chap 5. acceptance and rejection of goods- 20r

CHeprsn 5

ACCEPTANCE AND REJECTION OF GOODS

5-001 In the performance of a contract of international sale the rules relating to

the examination, acceptance and rejection of the goods are of great practical

importance. If the contract is governed by English law,r these rules are

founded on the Sale of Goods Act 1979.2 If the parties to an international

sale have adopted the Uniform Laws on International Sales, appended to the

Uniform Laws on International Sales Act 1967 or the Vienna Convention on

Contracts for the Intemational Sale of Goods (1980), which eventually will

take their place,3 the rules set out therein will govern the examination and

acceptance of the goods. These rules will be discussed later.o

The general principle on which the regulation of the Sale of Goods Act

rests is that if the buyer is deemed to have accepted the goods, he loses his

right to reject them. He does not, however, lose all rights with respect to

them. Although he is now bound to retain them he can still claim damages

if the value of the goods which were actually delivered is less than the value

of the goods which the seller promised to supply. This claim for damages

is not lost as the result of legal rules peculiar to the sale of goods. It is

governed by general legal principles. It is not lost by lapse of time until it

becomes barred under the Limitation Act 1980; as most mercantile contracts

are in the nature of simple contracts, the seller is normallys entitled to plead

the defence of limitation after the lapse of six years from the breach of

contract. The tendency of English sales law is to discourage the rejection of

goods by the buyer but to allow, without serious restriction or qualification,

his claim for damages if he has overpaid their value, as expressed in the

contract price.

Conditions. warranties and innominate terms

5-002 According to the Sale of Goods Act 1979, the terms of the contract of sale

are either conditions or warranties. This simple classification has proved to be

insufficient in commercial circumstances and the courts have supplemented it by

I See posf, paras 21-O02 and 21404 et seq.2 As amended by Sale and Supply of Goods Act 1994 and Sale of Goods Amendment Act

1995.'This Convention came into operation on January 1, 1988, but has not been given effect in the

U.K. yet.o See post, para. 30-O26 et seq.s The period of limitation may be longer if there is a new accrual of the action as the result of an

acknowledgment in writing or part payment, or in case of fraud or of similar circumstances.

84

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86 Acceptance and Rejection of Goods

of a sample provided,l8 or with sample and description.te These terms areimplied by law into contracts of sale but, subject to the Unfair Contract TermsAct 1977 (which does not apply to international supply contracts), ffi?y be con-tracted out of or varied.2o

In addition to the statutorily implied conditions certain terms in internationalsales contracts are taken to be conditions. Generally, terms as to time are heldto be a condition of the contract.2r The port of loading in an f.o.b. contract is acondition,22 as is the name of a vessel and the type of vessel to be used for thecariage of the goods if they have, unusually, been agreed between the parties.In the absence of any such agreement it is a condition of the contract that thegoods be carried on a vessel that is usual in the trade for the carriage of suchgoods.23

It may therefonj'$e seen that a breach of a condition operates as a repudiationof the contract by the party in breach.to Consequently, a buyer who is entitledto reject the goods is in the same position as a buyer to whom the goods werenot tenderedzs at all. unless the breached term has to be treated as an innominateterm,26 or under the de minimis rulett or special considerations, such as a tradecustom or an agreement of the parties to the contrary,2t upply. In the normalcase the buyer is entitled to claim damages from the seller for the non-deliveryof the goods.2e If he has paid the purchase price in advance he can recover it byway of damages, and if he has suffered other reasonably foreseeable loss, hecan recover damages as well. The motivation for the buyer's desire to reject thegoods is usually that the non-conforming goods which the seller has tenderedare useless to him and that the claim for damages is his only remedy. Thepractical point in the distinction between the buyer's right to reject the goodson the ground that a condition of the contract is broken and his right to claimdamages for breach of warranty is that in the former instance the buyer canoften claim damages on a considerably higher scale than in the latter. Where aparty is entitled to damages, he is bound to take reasonable steps to mitigate his

r8 s . 15 .'e s. l3(2) .20s.55.Saleof Goods Act lg7g,seealsoUnfairContractTerms Act1977,s.26( l ) , (3) , (4) ." Bunge Corporationv.Tradax Export SA [980] I Lloyd's Rep.294; t19801 CA; [981] 2 Lloyd'sRep. 1, HL. But see State Trading Corp of India (n.7, above); Phibro Energy AG v. Nissho lwaiCorp (The Honan Jade) |9911 1 Lloyd's Rep. 38; Torvald Klaveness AIS v. Arni Maritime Corp(The Gregos) 11993] 2 Lloyd's Rep. 335 at 347.22 Petrotrade Inc v. Stinnes Handel GmbH tl995l I Lloyd's Rep. 142." Ashmore & Son v. C. S. Cox U899) I Q.B. 436; Bowes Shand (1877) 2 App. Cas. 455.2a s.l1(2)." The seller may, however, make a second tender of new goods if the time for delivery has notexpired. Hyundai Merchant Marine Co Ltd v. Karander Maritime Inc (The Nizuru) tl996l 2 Lloyd'sRep. 66. Vienna Convention, Art. 48(1).26 See post, para. 5-004.21 De minimis non curat lex; see Moralice (London) Ltd v. E. D. and F. Man 119541 2 Lloyd's Rep.526; Rapalli v. K.L. Take Ltd tl958l 2 Lloyd's Rep. 469.tt The conditions of trade associations which, e.g. in the commodity trade, are widely adopted,sometimes exclude the rejection of goods." The measure of damages is the difference between the contract price and the market price, if thereis an available market for the goods (s.51(3)). The relevant market price is that ruling at the date ofdelivery or, failing delivery, that at the date of refusal to deliver. See also Procter & GamblePhilippine Manufacturing Corp v. Kurt A. Becher GmbH tl988l 2 Lloyd's Rep. 21.

