b260 - unit 5 the sale of goods ordinance (sogo)

b260 - unit 5 the sale of goods ordinance (sogo) B260 - Unit 5 The Sale of Goods Ordinance (SOGO) INTRODUCTION , The Sale of Goods Ordinance (SOGO) only applies to a „contract for the sale of goods?. The supply of services is, on the other hand, governed by: Unconscionable Contracts Ordinance, the Supply of Services (implied Terms) Ordinance, and the Control of Exemption Clauses Ordinance , Caveat Emptor - Before the introduction of SOGO, the law had placed all responsibility on the purchaser of goods: caveat emptor („let the buyer beware?) was the accepted attitude. However, ththindustrialisation in the 18-19 century has raised the demand for minimum standards imposed as a matter of law for sales contract. , Purpose of SOGO - The legislation of SOGO was designated to provide a legal framework for the relationship between the buyer and the seller of goods, implies certain rights and duties on the part of the buyer and the seller, and provides remedies in the event of either the buyer or the seller breaching the contract. , Contract of Sale of Goods SOGO defines a contract of sale* of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale. But, where the transfer of the property in the goods is to take place at a future time or subject or some condition there after to be fulfilled, s.3(3) of SOGO defines such contract as an agreement to sell. The following contracts are not contracts of sale: (a) a contract of barter or exchange, since the definition of a sale refers to the payment of a price. However, part-exchange may be a sale if a significant proportion of the consideration is in money form. (b) a contract of hire, since the property does not pass, and is not intended to pass. (c) a contract of hire-purchase, which is a contract of hire until the clause in the contract which stipulates how the hirer becomes because the purchaser is fulfilled. (d) a contract of the use of skill and materials - provision of services. , Goods SOGO only applies to a contract for the sale of goods. It defines “goods” as items of tangible personal property which includes such things as jewellery, cars, furniture and equipment. However, personal property in form of things in action or „choses in action?(e.g. bills of exchange, cheques, share certificates, debentures) and money are excluded from the definition. The Ordinance also excludes the followings:- , Contracts for the exchange or barter of goods. Norman Cheung B260 Unit5_SOGO 1 , Contracts for the provision of services (also known as contracts for work and materials). , Contracts of hire, or hire-purchase. , Mortgages and other forms of security for the loan of money. , Land, building and things attached to buildings such as lighting and air-conditioning systems. , Conveyancing transactions dealing with the buying and selling of apartments. , Consumer Sale A consumer sale is a sale of goods used for private consumption by a retailer to a member of the public. A consumer sale means: , that the person buying must not be buying in the course of business. , that the seller must be selling in the course of business, and , that the goods involved must be of the type ordinarily supplied for private consumption. Two private individuals who make a contract for the sale of goods are covered by SOGO, but this is not consumer sale, since two private people do not sell in the course of business. Similarly, two business people, both of whom sell and buy in the course of their respective business dealings, are covered by SOGO, since it is a business transaction, not a consumer sale. CONSUMER PROTECTION UNDER SOGO - The Five Implied Terms of SOGO , There are basically five conditions specified by SOGO, which imply into every contract for the sale of goods to a consumer:- 1. Seller’s Right to Sell Goods (Title of the goods) By section 14 (1a)of SOGO, there is an implied condition that the seller has the right to pass good title to the goods. The Ordinance (section 14, 1b) also provides that there is an implied warranty that the goods are free from any claims by third parties and that the buyer will have quiet possession of the goods, other than disturbances caused by any encumbrances revealed at the time of the contract. 2. Sales by Description Section 15 of SOGO provides that where goods are described, there is an implied condition that the goods will correspond with the description. Section 15 applies even if the goods are exposed for sale and selected by the buyers (e.g. consumer pick the goods from shelves of a ship). Description covers size, quantity, weight, ingredients, origin, and even packaging details. 