ASSIGNMENT 2

CASE 1:

THE CASE

Maria, Who owns a flower shop, decides to replace the van which she uses for making deliveries.
She saw a van with notice which reads: ‘ For Sale, 1999 Bedford van’. After she has made a thorough
inspection and a test drive, she enters into a contract to buy the van from the owner John. Later, she
discovered the following:

 She discovers that the vehicle is made up two Bedford vans. The front half of a 1996 model
has been welded to the rear half of a 1999 model and as a result, the van is in dangerous
condition. (Rules Of specific goods: When goods are deliverable to the buyer on approval,
the property passes: If he does not signify his approval but retains the goods without
giving notice of rejection or if a fixed time is given for the return of the goods, on the
expiration of that time).

 During the test drive, she noticed that the clutch was defective. John said that he was
prepared to do repairs himself or he would drop the price by $ 75. Maria agreed to the
reduction of the price, but her local garage has now told her that it will cost $150 to put the
defect right. (Rules of Specific Goods : Where there is a contract and the seller is bound to
do something to the goods the property does not pass until the thing is done. Where the
seller agrees to alter the goods in some way for the buyer, ownership will pass when the
alterations are completed and the buyer has been informed).

 She has been informed by the police that the van was stolen six month ago and it must be
returned to the true owner. (Transfer of Risk : Sale by a person who is not the owner and
who does not sell them under authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller. Buyer is required to return the goods
to the true owner).

INTRODUCTION OF RULES

I. RULES OF SPECIFIC GOODS

The English Sale of Goods Act and the Irish Sale of Goods Act are in broadly similar

terms.The Sale of Goods legislation sets down certain rules which apply to the Sale of
Goods, unless the contract says otherwise.

Ownership

It is implied that the seller is the owner of the items concerned and is entitled to sell

them. Title (valid ownership) cannot be sold if they the seller does not have it.

Therefore, if a third party maintains a claim against the purchaser of goods, he in turn

will have a claim against the seller for breach of the implied promise of valid ownership.

Satisfactory Quality

It is implied that goods are of "satisfactory quality". This gives a purchaser very

significant rights. Satisfactory quality is the standard that a reasonable person would

regard as satisfactory, taking account of the description, price and all other relevant

circumstances. The quality of the goods includes their state and condition, their fitness

for the purpose concerned, their appearance and finish, freedom from any defects,

safety and durability.

Compliance with Description

Where goods are sold by description, there is an implied term that they will correspond

with the description. Where goods are sold by sample it is implied that the goods will

correspond with the sample.

When the contract provides for sale by sample, the sample should be identified because

there is an implied condition that the bulk will correspond with the sample in quality. The

buyer should have a reasonable opportunity to compare the bulk with the sample and

that the goods are of satisfactory quality and are free from defects which would not be

apparent on an examination of the sample.

Passing of Ownership

The moment of passing of ownership is important in the sale of goods. This is because

the owner of goods can sell them and the seller only has a claim for the price. This is

significant in the event of the buyer’s insolvency as the seller may only be unsecured

creditor. For the above reasons, it is important to ensure that ownership of goods passes
when the seller desires, preferably, when payment is made.

Ownership passes when it is intended to pass under the terms of the contract. The Sale

of Goods Act states certain presumptions about what the parties intend unless otherwise

stated in the contract. Where there is an unconditional contract for the sale of specific

goods, the ownership passes when the contract is made. This may be surprising as this

is likely to be before payment and delivery.

The Sale of Goods legislation distinguishes between specific ascertained goods and

unascertained goods. Unascertained goods are those which are yet to be manufactured

or grown or are of a generic type or are otherwise yet to be ascertained. Ownership of

unascertained goods only passes once they have been ascertained and “appropriated”

to the contract.

The importance of ownership of goods is that the owner (e.g. the purchaser) has a right

to sell them without the consent of the seller notwithstanding that the seller may not have

been paid.

There are certain situations in which a buyer of goods may be able to sell them even if

he does not yet have ownership. These include sales by a buyer in possession of the

goods, certain private sales of motor vehicles, and certain sales in certain markets.

When a person goes bankrupt or a company goes into insolvent winding up, assets

owned by him or it are available for his creditors. “Reservation of title” to goods is

frequently provided for in sales contract. This is a useful method of protecting the

seller's position against the risk of the buyer's insolvency or default. See our separate

note on reservation of title.

It is essential that there is a properly worded retention of title clause in the sale contract.