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metric tonnes and was carried in The Hansa Nord. The contract price, convertedinto sterling, was about f 100,000 but the market price at the time of arrival ofthe ship had fallen considerably. On discharge from The Hansa Nord the cargoex hold no. 1 (1,260 tonnes) was found to be damaged but the cargo ex holdno. 2 (2,053 tonnes) was in good condition. The buyers rejected the wholeconsignment. The Rotterdam court ordered its sale. It was purchased by a mid-dleman for a sum which, after deduction of the expenses, amounted to an equiva-lent of f29,903. The middleman sold the pellets the same day for the same priceto the original buyers who took them to their factory and used them for themanufacture of.cattle food although they received a somewhat smaller quantityof pellets than they would have done if part of the consignment had not beendamaged. The total result of the transaction was that the Dutch buyers receivedgoods which they had agreed to buy for f 100,000 at the reduced price of aboutf30,000. The case went to arbitration and then to the courts. The Court ofAppeal held that the contractual term "shipment to be made in good condition"was not a condition within the meaning of the Sale of Goods Act but was aninnominate term. Lord Denning M.R. said38:

"If a small proportion of the goods sold was a little below that standard, it would be met bycommercial men by an allowance off the price. The buyer would have no right to reject thewhole lot unless the diversence was serious and substantial."

The court held that the buyers were not entitled to reject the whole consignmentbut were entitled to damages for the difference in value between the damagedand sound goods on arrival in Rotterdam. The case was remitted to the arbit-rators for the determination of these damages.

Section 15A, inserted by the Sale and Supply of Goods Act 1994, providesthat where a buyer would have a right to reject goods on the grounds of a breachof sections 13, 14 or 15 and does not deal as a consumer, he may not treat thebreach as a breach of condition where it is so slight that it would be unreasonableto do so. The buyer in such a circumstance may only treat the breach as a breachof warranty, although the parties may provide otherwise expressly or implicitly.It is suggested that entry into a contract on f.o.b. and c.i.f. terms implies thatthe parties do not intend section 15(A) to apply.3e

However, the concept of the innominate term should not be overused. Manyterms are regarded by the parties to the contract as so essential that they qualifyas conditions in the legal sense. This applies, in particular, to most time clausesin commercial contracts,ao e.g. tn an f.o.b. contract a clause that "buyers shallgive at teast [15] consecutive days' notice of probable readiness of vessel(s)".ot

38 ibid. at 61.3e See ss.15(AXl), l5(A)(2); Benjamin, Sale of Goods (5th ed.), para. 18-224 and Law Com. No.160, paras 4.23,4.24.ao Lombard North Central plc v. Butterworth t19871 Q.B. 527; but not every time clause is acondition, see generally Bunge v. Tradax, post, n.41.o' Bunge Corporation v. Tradax Export SA tl980l I Lloyd's Rep. 294, t19801 CA and |9811 2Lloyd's Rep. 1, HL; Soci4td Italo-Belge pour le Commerce et l'lndustrie SA v. Palm and VegetableOils (Malaysia) Sdn Bhd; The Post Chaser t19821 I All E.R. 19; State Trading Corporation ofIndia Ltd v. M. Golodetz Ltd |9881 2 Lloyd's Rep. 182 at 1871' Compagnie Commerciale Sucres etDenrdes v. C. Czarnikow Ltd;The Naxos t19911 I Lloyd's Rep. 29 at 36.

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zn'utteJ elsunuouur rrB lou pue uoplpuoc u eQ olplaq se^\ '(esnulc lueudrqs 1cerlp) e8reqcsrp yo god eql ol Surpeol yo god eqtruor; .{ltcerrp Ires geqs drqs eql rcql esnelc B lce4uoc 'J pue 'c e ur ',(lreprurg

68wJal alDulwouut aqJ


the learned judge could now refer to the additional words contained in section35 of the Sale of Goods Act l979.ot These words make it clear that the buyer'sright to reject exists until he is given a genuine opportunity of examining thegoods.

