Sale of goods

CPA-Business-Law-Section-1 BLOCK RELEASE

Introduction
Businesses and consumers are usually free to contract on whatever terms they see fit. However, contracts involving sales of goods can be subject to a range of statutory provisions. It is important to distinguish between sale of goods and other forms of conveying, such as barter trade, bailment, hire purchase, pledges, supply of services and gifts. The distinction is important as it sheds light on the resolution of disputes if they go to court.

NATURE OF THE CONTRACT
A contract of sale of Goods can be defined as contract in which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called a price.
Property means the general property in goods, and not merely a special property.

These contracts can be separated into two:

A. Sale contract – goods passes to the buyer once the contract is concluded
B. Agreement to sell- goods or property passes on the fulfillment of a particular or upon the expiration of a specified condition

Sale of good should be distinguished from the following transaction
1. Contract of Barter or Exchange.
2. Contract of Gifts
3. Contract of Bailment
4. Contract of Hire Purchase
5. Contract of Loan on Security of goods
6. Contract of Agency
7. Contract of Licenses of intellectual property such „sales‟ of computer software and patents.
8. Contract of Supply of services

The difference will in most cases be in money consideration called price and the condition in which property comes to pass

The following should be clearly understood when it come to understanding the nature of sale of goods contracts
1. Seller- This is the 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- this is includes
1. All chattels personal other than things in action and money
2. And all implements
3. Industrial growing crops
4. Things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale

Types of Goods
1. Ascertained/Specific goods and Unascertained
2. Existing and Future Goods

Specific or Ascertained Goods
These are goods that have specifically been indentified and agreed upon the parties at the time when the contract of sale is made. Other goods which haven‟t been identified are unascertained goods

Existing Goods
These are goods owned or possessed the seller at the time when the contract of sale is made.

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

4. Buyer- This is the 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.

Note
In a contract of sale of Goods, price is determined or fixed:-

a) By the contract itself
b) In the manner thereagreed
c) By the course of dealing

If the price is not so fixed, the buyer pays a reasonable price.

FORMALITIES OF THE CONTRACT

A contract of sale may be:-
a) Oral
b) Written with or without seal
c) Partly oral and partly written
d) Implied from the conduct the parties
The Capacity for one to enter into a contract of sale of Goods is governed 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.

Void contracts of sale of goods

Certain contracts of sale of goods are void:

i. Where there is a contract for the sale for the specific goods which without the seller‟s knowledge have perished at the time the contract is made, the contract is void.
ii. Where there is an agreement to sell specific goods which subsequently perish without the fault of either party before risk passes the buyer, the agreement is avoided.
iii. Where in an agreement to sell specific goods, price is to be fixed the valuation of a 3rd party who fails to do so, the agreement is avoided.

TERMS OF SUCH CONTRACTS (IMPLIED TERMS)

The terms in these contracts can be classified as conditions and warranties. Since express terms are dependent upon the contracting parties we shall look at implied terms.

Implied terms are terms which though not expressly agreed to the parties, are an integral part of the contract.

These terms may be implied statutes or a court of law.

TERMS IMPLIED BY STATUTES

CONDITIONS
1. Seller has the right to sell the goods when property in the goods is to pass.
2. In case of sale description the goods shall correspond to the description. This condition applies where the sale is solely description. If the buyer sees the actual goods before the sale then it cannot be relied upon:

Harlington & Leinster v Christopher Hull Fine Art (1991)
The claimant purchased a painting from the defendant for £6,000. The painting was described in an auction catalogue as being German impressionist artist Gabrielle Munter. Both the buyers and the sellers were London art dealers. The sellers were not experts on German paintings whilst the buyers specialised in German paintings. The purchasers sent their experts to inspect the painting before agreeing to purchase. After the sale the buyers discovered that the painting was a fake and worth less than £100. They brought an action based on s.13 Sale of Goods Act in that the painting was not as described.
Held: By sending their experts to inspect the painting this meant the sale was no longer description. S.13 only applies to goods sold description and therefore the buyers had no protection.
Note: this is simply concerned with description and not quality as was made clear in:

Re Moore & Landauer (1921)
A contract for the sale of 3,100 tins of peaches described the tins as being packed in cases of 30. When they arrived the tins were packed in cases of 24 although the agreed overall number of tins was supplied.
Held: The purchaser was entitled to reject the goods as they were not as described.

