SALE OF GOODS

SALE OF GOODS

DEFINITION

A contract of sale of goods is defined as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.

The General rules of the law of contract continue to apply on the contract of sale of goods.

Where the transfer of property from the seller to the buyer takes place immediately, the contract is called a sale but where the transfer of property is to take place at a future date and subject to conditions thereafter to be fulfilled, it is an agreement to sell.

An agreement to sell becomes a sale when the condition subject to which the goods are to be transferred is fulfilled.

DISTINCTION BETWEEN A SALE AND AN AGREEMENT TO SELL

·         Where the transfer of property from the seller to the buyer takes place immediately, the contract is called a sale.

·         Where the transfer of property is to take place at a future date and subject to conditions thereafter to be fulfilled, it is an agreement to sell.

·         An agreement to sell becomes a sale when the condition subject to which the goods are to be transferred is fulfilled.

	Sale	Agreement to sell
1	Property passes at the time of contract	Property passes at a future time
2	In case of deterioration to the goods, the buyer bears the loss	In case of deterioration, the seller bears the loss
3	The seller can sue for the price	The seller can sue the buyer for damages for the buyer’s failure to accept the goods.

FACTORS OR ELEMENTS OF THE DEFINITION

1.      Seller- this is a person who sells or agrees to sell goods.

2. Property –This is the general property in goods or ownership. It signifies the bundle of rights that a person has in relation to a subject matter .Eg. Right to use, misuse and to dispose

3. Goods- goods includes

a)      All chattels personal other than things in action and money

b)     And all implements

c)      Industrial growing crops

d)     Things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale

Classification/Types of Goods

a.      Specific or Ascertained and Unascertained

These are identified and agreed upon by the parties at the time when the contract of sale is made. Other goods are unascertained

b.       Existing and Future Goods

These are goods owned a possessed by the seller when the contract of sale is made.

 Future Goods are goods to be manufactured or acquired by the seller after the contract of sale is made.

4. Buyer: buyer means a person who buys or agrees to buy goods

5. Price: This is the consideration that passes from the buyer to the seller to support the contract of sale of goods. The consideration must be monetary which distinguishes a contract of sale of goods form related transactions. E.g. Contracts of exchange or batter, contracts for skills and labour and materials.

CAPACITY

Capacity for enter into a contract of sale of Goods is governed by the General Law of contract. However, if an infant, drunken person or a person of unsound mind is supplied with necessaries, he is liable to pay a reasonable price.

FORMALITIES

A contract of sale is not subject to any legal formalities, the contract may be:-

a) Oral

b) Written with or without seal

c) Partly oral and partly written

d) Implied from the conduct the parties

However, a contract of sale of Goods of Kshs. 200 and above is unenforceable unless: -

1. The buyer has accepted part of the goods and actually received the same or

2. The buyer has given something in concert to bind the contract.

3. It is evidenced by some note or memorandum signed by the parties.

IMPLIED TERMS {Exceptions to Caveat Emptor}

The Sale of Goods Acts implies both conditions and warranties in Sale of Goods of Contracts unless a different intention appears on the part of the parties

These are terms which though not agreed to by the parties, are an integral part of the contract. These terms may be implied by statutes or by a court of law.

CONDITIONS

1.                  Right to sell: There is an implied condition that the seller of goods shall have the right to sell when property in the goods is to pass.

2.                  Correspond to description: in a sale by description there is an implied condition that the goods shall correspond to the description.

3.                   Fitness for purpose: where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to rely on the seller’s skill and judgment, there is an implied condition that the goods shall be reasonably fit for that purpose.

4.                  Merchantable Quality: where goods are bought by description from a person who deals in such goods in the ordinary course of business whether a seller or manufacturer, there is an implied condition that the goods will be of merchantable quality.

5.                  Sale by Sample: In a sale by sample, the following conditions are implied:

a. The bulk shall correspond with the sample in quality.

b. The buyer shall be afforded a reasonable opportunity to compare the bulk with the sample.

c. That the goods shall be free from any defects rendering them unmerchantable.

WARRANTIES

1.                  Quiet Possession: there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods.

2.         Free from Charge or encumbrance: there is an implied warranty that the goods shall be free from any charge or encumbrance not made known to the buyer when the contract was made.

TRANSFER OR PASSING OF PROPERTY

When does property in goods pass from the seller to the buyer?

Property in goods passes to the buyer at different times in different contracts hence the passage of property is governed by various rules or principles.