In export sales the place and time of examination are frequently not those ofdelivery but are postponed. In a contract of export sale the place and time ofdelivery is usually defined by the special trade clause which the parties haveadopted.ae Where the seller is not obliged to tender a bill of lading to the buyer,as in sales ex works, f.a.s., f.o.b. (buyer contracting with carrier), or in containerdelivery contracts, physical delivery of the goods takes place in his-the sel-ler's-country.sO Where bills of lading have to be tendered, as in f.o.b. contractsof the classic type or providing additional services, c.i.f. contracts, and c. and f.

contracts, the delivery of the goods is constructive and completely divorced fromthe actual situation of the goods. Whether in an export sale the delivery isphysical or constructive, the two conditions postulated by Bailhache J. in thecase referred tosr for the postponement of the place of examination are normallysatisfied. The goods are usually ordered and packed for export, and these factsalone indicate to the seller that they are going farther on. The locality at whichthe delivery takes place is usually unsuitable for the examination of the goods,

so that it is unreasonable to expect the buyer to carry out the examination there.Consequently, in an export sale, unless the parties have otherwise agreed, forexample by arranging pre-shipment inspection,t' or a trade custom provides adifferent practice, it has to be assumed that the parties intend that the examina-tion of the goods shall be postponed until the goods have arrived at the place oftheir destination and that that place is the agreed place of examination.s3 Thus,in a case concerning a c. and f. contract Hobhouse J. saidsa that "the exerciseof the right to reject goods is one which the seller is entitled to postpone untilthe goods arrive." Further, in Molling & Co v. Dean & Son Ltffs the sellers,colour printers in Germany, sold the buyers 40,000 toy books which, as theyknew, the buyer had resold to sub-purchasers in the United States of America.The books were packed specially for carriage to America and the buyers, withoutopening the cases, sent them on to their sub-purchasers who rejected themrightly as not being in conformity with their contract and re-shipped them to theoriginal buyers (their sellers). It was held that the place of examination waspostponed to America and that the buyers were entitled to reject the books and

a8 In s.35 the reference to s.34 was already added by the Misrepresentation Act 1967, s.4(2).oe See ante, para. 4-{03.50 Normally, when the goods are delivered to the carrier for transmission to the buyer (s.32).5t Saunt v. Belcher and Gibbons, supra, n.46.t'See para. 4414.s3 Molling v. Dean (1902) l8 T.L.R. 217: Boks v. Rayner (1921) 37 T.L.R. 8001' Bragg v. Villanova(1923) 40 T.L.R. 1541' Scarliaris v. Ofi'erberg & Co (1921) 37 T.L.R. 307, CA; Biddell Bros v. E.Clemens Horst Co tl911l I K.B. 934 at960;' Kwei Tek Chao v. British Traders and Shippers Ltd

t19541 2 Q.B. 459; Bergerco USA v. Vegoil Ltd 11984) I Lloyd's Rep. 440.to Bergerco USA v. Vegoil Ltd |l984l 1 Lloyd's Rep. 440 at 446. For a fuller quotation from thisjudgment see para. 2426." 0902) 18 T.L.R. 217.

'99 ''I'g'f tggOtl ..spoog Jo el"S eql ur ecueldmcv,, 'unorg 'I eeS es 'lJeJep eql Suuanocsrp;o flrungoddo uu ppq aq q8noqtp spoo8 eqt peureler re,(nq eqt leqt

'1ce1 e se 'puno; e8pnf eqt ruil.l eJoJOq es"J eql ur ilereua8 ool eq lqSlu lueruele1s srgl :lJeJap aql Joe8pelrrroul ou p?q aq q8noqtlu uorlueler ,(q spooS aql paldeccu e^Br{ ot peueep eq plnoc re,(nq e leql'rattqo'pleq 'I rerSnog 0ZZ'd11 llv Z |Lg6ll pt7 (uaarg staplog) srotory uosraDd '^ uatsurag uI zs '9Sl t2 8€t

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lstll ol pelFull sr fluoqlne asoq^\) uorssrrusueJl yo sasod:nd eq1 rog lueSu ue qlr^\ palsuluoc sV rs 'ES6l 'OZ,{reruqag 'sawtJ ar.lJ pt7 oltDry '^ sronquisKl alDsapqq d T I ruoq s^\olloJ SIILL o.

uollces oql pu? ecu?ldecc€ lou sr spoo8 er{l Jo ldrecer eqJ se'spoo8 er0 .,peldecc?90FS e^?q ol perueep,, sr rofnq eql reqleq^\ sl gE uorlcas ,(q peldop? lsel eqJ

spoo8 Jo eJuBfdeJJV

re'uor roJ rueqr lde>r lou seq eq leql peprôro 'rceJe, firT";:ffi::rT"iJffillJe[oJ ol pellrlue eq ilrls plno.,!\ Je,(nq eqt 'uorleuuu?xe Joud uo lou lnq 'pesn eJespoo8 aql ueq/y\ pareôrsrp eq fluo uec lceJep eql JI

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'eJeld Jer{loue Jo uorleurlsep Ieug Jo eJeld er{l'frerrqep

Jo oc?[d eql sl lsql Jeqleq^\ 'uorleuru]exe Jo ecsld eql lu IB^!"Lrc Jraql

rous olqucrperd su flffo s3 spooS eql eurtusxo ol luoprud sfemp sr 1I 0e'spoo8eql Jo eJuBldeccB uB eq ol poruoop sr pelcefer ere spoo8 eql 13qt uort?rurlurlnoqllA 6spesd?le s?q eturl Jo lunotus elqsuos?eJ e retlv spooS Jo uorlueleJeql esneceq 'flln?J er? {eql l?ql sroôcsrp eq Jel?[ sqluoru .,(uutu ueqa uroqllcofeJ louu?c ueql Surlcadsur lnoqlra\ osnoqeJel\ slq 01 ue{q ee ot ueql sJapJospoo8 eql Jo Ielrrre JeUe oq^\ refnq B 'snqJ 'spoo8 er1l lcefal ol lq8u srq sesolro,(nq eql esec e qJns uI 'flrunuoddo leql ue^r8 ueq^\ spoo8 eql Surlcedsur uorgsuleqer eq 'eldtupxe JoJ JI