3. Where the buyer expressly or 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. Where goods are bought 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. in a contract for sale sample there is an implied term-
 That the bulk will correspond with the sample in quality
 That the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample.

WARRANTIES

1. The goods are free from any undisclosed charge or encumbrance.

2. The purchaser will enjoy quiet possession of the goods. This acts as an ongoing assurance that no one will interfere with the buyer‟s right to possess or use the goods.

Microbeads v Vinhurst Road Markings (1975)
The claimant purchased some road marking machines from the defendant. After the purchase a third party was granted a patent right in the machines. This meant the claimant could not use the machines unless they were granted a license to do so. There was no breach of condition as at the time of the sale the seller had the right to sell the goods. However, there was a breach of warranty in that the buyer could not enjoy quiet possession of the goods.

TERMS IMPLIED BY COURTS OF LAW

Courts of law is usually reluctant to imply terms in contracts as it is the duty of the parties to agree as to what the contractual terms shall be.

There are circumstances however, that courts are called upon to imply terms in contract reasons being:
1. To give effect to the intentions of the parties.
2. To facilitate commercial transactions or give business efficiency.
Courts of law imply terms in contracts on the basis of:
a) The reasonable standard test.
b) Trade usages and customs.

TRANSFER OF PROPERTY

The question “When does property in goods pass from the seller to the buyer?” is very important to contracts of sales of goods.

As we have already established 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 be clear on 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.

Property in goods passes to the buyer at different times in different contracts hence the passage of property is governed various rules or principles.
RULES RELATING TO TRANSFER OF PROPERTY

1) Sale of Unascertained Goods- property passes to the buyer when the goods are ascertained.
These good include;
a) Goods to be manufactured the seller.
b) Crops to be grown the seller.
c) Purely generic goods.
d) An unidentified portion of a special bulk or whole.

2) Sale Auction- property passes when the Auctioneer announces its completion the fall of the hammer or in any other customary manner.

Rules Governing Sale Auction
a. If goods are offered in lots, each lot is deemed to be the subject matter of a separate contract.
b. If the right of the seller to bid is not expressly reserved, he cannot bid or do so through another person.
c. A sale auction may be the subject to an agreed price
d. The right of the seller to bid may be reserved, in which case he may do so at the auction

3) Unconditional Sale of Specific Goods in a deliverable state- Property passes when the contract is concluded.

4) Sale of Specific goods not in a deliverable State- Where specific goods are to be put in a deliverable state, property passes when they are in this state and the buyer is notified.

5) Sale of specific goods to be weighed, measured, tested etc- if specific goods are to be weighed, measured, and 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.

6) Sale approval or On Sale or Return- where goods are delivered to the buyer 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.

PERFORMANCE OF THE CONTRACT

Unless otherwise expressed, it’s the duty of the seller to deliver the goods and the buyer to accept and pay for them, in accordance to the contract of sale. Generally payment and delivery are concurrent conditions, that is, they both take place at the same time.

Forms of Delivery

This is the voluntary transfer of possession from one person to another. It may take any of the following forms;

1) Physical transfer of the goods.
2) Delivery of the means of control e.g. keys.
3) Delivery of the documents of title.
4) Delivery to a common carrier.
5) Delivery atonement: This is a situation where a seller of goods retains them as bailor for the buyer.

