Name:
Tutor:
Course:
Date:
Contents
TOC o “1-3” h z u Abstract. PAGEREF _Toc428912018 h 2Definition and subject matter of the sale of goods contract. PAGEREF _Toc428912019 h 3Sale and agreement to sale. PAGEREF _Toc428912020 h 4Sale and Hire purchase. PAGEREF _Toc428912021 h 5Contracts for Work and Material. PAGEREF _Toc428912022 h 6Conditions and Warranties. PAGEREF _Toc428912023 h 6Consequences of Breach. PAGEREF _Toc428912024 h 7Caveat Emptor. PAGEREF _Toc428912025 h 7Nemo Dat Quod Non Habet. PAGEREF _Toc428912026 h 9Unpaid seller. PAGEREF _Toc428912027 h 10
Abstract.Sale of goods law is a special branch of the law of contract. Its case law has been fundamental in the development of general law. However, the special law of sale of goods is different from the general law in two respects. First, and strikingly in view of the paucity of general laws’ statutes, sale of goods law has its own statutory code, the Sale of Goods Act of 1979, which for most part is a remake of its 1893 predecessor. Secondly, unlike most nominate contracts sale involves conveyance of the seller’s property interest in favor of the buyer. This together with the abundance of reported sales reports lends a significant degree of autonomy to this branch of law as demonstrated by Bridge (1997). Most of the laws relating to sale, itself a branch of commercial law, find their origin in the nineteenth century developments. Before this, Lord Mansfield has fostered the integration of commercial law into common law by making the later more responsive to the customs and usage of the former. This came as Lord Holt tried to make negotiable instruments more subject to law half century earlier. Nevertheless, the major features of sale of goods law such as; passing of property, implied term of description and fitness for purpose and merchantable quantity ,as well as the remedies for breach of contract were laid down in the following years during the judgment made in the time of Lord Ellenborough to Lord Blackburn. The enactment of the sale of goods act in 1893 was the culmination of numerous circumstances and activities, whose results this paper shall try and expound upon. We shall try and delve further into the law of sale of goods from a rather generalized but expansive perspective, hoping to establish a somewhat clear view at the end.
Definition and subject matter of the sale of goods contract.Section 2(1) defines a sale of goods contract as one whereby the seller transfers or agrees to transfer the property in the goods for a money consideration called the ‘price’. Sale shall be distinguished from other contracts in that it involves the transfer of ownership, also known as property, in goods (as opposed to other items) for money (as opposed to other forms of consideration). Ownership shall be considered as the best available possessory right to something. It shall also be noted that if any of these three elements of ownership, money or goods is absent, the contract shall be deemed not to be one of the sale of goods as much as they come close in spirit or otherwise to such a contract.
Section 61(1) defines goods as anything including personal ‘chattels other than things in action and money’. In particular, emblements, industrial crops and things attached to or forming part of land which have been agreed to be severed before sale or under contract of sale. Personal chattels consist of all that is left after land and chattel real (leasehold interest in land) are abstracted. Things in possession consist of those that remain after things in action and money are removed. Large personal chattels, such as ships and aircraft are dealt with within the Act’s special statutes may depart in their mention.
Money is not regarded as a good, as the exchange of money for money consideration called price could be considered as a sale of goods instead of a loan or money lending agreement, which is clearly more natural as a representation of the transaction. For the purpose of the Act, money and its special attributes, such as rarity, give it the character required to qualify it as a good as was discussed in detail by Atiyah et al (2005).
Sale and agreement to sale.The earlier definition of a ‘contract to sale’ being that where a seller agrees to transfer the property in goods to the buyer, pertains with it some features that might need explanation;
1. Bilateral contract stipulates that a sale should be bilateral and the property in goods has to pass from one party to another. Then, both the seller and buyer ought to be different persons for the sale to be consensual – meaning both parties agree agreed with their own free consent. Sometimes, a contract may not be entered into through the normal process involving negotiation, but under a process of statutory compulsion. In this case, goods are said to be supplied under a statutory compulsion whether it results in sale or not.
2. Money Consideration. Here, consideration for the sale of goods has to be money, called the price. In case the property in form of goods is transferred for any consideration other than this, it won’t be a sale but an exchange or barter. However, where goods are sold for some defined amount and that price is paid partly in terms of valued goods and partly in cash form, that is considered to be a sale.
