1911 Encyclopædia Britannica/Sale of Goods

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SALE OF GOODS. Sale (O.Eng. sala, sellan, syllan, to hand over, deliver) is commonly defined as the transfer of property from one person to another for a price. This definition requires some consideration in order to appreciate its full scope. The law of sale is usually treated as a branch of the law of contract, because sale is effected by contract. Thus Pothier entitles his classical treatise on the subject, Traité du contrat de vente, and the Indian Contract Act (ix. of 1872) devotes a chapter to the sale of goods. But a completed contract of sale is something more. It is a contract plus a transfer of property. An agreement to sell or buy a thing, or, as lawyers call it, an executor contract of sale, is a contract pure and simple. A purely personal bond arises thereby between seller and buyer. But complete or executed contract of sale effects a transfer of ownership with all the advantages and risks incident thereto. By an agreement to sell a jus in personam is created; by a sale a jus in rem is transferred. The essence of sale is the transfer of property for a price. If there be no agreement for a price, express or implied, the transaction is gift, not sale, and is regulated by its own peculiar rules and considerations. So, too, if commodity be exchanged for commodity, the transaction is called barter and not sale, and the rules relating to sales do not apply in their entirety. Again, a contract of sale must comtemplate an absolute transfer of the property in the thing sold or agreed to be sold. A mortgage may be in the form of a conditional sale, but English law regards the substance and not the form of the transaction. If in substance the object of the transaction is to secure the repayment of a debt, and not to transfer the absolute property in the thing sold, the law at once annexes to the transaction the complex consequences which attach to a. mortgage. So, too, it is not always easy to distinguish a contract for the sale of an article from a contract for the supply of work and materials. If a man orders a set of false teeth from a dentist the contract is one of sale, but if he employs a dentist to stop one of his teeth with gold the contract is for the supply of work and materials. The distinction is of practical importance, because very different rules of law apply to the two classes of contract. The property which may be the subject of sale may be either movable or immovable, tangible or intangible. The present article relates only to the sale of goods -that is to say, tangible movable property. By the laws of all nations the alienation of land or real property is, on grounds of public policy, subject to special regulations. It is obvious that the assignment of “ things in action, ” such as debts, contracts and negotiable instruments, must be governed by very different principles from those which regulate the transfer of goods, when the object sold can be transferred into the physical possession of the transferee.

In 1847, when Mr Justice Story wrote his work on the sale of personal property, the law of sale was still in process of development. The code Many rules were still unsettled, especially the rules re-DHS93 latmg to implied conditions and warranties. But for several years the main principles have been well settled. In 1891 the subject seemed ripe for codification, and Lord Herschell introduced a codifying bill which two years later passed into law as the Sale of Goods Act, 1893 (56 & 57 Vict. c. 71). Sale is a consensual contract. The parties to the contract may supplement it with any stipulations or conditions they may see fit to agree to. The code in no wise seeks to fetter this discretion. It lays down a few positive rules-such, for instance, as that which reproduces the 17th section of the Statute of Frauds. But the main object of the act is to provide clear rules for those cases where the parties have either formed no intention or have failed to express it. When parties enter into a contract they contemplate its smooth performance, and they seldom provide for contingencies which may interrupt that performance such as the insolvency of the buyer or the destruction of the thing sold before it is delivered. It is the province of the code to provide for these contingencies, leaving the parties free to modify by express stipulation the provisions imported by law. When the code was in contemplation the case of Scotland gave rise to difficulty. Scottish law varies widely from English. To speak broadly, the Scottish law of sale differs from the English by adhering to the rules of Roman law, while the English common law has worked out rules of its own. Where two countries are so closely connected in business as Scotland and England, it is obviously inconvenient that their laws relating to commercial matters should differ. The Mercantile Law Commission of 1855 reported on this question, and recommended that on certain points the Scottish rule should be adopted in England, while on other points the En lish rule should be adopted in Scotland. The recommendations ofg the Commission were partially and rather capriciously adopted in the English and Scottish Mercantile Law Amendment Acts of 1856. Certain rules were enacted for England which resembled but did not really reproduce the Scottish law, while other rules were enacted for Scotland which resembled but did not really reproduce the English law. There the matter rested for many years. The Codifying Bill of 189I applied only'to England, but on the advice of Lord Watson it was extended to Scotland. As the English and Irish laws of sale were the same, the case of Ireland gave rise to no difficulty, and the act now applies to the whole of the United Kingdom. As regards England and Ireland very little change in the law has been effected. As regards Scotland the process of assimilation has been carried further, but has not been completed. In a few cases the Scottish rule has been saved or reenacted, in a few other cases it has been modified, while on other points, where the laws were dissimilar, the English rules have been adopted.

