Liquidations

What is a contract of sale of goods?

Essential reading - Sealy and Hooley, Chapter 7: ‘Introduction and definitions’, pp.257–72.

The SGA defines a contract of sale of goods as: a contract in which the seller transfers [called a sale: s.2(3)] or agrees to transfer [an agreement to sell: s.2(4)] the property in goods to the buyer for a money consideration, called the price (s.2(1)).

It is worth noting that ‘property’ refers to the title to the goods and not the goods themselves.

Before looking more closely at this definition, it is worth considering some transactions that are excluded.

Transactions that are not sales
Contract of bailment This is where goods are delivered on terms requiring their return  to the owner or to another party. Although the person holding the goods under such a contract has certain rights and obligations, there is no intention that property will pass. Contract of hire purchase Typically, this is a means by which someone can buy goods by making payments over a period of time. However, it is not a sale because, while the intention is that the buyer will own the goods when all the payments have been made, the passing of property will only occur if the buyer chooses to exercise an option under the
contract to that effect. There is no obligation on the buyer to exercise this option (Helby v Matthews [1895] AC 471; Sealy and Hooley, pp.263–64). This does mean that there will be a sale if the contract stipulates that property will pass at some specified time in the future (Forthright Finance Ltd v Carlyle Finance Ltd [1997] 4 All ER 490; Sealy and Hooley, p.264). This will be an agreement to sell (s.2(5)) as opposed to a contract of sale where the property passes at the time of the contract (s.2(4)), but both are within the SGA (see section 4.3.3, below). See the criticism of the distinction between  hire-purchase and sale contracts made by Sealy and Hooley, p.265.

Security interests Where someone (the chargor) grants an interest in goods in favour of another (the chargee) as security for a loan or some other form of credit, the chargor retains property in the goods. The chargee does acquire a proprietary interest in the goods, which will cease when the debt is paid (Sealy and Hooley, p.266).

Agency contracts Where A buys goods from T on behalf of P and P has authorised or later  ratifies the purchase, there is an agency contract between P and A and a sale contract between P and T. contrast this with the situation where A acts as a principal so that there a sale contract between T and A and another between A and P. (See Chapter 2 above.) Contract for work and materials This is a contract involving skill and labour as well as the transfer of property in goods, such as the painting of a portrait by an artist (Sealy and Hooley, pp.266–70). Where the work element can be separated from the goods, as where a gas fitter installs a new central heating boiler, one might be able to suggest there are two contracts, one for the labour (contract for work) and one for the boiler (contract of sale).
The problem arises where the work done by the fitter is very defective and the householder wishes to reject the boiler. This may not be possible because the boiler is not defective and there is, therefore, no breach of the sale contract, only a breach of the contract for labour. Where the goods and labour are mixed together, the test applied to decide if it is a contract of sale or a contract for skill and labour is to look at its substance. If an artist is commissioned to paint a portrait, the fact that materials, such as paint and canvas, will also pass under the contract does not make it a contract of sale of goods. Greer LJ thought the test involved determining if the skill is ‘only ancillary’ or if ‘the substance of the contract is the skill and experience of the artist in producing the picture.’ (Robinson v Graves [1935] 1
KB 579; Sealy and Hooley, pp.268–69). The distinction in that case was between the portrait painter and the maker of a set of dentures: it was concluded that in the latter situation there is a sale of goods because ‘the principal part of that which the parties are dealing with is the chattel which will come into existence when such skill as may be necessary to produce it has been applied’.

Article Courtesy: http://www.londoninternational.ac.uk/current_students/programme_resources/laws/subject_guides/commercial/commercial_ch4.pdf
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