Complications arise when goods become mixed up in other goods. .Under these

circumstances there are limits to the extent to which it is possible to hold back ownership

title. A valid reservation of title clause may make the difference between being paid and

not being paid.

Risk

A separate issue to that of ownership is that of who carries the risk of the loss or damage

to the goods. This generally lies with the person who has ownership. This position can

be displaced and changed by the terms of the sale contract.

Unless otherwise agreed, goods remain at the seller’s risk until ownership is transferred

to the buyer. Where the ownership passes to the buyer (whether in advance of delivery

or not) the risk normally passes as well.

There are a number of exceptions. Where delivery is late because of the fault of the

buyer or the seller the risk lies with the party at fault regardless, provided it occurred

after such fault. Where goods are to be delivered by the seller at his own risk, he must

take the risk of deterioration in the goods necessarily incident.

Delivery and Payment

The Sale of Goods Act states that unless otherwise agreed, delivery of goods and

payment are concurrent conditions. This means payment is presumed to be due on

delivery. This is a different issue to the issue of when ownership passes.

In the case of complicated goods such as larger plant and equipment, this provision may

be totally unsatisfactory. Provisions for advance payments, stage payments and

guarantees, etc would be important.

The Sale of Goods Act presumes it is a strict condition of the contract that the seller is to

deliver the correct contract quantity. Local trade variations may apply to change this

presumption.

There are default rules in relation to the place of delivery, where nothing is stated to the

contrary in the contract. It may be desirable to change them. The presumption is that the

place of delivery is a seller's place of business except where specific goods are to the

knowledge of the parties at some other place, in which case that other place is the place

of delivery.

Where there is no specific time for delivery, the seller must send goods within a
reasonable time. If the contract specifies the date for delivery, there is a presumption

that this is a strict condition so that that failure to comply will give the buyer the right to

cancel the contract.

Unless agreed, a buyer is not obliged to accept delivery by installments. Unless

otherwise agreed, the expenses and costs of putting goods into a deliverable state must

be borne by the seller.

There are special rules in relation to transportation. The buyer must bear the risk of

ordinary deterioration. The Sale of Goods Act requires seller to make contract with a

carrier on behalf of the buyer as may be reasonable having regard to the nature of the

goods and circumstances.

Warranties and Conditions

The Sale of Goods Act distinguishes between “warranties” and “conditions”. These are

different types of terms in the sale contract. Generally, breach of a warranty is less

serious than breach of a condition. The consequence of a breach of warranty is that the

wronged party is entitled to compensation in money, but may not reject the goods and

treat the contract as at an end.

Breach of condition is usually a more serious. Breach of a condition generally entitles

the buyer to treat the contract as terminated and to reject the goods. Alternatively, the

buyer may “waive” the condition, not terminate the contract, accept the goods and claim

for damages. He may simply waive the condition entirely and not claim for damages.

Acceptance and Rejection

In the absence of agreement otherwise, the buyer may reject the goods if they do not

satisfy the conditions as to conformity with description, satisfactory quality, conformity

with sample as implied by the Sale of Goods Act, provided he has not accepted them.

Likewise, if the seller delivers less than the agreed quantity, the buyer may reject the

consignment or accept them and pay the contract rate.

The buyer is not obliged to return goods which he has rejected. The buyer is liable in
damages if he wrongly rejects conforming goods. The buyer has a right to inspect goods.

The buyer who receives non-conforming goods has a right of rejection. However, the

right must be exercised quickly. Generally it is desirable to specify the time in which the

buyer must reject the goods. A buyer is deemed to accept goods if he does anything

inconsistent with the seller’s ownership or after a reasonable time has elapsed or after

acceptance is intimated.

Buyers Rights and Remedies

Where a person enters a contract by reason of a misrepresentation (i.e. a misstatement

whether innocent careless or fraudulent) he has the right to terminate the contract.

Alternatively, under certain circumstances, damages and compensation may be awarded

if the contract goods are accepted.

The innocent party will generally be entitled to terminate a contract if there is an express

term in the contract that has been breached. If the contract contains nothing specific,

the buyer may terminate where the seller’s breach of contract is so fundamental that it

deprives him of the benefit of the contract. He may also terminate if the seller or provider

of the service refuses to perform the contract and repudiates it.

The buyer may have rights to terminate in the event of breach of contract. Where the

breach is a very serious breach, the buyer may terminate the contract completely. The

buyer may take action for breach of contract for non-delivery or incomplete or imperfect

or nonconforming delivery. The buyer has a right of action under Sale of Goods Act for

non-delivery. This also applies to goods that are rejected because they do not conform

as to quality or quantity.