Now that the law has been codified, an analysis of the law resolves itself into an epitome of the main provisions of the statute. The act is divided into six parts, the first dealing with the formation of the contract, the second with the effects of the contract, the third with the performance of the contract, the fourth with the rights of an unpaid seller against the goods, and the fifth with remedies for breach of contract. the sixth part is supplemental. The 1st section, which may be regarded as the keystone of the act, is in the following terms: “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer fo? a money consideration called the price. A contract of sale may be absolute or conditional. When under a contract of sale the property in the (goods is transferred from the seller to the buyer the contract is calle a ' sale, ' but when the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an ' agreement to sell.' An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.” This section clearly enunciates the consensual nature of the contract, and this is confirmed by section 55, which provides that “ where any right, duty or liability would arise under a contract of sale by implication of law, ” it may be negatived or varied by express agreement, or by the course of dealing between the parties, or by usage, if the usage be such as to bind both parties to the contract. The next question is who can sell and buy. The act is framed on the plan that if the law of contract were codified, this act would form a chapter in the code. The question of capacity is therefore referred to the general law, but a special provision is inserted (section 2) relating to the supply of necessaries to infants and other persons who are incompetent to contract. Though an infant cannot contract he must live, and he can only get goods by paying for them. The law, therefore, provides that he is liable to pay a reasonable price for necessaries supplied to him, and it defines necessaries as “ goods suitable to the condition in life of such minor or other person, and to his actual requirements at the time of the sale and delivery."

The 4th section of the act reproduces the famous 17th section of the Statute of Frauds, which was an act “for the prevention of frauds and perjuries.” The object of that statute was to prevent people from setting up bogus contracts of sale by requiring material evidence of the contract. The section provides that “ a contract for the sale of any goods of the value of ten pounds or upwards shall not be enforceable by action unless the buyer shall accept part of the goods so sold, and actually receive the same, or give something in earnest to bind the contract, or in part payment, or unless some note or memorandum in writing of the contract be made and signed b the party to be charged, or his agent in that behalf." It is a much disputed question whether this enactment has done more good or harm. It has defeated many an honest claim, though it may have prevented many a dishonest one from being put forward. When judges and juries have been satisfied of the bona fides of a contract which does not appear to satisfy the statute, they have done their best to get round it. Every expression in the section has been the subject of numerous judicial decisions, which ran into almost impossible refinements, and illustrate the maxim that hard cases make bad law. It is to be noted that Scotland is excluded from the operation of section 4. The Statute of F rauds has never been applied to Scotland, and Scotsmen appear never to have felt the want of it.

As regards the subject-matter of the contract, the act provides that it may consist either of existing goods or “ future goods ”-that is to say, goods to be manufactured or acquired by the seller after the making of the contract (§ 5). Suppose that a man goes into a gunsmith's shop and says, “ This gun suits me, and if you will make or get me another like it I will buy the pair." This isagood contract, and no question as to its validity would be likely to occur to the lay mind. But lawyers have seriously raised the question, whether there could be a valid contract of sale when the subject-matter of the contract was not in existence at the time when the contract was made. The price is an essential element in a contract of sale. It may be either fixed by the contract itself, or left to be determined in some manner thereby agreed upon, e.g. by the award of a third party. But there are many cases in which the parties intend to effect a sale, and yet say nothing aboutthe rice. Suppose that a man goes into a hotel and orders dinner witliout asking the price. How is it to be fixed? The law steps in and says that, in the absence of any agreement, a reasonable price must be paid (§ 8). This prevents extortion on the part of the seller, and unreasonableness or fraud on the part of the buyer.