Rules of delivery

1. Whether it is for the seller to transmit the goods to the buyer or for the buyer to take delivery at the seller’s premises depends on the agreement between the two.
2. Unless otherwise agreed, the cost of and incidental to putting the goods into a deliverable state is borne the seller.
3. Unless otherwise agreed the place of delivery is the seller’s place of business if not then his residence.
4. Where specific goods are in some other place known to both parties, that other place is the place of delivery
5. If the goods are in the hands of a 3rd party, delivery is complete when the 3rd party notifies the buyer that he holds the goods on his behalf.
6. If the seller is bound to transmit, the goods to the buyer, he must do so within the stipulated time if any or within a reasonable time.
7. If the seller delivers less goods, the buyer may reject them or accept and pay at he contract rate
8. If the quantity delivered is more, the buyer may reject the goods, or accept those included in the contract or accept all and pay at the contract rate.
9. If the goods delivered are mixed with those of a different description, the buyer may, Reject the goods or Accept those included in the contract
10. Unless otherwise agreed, the buyer is not compelled to accept delivery installment
11. Where delivery is installment to be paid for separately and the seller makes one or more defective deliveries or the buyer refuses to take delivery or pay for one or more installment whether such breach entitles the innocent party to treat the contract as repudiated or is severable depends on the terms of the contract and the circumstances of the case.
12. If the buyer rejects the goods as of right, he is not bound to return the same to the seller but must notify him the fact of rejection.

ACCEPTANCE

The term acceptance can be used in two senses

1. The buyer’s acceptance of the goods which will deprive him the right to reject them for breach of condition
2. The buyer has contractual duty to accept delivery of goods in accordance to the contract.

The buyer will be considered to have accepted the goods if;

i. He intimates to the seller his acceptance
ii. He does any act in relation other goods which is inconsistent with the seller’s ownership
iii. 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 nemo dat rule is that the transferor of goods cannot pass a better title than he himself possesses. In simpler terms one cannot give what he/she does not have.

The principle of Nemo dat was developed the Common Law to protect the true owners of goods. However, its strict application interferes with commercial transaction in that the bona fide purchaser cannot acquire a good title if the seller had none.

In the words of Lord Denning in Bishop Gate Motor Finance Corporation v. Transport Brakes Ltd,

“In the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title. The first principle has held sway for a long time, but it has been modified the common law itself and statute so as to meet the needs of our own times.”

Subject to this Act, where goods are sold a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is his conduct precluded from denying the seller’s authority to sell.

The rule can be demonstrated the case of

Greenwood v Bennett
In this case the original owner of a Jaguar car (Bennett) entrusted it to a man named Searle for repairs to be carried out. Searle then used the car for his own purposes, crashed it and caused extensive damage. Searle then sold the car to Harper, who owned a garage, for £75. Harper did not realise that Searle was not the owner of the car. Harper then spent £226 repairing the car and sold it on to a finance company. It was held the court that the car belonged to Bennett as Searle did not have title and could therefore not transfer that title to Harper. For the same reason, Harper could not transfer title to the finance company. Bennett was therefore able to recover the car but had to compensate Harper for the work done to it.

However, although the nemo dat rule in its essential form may be clear, it is not always fair, as it is an innocent party buyer who will suffer, and nor is it necessarily in keeping with the needs of modern commerce and trade.

Exceptions:-

1. Estoppel
A non-owner can pass a good title if the true owner is his conduct precluded from denying the seller’s authority to sell. This is the equitable doctrine of estoppel. If the true owner of goods makes it appear that some other person is the owner, the true owner is estopped from denying the apparent ownership of the other.

2. Sale Mercantile Agent or Factor
A factor is a mercantile agent who is entrusted with possession of goods and who sells in his own name. A factor passes a good title, even if he has no authority to sell provided he sells the goods: –
i. In his capacity as mercantile agent
ii. In the ordinary course of business
iii. To a bona fide purchase for value without notice
iv. Of which he has possession of with the owner’s consent.

3. Resale Seller in Possession
If the seller who has already sold goods but retains their possession or documents of title, sells them to a 3rd party who takes in good faith for value without notice of the previous sale, the seller passes a good title.

4. Sale buyer in Possession
Where seller who has bought or agreed to buy goods, obtains their possession or documents of title with the seller’s consent before title passes to him and as a consequence he transfers them to a bona fide purchaser who takes them in good faith and with notice of the original seller’s lien on the goods, he passes a good title.

5. Sale Under Statutory Power
A sale made in exercise of a power conferred an Act of parliament passes a good title

CAVEAT EMPTOR

It literally means “buyer beware”

This is a Common Law principle to the effect that in the absence of fraud or misinterpretation, the seller is not liable if the goods sold do not have the qualities the buyer expected them to have. A buyer buys goods as they are.

