Sale of Goods: Summary notes

SALE OF GOODS

The contract of sale

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. It must be noted that an actual sale and an agreement to sell are both included in the term ‘contract of sale’.

The contract is called a sale where the transfer of property takes place at once. An agreement to sell exists where the property is not to pass until some time in the future, or some condition is fulfilled .When the time elapses or the condition subject to which the property in the goods is to be transferred, is fulfilled, an agreement to sell becomes a sate.

Definition of Goods.

Goods ‘ include all chattles personal other than things in action’ as well as emblements, i.e. industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

NOTE: Contracts for, sale of goods for Sh. 200 or more shall be in writing otherwise the courts will not enforce them.

Transfer of Property. Where there is a contract for the sale of specific goods the property in the goods passes when ownership is intended by the parties to pass. For the purpose of ascertaining the intention of the parties regard must be had to the terms of the contract, the conduct of the parties, and the circumstances of the case. Where the parties are silent as to the transfer of property in the goods, the courts apply the following five rules:

Rule I. Where there is an unconditional contract for the sale of specific goods, in deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.

Rule 2. Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods, for the purpose of putting them into a deliverable state, the property does not pass until such thing be done, and the buyer has notice thereof.

Rule 3. Where there is a contract for the sale of specific goods in a deliver-able state, but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing be done and the buyer has notice thereof.

Rule 4. When goods are delivered to the buyer on approval or ‘on sale or re-turn’ or other similar terms the property therein passes to the buyer:

  1.  when he signifies his approval or acceptance to the seller or does any act adopting the transaction;
  2.  if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time.

Rules 5. Where the sale is of unascertained or future goods, the property in them passes when the goods become ascertained, i.e. unconditionally appropriated to the contract by the seller with the express or implied assent of the buyer or by the buyer with the express or implied assent of the seller.

Risk. It is important to know when property passes because of the following:

  1. The transfer of the risk.
  2. The seller can only sue for the price when ownership has passed.
  3.  Difficulties arise in the event of the seller’s bankruptcy as to whether the goods are his property or not.

Mistake.

Where there is contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void.

Frustration.

Where there is an agreement to sell specific goods, and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer the agreement is thereby avoided.

Payment of Price.

It is clear from the definition of a ontract for the sale of goods, that the consideration must be money. A barter transaction is not within the Act. However, if part of the consideration is in the form of money the contract would seem to be one of sale of goods.

Under section 27, unless there is contrary agreement, the seller must give possession and the buyer must pay the price simultaneously.

By section 10(1) the price in a contract of sale of goods may be fixed in an agreed manner, for example, by a valuer, or determined by the course of dealing between the parties. Thus, if no price is expressly agreed, it may be able to be implied by reference to the price paid in earlier similar transactions between the parties.

Section 10(2) adds that where the price is not determined in accordance with the provisions of section 10(1) the buyer must pay a reasonable price.

Section 11 provides that where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and such third party cannot or does not make such valuation, the agreement is avoided.

Where such third party is prevented from fixing the price by the fault of the seller or buyer, the party not in fault may maintain an action for damages against the party in fault.

Conditions and Warranties Implied in Contracts of Sale. In a contract of sale, unless the circumstances show a different intention, there are two implied warranties, and five implied conditions.

Implied Warranties

  1.   An implied warranty that the buyer shall have and enjoy quiet possession of the goods.
  2. An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party, not declared or known to the buyer before or at the time when the contract is made.

Implied Conditions

  1.  Right to sell. An implied condition on the part of the seller that in the case of a sale he has a right to sell the goods, and that in the case of an agreement to sell the goods at the time when the property is to pass (Rowland v Divall 1923)
  2.   Correspondence with description. When there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description (Varley v Whipp 1900).
  3. Fitness for a particular purpose. There is no implied term as to fitness for any particular purpose except where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgement and the goods are of a description which it is in the course of the seller’s business to supply, there is an implied condition that the goods shall be reasonably fit for such purpose(Frost v Aylesbury Dairy Co. Ltd 1905).
  4.  Merchantability. Where goods are bought by description from a sellerwho deals in goods of that description, there is an implied condition that the goods shall be of merchatable quality; provided that if the buyer has exam¬ined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed (Morelli v Fitch & Gibson 1928).
  5. Sale by sample. In the case of contract for sale by sample,there is (i) an implied condition that the bulk shall correspond with the sample in quality, and (ii) an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample, and (iii) an implied condition that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

Effect of breach of condition and warranty. A condition is a term of greater importance going to the root of the contract, while a warranty is a stipulation which is of lesser significance. The breach of condition gives rise to a right to treat the contract as repudiated, and breach of warranty gives rise to claim for damages, but not to a right to treat the contract as repudiated.

When condition to be treated as warranty. Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of such condition as a breach of warranty and not as a ground for treating the contract as repudiated.

Contracts for Work and Materials. Where the substance of the contract is an undertaking to use skill in producing a particular article, the contract may be one for work and materials and not a contract for sale of goods. The Sale of Goods Act does not apply to contracts for work and materials.

  1.   A contract to paint a portrait has been held to be a contract for the exercise of skill and not a contract of sale of goods.
  2. A contract to make and supply a set of false teeth has been held to be a contract of sale of goods.

Transfer of Title.

Title to goods is the right of ownership with respect to them. As to the passing of title from buyer to seller, the general rule is that where goods are sold by a person who is not the owner thereof, the buyer acquires no better title to the goods than the seller had. This principle is often expressed by the use of the maxim nemo dat quod non habet.

Exceptions

  1.     Sale by an agent.
  2. Sale by a mercantile agent without authority.
  3.    Sale under a voidable title.
  4.  Seller in possession of goods after the sale.
  5.  Buyer in possession after the sale.
  6.  Sale under a court order of competent jurisdiction.
  7. Sale in market overt. Where goods are sold in market overt according to the usage of the market, the buyer acquires good title to the goods, provided he buys them in good faith and without notice of any defect or want of title on the part of the seller. This exception is of no bearing in Kenya.

Unpaid Seller’s Rights Against the Goods.

Notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law the following rights:

  1.  Right of lien. The unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of price in the following cases, namely:(a) Where the goods have been sold without any stipulation as to credit. (b) Where the goods have been sold on credit, but the terms of credit have expired.(c) Where the buyer becomes insolvent.
  2. Stoppage in Transit. This arises only on. the insolvency of the buyer. The seller may resume possession of the goods while they are still in transit. A person is deemed to be insolvent if he has ceased to pay debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of bankruptcy or not.
  3. Right of Resale. The Act provides that an unpaid seller may re-sell the goods:

(i)  Where the goods are of a perishable nature; or

(ii)  Where the unpaid seller gives notice to the buyer of his intention to re-sell, and the buyer does not, within a reasonable time pay or tender the price.

(iii)  Where the seller reserves the right of resale in the event of the buyer’s making default, and the buyer makes such default.

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