The next question dealt with is the difficult one of conditions and warranties &§ 10 and II). The parties may insert what stipulations they like in a contract of sale, but the law has to interpret them. The term “ warranty ” hasapeculiar and technical meaning in the law of sale. It denotes a stipulation which the law regards as collateral to the main purpose of the contract. A breach, therefore, does not entitle the buyer to reject the goods, but onl to claim damages. Suppose that a man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns out to be vicious, the buyer's only remedy is to claim damages, unless he has expressly reserved a right to return it. But if, instead of buying a particular horse, a man applies to a dealer to supply him with a quiet horse, and the dealer supplies him with a vicious one, the stipulation is a condition. The buyer can either return the horse, or keep it and claim damages. Of course the right of rejection must be exercised within a reasonable time. In Scotland no distinction has been drawn between conditions and warranties, and the act preserves the Scottish rule by providing that, in Scotland, “ failure by the seller to perform any material part of a contract of sale ” entitles the buyer either to reject the goods within a reasonable time after delivery, or to retain them and claim compensation (§ II (2)). In England it is a very common trick for the buyer to keep the goods, and then set up in reduction of the price that they are of inferior quality to what was ordered. To discourage this practice in Scotland the act provides that, in that country, the court may require the buyer who alleges a breach of contract to bring the agreed price into court Warranty. pending the decision of the case (§ 59). It seems a pity that this Sensible rule was not extended to England.

In early English law caveat emptor was the general rule, and it was one well suited to primitive times. Men either bought their goods in the open market-place, or from their neighbours, and buyer and seller contracted on a footing of equality. Now the complexity of modern commerce, the division of labour and the increase of technical skill, have altogether altered the state of affairs. The buyer is more and more driven to rely on the honesty, skill and judgment of the seller or manufacturer. Modern law has recognized this, and protects the buyer by implying various conditions and warranties in contracts of sale, which ma be summarized as follows: First, there is an implied undertaking on the part of the seller that he has a right to sell the goods (§ 12). Secondly, if goods be ordered by description, they must correspond with that description (§ 13). This, of course, is a universal rule- Si aes pro auro veneal, non valet. Thirdly, there is the case of manufacturers or sellers who deal in particular classes of goods. They naturally have better means o judging of their merchandise than the outside public, and the buyer is entitled within limits to rely on their skill or judgment. A tea merchant or grocer knows more about tea than his customers can, and so does a gunsmith about guns. In such cases, if the buyer makes known to the seller the particular purpose for which the goods are required, there is an implied condition that the goods are reasonably fit for it, and if no particular purpose be indicated there is an implied condition that the goods supplied are of merchantable quality (§ 14). Fourthly, in the case of a sale by sample, there is “ an implied condition that the bulk shall correspond with the sample in quality, ” and that the buyer shall have a reasonable opportunity of comparing the bulk with the sample (§ 15).-The

main object of sale is the transfer of ownership from seller to buyer, and it is often both a difficult and an important matter to Effects of determine the precise moment at which the change of C “tract ownership is effected. According to Roman law, which 1S ° ' still the foundation of most European systems, the property in a thing sold did not pass until delivery to the buyer. Traditionibus et usucapionibus dominia rerum, non nudis pactis, transferuntur. English law has abandoned this test, and has adopted the principle that the property passes at such time as the parties intend it to pass. Express stipulations as to the time when the property is to pass are very rare. The intention of the arties has to be gathered from their conduct. A long train of judiciai] decisions has worked out a more or less artificial series of rules for determining the presumed intention of the parties, and these rules are embodied in sections 16 to 20 of the act. The first rule is a negative one. In the case of unascertained goods, i.e. goods defined by description only, and not specifically identified, “ no property in the goods is transferred to the buyer unless and until the goods are ascertained." If a man orders ten tons of scrap iron from a dealer, it is obvious that the dealer can fulfil his contract by delivering any ten tons of scrap that he may select, and that until the ten tons have been set apart, no question of change of ownership can arise. But when a specific article is bought, or when goods ordered by description are appropriated to the contract the passing of the property is a question of intention. Delivery to the buyer is stron evidence of intention to change the ownership, but it is not conciusive. Goods may be delivered to the buyer on approval, or for sale or return. Delivery to a carrier for the buyer operates in the main as a delivery to the buyer, but the seller may deliver to the carrier, and yet reserve to himself a right of disposal. On the other hand, when there is a sale of a specific article, which is in a fit state for delivery, the property in the article prima facie passes at once, even though delivery be delayed. When the contract is for the sale of unascertained goods, which are ordered by description, the property in the goods passes to the buyer, when, with the express or implied consent of the parties, goods of the required description are “ unconditionally appropriated to the contract.” The cases which determine what amounts to an appropriation oi goods to the contract are numerous and complicated. Probably they could all be explained as cases of constructive delivery, but at the time when the law of appropriation was worked out the doctrine of constructive delivery was not known. It is perhaps to be regretted that the codifying act did not ado t the test of delivery, but it was thought better to adhere to the famiiiar phraseology of the cases. Section 20 deals with the transfer of risk from seller to buyer, and lays down the prima facie rule that “ the goods remain at the seller's risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not.” Res perit domino is therefore the maxim of English, as well as of Roman law.

