UNIVERSITY OF LUSAKA SCHOOL OF LAW

UNIVERSITY OF LUSAKA SCHOOL OF LAW
L200: COMMERCIAL LAW UNIT 4.1: INTRODUCTION AND DEFINITIONS (SALE OF GOODS)

STRUCTURE OF THE PRESENTATION
Introduction Definition & Nature of the KT of sale Sale and Agreement to Sell Sale Distinguished from other KTs Sources of the Law of Sale of Goods Formation of the KT of Sale Formalities Subject-matter of KT of Sale Types of Obligations Created

INTRODUCTION The contract of sale is by the far the most common type of contract. People buy goods for various reasons. The most obvious reason is, of course, to enjoy their ownership and use. However, in commercial dealings traders are not interested in goods as such, only in the profit that can be made, or the loss that can be avoided, by reselling them. In many cases therefore the trader buys goods without ever intending to take physical delivery but to resell at a profit or to hedge against the possibility of a loss.

Definition & Nature of the Contract of Sale
Section 1 of the Sale of Goods Act 1893 defines the contract of sale as follows: (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price, to sell. There may be a contract of sale between one part owner to another. (2) A contract of sale may be absolute or conditional.

(3) Where 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 thereafter to be fulfilled the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Six elements must be considered from the above definition, namely: Contract of Sale, Seller, Buyer, Property, Goods, and Money Consideration or Price. (i) Contract of Sale Section 62 of the Sale of Goods Act 1893 defines a contract of sale as “includes an agreement to sell as well as a sale”. (ii) Seller Section 62 of the Sale of Goods Act 1890 defines a seller as “a person who sells or agrees to sell goods”.

(iii) Buyer Section 62 of the Sale of Goods Act 1890 defines a buyer as “a person who buys or agrees to buy goods”. It follows from section 1(1) of the Sale of Goods Act 1893 that there must be both a seller and a buyer, but a person can validly buy his own goods if, for example, he buys them from a sheriff who has seized them under a writ of fifa. (iv) Property Section 62 of the Sale of Goods Act defines property as “the general property in goods, and not merely a special property”.

(v) Goods The term goods is defined in section 62 of the Sale of Goods 1893 as “including all chattels personal other than things in action and money, and in Scotland all corporeal moveables except money. The term includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”

Goods may be of the following types: Existing Goods These are goods actually in existence when the contract is made, that is, goods owned or possessed by the seller. They may be either specific or unascertained in the sense they have yet to be appropriated to the contract.

(b) Future Goods These are goods to be manufactured or acquired or grown by the seller after making the contract of sale. In Sainsbury v. Street [1972] 3 All ER 1127 where the seller agreed to sell to the buyers a crop of some 275 tons of barley to be grown by him on his farm.

Section 5 of the Sale of Goods Act 1893 defines ‘existing goods’ and ‘future goods’ as “(i) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by the seller after the making of the contract of sale, in this Act called " future goods." (2) There may be a contract for the sale of goods, the acquisition of which by the seller depends upon a contingency which may or may not happen.”

(c) Specific Goods These are goods identified and agreed upon at the time a contract of sale is made. Section 62 of the Sale of Goods Act 1893 defines ‘specific goods’ as “Specific goods" means goods identified and agreed upon at the time a contract of sale is made”.

(d) unascertained Goods The expression ‘unascertained goods’ is not defined anywhere, but must by inference mean goods not identified and agreed on at the time the contract of sale is made. Unascertained goods fall into three main categories namely: (i) generic goods sold by description, (ii) goods not yet in existence, to be grown or manufactured, such as a suit to be made by a tailor;

(iii) a part as yet unidentified out of a specific or identified bulk, for example, 10 tonnes out of the 100 tonnes (or out of the unmeasured heap) of potatoes now in mr. A’s store.

(vi) Price or Money Consideration The price is the consideration given by the buyer for the property in the goods. It therefore follows that if the buyer fails to get the property, he can recover the price because the consideration for it has wholly failed. It is worth noting that section 1(1) uses the expression “money consideration”, so as to distinguish a contract of sale from a contract of exchange. The price of the goods need not, however be wholly in money.