'lq8rr srql se^rBly\ eH 'eprcap ol tulq JoJ sl uorluu[uexe

Jo lqEF srq selrulrr ro l(lrungoddo leql Jo Jlesurq slr?Ae ro,(nq oql ror{lor{l11

,r',(lrungoddo tuqt ue^r8 q eq Irtun spoo8 eqt peldecce eêq ol peueep lou sraq l?ql seprôJd pu? spooE eql Sururu?xe Jo ..flrungoddo elqeuosueJ,, ? ue^r8eq ro{nq eql leql serrnbor ,(1ereu lI 'ecuuldecJu rreql Jo tuepecerd uoplpuoc uspooS oql Jo uort?u[u?xo aql o{el.u lou seop lrv oql leql pelou eq pFor.IS u

'uorlsurlsep

aleturun Jo ecBld eq1 eq ,(11euuou llrly\ uorl€unu?xe Jo eJeld pepuelu eql ',{lrlpcol

13ql ol uo{31 eQ ot e^?q 'pepusl uooq Surrreq re$? 'spoo8 eqt pu? puspr pel?nlrssr uorleurlsap Jo oc?ld eqt eJeql[ '(.pcerluoc eql Jo ocusrruoJJed uI lue33 srr.l

Jo lsql ro) ,rrer(nq eql Jo sosrueJd sseursnq oql sr uorl?u[u?Xo Jo oo?Id oql 'uoD

-Euuuexe JoJ elqelrnsun sr Surpuul JeU? ue>le1 ere ,(eql qclqr!! olw esnoq suolsnJaql Jo pepuel ere spooE eqt qcrq/y\ 13 Jnq/r\ eql eJeql\ 'se1es puorl€uelq uI

'ryo^ ^\oN ur rueql uo pred r(1np eqt w Ile^\ se 'pue13ug olI,.lBq ereql tUoJJ pue eJrJeuv ol ueql Surpues Jo lsoc eql so33tu3p s3 rurslc ol

r6spooS lo uot1ourwurg


does not provide that the mere receipt of the goods shall be deemed to beacceptance. On the other hand, approval is not always required by the section:in two of the three circumstances set out by section 35 a buyer is deemed tohave accepted the goods though he may not have approved them.

The buyer is deemed to have accepted the goods:

when he intimates to the seller that he has accepted them (s.35(1Xa));

when the goods have been delivered to him, and he does any act inrelation to them which is inconsistent with the ownership of the seller(s.35(1Xb)); or

when, after the'lapse of a reasonable time, he retains the goods withoutintimating to the seller that he has rejected them (s.35(a)).

The first of these three cases is obvious and does not need clarification. Asregards the third, it should be noted that indecision on the part of the buyer maylead to the loss of his right to reject the goods, that is, if he retains them for anunreasonably long time without intimating that he has rejected them. The Actrefrains from requiring a fixed period of time within which the buyer has tointimate his rejection. "Reasonable time" is a flexible requirement which variesaccording to the circumstances of the case; the question of what is a reasonabletime is always a question of fact.s The prudent buyer will, as observed earlier,65examine the goods as soon as they arrive at the place of examination and willthen decide whether to reject them or to keep them.

Of particular importance is the second case. First, this circumstance arisesonly after the buyer has been afforded a reasonable opportunity of examiningthe goods. Secondly, "an act inconsistent with the ownership of the seller" isdeemed to be an acceptance of the goods only after the goods have beendelivered to the buyer, but the delivery need not be physical. A delivery to acarrier for transmission to the buyer, e.g. under an f.o.b. or c.i.f. contract, wouldbe sufficient.66 An act inconsistent with the ownership of the seller is any act bywhich the buyer behaves as if he were the owner of the goods. Whereas anydisposal of the goods, e.g.a resale and dispatch or delivery of the goods to asub-purchaser, or the pledging of them as a security, was deemed an act incon-sistent with the ownership of the seller, because thereby the buyer accepts thetitle to the goods although he might not have accepted their quality,6T this nolonger reflects the law. The Sale of Goods Act now provides that68 the buyer isnot deemed to have accepted the goods merely because the goods have beendelivered to another under a sub-sale or other disposition. The thrust of the

* s.59.u' See para. 2426.6 See s.32; Kwei Tek Chao v. British Traders and Shippers [1954] 2 Q.B. 459; Bergerco USA v.Vegoil Ltd ll984l I Lloyd's Rep. 440 at 445; see also Benaim v. Debono t19241A.C. 514.ut A mere resale of the goods (unaccompanied by a disposal or an attempted disposal of them, suchas a dispatch to the sub-purchaser), or an inquiry whether the goods are saleable, is not an actinconsistent with the ownership of the seller.s s.35(6Xb).

