Ascertained and Unascertained Goods - Assignment Example

1) (a) Under the SGA, ownership depends on whether the goods are ascertained or unascertained goods1. The time for determining whether goods are specific or unascertained goods is that at which the contract is made2. In the current scenario, whilst the quantity of goods ordered by Lacey is dependant on the customer orders, the actual goods are clearly identifiable and the agreement between Lacey and Micro-Maker is therefore most likely to constitute a good for ascertained goods. Additionally, the general rule set out under section 17 of the SGA provides that property in goods pass when the parties intend it to pass3. With reference to section 17 of the SGA, it has two parts. Part 1 states that where there is a contract for the sale of specific or unascertained goods; the title to property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. If no intention is expressed, then section 18 is applicable, which provides that 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 delivery or both, be postponed. Once the goods have become ascertained in this case at point of delivery, then under section 18 of the SGA, the property will not pass (subject to contrary intention in the contract) until goods are unconditionally appropriated to the contract by one party with the assent of the other. Furthermore, as highlighted in the case of Ward v Bignall4, there is a presumption that ownership passes to the buyer on delivery. The current scenario points towards a contract for ascertained goods and therefore it is likely that ownership of the property will pass on delivery based on the SGA provisions and established case law. 1b) With regard to protection against the risk of non-payment, the greatest risk to Micro Maker is if the property passes in the goods to Lacey upon delivery. As such, it would be prudent for Micro-Maker to include a retention of title clause in its agreement with Lacey in order to ensure that it can recover its goods in the event of non-payment5. Micro-Maker should also try and agree a clause whereby the risk passes to Lacey upon delivery6. This right to reservation of title has through practice been termed the “Romalpa” clause7, due to the case of Aluminium Industries v Romalpa Aluminium8, which set out guidelines regarding enforceability of reservation of title clauses: 1) The right to the original, unused, goods themselves; 2) The right to manufactured goods from the original items; and 3) The right to the proceeds of any resold manufactured or original goods to third parties9. This would be the best course of action for Micro-Makers. It is further submitted that any such reservation of title clause should require Lacey to store the microwaves separately from other products and include a right of entry for Micro-Maker to come and recover its goods in the event of persistent non-payment by Lacey in breach of contract10. 2 a) With regard to issues of risk in the event that goods are damaged in a fire, under Section 20(1) of the Sale of Goods Act 1979, unless the contrary is agreed, the goods will remain at the seller’s risk until the property in them passes to the buyer11. Therefore, would be well advised to include a clause that the property will remain at Lacey’s risk from the moment of delivery or else ensure covered by its own insurance for any loss or damage caused after delivery by accident, act of god or third party12. If the contract is silent as to the risk then apart from the two exceptions specified in sub sections (2) and (3) of section 20 of the SGA; the basic approach adopted is to tie the passing of property is to tie the passing of risk to the passing of property under the provisions in ss.16-19 unless otherwise agreed. If we apply this to the current scenario, based on the general rule that the risk passes on delivery, theoretically Lacey will be liable for the damage to the goods whilst in their shop. However, the situation is slightly ambiguous in the event that Micro-Maker inserts a reservation of title clause. In this case, Micro-Maker would have to insert a clause that notwithstanding reservation of title until payment, the risk passes upon delivery to ensure that Lacey bears the risk of any damage to the goods when stored on its premises. Alternatively, if goods are damaged after payment for the goods then the buyer is usually liable13. Where there is a possibility and a distinct risk of loss or damage and steps were not taken to protect this, then negligence issues will be involved and risk will remain with the party at fault14. Moreover, if reliance is placed on section 20 of the SGA, the buyer will be liable from point of delivery. b) If the goods are stolen whilst the van was in transit then on a strict application of the statute as the goods are not yet delivered, the risk remains with Seller (as under section 20 property has not passed). Section 20 of the SGA provides (subject to limited exceptions) that the passing of risk directly correlates to the passing of property as provided for under sections 16-19 of the SGA. On this basis, unless it is clearly stated in the contract that risk is to pass as soon as the goods are despatched, Micro-Maker will bear the loss in the case in the event the goods are stolen in transit. The only exception would be if the delivery had been delayed by Lacey, in which case the property would remain at the risk of Lacey in respect of any loss suffered that might not have occurred but for the fault of the Lacey15. However, due to the risk faced to Micro-Maker in having to rely on the complicated provisions of section 20, the provisions of clause 7 should protect Micro-Maker. Additionally, clause 8 provides that Micro-Maker shall insure the goods at Lacey’s expense therefore Micro-Maker should be protected by the terms of its insurance. Question 3) Section 13 of the SGA also provides that goods must comply with their contractual description. Additionally, clause 9(a) of the standard terms provides that Micro-Maker’s liability shall be limited to the replacement of goods or the refund of payments made in respect of goods in the event of defects. However, clause 9(b) expressly excludes the implied provisions of the SGA and as Lacey is dealing with Micro-Maker as a business and not a consumer, the Unfair Contract Terms Act 1977 (UCTA) enables exclusion of liability for defective or poor quality goods only if it is reasonable. Schedule 2 of UCTA further provides guidelines in respect of what is meant by reasonable. With regard to the current scenario, if the agreement is contracted on Micro-Maker’s standard terms, whilst not negating reasonableness per se, it will lead to a factor in Lacey’s favour if Lacey attempts to strike down the