Sale of Goods Review

By Cynthia Mbugua LLB (Hons)

We must understand:

1.     Common problems that arise out of sale of goods

2.     Understand the nature and character of the goods and the form of contracts that attend to them

3.     The conditions and terms of the transaction.

4.     Transfer of property and how is the risk quotient

5.     Performance obligations of the buyer and seller.

6.     Remedies of breach of obligations

You must know how to:

1.     Draft sale agreements

2.     Define and explain concepts in Sale of Goods.

3.     Know implied conditions in law about sale of goods contract

4.     How to transfer

5.     Remedies available

6.     How does a buyer or seller go about obtaining any of the remedies when there is breach?

BASIC CONCEPTS

1.     The governing law for Sale OF Goods in Kenya is derived from

A.   Sale of Goods Act

B.   Law of Contract

C.   Principles arising from common law

2.     The concern of sale of goods is on movable goods. The Sale of Goods Act does not apply to immovable property.

3.     Goods are defined as either specific, existing, future, uncertain and certain goods. They are important to the extent of determining the point of transfer in the good and consequently the transfer of risk. For future goods, there shall be no transfer of property and therefore no risk until the goods come into existence or are acquired by the seller. Property will also not be transferred until they have been ascertained.

NB: Risk transfers with property. Risk transfers when the property in the good is transferred.

4.     The difference between the contracts for sale and an agreement to sell. A contract for sale can only be entered with respect to already existing goods. It is an agreement to transfer property in existing goods to a buyer in a specific time or up to fulfillment of specific conditions. An agreement to sell is a conditional agreement under which the sale will only happen at a future time upon the fulfillment of certain conditions.

5.     Difference between conditions and warranties. Sale of Goods Contracts will include conditions and warranties and condition is a term of the contract that goes to the core of the contract failure to which the contract will be considered to have failed warranties don’t go to the core of the contract. The determination of whether a term is a condition or warranty, one looks at the set of facts around the contract.

6.     Sale of Goods contract can either be oral or written. There is no requirement for it to be written except in cases where the contract is of a value of above 200 Shilling. They should be:

                               i.            Written

                             ii.            evidenced by a written memorandum or note

                          iii.            the buyer must have accepted part of the goods

                          iv.            it can be proved that the buyer has in some way acknowledged or accepted the contract.

7.     Operate under the canon principle of freedom of contract meaning parties can contract with whoever. Courts have taken the view it’s not their duty to inquire into the fairness or any other equitable reason. Strict adherence to the principle of freedom of contract was leading to certain contracts that would be considered unconscionable. Statute has now provided a way to determine when a contract is unconscionable e.g. the unconscionable implied terms of the UK and the consumer protection act

TERMS AND CONDITIONS OF THE SALE

Terms and conditions of a sale of goods contract are determined by agreement of the party. However, the sale of goods act has provided implied conditions ad warranties in every contract. They are superior and supersedes any agreement of the parties. Those conditions and warranties that have been provided are mandatory. The agreement must not be inconsistent with what has been provided for in the act. There are 3(1 condition and 2 warranties).

       i.            In every sale of goods contract there is the implied condition that the seller has good title and authority to sell and transfer goods to the buyer.

     ii.            In every sale of goods contract there is the implied warranty that the buyer will obtain quiet possession and if that can’t be achieved there will be breach of an implied warranty.

  iii.            There is also an implied warranty that the goods will not be subjected to any encumbrance other than those that have been disclosed to the buyer by the seller.

Goods can be sold in a variety of ways:

i.                   Description- when description has been made regarding the good to the buyer by the seller. Condition is that the goods must match the description given. It is an implied condition that the goods will be fit for purpose if the following conditions are met:

a)     the buyer has made known to the seller the purpose for which the buyer is acquiring the goods

b)    the seller is either the manufacture or ordinarily deals with goods of such nature. They are experts in that area.

c)     The goods are sold under a well-known brand name

ii.                 Sample

A sample is part of a bulk. Shouldn’t be something that looks like but instead part of a whole. The bulk should correspond to the sample (substantially similar) The buyer must be given an opportunity to inspect the goods upon delivery. Upon inspection, if the buyer determines that the bulk doesn’t correspond to the sample, he is supposed to give notice to the seller that the sample does not correspond to the bulk. It is for the seller to deliver goods that correspond to the sample, sign another contract on the goods that have been delivered that don’t correspond, consider the contract repudiated. The goods should be fit for purpose. However, when the seller has not inspected the goods after delivery but accepted, he cannot state that the goods are not fit for purpose thereafter.

iii.              Both description and sample.

