commercial practice coursework

Contract Practice Coursework

In the first scenario Chan has contracted with Strapit Ltd for 25 ‘Rowlex’ brand watches. As there is only one type of this watch made and when Chan contracted for the watches the goods were identified and agreed upon by both parties at the time the contract was made, they are known as specific goods.

These goods can also classed as future goods, as they need to be acquired from Strapit’s regular supplier after the contract was made. It has been suggested that future goods can never be specific, but it now seems that future goods can be specific for some, but not all purposes. In Section 5(3) of the Sale of Goods Act 1979 states that “where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.” Therefore this means that at the point which Strapit enters into a contract with Chan, they do not own the goods. This means that there is no sale but an agreement to sell and property cannot pass until existing or when the condition is fulfilled, in this case it would be fulfilled when delivery of the watches arrived at Strapits premises.

The rules relating to the transfer or property can be found in Sections 16, 17 and 18 of the Sale of Goods Act 1979.

Section 16 is involving unascertained goods and with not apply.

Section 17 is involved with intention of the parties as to when property will pass. In specific goods, property usually passes at the time the contract is made, unless there is any contrary intention. As already mentioned the goods are also classed as future goods, therefore property will not pass until they are acquired by Strapit. Under Section 17(1) it states that, “where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.”

On the facts of the scenario it is not clear when property was intended to be transferred between the parties. It would seem logical that it would transfer once Strapit had received the order on their premises.

Therefore Section 18 is needed to be taken into account, to see if Strapit did intend for property transfer once goods were acquired by them. Rule one of this section will not apply from the offset as it involves specific goods only and future goods cannot be governed by this rule as Strapit do not own the goods at the point of the contract being made. The parties cannot intend property in future goods to pass when the contract is made and there should be intention that property should not pass at least until the goods are acquired by the ...

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Under Section 18, rule five is needed to be looked at regarding future goods, it states, “ where there is a contract for the sale of unascertained or future goods by description, and goods of that description 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 then passes to the buyer, and assent may be express or implied, and may be given either before or after appropriation is made.”

The goods have already been said to have been identified in accordance with the agreement at the time the contract was made, therefore ascertainment is not necessary. The main area that is needed to be discussed is the issue of unconditionally appropriation; this is usually what is known as the last act to be performed by the seller. Appropriation requires particular goods to be irrevocably earmarked for the performance of the contract, once so appropriated the seller cannot tender other goods without the consent of the buyer. This was shown in the case of Carlos Federspiel v Charles Twigg and Co. Ltd contracted for a consignment of bicycles to the buyer. The contract required the seller to ship the goods, which had bee paid for in advance. The bicycles were completed and packed in crates bearing the buyers name, but were then unpacked and the seller refused to deliver them. The buyer tried to argue that property had passed and that the goods had been appropriated to the contract when they were packed away. It was held that up until shipment, the seller could be reasonably expected to change his mind and allocate the bicycles to another contract.

Unfortunately for Chan the goods have not been so appropriated or irrevocably earmarked, as Strapit are still entitled to change their mind and allocate the goods to another contract.

Strapit can argue frustration under Section 7 of the Sale of Goods Act 1979,

“ where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.”

The goods can be seen to be perished even if they are stolen or there is a partial theft. This was shown in the case of Barrow Lane & Ballard Ltd v Phillip Phillips & Co Ltd the seller had contracted to sell 700 bags of nuts and it was held the contract was void under this section when it was discovered 109 bags had been stolen. However this can cause potential problems as stolen property can be recovered and would seem unfair on parties like Chan as the contract being frustrated and the contract avoided for this reason.

This is an argument in favour of Chan, which is the common law area of frustration may be used. As the goods need to be specific under Section 7, they cannot be treated as specific in one area and then not allowed under Section 18, rule one. Under common law frustration a more flexible and equitable result can be achieved as it takes into account whether the contract is impossible to perform. In the case of HR&S Sainsbury Ltd v Street there are three rules set out on the position if only part of the goods have perished, one of the rules states that the seller, in this case Strapit is required to offer the buyer, Chan those goods that are available, therefore the 15 watches that are left from the consignment.

The goods in the second scenario are classed as unascertained goods as they have not been indentified and agreed upon at the time the contract of sale is made. They are unidentified part of an indentified whole, as there are 1000 identical straps and Chan has only contracted to buy 200.

Section 20 A and B are relevant in this scenario, as it involves a Sale of Goods forming part of a bulk. This section of the Sale of Goods Act 1979 applies where there is a contract for the sale of a specified quantity of unascertained goods forming part of an indentified bulk, the buyer is able to obtain property in an undivided share and become an owner in common of the bulk. There are four requirements set out that Chan needs to satisfy to qualify under this section. The first requirement being that Chan must have agreed to purchase a specified quantity of unascertained goods, which he has purchased 200 watch straps out of 1000 unascertained straps.

The second requirement is that the goods must form part of a bulk, which is defined in the Act under Section 61(1), “a mass or collection of goods of the same kind which is contained in a defined space or area and is such that any goods in the bulk are interchangeable with nay other goods there in of the same number or quality.”

The third requirement is that the bulk must be identified either in the contract or by subsequent agreement of the parties; Chan was shown the plastic crate containing the 1000 watch straps produced by Tanner and was told he could have 200 of these straps on payment. The final requirement is that Chan must have paid for some or all of the relevant goods, and it is stated in the scenario that he has paid £1,000 in cash.

The effect of Section 20 A and B is that Chan will then become an owner in common of the whole bulk, which simply means that a co-ownership is created and he owns a property share in the bulk of watch straps. Under Section 20A (3) it sets out that, “ in effect these sections create, subject to contrary agreement, a statutory form of tenancy in common providing the buyer with property in the same proportion of the bulk as the amount for which he has paid bears to the actual amount of the bulk at any time.”

The size of Chan’s share depends upon the amount of goods which he has paid for and the amount of goods in the bulk at the time. Therefore, this means that due to the stolen 300 straps and the 400 of Stephens’s straps taken from the bulk of 1000 straps, there are only 300 straps that remain.

The shares are worked out by proportionate reduction when the bulk is deemed insufficient to meet all the buyers’ claims. Chan and Terry both want 200 straps each out of the 300 straps that remain, however, Terry has not been told that his straps will be ordered from this existing stock and may not satisfy the third requirement set out above, that his bulk has not been identified. If this is the case Chan would be entitled to the 200 straps he had contracted for out of this bulk of 300.

If it is found that Terry is a tenant in common, they both have an equal share ratio in the property and therefore should get 150 straps each.

As Chan is a co-owner he is able to deal freely with his share of the goods and Section 20B facilitates dealings with the bulk. It states that each person who becomes a co-owner is deemed to consent to, “any removal, dealing with, delivery or disposal of goods in the bulk by any other person who is an owner in common of the bulk...”

No action can be taken against a person who acts under deemed consent and Chan would not have to compensate Terry for any shortfall in the quantity he receives, for example if Terry’s watch straps were found to be identified from the same bulk as Chan, who had already taken out 200 straps owed to him under the contract, then Chan would be safe for any action that could be bought against him. This section can therefore be summarised as ‘first come, first served,’ and Chan could receive all 200 straps which he has paid for.