Property means the general property in goods or ownership. It signifies the rights a person has in relation to a subject matter.

It is important to ascertain when property in goods passes from the seller to the buyer for the following reasons:

1.      It is the purpose of the contract of sale of Goods that property passes to the buyer.

2.      It determines when risk passes to the buyer and hence the party liable in the extent of loss or destruction.

3.      It determines what remedies are available to the seller e.g. the seller cannot sue for the price before property in the goods passes to the buyer.

RULES RELATING TO THE PASSING OF PROPERTY

1. Sale of Unascertained Goods:,property passes to the buyer when the goods are ascertained. Examples of Unascertained Goods: Goods to be manufactured by the seller, Crops to be grown by the seller.
2. Sale by Reservation: in a Contract for the sale of Specific Goods or where goods are subsequently appropriated to the contract, but the seller reserves the right of disposal until a certain condition is fulfilled, property in the goods will pass to the buyer when the condition is fulfilled.
3. Sale by Auction: Under Sec. 58 of the Act, in a Sale of Auction, property passes when the Auctioneer announces its completion by the fall of the hammer or in any other customary manner.
4. Unconditional Sale of Specific Goods in a deliverable state. Property passes when the contract is concluded.
5. Sale of Specific goods not in a deliverable State: Where specific goods, the subject matter of the contract, are to be put in a deliverable state, property passes when they are so put and the buyer is notified.
6. Sale of specific goods to be weighed, measured, tested etc.if specific goods are to be weighed, measured, tested or that other thing is to be done for the purpose of determining the price, property passes when the thing is done and the buyer is notified.
7. Sale by approval or On Sale or Return: Under sec. 20 of the Act, where goods are delivered to the buyer by approval or on sale or return or on such other term, property in them passes to the buyer: -

a. When he signifies his acceptance or approved to the seller.

b. When he does any act adopting the transaction e.g. selling goods.

c. When he retains the goods even after expiration of the stipulated or reasonable time without signifying his rejection.

8. Sale by description: Under Section 20 of the Act in a sale of future goods by Description, property to the buyer when: -

a. Goods of that description

b. In a deliverable state

c. Are unconditionally appropriated to the contract.

d. By the seller with consent of the buyer or the buyer with the consent of the seller.

ACCEPTANCE OF GOODS

A buyer is deemed to have accepted goods if:-

1. He intimates to the seller his acceptance

2. He does any act in relation other goods which is inconsistent with the seller’s ownership

3. He retains the goods after the expiration of the stipulated or reasonable time without intimating his rejection.

TRANSFER OF TITLE BY A NON-OWNER (NEMO DAT QUOD NON HABET)

The principle of Nemo dat means that a seller cannot give to the buyer a better title to the goods than he himself has.

The principle provides inter alia “Where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title than the seller had.”

The principle of Nemo dat was developed to protect the true owners of goods.

The Nemo dat principle is subject to various exceptions. These are circumstances in which a seller can give a better title to the buyer than he has in the goods.

Exceptions to Nemo dat Rule

There are circumstances under which a valid title can be given by a person who is not the true owner of the goods. They include;

1.         Sale under voidable title

When a seller of goods has a voidable title to them but his title has not been avoided at the time of sale the buyer acquires a good title to the goods provided he buys them in good faith and without notice of the seller’s defective title to the goods.

2.         Sale by mercantile agent

A mercantile agent acting in the ordinary course of business can give a good title to the purchaser of goods who buys them in good faith and without notice of any restriction imposed on the agent.

3.         Sale by buyer in possession

Where a buyer having bought or agreed to buy goods obtains possession or title to the goods with the consent of the seller sells them to a person who buys them in good faith, the buyer obtains a good title.

4.         Sale by seller in possession.

Where a seller having sold the goods continues to be in possession of the goods or documents of title to the goods and again sells them to a person who buys in good faith, the buyer gets a good title.

5.         Sale by order of the court

On sale by the order of a court of competent jurisdiction or under any special common law or statutory power of sale, the buyer gets a good title.

6.         Sale under Estoppel title

A contract of sale by estoppel may arise where the owner by any act or omission leads the buyer to believe that the seller has the right to sell. In such circumstances, the buyer gets a better title than the seller had.

7.         Sale in market overt

A marker overt is an open public and legally constituted market usually held at periodic intervals in some particular place and often for the sale of particular goods. Where goods are sold in such a market, the buyer acquires a good title to them provided he buys them in good faith.