3. Goods, also referred to as the subject-matter of any contract mean every kind of movable property other than actionable claims and money. This may include stock and shares, growing crops, grass and things attached to or forming part of that land which are agreeable to be severed before sale or under the contract of sale. Therefore, goods may refer to any kind of movable property except actionable claim or money. Things like goodwill, trade mark, patents, water and gas and ships are all considered to be goods and are subject to the contract of sale. Human organs and tissues have also recently become objects of sale, but are subject to statutory restrictions in their respective jurisdictions.Goods which form a contract of sale’s subject matter can be classified into different categories. This categorization aids in determining when that property in the goods passes from the seller to the buyer. These goods may be either existing goods or future goods. Existing goods may be further classified into either specific goods or unascertained goods.
Further, Section 4 Sale of Goods Act distinguishes between ‘Sale’ and ‘Agreement to Sell’. Here, it states that under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale. But where the transfer of the property in the goods is to take place at a future time or subject to some condition to be fulfilled, the contract is referred to as an agreement to sell.A ‘Contract of Sale’ is a generic term that might include an actual sale. Here, the ownership in the goods passes to a buyer immediately when the contract is made, and an agreement to sell, where the ownership in goods is to pass after the making of that contract.
Sale and Hire purchase.The Hire Purchase agreement can generally be termed as a hiring agreement that is coupled with an option to purchase. This means that the owner lets out his chattel on hire, and undertakes to sell it to the hirer after he’s made a pre-determined number of payments. The real effect of this agreement therefore, is no contract of sale until the hirer has made the required number of payment, meaning he remains a bailee until he does so. Some hire-purchase agreements are indeed contracts to purchase, since the price to be paid by installments is done so over short intervals as to negate any aspect of future payment,
Contracts for Work and Material.Sometimes the contract may involve the supply of articles and involves rendering of some work or service in respect of the same. In such a case, there might be hardships in determining whether it is a contract of sale of goods or a contract for work and labor or a contract of service. The issue of determining the type of the contract in such cases generally arises in the context of the liability for sales tax. A contract of sale must be differentiated from a contract involving the exercise of human skill or labor on a material. Apart from the question of liability to sales tax, the distinction is crucial because it is only a sale that carries a number of implied conditions and warranties as will be discussed below.
Conditions and Warranties.Some terms of the contract of sale constitute the inner workings of the contract, and their lack of fulfillment may be observed to upset the basis of that contract. They are so vital to that contract that their breach indeed seems to be a breach of the whole contract. Such are known as conditions of the contract and their breach entitles the involved innocent party to act in repudiation of the contract. Terms which are not of such importance are known as warranties and their breach does not lead to repudiation, but only to damages. Section 12(1) provides for that stipulation in a contract of sale with reference to goods, and as may be, conditions or warranties. The same section goes on to explain further all distinction between the two. It states ‘conditions are stipulations essential to the main purpose of contracts; their breach giving rise to the right to treat those contracts as repudiated.’ Whereas ‘warranties are stipulations collateral to main purposes of the contract, their breach giving rise to a claim for damages but not to a right to reject the goods or have the contract repudiated.’ Whether a stipulation is considered a contract of sale in a condition or a warranty depends in each case, on the construction of the subject contract. A stipulation may be termed as condition, but called a warranty in the contract.
Consequences of Breach.Options to the buyer incase of breach of conditions by the seller whereby there is a breach of condition by the seller, the buyer may take these actions:(i) repudiate the contract.(ii) waive the condition. (iii) treat breach of condition as a breach of warranty.
Caveat Emptor.Section 16 of the Act states that ‘subject to the provisions of this Act or any other law for the time being in the force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.’ This is a restatement of the principle of caveat emptor (buyer beware), which means as Guest & Benjamin (1987) put it, that subject to the implied conditions that have been seen above and the exceptions created by Section 16, the seller is not bound to supply goods which should be fit for any particular purpose or which should possess any particular quantity. It is this case the buyer’s duty to select goods according to his requirement. This principle that is for the buyer to satisfy himself that those goods which he is purchasing are of the quality he requires or, if he is buying them for a specific purpose, they are fit for the purpose. This principle is summarized in the term ‘Caveat emptor’, based upon the presumption that the buyer is relying on his own skill and judgment, when effecting purchases.
