SALE OF GOODS

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 by 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 by the seller at the time when the contract of
sale is made.

Future Goods
These are goods to be manufactured or acquired by 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 thereby agreed
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 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.

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 by 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 by the parties, are an integral
part of the contract.

These terms may be implied by statutes or by 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 by description the goods shall correspond to the description.
This condition applies where the sale is solely by 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 by 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 by description. S.13 only applies to goods sold by 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 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. 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. in a contract for sale by 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 by 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 by 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 by the seller.
b) Crops to be grown by the seller.
c) Purely generic goods.
d) An unidentified portion of a special bulk or whole.

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

Rules Governing Sale by 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 by 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 by approval or On Sale or Return- 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.
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 by 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 by 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 by
installment
11. Where delivery is by 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 by 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 by the common law itself and by statute so as to meet the
needs of our own times.”
Subject to this Act, where goods are sold by 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 by his conduct
precluded from denying the seller’s authority to sell.

The rule can be demonstrated by 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 by 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 by 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 by 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 by 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 by 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 by 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 by the Common Law to protect manufacturers by 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 by the Sale
of Good Act such as;

1. In a sale by 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 by 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 by 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 by 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. by 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 by 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 by 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 by 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 by 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 by 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.

INTERNATIONAL CONTRACTS OF SALE:

FAS, FOB, CIF, FCA, CPT, CIP, DAT, DAP, DDP, CFR, DAF, DES, DDU, EX-
WORKS AND EX-SHIP

Incoterms

What are Incoterms

Incoterms - a.k.a. Trade Terms are key elements of international contracts of sale. They tell
the parties what to do with respect to carriage of the goods from buyer to seller, and export
& import clearance. They also explain the division of costs and risks between the parties.

The difference between the 2000 and the 2010 version is the number of Incoterms has been
reduced from 13 to 11. Four Incoterms (DAF, DES, DEQ, DDU) have been replaced by
two new Incoterms (DAT , DAP). The replaced Incoterms DAF, DES and DEQ were not
used much in day to day trading.

EXW - ExWorks (2000 and 2010)

This term represents the seller's minimum obligation, since he only has to place the goods at
the disposal of the buyer. The buyer must carry out all tasks of export & import clearance.
Carriage & insurance is to be arranged by the buyer.

FCA - Free Carrier (2000 and 2010)

This term means that the seller delivers the goods, cleared for export, to the carrier
nominated by the buyer at the named place. Seller pays for carriage to the named place.

FAS - Free Alongside Ship (2000 and 2010)

This term means that the seller delivers when the goods are placed alongside the vessel at
the named port of shipment. The seller is required to clear the goods for export. The buyer
has to bear all costs & risks of loss or damage to the goods from that moment. This term can
be used for sea transport only.

FOB - Free On Board (2000 and 2010)

This term means that the seller delivers when the goods pass the ship's rail at the named
port of shipment. This means the buyer has to bear all costs & risks to the goods from that
point. The seller must clear the goods for export. This term can only be used for sea
transport. If the parties do not intend to deliver the goods across the ship's rail, the FCA
term should be used.

CFR - Cost and Freight (2000 and 2010)

This term means the seller delivers when the goods pass the ship's rail in the port of
shipment. Seller must pay the costs & freight necessary to bring the goods to the named
port of destination, BUT the risk of loss or damage, as well as any additional costs due to
events occurring after the time of delivery are transferred from seller to buyer. Seller must
clear goods for export. This term can only be used for sea transport.

CIF - Cost, Insurance, Freight (2000 and 2010)

The seller delivers when the goods pass the ship's rail in the port of shipment. Seller must
pay the cost & freight necessary to bring goods to named port of destination. Risk of loss &
damage same as CFR. Seller also has to procure marine insurance against buyer's risk of
loss/damage during the carriage. Seller must clear the goods for export. This term can only
be used for sea transport.
CIP - Carriage and Insurance Paid (2000 and 2010)

This term is the same as CPT with the exception that the seller also has to procure insurance
against the buyer's risk of loss or damage to the goods during the carriage. This term may
be used for any mode of transportation.

CPT - Carriage Paid To (2000 and 2010)

This term means that the seller delivers the goods to the carrier nominated by him but the
seller must in addition pay the cost of carriage necessary to bring the goods to the named
destination. The buyer bears all costs occurring after the goods have been so delivered. The
seller must clear the goods for export. This term may be used irrespective of the mode of
transport (including multimodal).

DAF - Delivered At Frontier (2000)

This term means that the seller delivers when the goods are placed at the disposal of the
buyer on the arriving means of transport not unloaded, cleared for export but not cleared for
import, at the named point & place at the frontier - but before the customs border of the
adjoining country. To be used when delivering to a land frontier.

DES - Delivered Ex Ship (2000)

Seller delivers when goods are placed at the disposal of the buyer on board the ship, not
cleared for import at the named port of destination. The seller bears all costs & risks in
bringing the goods to the named port before discharging. This term can only be used when
the goods are to be delivered by sea.

DEQ - Delivered Ex Quay (2000)

This terms is the same as DES with the exception that the seller is responsible to place the
goods at the disposal of the buyer, not cleared for import, on the quay (wharf) at the named
port of destination. Seller bears all costs & risks as in DES plus discharging the goods on
the quay. This term can only be used in sea transport.

DDU - Delivered Duty Unpaid (2000)

This term means the seller delivers the goods to the buyer, not cleared for import, and not
unloaded from arriving means of transport at the named place of destination. The seller
bears all costs & risks involved in bringing the goods to the named place other than "duty"
(which includes the responsibility for customs formalities & payment of those formalities,
duties & taxes) for import into the country of destination. Buyer is responsible for payment
of all customs & duties & taxes.

DDP - Delivered Duty Paid (2000 and 2010)

This term represents maximum obligation to the seller. This term should not be used if the
seller is unable to directly or indirectly to obtain the import license. The terms means the
same as the DDU term with the exception that the seller also will bear all costs & risks of
carrying out customs formalities including the payment of duties, taxes & customs fees.

DAT – Delivered at Terminal (named terminal at port or place of destination) (2010)

Seller pays for carriage to the terminal, except for costs related to import clearance, and
assumes all risks up to the point that the goods are unloaded at the terminal.

DAP - Delivered At Place (named place of destination) (2010)

Seller pays for carriage to the named place, except for costs related to import clearance, and
assumes all risks prior to the point that the goods are ready for unloading by the buyer.