Thus, in Aldridge v. Johnson (1857) 7 E. & BI. 885: A contract for the sale of 52 bullocks valued at £6 each against 100 quarters of barley valued at £2 per quarter, the difference to be paid in cash, was treated without argument as sale of goods. Furthermore, the buyer may have an option of paying an agreed price or of supplying goods in lieu of payment. Thus in G.J. Dawson (Clapham) Ltd v. H. & G. Dutfield [1936] 2 All E.R. 232:

Sellers agreed to sell two lorries for 475, of which 250 was to be paid in cash, and two other lorries were to be delivered by the buyers within one month in satisfaction of the remaining 225. the buyers failed to deliver. It was held that the contract was a single contract of sale at a price of 475 and the seller’s remedy was not an action in detinue (In tort law, detinue is an action to recover for the wrongful taking of personal property) but an action for the outstanding 255 as a debt.

Sale & Agreement to Sell
In the contract of sale the ownership of the goods is immediately transferred from a seller to a buyer. The term sale is defined in section 1(3) of the Sale of Goods Act 1893, which reads as under: “Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale”. The analysis of this provision reveals that where the property in the goods, that is, the legal ownership of the goods, is immediately transferred to the buyer, the contract is called a sale.

Sale & Agreement to Sell
On the other hand, in the agreement to sell, the ownership of the goods is not immediately transferred from a seller to a buyer, but it is transfers at some future date. The ‘agreement to sell’ is defined in section 1(3) of the Sale of Goods Act 1893 which reads as follows: “… where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.” From the above definition it can be stated that where the property in the goods, that is, legal ownership of the goods, is to be transferred to the buyer at some future date or on the fulfillment of a certain condition, the contract of sale is called an ‘agreement to sell’.

Sale of Goods Distinguished from Other Contracts
There are various types of contracts or transaction which in some ways resemble contracts for the sale of goods, but do not fall within the statutory definition of the contract of sale. This means that the Sale of Goods Act 1893 cannot be directly applied to such contracts. In other words a contract of sale must be distinguished from several other transactions which are normally quite different from a sale of goods but which, in particular circumstances, may closely resemble such a contract.

Examples of such contracts include the following: (i) Gift (ii) Contract of barter or exchange (iii) Contract of bailment (iv) Contract of hire-purchase; (v) Contract of loan on the security of goods; (vi) Contracts for the supply of services; (vii) contract of agency

(i) Sale distinguished from Gift A gift is a transfer of property without consideration and as such it is, of course not binding while it remains executory unless made by deed. In short, there is no contractual obligation in a gift unless it is made under a deed. A gift differs from a sale because there is no consideration for the transfer of the property in the goods. See Esso Petroleum Ltd v. Commissioner of Customs & Excise [1976] 1 All ER 117

(ii) Sale Distinguished from Barter or Exchange Section 1(3) of the Sale of Goods Act 1893 stipulates that the consideration in a contract of sale should be in money. If it takes some other form , for example, where goods are exchanged for other goods, for services, or for any other thing of value, it is a contract of barter or exchange and not one of sale and the Sale of Goods Act will not apply.

However, where goods on the one hand are exchanged for goods plus money on the other, the transaction will be treated or construed as a contract of sale and not as a contract of barter. Thus, in Aldridge v. Johnson (1857) a contract for the exchange of 52 bullocks with 100 quarters of barley, the difference in value to be made up in money, was held to be a contract of sale.

(iii) Sale Distinguished from Bailment A bailment is a transaction under which goods are delivered by one party (the bailor) to another (the bailee) on terms which normally require the bailee to hold the goods and ultimately to redeliver them to the bailor or in accordance with his directions. The property in the goods is not intended to and does not pass on delivery, though it may sometimes be the intention of the parties that it should pass in the due course, as in the case of the ordinary hire-purchase.

In Chapman Bros v. Verco Bros & Co Ltd (1933) 49 CLR 306: Farmers delivered bags of wheat to a company carrying on business as millers and wheat merchants. The wheat was delivered in unidentified bags which were identical to those in which other farmers delivered wheat to the company. The terms of the transaction required the company to buy and pay for the wheat on request by the farmer or failing such a request, on a specified date, to return an equal quantity of wheat of the same type; but there was no obligation to return the identical bags. Though the contract referred to the company as ‘storers’, it was held that this transaction was necessarily one of sale as the property passed to the company on delivery.

(iv) Sale distinguished from Hire-Purchase A sale of goods differs from a hire-purchase transaction because a hire-purchase contract gives the hirer a mere bailment of the goods, with an option to purchase them, an option which the hirer may or may not exercise after payment of the agreed instalments. There is a contract of sale when the hirer exercises his option to purchase, which he will normally do, since the purchase price is then nominal and the eventual sale of the goods is the object of the contract..

