L6 BIZ LAW

SALE OF GOODS

WHAT IS A SALE OF GOODS CONTRACT?

- By section 1 (1) of the Sale of Goods Act 1893, A SALE OF GOODS CONTRACT 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.
- The essence of a sale of goods contract is that the parties intend to transfer ownership of
property in the goods from the seller to the buyer.
- Where 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 is to take place at a future time subject to some
condition thereafter to be fulfilled, it is called an AGREEMENT.

REGULATIONS GUIDING SALE OF GOODS CONTRACT

The basic principles that govern this specialised contract are still found within the general
principles of law of contract. The contract of sales of goods is basically governed by common law,
and the Sales of Goods Act of 1893 still retained as the Sales of Goods Act in the Laws of the
Federation of Nigeria 1990 and the 2004 Laws of the Federation of Nigeria, and the Sales of Goods
Law 1978 in Ogun State.

CLASSIFICATION OF GOODS

(a) Specific goods: by section 62 of the Act these are goods that are identified and agreed on at
the time a contract of sale is made. It must thus be perfectly clear which goods are being sold, e.g.
“that blue car there, ”in the car sales room or “those baking items there” on the shelf in the
Supermarket.
(b) Unascertained goods: These are goods that are not “identified and agreed on”, for example,
“500 bags of rice out of the bags kept in my warehouse”.
(c) Existing goods: By section 5(1), these are goods which the seller owns or possesses at the
time of the contract and they may be either specific or unascertained; and
(d) Future goods: These are goods that the seller is to manufacture or acquire after the contract
of sale is made, and they are generally unascertained goods.

SALE OF GOODS DISTINGUISHED FROM OTHER FORMS OF CONTRACT

(a) Contract of sale and Hire Purchase: A contract of sale and hire purchase are similar but only
to the extent that the end-result is transfer of goods. However, while property is transferred upon
sale of goods, in hire purchase, there is no transfer of property until the last instalment is paid
and the hirer exercises the option to purchase;

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(b) Contract of Sale and Pledge: A pledge is the delivery of goods by a person to another to secure
the repayment of a debt. Unlike sale of goods, there is no absolute transfer of property in a pledge;
(c) Contract of sale and Bailment: Bailment is a mere transfer of possession while sale is a transfer
of possession and property (ownership). Bailment is a transaction under which possession of goods
is delivered by a bailor to a bailee on the terms requesting the bailee to hold on to the goods and
later redeliver them as the bailor may direct; e.g. a car parked at a bank’s parking space, a motor
vehicle for repair in a mechanic workshop, clothings in a laundry workshop e.t.c.

(d) Contract of sale and Mortgage: A mortgage is transfer of property from the mortgagor to the
mortgagee to secure the repayment of a loan. The subject matter of the mortgage is redeemable
upon the repayment of the debt unlike a sale of goods contract which permanently transfers the
property.

FORMS OF THE SALE OF GOODS CONTRACT

- A Contract of Sale of goods may be in writing (with or without seal) or by word of mouth
or partly in writing and partly by word of mouth or maybe implied by the conduct of the
parties.
- It is worthy of note that there are no special rules about the contractual capacity of the
parties, thus the basic law of contract applies.

IMPLIED TERMS OF CONTRACT OF SALE OF GOODS

The following terms are implied in a contract for sale of goods:

(a) Title There is an implied condition on the part of the seller that he has the right to sell the goods
and pass property at the time of sale. There is also the implied warranty that the goods sold are
free from any charge or encumbrance not disclosed or known to the buyer before the contract is
made and that he will enjoy quiet possession of the goods;

(b) Description Where goods are sold by description, there is an implied condition that the goods
supplied correspond with the description. If goods are sold by sample and description, they must
correspond with both the sample and the description;

(c) Sample Where the sale is by sample, there is an implied condition that:
i. The bulk of the goods will correspond with the sample
ii. The goods are free from any defect which would not be apparent on reasonable examination of
the sample;

(d) Quality of goods Where a seller sells goods in the course of business, there is an implied
condition that the goods are of satisfactory quality and are fit for the purpose for which they are
intended. Under this, there are two sub-heads, which are:
i. Merchantable Quality: This requires that the goods must be of good quality, but this implied
condition would not apply if the defect could have been revealed by examination of the goods by
the buyer; and

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ii. Fitness for Purpose: This is an implied condition that where a buyer makes known to the seller
the purpose for which he requires the goods and that he trusts the seller’s skill and judgment, the
seller is obliged to ensure that the goods fit the purpose for which they were bought.