3. Merchantable Quality - Merchantable quality means that the goods have to be as fit as it is reasonable to expect them to be for the purpose or purpose for which they are commonly bought as is reasonable to expect having regard to any description applied to them, the price (if relevant), and all the other relevant circumstances. Under section 16 (2) of SOGO, where goods are sold in the course of business there is an implied condition that those goods are of merchantable quality unless the defects: are brought specifically to the buyer?s attention before the contract is made, or Norman Cheung B260 Unit5_SOGO 2 if the buyer examines the goods before the contracts is made, as regards defects that examination ought to reveal. 4. Fitness for Purpose Section 16 (3) of SOGO provides that where goods are sold in the course of business and the buyer makes known to the seller the purpose for which goods are being bought there is an implied condition that the goods are reasonably fit for that purpose, except where the circumstances show that the buyer does not rely, or that is unreasonable for him rely, on the skill or judgement of the seller. Where the purpose for which the goods are required is obvious, it need not be made known expressly because it is clearly implied. 5. Sales by Sample Section 17 of SOGO provides that in a contract for sale by sample there is an implied condition that: , the bulk will correspond with the sample in quality, , the buyer will have a reasonable opportunity of comparing the bulk with the sample; and , the goods will be free from defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. If a sale is by sample & description the goods supplied must correspond with both the sample & the description. , Through these 5 implied conditions, SOGO lays down the implied duties of the sellers in every contract for sales of goods. 1, As mentioned by Anne Carver in our text book, SOGO only deals with the minimum conditions as to description, merchantable quality, fitness for a particular purpose, and correspondence with sample, which a consumer relying on a product?s good name might expect. Sections 14-17 of the Ordinance, the „consumer sections?, specify that these basic conditions cannot be excluded in consumer sales (sales by a business to a private consumer). However, the protection provided by SOGO to consumers is limited in the sense that the ordinance does not apply to situations outside its ambit, for example, contracts for services, contracts of hire purchase, contracts for work and materials. CONSUMER PROTECTION UNDER COECO - The Control of Exemption Clauses Ordinance , Another important issue concerning the consumer protection is the effect of exemption clauses in a consumer sales contract. An exemption clause is a term in a contract which seeks to exempt 2one of the parties from liability with respect to a breach of contract, negligence, or theft of goods. Exemption clauses are regarded as fair in courts when they are the result of negotiations between the parties, the parties have equal bargaining power, and their intentions are clear. Before the Control of Exemption Clauses Ordinance was passed in HK, exemptions clauses would probably be successful in excluding liability, provided the common law test of reasonableness had been complied with by the business person attempting to impose the clause on a consumer - i.e. the Norman Cheung B260 Unit5_SOGO 3 clause had been incorporated into the contract, proper notice had been given it was clearly written, and there had been no misrepresentation. , With the existence of exemption clause, it is a common scenario that a contract on standard form contains exclusion clauses drafted to the advantage of the stronger contracting party who prepares it and submits it to the other on a “take-it-or-leave-it” basis. Such contract creates unfairness to the weaker party who hardly finds the minimum protection from the terms of the contract. We are sometime surprised by the power of exemption clause such as in the case of 3Photo Production Ltd v Securicor Transport Ltd (1980), in which a harsh exemption clause could be considered reasonable and effective, even though the damage was caused by a fundamental breach of the contract. , The CECO has been grafted on to the pre-existing common law rules in force in HK including: 1. The exclusion clause must be incorporated into the contract. A person who signs a document is presumed to have read and understood the terms of the contract. 2. If the meaning or scope of the exemption clause is misrepresented by the business to the consumer, then the business cannot escape liability. 3. The person seeking to rely on the exemption clause must be able to show that reasonable steps have been taken to bring the clause to the notice of the other party. 4. If there has been a previous course of dealing between the parties which included an exclusion clause, then this may have been incorporated into the new contract. , As the operation of exemption clauses often deprive a consumer of virtually all his rights, the CECO was therefore introduced to prohibit absolutely attempts to exclude liability for death or personal injury and to place limitations on unfair exemption clauses used in the course of a business. The CECO provides consumer protection primarily in following areas:- Negligence Liability. In section 7 of CECO, the exemption of liability for death or personal injury caused by negligence is totally prohibited while liability for other sorts of loss caused by negligence depends on the reasonableness of the exemption. ………… ……………….