarily interested in the Kenworth brand and had not explicitly expressed reliance on NSDS. Moreover, NSDS was not in the business of selling used vehicles but rather operated a driving school, selling vehicles only on a few previous occasions. Accordingly, the court concluded that Clayton failed to meet two of the three prerequisites for a breach of section 18(a). Clayton’s claim was dismissed.
II. Section 18(b) – Merchantable Quality
When a product is defective, otherwise referred to as unmerchantable, a buyer may be able to rely on section 18(b) which states:
if goods are bought by description from a seller or lessor who deals in goods of that description, whether the seller or lessor is the manufacturer or not, there is an implied condition that the goods are of merchantable quality; but if the buyer or lessee has examined the goods there is no implied condition as regards defects that the examination ought to have revealed;
Therefore, when goods are purchased based on a description, either from the manufacturer or another seller who regularly deals with goods of that type, there is an implied condition that the goods will be of merchantable quality.
Legal Test for Breach of Merchantable Quality
Not every defect will permit a claim for breach of section 18(b); instead, a buyer will need to satisfy the following requirements:
- the goods must have been purchased based on a specific description provided by the seller;
- the goods are of a description that is in the course of the seller’s business to supply; and
- the buyer must demonstrate that the goods were not of merchantable quality.
As to the third part of the test, defining merchantability is difficult. Part of this challenge arises from the fact that the SGA does not define what merchantability means, instead this task is undertaken by the courts. So it is judges who will ultimately decide if a good was merchantable or not merchantable.
“It will be apparent that the concept of merchantability is an extremely flexible one … It does not seem to be going too far to say that, in effect, the concept merely requires the goods to be of the sort of quality reasonably to be expected having regard to all the circumstances of the case. [The definition], far from being, as some definitions are, a straight jacket, turns out to be largely a non-definition; it delegates to the Court the task of deciding what is reasonable [in] the circumstances of each particular case.”
Atiyah, The Sale of Goods 5th Ed., 1975.
As an example, imagine you purchase a laptop from a reputable computer store based on the store’s description of the laptop as a high-performance device suitable for gaming. The store regularly deals in laptops and holds itself out as knowledgeable in this area. However, upon using the laptop, you discover that it frequently overheats, significantly impacting its performance and making it unusable for gaming purposes. The scenario appears to satisfy all the 18(b) criteria as the laptop was purchased based on a description from a seller dealing in laptops and it ultimately was unmerchantable.
The language of 18(b) makes clear that there is also consideration of the role of inspections. If the buyer has an opportunity to inspect the goods and fails to identify any defects or issues that should have been reasonably noticed during the examination, they cannot later claim a breach of the implied condition based on those defects.
III. Section 18(c) — Reasonable Durability
there is an implied condition that the goods will be durable for a reasonable period of time having regard to the use to which they would normally be put and to all the surrounding circumstances of the sale or lease;
- Nature of the Goods – the type and nature of the goods play a significant role in assessing reasonable durability. Certain goods are inherently expected to last longer than others. For example, a high-quality kitchen appliance is typically expected to have a longer lifespan compared to a disposable item like a paper towel.
- Price and Quality – The price and quality of the goods can be indicative of their expected durability. Generally, higher-priced goods are expected to have a longer lifespan and be higher quality than lower-priced goods.
- Intended Use – The intended purpose or use of the goods is an essential factor in determining their reasonable durability. The goods should be able to withstand the ordinary wear and tear associated with their intended use. Factors such as frequency of use, maintenance practices, exposure to environmental factors, and compliance with manufacturer’s instructions may affect the durability.
- Seller’s Representations – Any specific representations or warranties made by the seller regarding the durability or expected lifespan of the goods can also influence the determination of reasonable durability. If the seller explicitly states that the goods will last for a certain period, it can impact the reasonable expectations of the buyer.
- Industry Standards – Industry standards and practices can provide guidance on what is considered a reasonable period of durability for specific types of goods. These standards may be established by trade associations, manufacturers, or regulatory bodies. They can help establish a benchmark for evaluating the durability of goods in a particular industry.
Courts may consider these factors collectively and weigh their relative importance to reach a conclusion on what constitutes a reasonable period of time for goods to be durable.
Example – Example of Determining Durability
Imagine you purchase a brand-new laptop computer for use in your daily work. The laptop comes with a one-year warranty, and is priced at a mid-range level. Within six months of regular use, the laptop starts experiencing hardware issues, such as frequent crashes and overheating.