(e) Existence of title of the seller

Section 12 (1) provides as follows: An implied condition on the part of the seller is 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, he will have
a right to sell the goods when the property is to be passed to the buyer. There is thus an implied
condition on the part of the seller that he shall have a right to sell the goods. Therefore, if the
seller has no title, e.g where the goods are stolen, he is liable to the buyer.

Section 12 also implies certain warranties into a sale of goods contract. For the breach of a warranty
we should remember that the injured party can only ask for damages and cannot cancel the contract
but go on with it;

i. Section12 (2); An implied warranty that the buyer shall have and enjoy quiet
possession of the goods i.e. the seller will be liable in damages if the buyer is disturbed
in the enjoyment of the goods in consequence of the seller's defective title;

ii. Section12 (3); An implied warranty that the goods shall be free from any charge or
encumbrance in favour of a third party, not declared or known to the buyer before or
at the time when the contract is made. For an example, a failure to disclose that a repair
man's fees (which entitle him to alien to retain the car) are still outstanding in respect
of a sale concerning a second-hand car amounts to a charge or an encumbrance which
entitles the buyer to seek damage for this breach of warranty.

THE CAVEAT EMPTOR DOCTRINE

- Caveat Emptor is a common law principle. It means “Let the buyer beware”.
- Under this principle, it was for the parties to make their own bargain i.e. it was up to the
buyer to decide whether the goods were merchantable and fit, before he agreed to buy them.
- If he finds that the goods were not fit for the purpose for which it was bought, after the
sale, there was nothing he could do, thus he becomes saddled with useless goods.
- Hence, the intervention by statute to avoid the supply of useless goods by the seller to the
buyer.

TRANSFER OF PROPERTY BETWEEN SELLER AND BUYER

- The object of a sale of goods contract is to transfer property in goods from the seller to the
buyer.
- It is important to know the precise moment of time at which the property in the goods passes from
the seller to the buyer because in case of the destruction of the goods by fire or other accidental
cause, it is necessary to know which party has to bear the loss since risk is an incidence of where
property lies.
- The precise moment of time at which the property in the goods passes from the seller to the buyer
is different between specific goods and unascertained goods.
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 (a) Specific or ascertained goods In a sale of specific or ascertained goods, the property
passes to the buyer at the time when the parties intend it to pass. Thus, intention can be
gathered from the terms of the contract, the conduct of the parties and the circumstances
of the case. Unless a contrary intention appears, however the following rules are
applicable for ascertaining the parties 'intention.

Rule1: Where there is an UNCONDITIONAL contract for the sale of specific goods in a
deliverable state, the property 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. Thus, if anything
happens to such goods, generally it is the buyer that will bear the risk.

Rule2: Where there is a contract for the sale of specific goods NOT IN A DELIVERABLE
STATE, i.e. the seller has to do something to the goods to put them in a deliverable state, the
property does not pass until that thing is done and the buyer has notice of it. It is upon such
notice that ownership in the goods passes to the buyer.

Rule3: Where there is a contract for the sale of specific goods in a deliverable state but the seller
is bound to WEIGH, MEASURE, TEST OR DO SOMETHING with reference to the goods for
the purpose of ascertaining the price, the property does not pass until that thing is done and the
buyer has notice of it.

Rule4: When goods are delivered to the buyer ON APPROVAL or “ON SALE OR RETURN
BASIS” the property therein passes to the buyer: -

(i) When he signifies his approval or acceptance to the seller or does any other act adopting the
transaction. In Kirkham v. Attenborough, K delivered jewelry to W on sale or return. W pledged it
with A. It was held that the pledge was an act by W adopting the transaction that the jewelry has
become his own, and therefore, the property in the jewelry passed to him so that K could not
recover it from A.

(ii) If he retains the goods without giving notice of rejection, beyond the time fixed for the return
of goods, or if no time is fixed beyond a reasonable time. That is, when you hold on to goods for
an agreed period or for a long time you become the owner of it.

(b) Unascertained or future goods Where there is a contract for the sale of unascertained
goods, no property in the goods is transferred to the buyer unless and until the goods are
ascertained.

Rule 5: Where there is a contract for the sale of unascertained or future goods by description, and
goods of that description and in a deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer or by the buyer with the assent of the
seller, the property in the goods then passes to the buyer; and the assent maybe express or implied
and maybe given either before or after the appropriation is made.