In the vast majority of cases people only sell what they have a right to sell, but the law has to make provision for cases where a man nu sells goods which he is not entitled to sell. An agent may e' misconceive or exceed his authority. Stolen goods may be passed from buyer to buyer. Then comes the question, Which of two innocent parties is to suffer? Is the original owner to be permanently deprived of his property, or is the loss to fall on the innocent purchaser? Roman law threw the loss on the buyer, Nemo plus juris in alium' transfer re poles! quam ipse habet. French law, in deference to modern commerce, protects the innocent purchaser xxiv. 3, 5

and throws the loss 'on the original owner. “ En fait de meubles, possession vaut titre" (Code civil, art. 1599). English law' is a. compromise between these opposing theories. It adopts the Roman rule as its guiding principle, but qualihes it with certain more or less arbitrary exceptions, which cover perhaps the majority of the actual cases which occur (§§ 2I to 26). In the first place, the provisions of the Factors Act, 1889 (52 and 53 Vict. c. 45, extended to Scotland by 53 and 54 Vict. c. 40), are preserved. That act validates sales and other dispositions of goods by mercantile agent acting within the apparent scope of their authority, and also protects innocent-purc asers who obtain goods from sellers left in possession, or from intending buyers who have got possession of the goods while negotiations are pending. In most cases a contract induced by fraud is voidable only, and not void, and the act provides, accordingly, that a voidable contract of sale shall be avoided to the prejudice of an innocent purchaser. The ancient rivilege of market overt* is preserved intact, section 22 providing that “ where goods are sold in market overt, according to the usage of the market, the buyer acquires a good title to the goods provided he buys them in good faith, and without notice of any defect or want of title on the part of the seller." The section does not apply to Scotland, nor to the law relating to the sale of horses which is contained in two old statutes, 2 85? Phil. and Mar. c. 7, and 31 Eliz. c. 12. The minute regulations o those statutes are never complied with, so their practical effect is to take horses out of the category of things which can be sold in market overt. The privilege of market overt applies only to markets by prescription, and does not attach to newly created markets. The operation of the custom is therefore fitful and capricious. For example, every shop in the City of London is within the custom, but the custom does not extend to the greater London outside. If then a man buys a stolen watch in Fleet Street, jhe may get a good title to it, but he cannot do so if he buys it a few doors off in the Strand. There is, however, a qualification of the rights acquired by purchase even in market overt. When goods have been stolen and the thief is prosecuted to conviction, the property in the goods thereupon revests in the original owner, and he is entitled to get them back either by a summary order of the convicting court or by action. This rule dates back to the statute 2I Hen. VIII. c. Il. It was- probably intended rather to encourage prosecutions in the inti rests of public justice than to protect people whose. goods were sto en.

Having dealt with the effects of sale, first, as between seller and buyer, and, secondly, as between the buyer and third parties, the act proceeds to determine what, in the absence of convention, are the reciprocal rights and duties of the P°"f°"” parties in the performance of their contract (§§ 27 to 37). ance “ It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale " (§ 27). In ordinary cases the seller's duty to deliver the goods is satisfied if he puts them at the disposal of the buyer at the place of sale. The normal contract of sale is represented by a cash sale in a shop. The buyer pays the price and takes away the goods: “ Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions ” (§ 27). But agreement, express or implied, may create infinite variations on the normal contract. It is to be noted that when goods are sent to the buyer which he is entitled to reject, and does reject, he is not bound to send them back to the seller. It is sufficient if he intimate to the seller his refusal to accept them (§ 36).

The normal theory of sale is cash against delivery, but in the great majority of actual cases, especially in commercial transactions, this theory is departed from in practice. The interests of the seller are therefore protected by two rules—namely, R'3”t' °f those as to lien and as to stoppage in tmnsitu. In the gnlfam absence of any different agreement, as, for instance, where Q ers there is a stipulation for sale on credit, the unpaid seller has a right to retain possession of the goods until the price is paid or tendered. The right may, of course be waived, even when it is not negatived by the contract. It is to be noted that when the seller takes a bill of exchange or other negotiable instrument for the price, the instrument operates as conditional payment. On the dishonour of the instrument the seller's rights revive (§§ 38-43). If the buyer becomes insolvent the unpaid seller has a further right founded on ancient mercantile usage. He may have parted with both the propert in and possession of the goods sold, but he can attach the goods as fimg as they are in the hands of a carrier or forwarding agent, and have not reached the actual possession of the seller or his immediate agent. "Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in trfznxitrlthat is to say, he may resume possession of the goods as long as they are in course of transit, and may retain them until payment or tender of the price ” (§ 44). The right of stoppage, however, cannot be exercised to the prejudice of third parties to whom the bill of lading or other document of title to goods has been lawfully transferred for value (§ 47).