In this case, the court would use the key factors to determine a reasonable period for durability. Laptops are generally expected to have a reasonable lifespan and be durable enough to handle everyday usage. The laptop falls within the mid-range price category, suggesting that it should have a reasonable level of quality and durability. The laptop was purchased for work purposes, and it was used under normal working conditions without any excessive or abusive use. Industry standards would likely indicate that laptops in this price range should last for several years without major hardware issues.
Based on the application of the factors, it would be reasonable to expect that the laptop should function properly and remain durable for more than six months. Therefore, your specific laptop was not reasonably durable.
Section 19 – Sale by Sample
Section 19 of the SGA states the following:
19(1) A contract of sale or lease is a contract for sale or lease by sample if there is a term in the contract, express or implied, to that effect.
(2) In a contract for sale or lease by sample,
(a) there is an implied condition that the bulk must correspond with the sample in quality,
(b) there is an implied condition that the buyer or lessee must have a reasonable opportunity of comparing the bulk with the sample, and
(c) there is an implied condition that the goods must be free from any defect rendering them unmerchantable that would not be apparent on reasonable examination of the sample.
At its core, section 19 is all about situations where the seller provides a sample of the goods to the buyer to inspect and assess the quality of before completing the transaction. The sample serves as a representation or indication of the nature and quality of the entire bulk or batch of goods that will be supplied. In such as case, the buyer relies on the sample to make an informed decision about whether or not to proceed with the purchase or lease. Examples of sale by sample transactions involve bulk goods, fabric, and flooring.
To pursue a claim under section 19, the buyer must rely on the sample to determine the quality of the goods. There must also be a discrepancy between the quality of the bulk goods and the quality represented by the sample; the bulk goods should fail to meet the quality standards established by the sample.
For example, imagine Jorge is interested in purchasing a batch of T-shirts from a seller, Sandeep. They agree on a sale by sample, where Sandeep provides Jorge with a single T-shirt as a representative sample. The sample is of high quality, made of premium fabric and with excellent stitching. However, when Jorge receives the bulk order of T-shirts, he discovers that the quality is significantly inferior. The fabric is cheap, and the stitching is poorly done. The bulk of the T-shirts does not correspond with the sample provided. In this case, Jorge can sue Sandeep for a breach of Section 19(2) of the SGA.
Section 20 – No waiver of warranties or conditions
Section 20 of the SGA restricts the use of contractual terms which would limit or reduce the conditions or warranties implied by sections 17, 18, and 19 of the SGA.
The section states that any term in a contract that attempts to negate or diminish the conditions or warranties specified in sections 17, 18, and 19 will be considered void if the goods sold or leased do not reasonably appear to be used goods or if the seller or lessor has not described or represented them as used goods. As such, the section actually restricts retail sellers or leasors.
Put simply, section 20 protects consumers in retail transactions by ensuring that the conditions and warranties provided by the SGA cannot be undermined or waived by the seller’s contract terms.
The Passing of Property Rules
Here’s a question not often considered when purchasing goods: when does the buyer become the owner of the goods? We would expect that the contract between the parties would articulate such an important factor however, it is certainly possible that the parties do not discuss or reach agreement on this moment.
The passing of property rules refers to the legal rules that determine when ownership or property rights of goods are transferred from the seller to the buyer. These rules establish the moment when the buyer becomes the legal owner of the goods and assumes the associated risks and benefits of ownership.
The passing of property rules are codified in the SGA and are hugely important for several reasons.
- Risk Allocation – determines when the risk of loss or damage to the goods passes from the seller to the buyer. Depending on the specific rule in effect, the risk may shift at the time of contract formation, delivery, or some other agreed-upon event. Clarifying this allocation of risk is important for both parties, as it helps determine who bears the responsibility for any harm that may occur to the goods.
- Title and Ownership Transfer – determines when the legal ownership or title to the goods transfers from the seller to the buyer. This is crucial for establishing the rights of the buyer, such as the ability to use or sell the goods and, for the seller, the right to recover possession in case of non-payment.
- Third-Party Claims – Address situations where a third-party claims a right or interest in the goods being sold. The rules provide a framework to determine the priority of competing claims, protecting the buyer from potential disputes or encumbrances on the goods.
Section 22 – Intention of the Parties
Section 22 of the SGA is the starting point for determining when title to property passes. The section states as follows:
If there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at the time the parties to the contract intend it to be transferred. For ascertaining the intention of the parties, regard must be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.