……### Reasonableness Test. “Reasonableness” is defined in section 3 of the Ordinance, the most important points being that the term must have been reasonable given the state of knowledge of the parties at the time when the contract was made, and that it is for the party claiming that the clause is reasonable to prove this. In schedule 2 of the Ordinance, there are also 5 guidelines for application of reasonable test:- , the strength of the bargaining positions of the parties relative to each other, taking into account alternative means by which the customer’s requirements could have been met; , whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term; , whether the customer knew or ought reasonably to have known of the existence and extent of the term; Norman Cheung B260 Unit5_SOGO 4 , whether the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; , whether the goods were manufactured, processed or adapted to the special order of the customer. Miscellaneous contracts under which goods pass , Apart from handling the abuse of exemption clauses, the CECO also aims to deal with the areas that are not covered by SOGO. Since SOGO covers the sales contracts of goods only, it do not governs those of work & materials, and services. The CECO describes these contracts as “miscellaneous contracts under which goods pass” in section 12. The CECO now provides that in contracts involving goods of any sort, whether under hire contracts or purchase arrangement - the implied SOGO sections 14, 15, 16, and 17 are also implied. …………………………………..### , “Miscellaneous contracts under which goods pass” is the phrase used in the CECO to include any contract dealing with goods but which does not constitute a sale of goods for the purpose of SOGO. Examples would be the hiring of a television set, the making of a sculpture for a millionaire, or the exchanging of goods. None of these are „sales? as such, but they all deal with the passing of goods in one way or another, and sections 15, 16, and 17 of SOGO are now implied in the case of consumer sales. Consumers and Non-consumers. The CECO gives different degree of protection to consumers and non-consumers. A consumer is defined by CECO as someone who enters into a contract in his private capacity with someone who is conducting business. The „seller’s liability? section of the Ordinance provides that:- , Liability for breach of the obligations arising from s.14 of SOGO cannot be excluded by any exemption clauses (for both consumer and non-consumer). , As against a person dealing as consumer liability for breach of the obligations arising from section 15, 16 or 17 of the SOGO cannot be excluded by any exemption clauses. , As against a person dealing otherwise than as a consumer, liability for breach of the obligations arising from section 15, 16 or 17 of the SOGO can be excluded by exemption clause, but only in so far as the term satisfies the requirement of reasonableness. ………………………………………………………### “Guarantee” of Consumer Goods. Section 10 of CECO provides that liability for the loss or damage resulting from negligence can no longer be excluded or restricted in a „guarantee? given with consumer goods. ……………………………………………………#### , Purpose of CECO - is to limit the extent to which civil liability for breach of contract, or for negligence or other breach of duty, can be avoided by means of contract terms or exemption clauses. , Effectiveness of the CECO - Obviously, the legislation of CECO had reinforced the consumer protection provided by SOGO. However, CECO is not a completely effective consumer protection law, in the sense that it is not oriented to that purpose. While it is effective in controlling the Norman Cheung B260 Unit5_SOGO 5 abuse of exemption clauses, there are many other abuses of the consumer which are not addressed e.g. unconscionable transactions, inferior quality goods and services, overly high pricing, baiting and switching, lack of product support or servicing, high interest rates and penalties with respect to loans and installment payment transaction, etc. THE LEGAL FRAMEWORK OF SOGO Ground-rules for SOGO , SOGO sets out rules for business people to use if they so wish; however, it is more often the case that the rules will apply unless the parties expressly change them. , Seller’s duty: Deliver the right quantities of goods. Deliver goods of the right kind. Deliver goods of merchantable quality. , Buyer’s duty: Accept the goods in accordance with the contract. To pay the price, which must be a reasonable price if none has been agreed. , s.37(1) SOGO provides that acceptance of the goods is deemed to take place when the buyer: a) indicates to