Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 9 Business Law in Canada, 7/e Chapter 9 Sales and Consumer Protection

Copyright © 2005 Pearson Education Canada Inc.

Business Law in Canada, 7/e, Chapter 9

Business Law in Canada, 7/e

Chapter 9

Sales and Consumer Protection

9-1



Sale of Goods Act

Statute embodies case law and complements normal rules of contract law

applies to all situations where goods are bought and sold – but not to the transfer of real property

intended to fill the gaps in the terms of a contract

terms in contract prevail over provisions of Act

9-2



Goods and Services

Sale of Goods Act applies to:• Goods - tangible items

Sale of Goods Act does not apply to:• Services - except when it involves the

installation of goods

9-3



Transfer of Goods

Goods must actually be transferred in order for the Act to apply

The transfer of the possession of the goods in exchange for money must be intended or anticipated as in a conditional sale

9-4



Statute of Frauds

Requirement of Writing• Goods over a specified value ($30-$50) must be

evidenced in writing to be legally enforceable in some jurisdictions

• unless some money has changed hands

• or there has been part performance

9-5



Title and Risk

Risk follows title

• Sale – title transfers immediately• Agreement to Sell – title transfers at

some future time

9-6



Transferring Title

Methods of specifying who will bear the risk:• 1. C.I.F. contracts• 2. F.O.B. contracts• 3. C.O.D. contracts• 4. Bill of Lading

9-7



Transfer of Title

Timing of transfer determines whether seller can sue for entire price of goods or only damages when purchaser defaults• 5 Rules set out in Sale of Goods Act

Parties can contract out of Sale of Goods Act

9-8



Question for Discussion

One of the main purposes of the Sale of Goods Act is to supply, by implication, many of the terms that have been inadvertently left out of contracts involving the purchase of goods.

Do the terms of the Act excessively interfere with the principles of freedom of contract and caveat emptor?

9-9



Rights and Obligations

Terms of a sale of goods contract are called conditions or warranties

The victim of a breach of a condition can:• ignore it and accept the goods - cannot later

claim a breach of contract• consider themselves no longer bound to

contract

Continued on 9-11

9-10



Rights and Obligations/2

The victim of a breach of warranty is not released from obligations under the contract but may be entitled to damages

Warranty

The victim of a

breach of warranty is

not released from

obligations under the

contract

9-11



Obligations of Seller

Seller must convey good title

Goods must be usable

Goods must be free of liens

Goods must match description

9-12

Goods must be of merchantable quality

Goods must match sample and be free of hidden defects



Other Implied Terms

When following terms are not stipulated in contract• whether time of delivery is a condition or warranty will

be implied from conduct• purchaser can choose to return or keep goods when

wrong quantity is delivered• must pay a reasonable price

9-13



Remedies for Purchaser’s Default

• Seller can retain goods until paid for• Stop delivery of goods• Recover after delivery within 30 days• Seller gets priority over other creditors in case

of bankruptcy• Sue for breach of contract and for damages

• but must mitigate losses by reselling immediately

9-14



Remedies for Seller’s Default

Rescission for innocent misrepresentation Damages for fraudulent misrepresentation Withhold payment for breach of condition Withhold enough to cover loss with breach of

warranty Purchaser can sue if goods have been paid for but

not delivered Damages are recoverable if defective goods cause

injury

9-15



Remedies for Default/2

S u e for d am ag es D em and S p ecificP erform ance

V ictim s o f b reach m ay:

9-16




Should there be a general requirement in law, independent of contract or tort law, that products be safe and capable of living up to the claims made for them?

Should strict liability be imposed on the manufacturer and the supplier of the product?