(a)

(b)

(c)

'6ZL'ded, s.pfol'I I [666I] (DnaS aqil pq oJ apoq u8V louo\ouraul '^ q VIS prDrry

YrnJ v st1 aag aes '(gxz)0g's ur lno les sr ernsuau aql 'Os's 'ocuuldecsu-uou roJ seSsuep uIelqerl sr spoo8 SurtuJoJuoc ldecJe ol sasnJeJ esrl\Jaqlo Jo slJefeJ,(18uorn oq,r ra,{nq eql lng 'plq!

sL 'lcefer o1 1q3fgo ssol s.re'{nq uo 6g 'uV 'uoqueluoJ erruar1 eas '99's

,r 'ZIS 'ded s.pfo11 Z[196ll (lZ6t 'ttt) qpaH'^ pool4De wlqDrqg EL 'eôqu '6€'u eos '(vZ)0€'s zr '0€'s rr 'VS€'s ol lcefqns sI'ronalr\oq'slt{.L'(?)lI's or '^\olaq '800-S 'ered pue otdns 'oor72

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Jelles eql o1 ueql runleJ ol punoq lou sr spoo8 oql slceler oq^\ Ja.{nq eql'eÎlceJ

-Jeur sr lr esr^\Joqlo 'rellos eql seqJ?eJ 1r leql urBuec o>letu plnoqs Je^nq oql lnq'Surlu,t. ur Jo xBJ 'xa1a1 ,(q ',(1pqra^ uenr8 eq [?tu qclqn,\ 'uorlcefer

Jo ecllou eqlroJ peqlJcseJd sr rruoJ oN 'tuaql ol relles er{l Jo eltrl eql seruep re{nq eql qclq^\,(q spooE eql ol Surtular lce rre ,{q patcrpuruoc ee lou plnoqs pw etlugep pueJBelc eq plnoqs ecrlou srqJ 'tueql ldeccs ol sesnJer eq lBql Jelles aql ol ?retull

400-s elq?uos€er e urqlr/r\ olsrurlur ol S?q spooS eql lcefer ol seqsr^\ or{^{ ro.(nq v

spoo8 Jo uollrafau

€r'repurBruer eql lJafer ol pu? spooE peJepuel er$ JoeEeluecred elqeuoseer ? ldecJ? ol pallpue sr aq spoo8 Jo ed/q euo f1uo perepuelsr lnq spoo8 3.peuoss?" lq8noq S?q re.(nq eql ererllros op ol elqsuos?eJuneq plno^\ ll 1uql lq8qs os sr lleJuor{s ro ssacxa luql JI spoo8 Jo ,&rlwnb uI

II?JUOqS JO SSeCxe U? lCe[eJ IOU 1(3(u 'JoUTnSUOC 3 u?ql Jeqlo 'Jefnq e leql .r'Se1?SsuesJeô ur ,(lereua8 ,{1dde lou ilr^\ uorlces eql lerlt uorlrsodoJd eqt 01 lcefqnsUreEB sr eôqe eel rr'peldeccu eq 1€q^\ ro; ,{ud ol seq eq lq8noq eq wql ftpuunbre8rul Jo Jelptus B sldocoe eq Jr lnq 'sJeqlo eql lcefeJ ol puu ,(1r1uenb lmr1uoceql ldecce ol ro lueuru8rsuoc eloq^\ eql lcoloJ ol pallrlua sr Jefnq eql 'spoo8

;o ,ftr1uenb Suorryr oql sJopuel Jellas eql JI 'releznoq 'lueJeJJIp sr uotlrsod eql

'tuer{l Jo etuos Surldecce

,(q spooE eqt Jo repumtuer eql lcefer ol lq8lr srq esol lou seop eq spoo? oql JoIIe ro er.uos slceJJs 13ql qcBerq 3 Jo uosser ,tq spooS 1cefer o1 1q3rr B wq ra,(nqu Jr leql saprlord qcHA Vgg uorlces ol lcofqns sr 'JoAoA\oq 'sHI

./'spoo8 eI$

;o gud raqlo eql lcafer re8uol ou uec eq 'spoo8 eql Jo u?d paldeoJ€ seq re,(nqeql pu? 'epuur a9 ol sr 1uaru,{ed ero;eq palelduoc eQ ol eJ? qcrq^\ slueurl?lsulur poJe^rlop eq 01 oJu spoo? eJeq^\ sr ler{l 'elqurenes lou sr lc?Jluoc eql JI

un'resuqcrnd-qns e ol uo ..ploS,, eJe sluouncop eql esnsceq ,(1durs lsol lou s1 lcelero1 lq8rr oql 'so^lasuaql spoo8 er{t Jo ecuuldecc? Ieuorlrpuoc fpo ol stunotuusluouncop eql Jo ecueldecce oql ler{l Jeolo sr 1r eldurexe JoilBI eql q 'sluetuncop

Jo uorl?lueserd eql ^q pelceJJe sr ,{re,rr1ep aql eJeq^\ suorl?nlrs w pu? eles-qns B repun spooE;o reqddns eqt ,{1areu sr re,tnq aql uogo eror.{/y\ seps Isuoll-?ruelu Jo lxoluoc eql uI prrBlsJepun ol Jarsua Jer.IluJ sr lueupueuB sIqI 'uoE

-cadsur;o eceld erc€J Br.urrd aqt tuor; .,ftertr1ep € ueeq seq ereqt q8noqtlu spoo8aqt petdacce eleq ol per.ueep ,(luesseceu lou sr eq 'rer(nq-qns e ol uolleultuuxelnoqlrA\ spoo8 lJeJluoc eql uo sessed rer(nq ? eJeq/r\ ler11 seJnsuo uollcesqns

r6spoot lo acuoqdaccy


with respect to them. Subject to this obligation, if the goods are rejected forgood reason and in good time, the risk of loss of, or damage to, the goods iswith the seller.