the seller that he has accepted them, b) acts as if he was the owner of them (the buyer does something that is inconsistent with the legal title remaining with the seller, e.g. selling the goods to someone else), or c) retains the goods for longer than is reasonable without indicating to the seller that he has rejected them. When a buyer has accepted the goods in accordance with s.37(1), he has lost his right to reject the goods for breach of condition. His only remedy will be in damages. , In law, taking delivery of the goods is not the same as accepting goods. The buyer does not lose his rights to repudiate the contract just by taking delivery. However, on accepting the goods, the buyer loses the right to reject the goods, and sue for the breach of a condition. The buyer?s remedy is limited to a claim for a breach of warranty, and the buyer must continue with the contract and perform his obligation under it. CONCEPT CHART ON SOGO AND CECO SOGO CECO - For Non-Consumer CECO - For Consumer S.14 - Titles of Goods Breach of the implied terms arising Breach of the implied terms arising from S.14 CANNOT be excluded from S.14 CANNOT be excluded by exemption clause for both by exemption clause for both consumer and non-consumer consumer and non-consumer S.15 - Sales by Description May be exempted, But subject to the Cannot be exempted. test of reasonableness. S.16 (2) - Merchantable Quality May be exempted, But subject to the Cannot be exempted. test of reasonableness. S.16 (3) - Fitness for Purpose May be exempted, But subject to the Cannot be exempted. test of reasonableness. Norman Cheung B260 Unit5_SOGO 6 S.17 - Sales by Sample May be exempted, But subject to the Cannot be exempted. test of reasonableness. Contracts of work and materials The terms of S. 15, 16 and 17 are not The terms of S. 15, 16 and 17 are not included for protection of implied in case of non-consumer now implied in case of consumer consumer sales under section 15, sales for “Miscellaneous contracts sales for “Miscellaneous contracts 16, and 17 of SOGO under which goods pass” under which goods pass” Negligence Liability for death or Negligence Liability for death or personal injury cannot be exempted personal injury cannot be exempted Guarantee of Consumer Goods - S.10 of CECO provides that liability for the loss or damage resulting from negligence can no longer be excluded in a „guarantee? given with consumer goods. CONDITIONS AND WARRANTIES IN SOGO , Conditions - a breach of a condition usually give the injured party the right to treat the contract as repudiated (as an end). And sue for damages from the breach. , Warranties A breach of a warranty gives the injured party the right to claim for damages and not to treat the contract as at an end. A warranty is a term concerning a fact or a promise which is a less important aspect of the contract, and therefore only entitles the injured party to sue for damages. The result for the injured party is that the contract remains binding on both parties, and both must continue with their respective obligations. SOGO also provides the following as implied warranties: a) Time of payment - this is only an implied warranty unless the parties agree to make it a condition. b) Time of delivery - again, this is only an implied warranty unless the parties expressly agree. c) Place of delivery - this is the seller?s place of business or the seller?s residence. If the parties wish to make another place of delivery an important term, i.e. a condition, they can do so; otherwise, SOGO implies that delivery will be at the seller?s place of business. OWNERSHIP OF GOODS AND SOGO , SOGO provides that he seller can arrange to keep legal title in the goods while delivering physical possession of the goods tot he purchaser. Obviously if the purchase price has been paid, this is unnecessary, but in many sales of goods on credit it is absolutely essential for the protection of the seller. , In some cases, the goods may have been destroyed before they have actually been paid for. If they are still legally in the seller?s name, the seller will have to bear the loss. If they are in the buyer?s name, then the buyer must bear the loss. , There are 2 reasons why it is important to know when the property passes: a) All goods are at risk to some extent, and s.22 SOGO provides that unless otherwise agreed, the risk passes when the property passes. Goods are at the seller?s risk until the property Norman Cheung B260 Unit5_SOGO 7 (ownership) passes to the buyer, and then they are at the buyer* risk, whether the actual delivery of the goods has taken place or not. b) The price may only be recovered by the seller once the property in the goods has passed to the buyer. , General Rule: s.19 SOGO provides that property (ownership) passes when the parties intend that it shall pass. For the purpose of ascertaining the intention of the parties, regard will had to the terms of the contract, the conduct of the parties, and the