73 |
8â Contracts for the transfer of property or possession |
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monetary value to the goods to be used as payment may be a factor in deciding |
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whether the resultant contract is one of sale or one of barter but is not conclu- |
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sive on the point, and whether any given contract is properly classed as a con- |
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tract of sale may depend ultimately on the intention of the parties rather than |
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on what percentage of the purchase price is to be paid in money as opposed |
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to goods. In Aldridge v. Johnson,39 the parties exchanged 32 bullocks valued at |
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£192 for 100 quarters of barley valued at £215, the balance of £23 being paid in |
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cash, it being held that the parties intended the arrangement to be for reciprocal |
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sales of the goods, effectively two contracts of sale with the proceeds being off- |
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set against each other. In the most common modern example of part-exchange, |
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namely, the part-exchange of motor vehicles whereby the purchaser of a new |
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car will use his old car and cash to constitute the consideration for the new |
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car, the courts have assumed that it is a contract of sale if that appears to be |
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the intention of the parties. However, it was held by the Irish Supreme Court in |
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Flynn v. Mackin40 that where no monetary value had been attached to either the |
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new vehicle or the one to be provided in part-exchange, it was a contract of bar- |
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ter rather than sale.41 |
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The provision of a ‘free gift’ raises a different issue as regards consideration. |
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If there is truly no consideration provided for the gift, then clearly there cannot |
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be a contract of sale or, indeed, any other contract. However, the situation is dif- |
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ferent where the provision of the gift is dependent upon the purchaser entering |
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a contract for the purchase of something else, as is often the case in marketing |
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campaigns. The precise nature of the contract under which the ‘free gift’ is pro- |
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vided was considered by the House of Lords in the much quoted decision in |
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Esso Petroleum Ltd v. Commissioners of Customs and Excise.42 The case related |
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to the provision by garages of a free commemorative coin bearing the likeness |
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of an England World Cup football player with every four gallons of petrol pur- |
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chased. Lord Simon was of the opinion that this constituted a collateral con- |
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tract in which the consideration for the free coin was the purchase of the petrol, |
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a view shared by Lord Wilberforce. However, this view was not shared by all of |
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the Law Lords. |
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Q5 Analyse the various ways in which non-monetary consideration can be |
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provided. |
8â Contracts for the transfer of property or possession
The transfer of the possession of goods, as opposed to the property in them, may occur both in situations where there is no intention that the property will ever pass, e.g., hire contracts, and also where there is no intention to pass
39(1857) 7 E & B 885, Court of Queen’s Bench.
40[1974] 1 IR 101.â 41â This decision has been criticised.
42[1976] 1 All ER 117.
74 Sale of goods policy
property immediately but where there is the potential for it to pass at some point in the future but with no certainty that it ever will, e.g., hire-purchase contracts. These contracts, while similar in appearance to contracts of sale and may indeed attract similar rights and responsibilities, are not classed as contracts for the sale of goods and are governed by other statutes.
(a)â Contracts of hire
In the former situation, a contract of bailment will exist under which the bailor will allow the bailee to take possession of the goods with no intention that the latter will ever acquire title to the goods. This cannot be a sale of goods because of the fundamental requirement that a sale of goods contract requires the seller to transfer the property in the goods. In many respects, however, the bailee in such a contract will obtain rights very similar to those bestowed upon a buyer under the Sale of Goods Act 1979, i.e., compliance with description, satisfactory quality,43 etc., although, naturally the bailor does not warrant that he has the right to sell the goods at the time that the contract takes effect, merely that he has the right to transfer possession of them.44
(b)â Hire-purchase contracts
Hire-purchase contracts, in which the likelihood is that the property in the goods will ultimately pass to the buyer but where there is no certainty that that will be the case, are not contracts for the sale of goods.45 Rather, they are contracts of hire followed by an option to purchase at the end of the hire period. While the majority of hirers exercise that option and ultimately purchase the goods, the hirer is under no obligation to purchase the goods. If the hirer so chooses he could exercise the contractual and statutory46 right to terminate the contract before its conclusion and return the goods to the hire-purchase company. This lack of certainty of sale is fatal to any suggestion that a contract of sale has taken place. By contrast, however, where the contract intends that the property in the goods will pass at the start of the contract but with payment deferred to regular instalments, it will not be a contract of hire-purchase but a credit sale.
(c)â Leaseback
‘Leaseback’ involves a further situation in which the ownership of the goods and possession of them are in separate hands. Typically, the owner of goods
43The implied conditions in hire contracts appear in the Supply of Goods and Services Act 1982, ss.7–10.