Unless a different intention of the parties is expressed in the contract or canbe gathered from its terms by necessary implication, the buyer's right to rejectthe goods is postponed until the goods arrive and he has a reasonable opportunityof examining them.Tu In appropriate cases the buyer may reject the goods evenbefore having received them, that is, if he notices from a provisional invoice oradvice note that the seller has dispatched goods which are not in accordancewith the contract.TT A seller, except in c.i.f. sales,78 who has tendered goods notin accordance with the contract may cancel the original tender and make anothertender, but only if he can make the other tender within the time stipulated in thecontract.Te Branson J. said in one case8o: \

"It does not prevent the seller, if he has time within which to do so, from tendering anotherparcel of goods, which may be goods which accord with the contract, and which the buyermust, therefore, accept and pay for. It cannot be predicated in any particular case that, if thefirst tender is not a proper tender, there may not yet be another tender which is a proper

' tender."

Right of rejection in c.i.f. contracts

5-008 Some observations have to be added on c.i.f. contracts. As has been explainedearlier,8r the characteristic feature of these contracts is the importance attributedto the shipping documents. It has been held, obiter, in Kwei Tek Chao v. BritishTraders and Shippers Ltd,82 that a disposal of the bill of lading (which is partof the shipping documents) is not necessarily an act inconsistent with the seller'sownership of the goods and that, in principle, a c.i.f. buyer does not lose hisright to reject the goods by dealings with forged documents, e.g.by pledgingthe bill of lading to a bank. In that case, the question whether by dealing with thedocuments the buyers had done an act inconsistent with the sellers' ownership inthe goods did not arise, but in the interest of "those who may be concerned"Devlin J. observed that so long as a buyer was merely dealing with the docu-ments, he did not commit an act inconsistent with the seller's ownership in thegoods and retained the right of rejecting the goods if upon examination aftertheir arrival they were found not to be in conformity with the contract. Theargument that the buyer, when reselling the bill of lading or pledging it to abank, intended to give the sub-purchaser or pledgee a proprietary interest in thegoods and passed title to him, was rejected by Devlin J. on the grounds that thebuyer himself had only conditional property, viz. property conditional on the

'u Bergerco USA v. Vegoil Ltd |9841 1 Lloyd's Rep. 440 at 446." E. E. & Brian Smith (1928) Ltd v. Wheatsheaf Mills Ltd t19391 2 K.B. 302.78 Where it is important that the tendered documents are in order.'n Borrowman v. Free (1878) 4 Q.B.D. 500; Lord Devlin, "The Treatment of Breach of Contract"tl966j Cam. L.J. 192.'o E. E. & Brian Smith ( 1928) Ltd v. Wheatsheaf Mills Ltd [1939] 2 K.B. 3O2 at 314.81 See ante, para. 2419."

11954) 2 Q.B. 459; see also ante, para. 2426.

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,,'fgedord Ieuorlrpuoc aql u?ql arour Sutqletuos qll^\ spep eq sselun dtqs-Jeu/r\o s.Jolles oql qlr/r\ luolsrsuocur sr qsrq^\ Surpep ou eq u33 aJeql l3q1 'oJoJeJeql 's1|o1lo;

t1 'spoo8 aqt ur ,(uedord leuorltpuoc leql qlr^\ ,{po s8utpep aJu slueuncop eqt qlrm s8ulpapslq I1y

'luanbesqns uorlrpuoc u Sureq uoqrpuoc aql 'spoo8 aql ur ,{uedord puotltpuoc ,(posta? aq luql su€eru luILL 'loeruoJ eql qtr/r\ eJuepJoJce ur lou eq ol ureql spug aq uorleurruuxeuodn ;r lse,nar ,(aql leql uorlrpuoc eql 01 lcefqns 'spoo3 eql ur ,{uadord aql sr 'ruF{ ol uenr8 srsluaunJop eql Jepun alln eql ueqa sumlqo re.(nq eql luq^\ leql sl /r\er^ arul eql luql ry1ql L,

:€spl?s '[ wlôc ',(Uedord Puolllpuoc tretD orou qlr^\

leep lou plnoc eq eJoJeJeql 13r{1 pue lcBJluoc eql qlIA\ eJuepJocce w Suleq spooE

S6strouuoTt!'c ut uourafar to tt731g

Acceptance and Rejection of Goods

Property in rejected goods

5-010 The property in the rejected goods revests in the seller when he accepts therejection.se When he does not accept the rejection it is believed that if it islater decided by the court or arbitration tribunal that the rejection wasjustified, the property likewise revests in the seller because, as Devlin J.observed in the Kwei Tek Chao case,eO the property passes to the buyersubject to a condition subsequent that on examination the goods are foundto be in accordance with the contract. A buyer who has paid the price inadvance and then rejects the goods is not entitled to retain them by virtueof an "unpaid buyer's lien"er until the price is refunded. In the case of c.i.f.contracts dealings with the documg4ts do not affect the right of the buyerto reject the goods. This right normally arises only after the arrival of thegoods when they can be examined.e2