However, because under a contract of hire purchase a person does not legally commit himself to purchase the goods, there is no contract of sale. A further distinction is that, while a contract of sale normally involves two parties only, a hire-purchase contract generally involves three. The owner of the goods selected by the hirer sells them to a finance company which in turn hires them to the hirer.

(v) Sale distinguished from Loans on Security If A, who is the owner of goods, borrows money using the goods as security and gives a charge or mortgage over them but retains possession, the transaction resembles a sale in the sense that the lender has a right to take the goods if A does not repay the loan or interest. This is not a sale.

Section 61(4) of the Sale of the Goods Act provides that “The provisions of this Act relating to contracts of sale do not apply to any transaction in the form of a contract of sale which is intended to operate by way of mortgage, pledge, charge, or other security.”

(vii) Sale distinguished from Agency If the person who is selling the goods is an agent, there will be privity of contract between the buyer and the manufacturer or other supplier, e.g. wholesaler. If the seller is not an agent but, for example, a distributor who has purchased the goods himself, no action can be brought against the supplier in respect of the condition and quality of the goods.

Sources of the Law of Sale of Goods
The source of law for the sale of goods in Zambia are: (i) Sale of Goods Act 1893 (ii) Common Law (iii) Case law or Precedents

FORMATION OF THE CONTRACT OF SALE
A contract of sale, like any other contract, depends on establishing an agreement between the parties, which usually follows from the acceptance by one party of an offer made by the other. No special rules apply to sales of goods, except perhaps in regard to the price. As already noted, the consideration in a contract of sale must consist of money. It may happen that the parties have reached agreement on all aspects of their contract except for fixing the price.

In most other types of contract, a failure to agree on the consideration would result in the bargain being incomplete, and void. However, in regard to contracts for the sale of goods, the section of the Sale of Goods Act goes to fill in possible gaps by providing as follows “(i) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course 'of dealing between the parties.

(2) Where the price is not determined in accordance with the foregoing provisions the buyer must pay a reasonable price. What is a reasonable price is a question 'of fact dependent on the circumstances of each particular case.”

FORMALITIES Section 4 of the Sale of Goods Act 1893 provides that “subject to the provisions of this Act and of any statute sale, a contract of sale may be made in writing made (either with or without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties. Provided that nothing in this section shall affect the law relating to corporations.”

SUBJECT-MATTER OF THE CONTRACT
The term ‘subject-matter’ means the things for which a contract of sale can be made. Only goods can be the subject-matter of the contract of sale. The term ‘goods’ means every kind of movable property, except money, which includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

The goods forming subject-matter of the contract of sale may be classified as follows: (1) Existing Goods (2) Future Goods (3) Contingent Goods

(1) Existing Goods These are the goods which are in actual existence at the time of contract of sale. The seller is either the owner of such goods or he has possession of such goods. Generally the seller is the owner of the existing goods. But sometimes, the goods are in the possession of the seller, but he is not the owner of the goods, for example, in the case of the sale by a mercantile agent, the goods are in the possession of the seller, that is, mercantile agent, but he is not the owner.

The existing goods may be classified into the following three categories: (a) Specific goods: These are goods which have actual been identified and agreed by the parties at the time of contract of sale. (b) Unascertained goods: These are goods which are not specifically identified at the time of contract of sale. At the time of contract, such goods are described by description or sample only.

(c) Ascertained goods: These are goods which are identified only after the formation of the contract of sale. As a matter of fact, when the ‘unascertained goods’ are identified and agreed upon by the parties, the goods are called the ‘ascertained goods’.

(2) Future Goods These are the goods which are not in existence at the time of contract of sale. The seller acquires such goods after the making of the contract of sale. Thus, the future goods are those goods which are to be acquired or produced by the seller after the contract of sale is made.

(3) Contingent Goods These are the goods which are also not in existence at the time of contract of sale. The contingent goods are a type of future goods. In this case, the acquisition of the goods by the seller depends upon the uncertain contingencies, that is, upon uncertain events which may or may not happen. E.g. A agreed to sell to B certain goods which are to be arrived by a ship. In this case, the contract is for the sale of contingent goods as availability of the goods depends upon arrival of the ship.

Types of Obligations Created
Fundamental Terms of Contract of sale Conditions (section 10 & 11) Innominate Terms Warranties (section 11) Representations Implied Undertaking as to Title (section 12) Sale by Description (section 13) Implied conditions as to quality or fitness (s. 14)

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UNIVERSITY OF LUSAKA SCHOOL OF LAW

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