It is an implied condition under the act that goods sold under both description and sample should not only fit description given but must also as a bulk correspond to the sample.

The provisions of the sale of goods act apply to all online shopping sites. Any recourse therefore for breach is against the seller. There is however the multi-jurisdictional challenge of determining which laws will apply. However, internet intermediaries may have certain obligations known as internet intermediary obligations. An internet intermediary must have the framework for people to raise complaints or take down any user that is using the platform for illegal purposes.

General Obligations

For the seller, the obligation is to deliver the goods to the buyer in the agreed quantity, quality, at the agreed time and in the agreed place.

For the buyer, his obligations are to accept delivery and to pay for the goods.

Delivery

a.     When the place of delivery has not been agreed, delivery shall occur at the seller’s business premises.

b.     Where time for delivery has not been agreed or in absence of a contrary agreement (agreement as to time when delivery will happen), for specific goods delivery will be at the time of the contract or as soon as reasonable after the contract.

Exceptions when the buyer will be excused from his obligation to accept and pay for the goods

If the buyer is sold a bulk and the bulk does not correspond to the sample, the buyer can refuse to accept and buy the goods

Where the buyer buys goods by description and the goods do not fit the description given, the buyer can refuse to accept and pay for the goods

When the buyer has been accorded the opportunity to inspect or has inf act inspected them and given the notice to the seller that he does not wish to accept and pay for the goods

Remedies

For the seller the main concern is to be paid and the SOGA gives remedies when there is failure to be paid. The remedies provided in the SOGA are two fold:

i.                   Remedies for an unpaid seller

A seller for whom the whole price has not been paid is:

 If the seller has been paid part of the price, he is an unpaid seller. Where there is a sale and the payment is by installments and some installment remains unpaid after the due date, that is an unpaid seller. Where the time ofr payment has not bee n fixed, the seller has not been paid after a reasonable time is an unpaid seller. A seller who is being paid by negotiable instrument eg cheque and the instrument is dishonoured, the seller is an unpaid seller. For a conditional sale i.e. a sale that is subject tocertain conditions, if the seller has fulfilled the conditions and given notice to the buyer that he is ready to deliver goods on condition that he will be paid, if the buyer doesn’t pay the seller even if the goods have not yet been delivered, the seller remains unpaid. If the seller has packaged, labelled or measured the goods and gives notice to the buyer that he has done that and the buyer is supposed to pay or make a commitment to pay, the seller remains unpaid. A seller who has delivered goods to bailee by courier or transporter and has given notice to the buyer is an unpaid seller.

They are entitled to the following remedies

a.     Action for the price

b.     Exercise the right of lien over the goods. Even where property has passed to the buyer but the goods are still in the possession of …

c.      Stoppage in transit. An unpaid seller can stop goods that are in transit to the buyer if he doesn’t receive the full payment. The only condition is that the goods should not have passed to the control of the buyer.

d.     Action for damages other in suit or in some other form as provided for in contract for sale.

e.      Equitable remedy of injunction

Remedies available for the other breaches

Every remedy must be fit for purpose

1.     Repudiation

Where a fundamental term of the contract has been breached, the innocent party is required to repudiate the contract and consider themselves no longer bound by the terms of the contract. Void contracts cannot be repudiated. Voidable contracts can be repudiated and the innocent party can either repudiate the contract or waive the specific term and continue with the contract as usual.

2.     Action for damages

Under the famous case of Hedley Byrne v … Brothers, there must be proof of loss suffered by the party bringing in the action. The loss must be quantifiable. The loss must be either direct or incidental from the breach. There must be a direct causal link between the breach and the loss.

3.     Remedy of Injunction

It is an equitable remedy under the Giella v Cassman Brown case. For goods of rare or unique value, the courts will consider a remedy of injunction. If the goods are of intrinsic value to the buyer, an injunction will also be granted. Where in the opinion of the court it has been proved that it will be equitable or unconscionable for the party to breach the contract.

4.     Specific performance

5.     For a buyer, they can take an action to recover the price.

The remedies are not mutually exclusive therefore the court can grant one or even all of them depending on the facts of the case.