The ultimate sanction of a contract is the legal remedy for its 1 That is, “ open market, " where the goods on sale are exposed to view.

~~ ll breach. Seller and buyer have each their appropriate remedies. If the property in the goods has passed to the buyer, or if, under the contract, “ the price is payable onaday certain irrespective of delivery, " the seller's remedy for breach of the con-Zndféuer tract is an action for the price (§ 49). In other cases his remedy is an action for damages for non-acceptance. In the case of ordinary goods of commerce the measure of damages is the difference between the contract price and the market or current rice at the time when the goods ought to have been accepted. gut this test is often a plicable. For instance, the buyer may have ordered some article oi) special manufacture for which there would be no market. The convenient market-price rule is therefore subordinate to the general principle that “ the measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract " (§ 56). Similar considerations apply to the buyer's right of action for non-delivery of the goods (§ 51). Section 52 deals with a peculiar feature of English law. In Scotland, as a general rule, a party who complains of a breach of contract is entitled to claim that the contract shall be specifically performed. In England a court of common law could only award damages, and apart from certain recent statutes, a claim for specific performance could only be entertained by a court of equity in a very narrow class of cases when the remedy by damages was deemed inadequate. But now, underthe act of 1893, “ in any action for breach of contract to deliver specific or ascertained goods the court may, if it thinks fit, direct that the contract shall be performed specifically without giving the defendant the option of retaining the goods on payment of damages." The buyer who complains of a breach of warranty on the part of the seller has two remedies. He may either set up the breach of warranty in reduction of the price, or he may pay the price and sue for damages. The prima facie measure of damages is the difference between the value of the goods at the time of delivery and the value they would have had if they had answered to the warranty (§ 53).

The sixth part of the act is supplemental, and is mainly concerned with drafting explanations. but section 58 contains some rules for regulating sales by auction. It prohibits secret bidding on behalf of the seller to enhance the price, but is silent as to combination by buyers to reduce the price. Such a combination, commonly known as a “ knock out," is left to be dealt with by the ordinary law of conspiracy.

The Sale of Goods Act 1893 was the third attempt made by the English parliament to codify a branch of commercial law. It would be out of place here to discuss the policy of mercantile codification, but it may be noted that there are very few reported cases on the construction of the act, so that its interpretation does not seem to have given rise to difficulty. As has been noted above, the act preserves some curious anomalies and distinctions between English and Scottish law. But the amendments required to remove them would be few and simple, should the legislature ever think it worth while to undertake the task.

United States.—The law as to the sale of real estate agrees generally with English law. It is considerably simplified by a system of registration. The covenant of warranty, unknown in England, is the principal covenant for title in the United States. It corresponds generally to the English covenant for quiet enjoyment. The right of Judicial sale of buildings under a mechanic's lien for labour and materials is given by the law of many states. The sale of public lands is regulated by Act of Congress. In the law of sale of personal property American law is also based upon English law. The principal differences are that the law of market overt is not recognized by the United States, and that an unpaid vendor is the agent of the vendee to resell on non-payment, and is entitled to recover the difference between the contract price and the price of resale. Warranty of title is not carried as far as in England. United States decisions draw a distinction between (goods in the possession and goods not in the possession of the vendor at the time of sale. There is no warranty of title of the latter. The Statute of Frauds has been construed in some respects differently from the English decisions. As to unlawful sales, it as been held that a sale in a state where the sale is lawful is valid in a state where it is un-lawful by statute, even though the goods are in the latter state.

The ordinary text-books on the law of sale are constantly re-edited and brought up to date. The following among the others may be consulted: Benjamin's Sale of Personal Property; Blackburn's Contract of Sale; Campbell's Law of Sale and Mercantile Agency; Brown's Sale of Goods Act (Scotland); Chalmers's Sale of Goods Act; Moyle's Contract of Sale in the Civil Law; E. J. Schuster's Principles of German Civil Law; Beddarride's Des achats et venues commerciales; Story's Sale of Personal Property (United States).  (M. D. Ch.)