44 |
Ibid. s.7.â 45â Per Lord Herschell in Helby v. Matthews [1895] AC 471. |
46 |
Consumer Credit Act 1974, s.99. |
75 |
8â Contracts for the transfer of property or possession |
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sells them to a finance company and then leases them back from the company |
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in exchange for a regular monetary payment, with the provision that the finance |
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company can seize the goods back should the lessee fail to pay. The issue that |
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the courts face in this scenario, which they need to address on every occasion |
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that a case comes before them, is whether this is a legitimate arrangement in |
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which the sale and lease documents truly represent the intention of the par- |
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ties and should be enforced as such, or whether it is really merely a device for |
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lending money to the owner of the goods, using those goods as security for the |
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loan. If the latter is the case, then the arrangement would fall under the Bills of |
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Sale Acts and would need to be registered if it is to be enforceable. The court |
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must decide whether the documents reflect the true intention of the parties and |
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should be enforced as such or whether they are a sham which should be put to |
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one side.47 It is, of course, extremely difficult to determine whether the docu- |
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ments are a sham and thus courts tend to interpret and enforce the documents |
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at face value. However, this allows the unusual situation to arise whereby the |
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‘seller’ of the goods can hold the finance company liable for the quality of goods |
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that he sold them as, technically, they are leasing the goods to him and will be |
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liable under the Supply of Goods and Services Act 198248 for their quality.49 |
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(d)â Contracts for the provision of goods and services |
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Goods may, of course, be acquired as an integral part of a different category of |
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contract with the property in the goods being transferred thereby. An obvious |
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example is contracts for the provision of services, sometimes referred to as con- |
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tracts for works and materials, in which the contractual performance neces- |
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sitates the provision of some goods. Thus, an artist commissioned to paint a |
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portrait will ultimately produce the picture and transfer it to the client50 but the |
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essence of the contract is ‘an undertaking by the artist to exercise such skill as |
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he was possessed of in order to produce for reward a thing which would ultim- |
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ately have to be accepted by the client’.51 Similarly, when a builder employed a |
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sub-contractor to construct the roof on a building, including the purchase of |
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the requisite roof tiles, it was held that the contract was one for services despite |
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the purchase of the materials.52 However, it would be wrong to suggest that the |
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line between contracts for the sale of goods and contracts for the provision of |
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services is an easy one to draw, despite the dicta in Robinson v. Graves53 that the |
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47 |
See Kingsley v. Sterling Industrial Securites Ltd [1967] 2 QB 747; Snook v. London and West Riding |
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Investments Ltd [1967] 2 QB 786. |
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48 |
Supply of Goods and Services Act 1982, s.9. |
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49 |
For a thorough analysis of the leaseback arrangement and its relationship to sale of goods, see |
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P.S. Atiyah, J.N. Adams and H. MacQueen, The Sale of Goods (11th edn, Pearson Education Ltd, |
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Harlow, 2005). |
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50 |
Robinson v. Graves [1935] 1 KB 579. |
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51 |
Ibid. 584 per Greer LJ. |
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52 |
Young and Martens v. McManus Childs [1969] 1 AC 454. |
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53 |
Robinson v. Graves [1935] 1 KB 579, 588 per Greer LJ. |
76 |
Sale of goods policy |
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determining factor is the ‘substance’ of the contract. Arguably, the distinction is |
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less significant than it was since the abolition of the requirement that contracts |
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of sale valued at £10 or over must be in writing,54 a requirement not needed in |
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contracts for services. Also, the passage of the Supply of Goods and Services |
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Act 1982, which implied conditions regarding quality similar to sections 12–15 |
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of the Sale of Goods Act 1979 into contracts for the transfer of goods has less- |
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ened the significance of the distinction. Nonetheless, it may still be important |
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in respect of terms as to the quality of the service element of the contract. If a |
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contract is held to be a contract for services, there will be a statutory implied |
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term that the supplier will carry out the service with reasonable care.55 By con- |
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trast, if the contract is deemed to be one of sale, the remedy for any deficiency in |
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the service element will be determined under the law of negligence. In practice, |
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though, this may make little difference as both tests will turn on the exercise of |
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reasonable care and skill. |
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(e)â Supply of computer programs |
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While much of the law surrounding what constitutes a contract of sale has |
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long since been established, the issue has re-emerged as a result of develop- |
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ments in modern technology, leaving the courts to consider whether the sale |
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of a computer program is indeed a sale of goods. This position is far from |
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resolved. It may depend on whether the computer program is supplied in a |
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tangible form such as a diskette or CD-ROM or supplied in a purely intan- |
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gible form such as a download from a website. Sir Iain Glidewell in the lead- |
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ing case of St Albans City and District Council v. International Computers Ltd56 |
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assumed that if the program is supplied on a diskette, it will constitute a sale |
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of goods with the consequence that if the program is faulty, an action will lie |
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under section 14 of the Sale of Goods Act 1979 for a breach of the conditions |
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of satisfactory quality and fitness for purpose. In coming to this conclusion, |
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he drew a comparison with a car maintenance manual, arguing that if such a |
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manual contained incorrect instructions, it would be unsatisfactory and not |
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fit for its purpose. By contrast, if the software is supplied as a download from |
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the Internet, it cannot be a contract of sale as there are no tangible goods. Yet, |
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in both instances the buyer is primarily concerned with acquiring the com- |
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puter program, the manner of its transition being of secondary importance. |
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In that context, the distinction is pedantic and arguably of limited effect as, |
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in practice, the common law would be likely to imply terms of fitness for pur- |
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pose similar to those in section 14 of the 1979 Act into contracts for computer |
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downloads.57 |
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54 |
Law Reform (Enforcement of Contracts) Act 1954, s.2. |
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55 |
Supply of Goods and Services Act 1982, s.13. |
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56 |
[1996] 4 All ER 481. |
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57 |
See Watford Electronics Ltd v. Sanderson [2001] 1 All ER (Comm) 696. |