CAVEAT EMPTOR

Caveat Emptor means “Let the buyer beware” according to this it is the duty of the buyer to be careful while purchasing goods of his require­ment, and in the absence of any inquiry from the buyer, the seller is not bound to disclose every defect in goods of which he may be aware.

 The buyer must examine the goods thoroughly and must see that the goods he buys are suitable for the purpose for which he wants them. If the goods turn out to be defective the buyer cannot sue the seller because there is no implied undertaking by the seller that he shall supply goods to suit the buyer’s purpose. If the buyer depends on his own skill and makes bad choice he must suffer in the absence of any misrepresentation or fraud or guarantee by the seller.

Exception to Doctrine of Caveat Emptor

Exceptions to Caveat Emptor include the Conditions and Warranties Implied by the Sale of Good Act

{SEE IMPLIED TERMS}

OBLIGATIONS/DUTIES OF THE PARTIES

DUTIES OF THE SELLER

1.                   Put the goods into a deliverable state-

The seller is bound to ensure that the goods are in a condition in which the buyer is bound to take delivery when the contract is made and unless otherwise agreed, the cost of doing so is borne by the seller.

2.                  Pass a good title- It is the duty of the seller to pass a clean title to the buyer failing which he is liable in damages.

3.         Deliver the goods: it is the duty of the seller to deliver the goods to the buyer

4.         Supply goods of the right quality: The seller is bound to ensure that the quality of the goods supplied is consistent with the terms of the contract.

5.         Supply goods of the right quantity –The seller must deliver goods of the quantity agreed to by the parties.

If fewer goods are delivered the right buyer is entitled to:

a. Reject the goods

b. Accept and pay at the contract price

If more goods are delivered, the buyer may:

a. Reject the goods

b. Accept those included in the contract

c. Accept all and pay at the contract rate

DUTIES OF THE BUYER

1. Take delivery- it is the duty of the buyer to take delivery of goods, the subject matter of the contract, failure to which he is liable in damages.

2. Pay the price- it is the duty of the buyer to pay the price of the goods failure to which the seller may maintain an action against him for the price.

The duty of the buyer to take delivery and pay the price and that of the seller to deliver the goods should be concurrent i.e. the seller must be ready and willing to give possession of the goods in exchange for the price and the buyer must be ready and willing to take possession and pay the price.

REMEDIES FOR BREACH OF CONTRACT

Rights and Remedies of the Unpaid Seller

a)         Right of lien

This is the right to withhold the goods which remain in the seller’s possession until full payment has been made. The right is exercisable where the goods have been sold without any stipulation as to credit. Lien can only be exercised for non payment of the price and not for any other reason. It is only exercised by the seller on goods in his possession.

b)         Stoppage in transit

Goods are said to be in transit if they are in the process of delivery, but before they reach the buyer or his agent. The right of stoppage in transit can only be exercised when the buyer is insolvent but not for any other reason.

Difference between stoppage in transit and lien

1.         The right to stop goods in transit arises only when the buyer is insolvent while lien is exercisable whether the buyer is insolvent or not.

2.         Lien is only available when the goods are in actual possession of the seller while stoppage in transit is exercisable when goods are in the process of delivery.

3.         Stoppage in transit can be exercised inspite of credit having been agreed upon while a stipulation to credit destroys the lien.

c)         Unpaid sellers right of re-sale. –

The unpaid seller can resale the goods where;

·         The goods are perishable

·         The right to do so is expressly stipulated in the contract

·         After giving reasonable notice to the buyer of his intention to resell the goods but the buyer does not tender the price within a reasonable time.

d). Rights against the buyer

The unpaid seller has the following rights against the buyer

1.         To sue the buyer for the price of the goods

2.         Maintain an action for damages against the buyer if the buyer wrongfully refuses to accept the goods.

3.         Action for recovery of deficit on resale.

REMEDIES OF THE BUYER

1.         Damages for Non-Delivery The buyer can maintain an action for damages against the seller for failing to deliver the goods

2.         Recovery of price; the buyer will exercise this right where he had already paid the price but the goods were not delivered.

3.         Specific performance; this remedy is available to the buyer where the goods are unique in their nature e.g. rare goods and paintings

4.         Rejection of Goods

The buyer is entitled to reject the goods delivered by the seller in certain circumstances without incurring any liability. E.g.:1) If the quantity delivered is greater than that contracted for

2) If the quantity delivered is less than than that contracted for

3) Where the goods delivered are mixed with goods of another description. Right to reject the goods if they do not correspond with the contractual agreement.

5.         Damages for the Breach of warranties