Rejection and estoppel

5-011 If the buyer has a valid ground for rejection of the goods but so conducts himselfas to lead the seller to believe that he is not relying on that ground, he isestopped-precluded-from setting up that ground of rejection when it wouldbe unfair or unjust to allow him so to do.e3 On the other hand, if a buyer hasrejected the goods on a ground which he has notified to the seller, he is notconfined to that ground and can later rely on other grounds for the rejection.eaIf owing to a frustrating event the rejection of the goods becomes impossible, itwould appear that the buyer has lost the right to reject the goods.e5

Relaxation of strict performance of contracte6

5412 It sometimes happens that a party to a contract of international sale does notinsist on strict performance of the contract when the other party asks for indul-gence. The buyer may ask the seller to defer the date of delivery of the goodsor the date of payment of the price, or the seller may ask for extension of theshipping time. The party to whom such request is addressed may fully realisethat, according to the terms of the contract, he is entitled to refuse it and, if theother party does not perform, he may treat the contract as repudiated and claim

shipments, even if the transport documents indicate different dates of shipment and/or different portsof loading, places of taking in charge, or despatch."tn J. L. Lyons & Co v. May & Baker 11923) 1 K.B. 685 at 688.no

[954] 2 Q.B. 459; see ante, para.2426.er An analogy to the unpaid seller's lien (see post,para.5-{15) is not allowed:J. L. Lyons & Cov.May & Baker 1192311 K.B. 685.e2 See ante, para. 5-{08.e3 Panchaud Freres SA v. Etablissements General Grain Co t19701 I Lloyd's Rep. 53 at 57; MotorOil Hellas (Corinth) Refineries SA v. Shipping Corporation of India; The Kanchenjunga [1990] 1Lloyd's Rep. 391.no Panchaud Freres SA v. Etablissements General Grain Co t19701 1 Lloyd's Rep. 53 at 56.es Mackay v. Dick (1SS1) 6 App.Cas. 251; Coltey v. Overseas Importers ll921l3 K.B. 302.nu This paragraph is based on C. M. Schmitthoff, Legal Aspects of Export Sales (3rd ed., Instituteof Export, 1978), pp. 14-16.

96

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:s^\olloJ s? 66'f'T Suruueg fq

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aql ,(J"A ol lc?Jluoc erul B sI eJeql 'lnone; eql JoJ unleJ uI uo4sJeplsuoc 3 JoJ

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If, therefore, in the above example, the buyer, after expiry of one month, isstill unwilling to accept delivery of the goods, the seller would be en-titled to revert to the original terms of the contract. Goulding J. said in onecase3:

"Indeed, the mere extension of the period to a new fixed period would on the authoritieshave preserved the position that time was of the essence without fresh stipulation to thateffect. "

Moreover, if no time limit is provided for the indulgence, the party who hasagreed to relax the strict terms can likewise unilaterally notify the other partythat the indulgence is over and that the strict terms of the contract shall againapply. Normally, the party who has shown indulgence has to give the other partynotice of reasonable length "for readjustment before he is allowed to enforcehis strict rights".4 Such notice is not always essential: it is not required if it isclear from the circumstances that the period of suspension is over or that, evenif notice had been given, the other party could not have complied with it. In onecase,t a French company bought goods from an English company under an f.o.b.contract which provided that the price should be paid in sterling under a banker'sletter of credit to be opened in London "within a few weeks". The time for theopening of the credit expired, as the court found, on August 19. There wereextensions, and on October 22 the sellers informed the buyers peremptorily that,having regard to the delay in the establishment of the credit, they consideredthe contract cancelled. Devlin J. held that the peremptory notice of October 22was sufficient and that the sellers were not obliged to give the buyers furthertime because even if they had given them, say, a fortnight's notice, the buyerscould not have complied with it as they could not obtain transferable sterlingfrom their bank; the legal principle was expressed by the learned judge6 asfollows:

"The position of a party who has started out with a contract where time is of the essence andhas allowed the time to go by is, I think, quite clearly laid down in the authorities. He hasgot to make time of the essence of the contract again in the normal case, and that means thathe has to give notice giving the other side what is a reasonable time in all the circumstancesto comply with their obligations. But in my judgment, although that is the ordinary doctrine,the giving of a notice is not always essential."

3 (1973) 26 P.C.R. 89; quoted with approval by Ken L.J. in Nichimen Corporation v. GatoilOverseas Inc |98712 Lloyd's Rep. 46 at 53.a PerLord Tucker inTool Manufacturing Co Ltdv.Tungsten Electric Co Ltd t19551 1W.L.R.761at785; SCCMO (London) Ltd v. Soci€ti Ginirale de Compensation [1956] 1 Lloyd's Rep. 290 at300.t Etablissements Chainbaur SARL v. Harbormaster Ltd t19551 1 Lloyd's Rep. 303; See also Nichi-

men Corporation v. Gatoil Overseas Inc ll987l2 Lloyd's Rep. 46 (failure to open letter of creditwas breach of a condition of the contract of sale and this position was not changed by the sellersgranting the buyers indulgence for the opening of the credit).u In the Chainbaux case at 312.