The understated are some of the ways in which unascertained goods may become ascertained:

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 (a) if the seller separates the sold goods from the consignment and informs the buyer.
(b) by measuring the sold portion from the whole and informing the buyer.
(c) by a process of exhaustion.

PASSING OF RISK
Risk covers a wide range of misfortunes that may befall goods from slight damage through theft
to loss or total destruction. Who bears such loss? Section 20 of the Act helps in determining this
issue thus:
“Unless otherwise agreed,
- the goods remain at the seller's risk until the property in them is transferred to the buyer,
- but when the property in them is transferred to the buyer, the goods are at the buyer's
risk whether delivery has been made or not:
- Provided that where delivery has been delayed through the fault of either buyer or seller,
the goods are at the risk of the party in fault as regards any loss which might not have
occurred but for such fault:
- Provided also that nothing in this section shall affect the duties or liabilities of either
seller or buyer as bailee of the goods of the other party.”

Loss may arise in these possible ways

(a) Loss occurring before the contract is made:
The seller bears this loss. He is however protected from liability to the buyer by section 6 of the
Act where the contract concerns specific goods. Section 6 provides as follows: “Where there is a
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. The seller of course still bears
the loss but it should be noted that he has no liability to the buyer as the contract is void.”

(b) Loss occurring between the contract and the passing of property:
The loss will also be borne by the seller since property has not been passed to the buyer. The
buyer may also recover damages for non-delivery where the seller fails to find other supplies.
Section 7 however protects the seller from liability to the buyer although he still bears the loss. It
provides thus: “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 void.”

(c) Loss occurring after the passing of property:

By the provisions of section 20 the loss is borne by the buyer even where the goods are still in
the custody of the seller. In Tarling v. Baxter (1827) 18, S sold to B a hay stack which was to
remain on the seller's premises until the following May. Before May arrived, the hay stack was
destroyed in an accidental fire. It was held that property and risk had passed to the buyer who
remained liable to pay the price. It is important to note here that if the fire that destroyed hay stack
had not been caused by accident but by the negligence of the seller he could well have been
liable for the loss, although not as seller but as bailee of the good having regard to the second
proviso of section 20 relating to duties and liabilities of either of the parties as such.

TRANSFER OF TITLE BY A NON-OWNER (The nemo dat non habet rule)

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 - Generally, only the owner of goods can validly transfer property or ownership in them to
a third party. The law however allows his agent to do so too.
- But there are other instances where property in goods is transferred to a third party by a
person who is not the owner or his agent.
- In this area of the law there is a simple basic rule which, however, has so many exceptions.
- The basic rule favours the original owner
- while the exceptions favour the innocent purchaser from a seller who had no right to sell
or title to transfer to him.
- This basic rule is expressed in the Latin phrase NEMO DAT QUOD NON HABET and
it literally means “nobody can give what he has not got.

The exceptions are as follows:

a) Estoppel If the true owner stands by and allows an innocent buyer to pay over money to a
third party, who professes to have the right to sell an article in the belief that he is becoming the
owner of it, the true owner will be estopped from denying the third party's right to sell.

(b) Sales by mercantile agent or factor A mercantile agent is a person who sells or otherwise
deals with goods as business and on behalf of other people. He deals in his own name,
independently of his employer, (his Principal). Anyone dealing with a mercantile agent obtains
good title even if the agent was not authorised to sell. A mercantile agent is also known as a
factor.

(c) Sale in market overt

This is provided for under Section 22 which provides as follows: “Where goods are sold in market
overt, according to the usage of the market, the buyer acquires a 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 is the most ancient of the exceptions and was incorporated in the Act upon its
enactment. If a person's property was stolen, and such person was reasonably diligent, such
property could be found if it went on display at the local market. The concept is one of an open
public market, selling openly to customers who buy in good faith. The doctrine covers any open,
public, legally constituted market. The sale must take place on the customary market day, during
the usual hours of business. The goods must be on open, public display.

(c) Sale under voidable title If the seller has a voidable title to the goods and his title has not
been voided at the time of the sale, the buyer acquires a good title to the goods, provided that he
did not know of the seller's defect of title and bought in good faith. This exception is provided
by Section 23. For example, if A by duress obtains goods from B, A has only a voidable title to
the goods, and B can rescind the contract. If A, before B rescinds the contract sells to C, who buys
in good faith and in ignorance of the vitiating element of duress, C will get a good title.