circumstances of the case. , Golden Rule Goods can be either existing or future goods. Ascertained and unascertained goods - If they exist, they can be either ascertained (i.e. chosen and specified and set aside for the buyer) or unascertained (as for example, goods sitting in the seller?s warehouse along with other customers? goods, waiting for the seller to select them). Appropriation of the goods - SOGO calls the process of selecting goods for the buyer , and setting them aside so that they are ready for the buyer, „appropriation of the goods? by the seller. If the seller has not appropriated the goods , there are no goods as such in which to pass legal title. The rule is therefore that the seller can never pass legal title to unascertained goods to the purchaser. , If the goods are sitting unascertained in the seller?s warehouse and they are destroyed by fire, there can be no frustration of the contract. The seller is therefore obliged to find more goods from whatever available source and to continue to perform the contract. , If the goods are specific, that is, ascertained to the purchaser and legal title has passed (if the parties has so agreed), then the contract can be frustrated. , Legal ownership cannot pass until the goods have been ascertained. , In cases where it is not possible to ascertain the intention of the parties, s.20 SOGO provides the following rules: Rule 1 Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed. Rule 2 Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such things be done and the buyer has notice thereof. Rule 3 Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing be done and the buyer has notice thereof. Norman Cheung B260 Unit5_SOGO 8 Rule 4 When goods are delivered to the buyer on approval or „on sale or return? or other similar terms the property therein passes to the buyer: a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction; b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if no time has been fixed for the return of the goods, on the expiration of a reasonable time. What is a reasonable time is a question of fact. Rule 5 a) Where there is a contract for the sale of unascertained of future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. b) Where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. Practical Consequences - If the seller is bound to do something to the goods to put them in a deliverable sate, then the legal title and risk in the goods do not pass until the seller has done whatever is necessary to put them into such a deliverable state and informed the buyer that goods are now ready. THE GENERAL RULES ON PASSING OF TITLE AND RISK , Legal title, or property, in the goods usually passes when the seller gives physical possession of the goods to the buyer, but the parties can decide otherwise. , Risk in goods generally passes with the legal title or ownership in the goods, but the parties can negotiate whatever term they see fit as to the passing of risk. REMEDIES OF THE SELLER , If the property has passed to the buyer , the seller can sue the buyer for the price of the goods - that is, what they cost at the date the contract was made (the full contract price). , If the property has not passed to the buyer, the seller can only sue the buyer for non-acceptance of the goods. The measure of damages is the estimated loss directly and naturally arising, in the ordinary course of events, form the buyer?s breach of contract. If there is an available market, the measure of damages is the difference between the contract price on the day when the goods ought to have been accepted or , if no time was fixed for acceptance, at the time the buyer refused to accept the goods. If there is no available market, the damages will be estimated on the basis of the seller?s loss of the bargain. REMEDIES OF THE BUYER , Damages for Non-delivery of the goods - if the seller wrongfully refuses to deliver the goods, the buyer can claim damages for non-delivery. The measure of damages is, as you would expect, the Norman Cheung B260 Unit5_SOGO 9 same as the estimated loss arising naturally from the circumstances, as stated in the rule in Hadley v Baxendale. As a general rule, loss of profit to a third party on a resale of the goods is ignored. , Special Performance - Where the contract is for the delivery of specific or ascertained goods, the buyer can sometimes get an order for specific performance. The remedy of specific performance is only granted where the goods are unique and unobtainable from elsewhere. , Damages for breach of warranty - The measure of damages for breach of warranty is the estimated loss arising directly and naturally from the ordinary course of events from the breach of warranty. If the contract involves some special event or special circumstances and the parties have told each other about this, then these additional special circumstance can be added on to the claim for breach of warranty. Norman Cheung B260 Unit5_SOGO 10