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(c)

(q)

(e)

ffitrDrtuor lo acuowto{rad puts lo uotloxopy


The Act also providestt a definition of the unpaid seller, who becomes such:

(a) when the whole of the price has not been paid or tendered; or

(b) when a bill of exchange or other negotiable instrument has beenreceived as conditional payment and the condition on which it wasreceived has not been fulfilled by reason of the dishonour of the instru-ment or otherwise.

The rights of the unpaid seller may likewise be claimed by an agent of the sellerto whom the bill of lading has been indorsed or by a consignor or confirmingagent who has himself paid or is directly responsible for the price or who, forother reasons, is in the position of a seller.t2

The unpaid seller's lien

5-015 The unpaid seller can exercise his lien on the sold goods onty if he still hasactual possession of them. Where he has delivered them to a carrier for thepurpose of transmission to the buyer, or to the buyer or his agent, the lien onthe goods is lost.l3 If the goods are still in transit and have not yet been deliveredinto the possession of the buyer or his agent authorised to accept them on hisbehalf, the question arises whether the unpaid seller can exercise his right ofstoppage in transit. This question will be examined in the next section. It willbe seen that the conditions on which the Act allows stoppage in transit are verystrict. In international sales transactions the unpaid seller's lien on the goodsplays a relatively minor role.

The seller's right of lien is merely a right to retain the goods until the purchaseprice is paid and is not a right to resell them. He has, however, in certain

. circumstances such a right under the Actta; sometimes such right is given bymercantile custom, e.g. in the tea trade. The lien cannot be claimed for storagecharges incurred when the goods are stored during the buyer's default.ls In thecase of a credit sale, the unpaid seller has no right of lien during the credit periodunless, during that period, the buyer becomes insolvent.16 After the expiration ofthe credit period he can exercise the lien in any event. The seller is entitled tothe lien even if he is in possession of the goods as an agent for the buyer.l7 Aconfirming house, which acts as agent for a principal abroad, may exercise thelien on goods bought on behalf of the principal if he fails to pay the commissionor incidental charges.

r r s . 3 8 .'2 s.38(2).r3 s.43.'a See para. 5-{17.'5 Somes v. British Empire Shipping Co (1860) 30 L.J.Q.B. 229.'6 s.41(1)(c) .t7 s.4 l (2) .

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jtsuDtt ur aSoddoyg

flsuurf q aEuddo3g

r02 Acceptance and Rejection of Goods

The right of stoppage in transit is exercised by the seller giving notice of hisclaim to the carrier or the carrier's principal, or by the seller taking actual pos-

session of the goods if he can do so without breach of the peace. The notice to

the carrier's principal, that is the line in whose ships the goods are cdrried, is

only effective if given in such time and under such circumstances that the prin-

cipal, by the exercise of reasonable diligence, can communicate it to his servantor agent in time to prevent a delivery to the buyer.22

The right of stoppage in transit, which originally arose by mercantile custom,gave rise to much litigation before it was cast in its present form. It is outsidethe scope of this work to examine the matter exhaustively. Three points how-ever, may be mentioned briefly.

First, delivery of the goods to a carrier or agent, who takes his instructionsfrom the buyer, does not necessarily lead to a loss of the right of stoppage. Inconnection with that right, section 32(l) of the Act, which has been discussedearher,23 does not apply. If the carrier or agent is merely the buyer's agent forthe purposes of transmitting the goods, the right of stoppage in transit can stillbe claimed, provided that the goods are still in the agent's possession. If, on theother hand, the agent is authorised to accept delivery of the goods in accordancewith the terms of the contract of sale and has to dispose of them in compliancewith the instructions of the buyer, the right is lost. The courts will generally

incline to the view that the master of the ship obtains possession of the goodsin his capacity as carrier and not as agent of the buyer to take delivery underthe contract of sale, and this applies even where the goods are delivered on avessel chartered by him. Thus, where the seller, under an ordinary f.o.b. contract,delivers the goods to the master of the ship, who makes out the bill of lading inthe buyer's name, the goods are still "in transit", and the right of stoppage can

be exercised by the seller. Where, however, in the course of the shipment,2a orafter arrival of the goods at the place of destination, the carrier acknowledges-"4ffs11s"-[o the buyer or his agent that he holds the goods on his behalf, thetransit has come to an end even if the buyer orders the transshipment of thegoods to another place.25

Secondly, the right of stoppage is not lost when the bill of lading is madeout in the name of the buyer (or his agent), or, if originally made out inthe seller's name, is delivered to the buyer. The latter act is, as has beenseen,'u decisive for the passing of the property unless the seller has reservedthe right of disposal; but these acts are irrelevant for the exercise of theright of stoppage. In fact, that right acquires particular practical importanceafter the bill of lading has reached the buyer and he has thus obtained theright of disposal of the goods.

Thirdly, while normally the unpaid seller's lien or right of stoppage in transitis not affected by a sale or other disposition which the buyer has made with

22 s.46(1).23 See ante, para. 4-003.'o Reddall v. Union-Castle Mail Steamship Co Ltd (1915) 84 L.J.K.B. 360.25 s.45(3).'o See ante, para. 4-{06.

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chap 5. acceptance and rejection of goods- 20r

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