The principle was developed the Common Law to protect manufacturers ensuring that their goods were sold irrespective of their quality. Sellers of goods at Common Law would not guarantee anything about the goods unless a buyer demanded a warranty. However, these principles turned out to be very harsh to the consumers and exception had to be developed.

Exceptions to Caveat Emptor include the Conditions and Warranties Implied the Sale of Good Act such as;

1. In a sale description, the goods must correspond to the description
2. Implied Condition of Fitness for purpose
3. Under Sec. 16 (b) it implied that good should be of merchantable quality.
4. In a sale sample it is implied that:-
a. The bulk shall correspond with the sample in quality
b. The buyer shall be afforded a reasonable opportunity to compare the bulk and sample.
c. The goods shall be free from my defect rendering them unmerchantable

However, the effectiveness of these exceptions in protecting consumer is questionable in that:-

a. Parties are free to contract outside the implied terms.
b. The stronger party may use exemption clauses in the contract.
c. The condition of fitness for purpose is not implied if the goods are sold under a patent or other trade name.
d. The condition as to merchantable quality is not implied if the buyer has examined the goods but failed to detect defects which such examination ought to reveal.

DUTIES OF THE PARTIES

The contract of Sale of goods imposes upon the parties certain obligations:

Duties of the seller

i. 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 the seller.
ii. 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.
iii. Deliver the goods
iv. 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.
v. Supply goods of the right quantity –The seller must deliver goods of the quantity agreed to the parties.

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

REMEDIES FOR BREACH OF CONTRACT

Remedies available to the seller

In this type of contracts the remedies available to the injured party can be classified into two, i.e.
1) Real remedies
2) Personal remedies

REAL REMEDIES

These are remedies against the goods and are enforceable without any court action.
1. Lien
This is the right of unpaid seller in possession of the buyer’s goods to retain them as a security for the price.

Lien is exercisable in the following circumstances:
a. Where goods have not been sold on credit
b. Where goods have been sold on credit but the term of credit has expired.
c. If the buyer becomes insolvent

Loss of Lien
The unpaid seller losses the right to retain the buyer’s goods in the following ways: –

i. waiver thereof
ii. If the buyer or his agents obtain lawful possession of the goods.
iii. If the seller delivers the goods to a common carrier for transmission to the buyer without reserving the right of disposal.
iv. Payment for goods.

2. Stoppage in transit
This is the right of unpaid seller who has already parted with possession of the goods to resume the same as long as the goods are still in the course of transit to the buyer. The exercise of this right enables the seller to resume possession of the goods. The rights are exercisable the seller only if the buyer becomes insolvent.

Loss of the Right of Stoppage

The seller right of stoppage in transit will be defeated or is lost when transit ends. Transit ends if:-

a. The buyer or his agent intercepts the goods before arrival at the agreed destination
b. Upon arrival the carrier notifies the buyer or his agents that he holds the goods on his behalf.
c. The carrier wrongfully neglects or refuses to deliver the goods to the buyer or his agents.

3. Rights of Resale
Unpaid seller in possession of the buyer’s goods is entitled to re-sell them to recover the price. A re-sale of the goods the seller passes a good title to the buyer in the following circumstances:

a. Where the goods are of a perishable nature.
b. Where the right to resale is expressly reserved the contract
c. When the seller notifies the buyer his intention to resale the goods but the buyer does not pay or tender the price within a reasonable time.

PERSONAL REMEDIES

These are remedies against the buyer and are enforceable court action namely: –
a. Action for Price
b. Damages for non-acceptance

Remedies Available To the Buyer

1. Damages for Non-Delivery
2. Specific Performance- if the seller refuses to deliver specific goods, the buyer may maintain an action for the decree of specific performance which the court may grant if circumstances justify.
3. Damages for the Breach of warranties
4. Recovery of price paid
5. Rejection of Goods

The buyer is entitled to reject the goods delivered the seller in certain circumstances without incurring any liability. For instance;
a. If the quantity delivered is greater than that contracted for
b. If the quantity delivered is less than that contracted for
c. Where the goods delivered are mixed with goods of another description.

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