As set out above, the Sale of Goods Act distinguishes between breach of warranties and

breach of conditions. See above.

Sellers Rights and Remedies

The Sale of Goods Act provides a seller with legal rights against the buyer for the unpaid

purchase price. The Late Payment of Commercial Debts legislation provides for a right of
compensation and interest on late payment of the purchase price. There is provision for

a fixed sum of compensation, depending on the value of the goods. There is also a right

to interest at a rate laid down by law.

The seller may take legal action for the price if the buyer refuses or neglects to pay. The

seller may be entitled to damages for breach of contract. He may have a legal right of

action against the buyer for non-payment and non-acceptance of the goods.

Where the ownership of the goods has passed, the unpaid seller has the right to retain

the goods so long as he is in possession of them. This is known as an unpaid vendor’s

lien.

The seller has a right to stop goods if they are in transit and he becomes the aware that

the buyer has becomes insolvent after the seller has parted with possession. He has a

right of resale of the goods to realise the sale price, even though ownership may already

have passed. If the ownership has not passed, he unpaid seller's rights consists of a

right to withhold delivery and sell.

The unpaid seller's lien is not affected by the sale of the goods by the buyer to a third

party, unless the seller has consented to the sale If the goods are sold on to a third

party who takes them in good faith for a full price, the seller’s rights can be terminated.

Impossibility

Where it is impossible to perform the contract certain rules apply. Where the sale of

specific goods is agreed and they perish without either party's fault, the contract may be

void. However, there may be a clause in the contract that puts the goods at one party’s

risk.

II. VOID CONTRACT

A void contract, also known as a void agreement, is not actually a contract. A void contract
cannot be enforced by law. Void contracts are different from voidable contracts, which are contracts
that may be (but not necessarily will be) nullified.

An agreement to carry out an illegal act is an example of a void contract or void agreement.
For example, a contract between drug dealers and buyers is a void contract simply because the
terms of the contract are illegal. In such a case, neither party can go to court to enforce the contract.
A void contract is void ab initio ie from the beginning while a voidable contract can be voidable by
one or all of the parties.

III. DISCHARGE OF CONTRACT BY PERFORMANCE

237. A contract is discharged by performance

(a) Where a promise has been given upon an executed consideration, and is performed by the
promisor.

(b) Where one promise has been given in consideration of another, and both are performed.63

Performance of a contract which amounts to an extinction of the obligation must be distinguished

from performance which discharges one, only, of the parties from further liabilities under it. Where
a promise has been given upon an executed consideration, the promisee has performed his part in
the formation of the contract, and performance of his promise by the promisor discharges the
contract. All has been done on both sides that could be required to be done under the contract.
Where the contract is wholly executory - that is, where one promise has been given in consideration
of another - performance by one party does not discharge the contract, though it discharges him
from further liability under it. Each must have done his part, in order that performance may be a
discharge of the contract.

Whether or not a contract has been performed, so far as the person performing the contract is
concerned, must be answered by reference to the operation of contract, while, in so far as the
performance is concerned, it must be answered by reference to the construction of contract.

IV. TRANSFER OF RISK

What Does Transfer Of Risk Mean?

The underlying tenet behind insurance transactions. The purpose of this action is to take a specific
risk, which is detailed in the insurance contract, and pass it from one party who does not wish to
have this risk (the insured) to a party who is willing to take on the risk for a fee, or premium (the
insurer).

Investopedia explains Transfer Of Risk

For example, whenever someone purchases home insurance, he or she is essentially paying an
insurance company to take the risk involved with owning a home. In the event that something does
happen to the house, such as property damage from a fire or natural disaster, the insurance
company will be responsible for dealing with any resulting consequences. 

In today's financial marketplace, insurance instruments have grown more and more intricate and
complex, but the transfer of risk is the one requirement that is always met in any insurance contract.
 CONCLUSION
From the beginning, the contract was only type of Void contract (the law does not
recognize and has no legal effect. From the beginning the contract is not valid). Furthermore,
the solution for Maria is she must cancel the contract according to Discharge of Contract
followed by performance(must be unconditional) and impossibility (after it has been made).
Then she give the car back to the true owner.