So, when there is a contract for the sale of goods that are specific or ascertained, the ownership of those goods is transferred from the seller to the buyer at the time both parties intend for the transfer to occur. In other words, ownership of the goods passes to the buyer according to the mutual understanding and agreement of the parties involved.
The Five Passing of Property Rules
Absent mutual agreement between the parties the SGA codifies a process for how to determine the passing of property. The SGA provides five rules that will dictate how and when the ownership of the goods transferred from seller to buyer. Importantly, only one rule will ever apply — the key is figuring out which.
I. Rule 1
According to this rule, if there is an unconditional contract of sale between the buyer and the seller, the property in the goods passes to the buyer at the time the contract is made. It means that once the parties have agreed to the terms of the sale without any conditions, the buyer becomes the owner of the goods immediately, regardless of when the physical possession or delivery of the goods takes place.
Example – Rule 1 Situation
Nelson enters an electronics store and selects a smartphone he wishes to purchase. He and the salesperson promptly reach a full and complete agreement on the price and other sale particulars without any conditions. At that moment, the ownership of the smartphone is transferred to Nelson, irrespective of when the physical possession or delivery occurs.
II. Rule 2
If the seller is required to do something to the goods for the purpose of getting them into a deliverable state, the property does not pass until the seller performs the necessary action and the buyer is aware of it. Under Rule 2, the property passes to the buyer when the seller completes the required action to put the goods in a deliverable state and the buyer is notified.
This rule provides protection to the buyer when additional work is needed on the goods by the seller before they are ready for delivery. It ensures that the buyer becomes the owner only when the goods are in the agreed condition, minimizing the risk of taking ownership of incomplete or unsatisfactory goods.
Example – Rule 2 Situation
Nelson purchased a dining table from a local furniture store. However, the agreement stated that the seller needed to apply a special protective coating on the table’s surface before it could be considered ready for delivery. After a few weeks, the seller completed the coating process, ensuring the table was now in the agreed condition. They promptly notified Nelson by text message about the completion and requested he come to pick up the table. Upon receiving the text message, the property of the dining table officially passed to Nelson. He was the rightful owner and bore any risk of loss from that point.
III. Rule 3
In cases where there is a contract for the sale of specific goods that are in a deliverable state, but the seller has an obligation to perform certain actions like weighing, measuring, testing, or any other act related to the goods to determine the final price, the ownership does not pass to the buyer until those actions are completed, and the buyer is informed about it.
The purpose of this rule is to ensure that the buyer becomes the owner of the goods only when the seller has carried out the necessary tasks to determine the final price. Until then, the goods are not considered the buyer’s property, even if they are in a deliverable state.
Example – Rule 3 Situation
Nelson, a restaurateur, enters into a contract with a seafood supplier to purchase a specific batch of fresh lobsters. The lobsters are already in a deliverable state, but the supplier has an obligation to perform a weight measurement and quality assessment to determine the final price. As per their agreement, the ownership of the lobsters will not transfer to Nelson until the supplier completes the necessary weighing and quality checks, and informs Nelson about the final price. Once the measurements and assessments are done, and the supplier notifies Nelson of the final price, only then will the ownership and risk of loss for the lobsters pass to him.
IV. Rule 4
Sometimes a buyer is entitled to possess or use the goods before the transaction is finalized. The SGA refers to these transactions as “on sale or return” — it means that the seller can affirm the sale or return the goods. Rule 4 examines when property passes under an “on sale or return” transaction.
The passing of property for an “on sale or return transaction” can occur in the following ways:
(a) If the buyer signifies approval or acceptance of the goods to the seller or performs any other action that shows their intention to proceed with the transaction, the property passes to the buyer at that moment. In other words, once the buyer explicitly expresses their approval or acceptance of the goods to the seller, they become the owner of the goods.(b) If the buyer neither signifies approval or acceptance to the seller nor rejects the goods by giving notice of rejection, but instead keeps the goods without taking any action, the property passes to the buyer under the following conditions:
- If a specific time for returning the goods has been agreed upon between the buyer and the seller, the property passes to the buyer at the end of that agreed-upon time period. Until that time, the goods remain the property of the seller.
- If no specific time for returning the goods has been set, then the property passes to the buyer at the end of a reasonable time. The concept of a reasonable time may vary depending on the circumstances of the sale.
Example – Rule 4 Situation
Nelson purchased a high-end camera from a retailer “on sale or return” . The retailer informed Nelson that he could try out the camera for a period of two weeks before making a final decision.