validity of the clause. Overall, in business transactions the courts tend to uphold contractually agreed limitation or exclusion clauses regarding liability for quality and if Micro-Maker’s standard form contract is accepted, Lacey would be bound by the remedies available under the contract unless it could establish sufficient grounds to strike down the clause. Question 4) with regard to the goods being scratched, the SGA implies certain conditions as to quality of goods provided under a contract for the sale of goods. In particular, Section 14(2) expressly provides that “where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality”. Furthermore, section 14(2A) of the SGA provides that “goods are of satisfactory quality if they meet the standards that a reasonable person would regard as satisfactory, taking account of any description of the goods”. Moreover, the SGA provides that goods must be fit for purpose and merchantability. However, if Micro-Maker’s terms are accepted, liability for quality is limited under clause 9(b) and the SGA terms are excluded. As Lacey is dealing with Micro-Maker as a business customer, UCTA provides that such exclusions of liability are permitted to the extent that they are reasonable. Schedule 2 provides guidance on what will be considered reasonable and in general, the courts will take into account the following: the information available to both parties when the contract was drawn up; whether the contract was negotiated in or standard form; and whether the purchaser had the bargaining power to negotiate better terms16. Accordingly, unless Lacey can establish that the clause is unenforceable for not satisfying the UCTA requirements of reasonableness, Micro-Maker’s liability would be covered by clause 9(a) of the contract which provides that “in the event that the goods supplied to the buyer fail to comply with the terms of this contract, or prove to be defective, the liability of the seller is limited to the goods, or at the seller’s option, the refund of all payments made by the buyer in respect of the goods.” 5) With regard to issues of non-payment, under Section 20(1) of the Sale of Goods Act 1979, unless the contrary is agreed, the goods will remain at the seller’s risk until the property in them passes to the buyer. Therefore, Micro-Maker would be well advised to include a clause that the property will remain at Lacey’s risk from the moment of delivery or else ensure covered by its own insurance for any loss or damage caused after delivery b accident, act of god or third party. Additionally, the reservation of title clause should ensure that the goods are stored separately and that Micro Maker has a right to enter the premises to recover its goods in the event of insolvency. Moreover, the contract itself should provide for the right to terminate the contract immediately on the event of insolvency17. The main issue for Micro-Maker would be to protect their position and ensure payment. Whilst a simple reservation of title clause over unused goods may work, section 25 of the SGA creates the effect that the onward sale to a bona fide purchaser may negate the title as against a subsequent purchaser18. A liquidator must determine the company’s title to property in its possession19. Property which is in the possession of the company, but supplied under valid retention of title clause will have to be returned to the supplier however property held by a company on trust for third parties will not form part of the company’s assets available to pay creditors20. For example, in the case of E Pfeiffer v Arbuthnot21, it was held that where a buyer re-sells goods, then the proceeds of sale of the goods shall be held on trust for the seller and as such, this constitutes a registrable charge, which may be void in the event of non-registration. In applying this to the current situation, the clause will be valid against delivered microwaves in Lacey’s possession at the warehouse. As such, will have Micro-Maker will have priority over this consignment of microwaves in the liquidation22. With regard to the proceeds of the sale of microwave (in the event that Micro-Maker has not yet been paid by Lacey), Micro-Maker will have rights to the proceeds under a registrable charge only if registered. Even if this charge is registered, the claim in respect of the proceeds will not be as a priority creditor23. Alternatively, if Micro-Maker utilised the words “fiduciary” in the contract with Lacey, this imports a fiduciary relationship and as such, it is arguable that the proceeds will in fact be held under trust by virtue of the fiduciary relationship24. Question 6) a) If Lacey becomes insolvent, then provided the original contract between Lacey and Micro Maker included a clause that the agreement and all obligations would be terminated in the event of insolvency, Micro-Maker will not have to deliver the demonstration models to the warehouse25. b) With regard to the models already despatched and in transit, if they included a reservation of title clause, they will be able to recover these. Additionally, if the contract included a Romalpa clause and right of entry to recover the property, Micro-Maker will be able to recover the models from Lacey’s stores as property in the goods has not yet passed26. c) Whilst Lacey is insolvent, if the standard form contract is agreed upon, clause 11 b) of the contract provides that “Termination of the contract under this condition shall not affect the parties arising in any way out of the contract”. Accordingly, with regard to the models in Lacey’s stores, if the goods have not been paid for, the property will remain with Micro-Maker under clause 6(c) of the contract. As such, Micro-Maker will have the right to enter the property and claim the microwaves. BIBLIOGRAPHY Anderson and Warner., (2006). A-Z Guide to Boilerplate and Commercial Clauses. 2nd Edition Tottel Publishing. P. S Atiyah (2005). Sale of Goods.11th Edition Longman. Blackstones Statutes on Contract, Tort and Restitution Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. Davies (2005). Romalpa thirty years on – still an enigma? Hertfordshire Law Journal 4. Dignam (2004). Company Law and Human Rights. Tottel Publishing. John Macleod (2006). Consumer Sales Law. 2nd Edition Routledge Cavendish. Linda Mulcahy & John Tillotson (2004). Contract Law in Perspective. Routledge Cavendish. Hubert Picarda (2006). The Law Relating to Receivers, Managers and Administrators. 4th Edition. Tottel Publishing. Jill Poole (2006). Contract law. 8th Edition Oxford University Press. LS Sealy & RJA Hooley (2008). Oxford University Press 4th Edition G H. Treitel (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. Unfair Contract Terms Act 1977 Sale of Goods Act 1979 Read More