9-17



Negotiable Instruments

Essential Characteristics• claim for funds against drawer of instrument• freely transferable• may be used as credit instrument• may give greater rights to the bearer than the

person from whom it was received

9-18



Bills of Exchange Act

Act summarizes common law• common law principles still apply• federal jurisdiction

Negotiable instruments are:• order of one person to another to pay funds to

a third• promise that funds will be paid out to another

at some future date

9-19



Cheques

A bill of exchange drawn on a bank and payable on demand• primary purpose the exchange of funds

9-20



Bill of Exchange

• an order made by one person to another to pay money to a third person

• drawee has no obligation to third party until bill is accepted

• avoids having to use cash• can be used to create creditor/debtor

relationship

9-21



Promissory Notes

Promises to pay the amount stated• used for granting credit

• may bear interest and be paid by installment

• Bills of Exchange Act applies• An IOU is not a negotiable instrument unless it

is designated payable on a certain date

9-22



Certified Cheques

• Certified cheques ensure that the instrument will be honoured by the bank.

• Treated like accepted bill of exchange

9-23



Requirement for Negotiability

1. Promise to pay must be unconditional 2. Instrument must be signed and in writing 3. It must be payable at a fixed time or on

demand 4. Designated for a fixed sum 5. It must be delivered to payee 6. Partial claims on instrument

not permitted

9-24



Holder in Due Course:

• must receive instrument through negotiation• instrument must be complete and regular• must have been acquired before it was due and

payable• must have no knowledge of any defect• must acquire instrument in good faith• some value must have been given

9-25



Endorsers

Endorsers - liable if instrument is refused by drawer• holder must give notice of dishonour

9-26



Consumer Protection

Consumer transactions involve goods intended to be used by the consumer and not resold

Consumer protection legislation controls:• use and disclosure of information• unethical business practices

Both provincial and federal legislation in place

9-27

Continued on 9-28



Consumer Protection/2

Imposes controls on consumer transactions Limits effect of exemption clauses Establishes liability Identifies unconscionable transactions Regulates money lenders, credit reporting

practices Federal legislation

9-28



Responsibility for Goods Sold

Sale of Goods Acts impose responsibility on sellers

Victims of unsafe products can sue manufacturer in tort but must prove fault• can sue seller under contract law - if they

purchased the product themselves Privity of contract applies

9-29



Summary of Case

Murray v. Sperry Rand Corp. Purchaser of harvester successfully sued

manufacturer and vendor for breach of contract

Continued on 9-31

9-30



Summary of Case/2

• Court found a collateral contract between purchaser and manufacturer included the obligations in a contract between vendor and purchaser

• Because manufacturer advertised directly and its product did not live up to those claims

• This overcame privity of contract

9-31



Unacceptable Business Practices

Consumer protection legislation controls• false advertising - by making claims part of the

contract• the investigation of complaints

Unconscionable transactions• legislation allows courts to interfere when

unequal bargaining power is abusive

9-32

Continued on 9-33



Unacceptable Business Practices/2

Door-to-Door Sales• legislation provides for cooling-off

period before contract can be enforced• registration of direct sellers may be required

Referral Selling• controlled or prohibited in some jurisdictions

Some business tactics regarded as abusive are controlled by legislation

9-33




Consumer protection legislation controls many aspects of the transactions between buyers and seller.

Does this kind of legislation interfere with commercial activities to the extent that many businesses are overregulated and unable to function efficiently in the market- place?

9-34



Loan Transactions

Consumer protection legislation • prohibits excessive rates of interest • requires that the true cost of borrowing be

disclosed• prohibits misleading information in

advertisements• requires moneylenders to be registered• controls credit reporting bodies

9-35



Debt Collection

Common law remedies apply but are not very effective

Legislation requires that debt-collection agencies be registered and licensed

Some jurisdictions allow civil suits against abusive debt collectors

9-36



Competition Act

Act is intended to prevent business activities that interfere with free market system

Violators are subject to prosecution Competition Act

• controls mergers• prohibits abusive trade practices• restricts agreements between merchants

9-37



Other Federal Legislation

Contains consumer protection components Food and Drug Act

• strict enforcement provisions Hazardous Products Act

• controls the manufacture, importation and sale of products that are inherently dangerous

Other Acts enforce the proper disclosure of information about products

9-38




One of the goals of consumer protection legislation is to give consumers greater access to the court as well as allow for government prosecution of offenders.

Are these the best ways to discourage and control abusive and unacceptable practices in consumer transactions?

9-39

Documents

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 9 Business Law in Canada, 7/e Chapter 9 Sales and Consumer Protection