The exceptions to the rule of caveat emptor have now become more pronounced than the rule itself. This rule owes its origin to the period when almost all sales took place in an open market. The buyer and the seller would come face to face, and the seller showcased his wares, the buyer examining them and buying them if he liked. But as trade and commerce expanded and reached global dimensions, it became somewhat hard for buyers to examine goods beforehand, most transactions being concluded by correspondence or involving long distances. Furthermore, on account of the complex structure of most goods inducted into the trade, it resulted in only the sellers being to assure the contents and quality of the goods. For these reasons, it became necessary to restrict the rule of caveat emptor by drafting a few exceptions.(a) Fitness for buyer’s purpose requiring the seller in certain circumstances to supply goods which shall be fit for the buyer’s purpose.
(b) Merchantable Quality. This second exception of the principle of caveat emptor states that a dealer who sells goods by description is bound by law to deliver goods of a quantity referred to as merchantable quality. The only requirement for this condition as Goldring(1998) stipulates, is that the goods must be purchased by description from a seller who deals in goods of the same description. When this requirement is met it becomes the seller’s responsibility to supply goods which are of ‘merchantable quality’.
(c) Conditions implied by trade usage give statutory force to conditions implied by the use of a particular trade. It states hereby that, ‘An implied warrant or condition to quality or fitness for a particular purpose may be annexed by the usage of trade’. It has long been settled that in commercial transactions extrinsic evidence of custom and usage is admissible to annex incidents to written contracts in matters with respect to which they are silent. This is so because the parties ‘contract with reference to those known usages.’ An unreasonable custom will not, however affect the party’s contract.(d) Express Terms whereby, it is open to the parties to include any express condition and/or warranties in their contract. However, an express warranty or condition does not negate a warranty or condition implied by the Act unless the express terms are inconsistent with the implied conditions.
Nemo Dat Quod Non Habet.When the seller is the owner of the goods which he sells or is somebody’s agent in the disposal of the goods, he has to convey a good title in the goods to the buyer. Difficulty arises when seller are neither the owner nor holders of any such authority from the owner to sell the goods. Section 27 of the Act states this principle. It states, “subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had”. So where goods are sold by a lucky finder or the seller stole them, herein the buyer gets no title.
Exceptions.The principle of protecting bona fine commercial transactions is given effect to by the addition of a number of exceptions;
1. Estoppels: Section 27 states that a purchaser may get a good title if, ‘the good’s owner is by his conduct precluded from denying the seller’s authority to sell.
2. Sale by mercantile Agent (S. 27, Proviso) stipulates how the buyer of goods from a mercantile agent acquires good title if conditions laid down in Section 27(2) are met.
3. Sale by Joint Owner (S. 28). If any of the several co-owners of goods has the sole possession of them by permission of the other co-owners, the property in the goods is transferred to any person who buys them off such joint owner in good faith. And this has to be not at the time of the contract of sale notice, that the seller has no authority to sell.
4. Sale in Market Overt spells out the sale of goods in market according to the usage of the same market. Herein, the buyer acquires a good title to the goods, provided he buys them in good faith and with no notice of observable defect or want of title on the seller’s part. According to Sihombing(1997) such sale means sale in an open market by a person who is known to generally deals in such goods. The buyer’s title is protected in any case of such a sale though the seller being liable for the tort of conversion.
Unpaid seller.The term ‘unpaid seller’ is defined in section 45 of the Sale of Goods Act. The seller of goods is deemed to be an ‘unpaid’ seller within the meaning of this Act under the following conditions:(a) When the good’s whole price has not been paid or tendered, part of it.(b) When the bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled due to reasons like the dishonor of the instrument. A seller who has only received part of the goods’ price is also considered as an unpaid seller. Where the seller has received a negotiable instrument, like a bill of exchange, promissory note or cheque, for the price, he is not a unpaid seller. However, if he has delivered the goods, and the negotiable instrument is dishonored, then he is deemed to be called an unpaid seller and should exercise his rights. This is because all negotiable instruments are always presumed to have been received as a conditional payment. The condition is not fulfilled when it is dishonored for whatever reason.
References.
Goldring, J. (1998). Consumer Protection Law in Australia. Sydney: Federation Press.
Guest, A., & Benjamin, J. (1987). Benjamin’s sale of goods Issue 11 of Common law library. New York: Sweet & Maxwell.
Sihombing, J. (1997). Goods: Sales and Securities HKU Press law series Hong Kong University Press Law Series Law Series. Hong Kong: Hong Kong University Press.
Atiyah, P., Norman, J., & McQueen, H. (2005). The Sale of Goods Pearson education. London: Pearson/Longman.
Bridge, M. (1997). The Sale of Goods. London: Oxford University Press,.