(d) Sale by seller in possession Section 25 (1) of the Act provides this exception. It states: “Where
a person having sold goods continues or is in possession of the goods or of the documents of
title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him,
of the goods or documents of title under any sale, pledge or disposition thereof, to any person
receiving the same in good faith and without notice of the previous sale, has the same effect as if

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the person taking the delivery or transfer were expressly authorised by the owner of the goods to
make the sale.

(e) Sale by buyer in possession This exception is provided by Section 25(2) “Where a person
having bought or agreed to buy goods obtains with the consent of the seller possession of the goods
or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile
agent acting for him, of the goods or documents of title under any sale, pledge or disposition there
of, or under any agreement for sale pledge or disposition hereof, to any person receiving the same
in good faith and without notice of any lien or other right of the original seller in respect of the
goods shall have the same effect as if the person making the delivery or transfer were mercantile
agent in possession of the goods or documents of title with the consent of the owner. This is the
converse position of Section 25(1) and it generally arises where the buyer has possession but does
not have title in the goods.

(g) Disposition of goods under common law and statutory powers Examples are:-

i. The right of a pawnbroker to sell unredeemed goods pledged with him.

ii. The right of a hotel to sell the property of guests to satisfy debts.
iii. The right of landlords in certain circumstances to sell tenant's goods for arrears of rent
iv. The rights of repairers such as watch repairers, cobblers, or those of electronic items to
sell uncollected goods.

BREACH OF SALE OF GOODS CONTRACT AND REMEDIES OF THE PARTIES

- The exercises of the power of sale by these categories of non-owners are subject to
restrictions such as the need to give notice and time.
- The Courts also of course can exercise the rights to dispose perishable goods or
unperishable goods in execution of a judgment debt.

Where either of the parties to the sale of goods contract breaches its terms, the following are the
remedies that the law provides:

Buyer’s rights
(a) The right to reject the goods-The buyer can reject the goods if the seller is in breach of
condition. The right to reject is lost, if the goods have been accepted.

(b) Action for damages- He can sue for damages for non-delivery of the goods.

(c) Action for specific performance. The buyer can only exercise this right compelling the
seller to deliver the goods when the goods are specific or ascertained. This remedy is only
also exercisable where damages will not be an adequate remedy.

(d) Recovery of purchase price - In this situation, where seller fails to deliver the goods, the subject
matter of the contract, the buyer can sue to recover his purchase price already paid by him.

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Seller's rights
They are of two kinds. He has right over the goods which are called real rights as against his
rights against the buyer himself which are regarded as personal rights.
Real Rights: An unpaid seller of goods, even though the property in the goods has passed to the
buyer has the following rights.

(a) A Lien: A lien is the right to retain possession of the goods, until payment of the price. It arises
by the provision of section 41 of the Act as follows:
i. when the goods have been sold without any stipulation as to credit;
ii. when the goods have been sold on credit but the term of credit has expired; and
iii. when the buyer becomes insolvent.
By the provisions of section 43 this right is lost:
a. when the goods are delivered to a carrier for the purpose of transmission to the buyer,
without reserving the right of disposal;
b. when the buyer or his agent lawfully obtains his possession of the goods; and
c. by waiver.

(b) Right of stoppage in transit, i.e. the right of stopping the goods while they are in transit and
resuming possession of them until payment of the price. This is provided by section 44 of the Act.
It is available when:-
i. the buyer becomes insolvent; and
ii. the goods are in transit.

(c) Right of Resale. There is no general right to resell. The right of alien or that of stoppage in
transit does not also entitle the seller to resell. The seller, even though unpaid, who resells is
generally in breach. He must deliver the goods in return. However, in the following instances he
has a right to resell:
i. where the goods are of a perishable nature;
ii. where he gives notice to the buyer of his intention to resell, and the buyer does not within a
reasonable time pay or tender the price; and
iii. where the seller expressly reserves a right of resale in case the buyer should default.
If the seller however suffers loss from the resale he can claim such from the buyer as damages.

(d) Right of withholding delivery: This right arises where property in the goods has not passed to
the buyer and possession is also with the seller.
Personal Rights: A seller is also entitled to these personal rights against the buyer where the buyer
breaches the contract:
(i) To sue for the Price by section 49 of the Act, this right avails the seller, when the property in
the goods have passed to the buyer and the buyer wrong fully neglects or refuses to pay for the
goods.
(ii) To sue for Non-Acceptance. This action for damages lies when the buyer refuses or neglects
to accept the goods.

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