Refference:

http://www.google.com/search?client=safari&rls=en&q=transfer+of+risk&ie=UTF-8&oe=UTF-8

http://chestofbooks.com/business/law/Handbook-Law-Of-Contracts/Discharge-Of-Contract-By-
Performance.html

http://en.wikipedia.org/wiki/Void_contract
CASE 2:

THE CASE

Mario obtained a 24- inch remote control TV set. Consider the following circumstances:

 When he was watching the TV, there was a flash and a puff off smoke from the back of the
TV and the screen goes blank. He bought the set new form a local department store. He paid
it for cash.(Warranty: a written term of the contract of insurance in which the insured
warrants either that certain statements of facts are accurate, or that certain statements of
facts are and will remain accurate or that he will undertake the due performance of an
obligation specified therein)
 Supposing, he bought the TV from his brother-in-law Roger by swapping his music centre.
Mario was assured by Roger that it was a colour TV, but so far he has only got a black and
white picture.(Merchantable Quality: That the goods sold are fit for the purpose for which
they were sold. If they are defective for the purpose thus, are not merchantable. As long
as the goods sold fit into any of the purpose for which they would normally be used, it is
merchantable).
 Mario is a football enthusiast so held the salesman that he wanted a channel that would
receive football broadcast. Mario discovered that he cannot get a channel that would
broadcast a football programme with this particular model.(Sale by Sample:Contract of sale
by sample is a contract of sale for sample where there is a term in the contract express or
implied to that effect.Sample speaks for itself).
 The remote control unit refuses to work. Mario acquired the TV on hire from local TV rental
firm.(Hire-Purchases: An agreement whereby the owner lets out goods on hire and agrees
that on completion of the payment, the hirer may either return the goods and terminate
the contract or elect to buy the goods).

INTRODUCTION OF RULES

I.WARRANTY

An implied warranty is one that arises from the nature of the transaction, and the inherent
understanding by the buyer, rather than from the express representations of the seller.
 The warranty of merchantability is implied, unless expressly disclaimed by name, or the sale
is identified with the phrase "as is" or "with all faults." To be "merchantable", the goods must
reasonably conform to an ordinary buyer's expectations, i.e., they are what they say they are. For
example, a fruit that looks and smells good but has hidden defects would violate the implied
warranty of merchantability if its quality does not meet the standards for such fruit "as passes
ordinarily in the trade". In Massachusetts consumer protection law, it is illegal to disclaim this
warranty on household goods sold to consumers etc.

The warranty of fitness for a particular purpose is implied when a buyer relies upon the
seller to select the goods to fit a specific request. For example, this warranty is violated when a
buyer asks a mechanic to provide snow tires and receives tires that are unsafe to use in snow. This
implied warranty can also be expressly disclaimed by name, thereby shifting the risk of unfitness
back to the buyer.

II.MERCHANTABLE QUALITY

in consumer law, a minimum standard to which goods must conform to make them suitable for
purchase. Goods must be of merchantable quality to be sold. For example, meat must not be rotten,
and a new car must be roadworthy.

III. SALE BY SAMPLE

Where goods are bought by bulk and the buyer has tested or examined a small number of
those goods, the seller is obliged to make sure that every item in the bulk corresponds with the
quality of the sample tested or examined. [14]

IV.HIRE PURCHASE(HP)

To be valid, HP agreements must be in writing and signed by both parties. They must clearly set out
the following information in a print that all can read without effort:

1. a clear description of the goods

2. the cash price for the goods
3. the HP price, i.e., the total sum that must be paid to hire and then purchase the goods
4. the deposit
5. the monthly installments (most states require that the applicable interest rate is disclosed
and regulate the rates and charges that can be applied in HP transactions) and
 6. a reasonably comprehensive statement of the parties' rights (sometimes including the right
to cancel the agreement during a "cooling-off" period).
7. The right of the hirer to terminate the contract when he feels like doing so with a valid
reason.

CONCLUSION
It must be The Condition Implied sale by sample(That the bulk shall correspond with the sample in
quality.That the buyer shall have a reasonable opportunity of comparing the bulk with the
sample.That the goods are free from any defect rendering them not merchantable which would
not be apparent on reasonable examination of the sample). So that, Mario still have his right
according to In the case of contract for sale of unascertained goods, the property in goods passes
to the buyer after the goods must have been ascertained (Section 18 SGA 1957).

Refference:

Notes

http://en.wikipedia.org/wiki/Warranty

http://en.wikipedia.org/wiki/Sale_of_Goods_Act_1979#Sale_by_sample_.28s15.29

http://encarta.msn.com/encyclopedia_762506404/merchantable_quality.html

http://en.wikipedia.org/wiki/Hire_purchase