After a week of examining the camera’s features and testing its performance extensively, Nelson sent an email to the retailer expressing his satisfaction with the product and his intention to keep it. At that moment, the property of the camera passed to Nelson, and he became the owner of the goods.
Alternatively, if Nelson had not taken any action after the two-week trial period, the property would still pass to him. Beyond the two-week trial period, a reasonable time period would be said to have elapsed without any indication of rejection. The property of the camera would therefore, pass to Nelson following the end of that reasonable time.
V. Rule 5
Rule 5 applies when there is a contract for the sale of goods that are either unascertained (not specifically identified) or future goods (not yet in existence). The passing of property for an unascertained or future good will occur in the following ways:
(a) The property in the goods passes to the buyer when the seller unconditionally appropriates goods of that described type and in a deliverable state to the contract, with the buyer’s agreement or assent. In other words, when the seller sets aside or designates goods that match the description in the contract and are ready for delivery, and the buyer agrees to this appropriation, ownership of the goods is transferred to the buyer.
(b) Similarly, the property in the goods also passes to the buyer when the buyer unconditionally appropriates goods of the described type and in a deliverable state to the contract, with the seller’s agreement or assent. If the buyer, with the seller’s consent, selects or designates goods that meet the description in the contract and are ready for delivery, the ownership of the goods is transferred to the buyer.
The utility of Rule 5 is that it ensures that the buyer becomes the owner of the goods when they are unconditionally set aside or designated for the buyer’s specific contract.
“The final example concerns future goods, such as ships, manufactured to the buyer’s special order. It seems clear that ‘a strong prima facie presumption’ exists against the passing of property in an incomplete object when work remains to be done on it.”
Bridge, Sale of Goods (1988, Butterworths)
Example – Rule 5 Situation
Nelson, the buyer, approached a furniture manufacturer to purchase custom-made chairs for his newly renovated office space. The buyer carefully selected the design, material, and finish, while ensuring they matched the description in the contract. The contract specified that the chairs would take approximately three months to build. Nelson made the necessary payments and eagerly awaited the completion of the chairs.
Following three months of hard work, the seller successfully completed the chairs. At that time, the seller placed them in storage with a payment invoice and a note indicating that the furniture was for Nelson. Unfortunately, shortly after, a fire broke out in the storage facility resulting in the destruction of the furniture constructed for Nelson.
In this situation Rule 5 was successfully met. The goods were ultimately made deliverable and unconditionally appropriated through the seller’s placement of the invoice and note; those chairs were for Nelson. As a result, passing of property rule 5 states that Nelson was the owner and bore the risk of loss.
V. Summary
Recall that the passing of property rules are merely default rules and are meant to fill in the gaps when the parties do not clearly specify the moment of ownership transfer. If the parties do not wish to rely on the passing of property rules, they are always permitted to use clear contractual language to override them.
Remedies Under Sale of Goods Legislation
There are various remedies provided to both buyers and sellers under sale of goods legislation. These remedies are designed to give fair and flexible remedies to a party where there has been a breach.
Buyer’s Remedies
- Damages – The buyer is entitled to claim damages, which are intended to compensate them for any financial losses suffered due to the breach. The damages awarded aim to put the buyer in the position they would have been in if the contract had been fulfilled properly.
- Specific Performance – Section 55 of the BC Sale of Goods Act provides that, in certain cases, the buyer may seek a court order for specific performance. This remedy requires the seller to fulfill their contractual obligations by delivering the goods as agreed. Specific performance is typically available when the goods are unique or when monetary compensation is inadequate to remedy the breach.
- Right to Reject of Return the Goods – If the seller delivers goods that do not conform to the contract, the buyer generally has the right to reject the goods and seek a refund. This remedy applies when there is a fundamental breach or non-conformity that substantially impairs the value or purpose of the goods.
Seller’s Remedies
Sellers also have a series of specific remedies which can be pursued against buyers:
- Action for the Price – if the goods have been delivered to the buyer and the buyer wrongfully refuses or fails to pay the agreed-upon price, the seller can initiate legal action to recover the amount owed.
- Liens – a lien allows the seller to retain possession of the goods until the buyer fulfills their obligations relating to that specific transaction. This lien applies specifically to the goods involved in the contract at hand.
- Stoppage in Transit – if the buyer is insolvent or fails to make payment, the seller has the right to stop the goods while they are in transit and retain possession until payment is made or other arrangements are agreed upon.
