Buying and Selling
A sale of goods contract is your usual type of contract that you get into with people every day. When you buy a soda, when you sell a phone, every time you buy or sell something- you have entered into a sale of goods contract.
The characteristics of a sale of good contract are that;
One party gives (transfers ownership) of something to another person, the other person pays a price for that item (usually money) and after that owns the thing bought and can do with it what he/she wants.
For example, if Betty owns a shop where she sells make-up, every time she sells her makeup to a customer, she has entered into a sale of goods contract.
Who Can Make A Sale Of Goods Contract?
In order to enter into a sale of goods contract with someone and have it binding and enforceable, both of you must have what is called “capacity” to contract. This is because, if you enter into a contract with someone who has no capacity- even if that person breaches the contract, you will have no way of enforcing or making them pay. So it is important to always make sure that someone has the capacity to contract.
People who do not have capacity to contract include;
- Minors (these are people below the age of 18) unless the sale of goods contract is for things they need to live such as food, clothes, school books etc.
- People of unsound mind (this means people who are not in their right senses- for example a person who is drunk or high on drugs, or a person who is insane)
Every sale of goods contract must have a buyer and a seller.
The seller is the party that owns the good and the buyer is the party that buys or offers to buy it. Using our example above, Betty is the seller and any customer who buys something is a buyer.
What Are Goods?
Goods include all personal movable things like shoes, tables, growing crops, generally everything that can be moved from place to place. However, this does not include money and things you cannot see or touch like airtime.
In order to sell something, the seller must own it. This means that if you buy a phone which the seller stole- then you have not in truth bought the phone and do not own it according to the Law. If that phone is tracked down to you, it can be taken away, which is why it is very important to be sure that the seller owns what he or she is selling to you.
Most sale of goods contracts are oral, which is very legal. You do not want to have to sign documents to buy a mango or a book- it would be too much trouble.
Written sale of goods contracts are advisable where you are dealing goods which are worth a lot. For example, if you are buying a truck full of mangoes, then there is a lot of money at stake and you need to be secure in the contract that you are making- whether it is indeed legal or not. When You Should Consider Having A Written Sale of Goods Contract
There are certain circumstances under which it would be unwise to enter into a sale of goods contract which is not clearly written- each of these of course apply where you are dealing with goods of a high price/value loss of which would harm your business or financial status. The following are just some of the circumstances under which you may want to have a sale of goods contract.
- Where delivery of the goods is complicated or shall involve more than one process
- Where the goods are unascertained/ ascertained (read further for the meaning of this)
- Where there are a number of roles that must be carried out for there to be delivery
- Where delivery of the goods is to be done by a third party (a party other than the seller
Whenever you are making a sale of goods contract, always make sure you know when there will be a TRANSFER of property in the goods. This means that the ownership of whatever is being sold going from the seller to the buyer allowing the buyer to do anything he or she wants with what has been bought. Transfer occurs when ownership in property moves from one party to another, normally a seller to a buyer (delivery). When property is transferred, the buyer takes complete responsibility for it, which means that he/she will not turn to the seller in case of any risks attached.
- Sale- This occurs when property in goods are transferred from the seller to the buyer. This usually happens when the full price has been paid.
- Agreement to sell- This is where the goods are either to be transferred in future, or after certain conditions have been fulfilled.
Types of Goods
There are two major types of goods that is;
- Existing goods - Those owned by the seller and present at the time of the contract.
- Future goods - Those that the seller does not have at the time of the contract. For example, crops in the garden and goods yet to be manufactured. However, in case of perishable goods, if they perish, the buyer and seller can treat the contract as something that did not exist before. And if the goods perish after an agreement to sale has been made, the seller and buyer can cancel the contract.
- in a contract (in writing, by word of mouth or both),
- as the buyer and seller agree,
- by course of dealing ( a clearly recognizable pattern of previous conduct between buyer and seller in a business transaction)
The transfer in property is determined by the category of goods being sold, all of which are either existing or future goods. Usually, goods will pass when the contract has been made (unconditional contracts), however, sometimes goods will only pass to the buyer from the seller because certain conditions have been fulfilled. These are termed as conditional contracts. Goods will also pass when the seller successfully delivers them to the buyer and he approves receipt.
In a situation where someone buys goods that have already been identified during the contract and have either been handpicked or separated from a collection (specific or ascertained goods), property is usually transferred when the sale is made or when the parties think fit. Parties can determine this by clearly writing it in their contract or through their conduct.
If John sells an iPhone to Peter and they both agree and write down that John will hand over the phone as soon as Peter has paid, property is transferred then. To illustrate conduct, Where John allows Peter to have the iPhone the moment he pays part of the money, and he gives him everything that accompanies the iPhone, it then property has passed to Peter from John.
There are situations where for example a kilogram of sugar has to be separated from 10 kilograms. Property will only be transferred to the buyer after the seller has weighed one kilogram of sugar from the 10 kilograms. These are commonly known as unascertained goods.
In a contract of sale of goods, a price may be determined;
Where it is not determined, the buyer must pay a reasonable price. Reasonable price is what an ordinary man may deem fit and it is different in each case because the circumstances surrounding it are put into consideration.
The price in a sale of goods contract may also be fixed by a third party. This is known as valuation. However, if a valuer fails to set a price the seller and buyer may cancel the contract and where goods have delivered to and received by the buyer, he has the duty and responsibility to pay a reasonable price for them.
- Time is not of essence in a contract of sale of goods unless it is clearly stated in a contract. Nonetheless, perishable goods must be delivered within a reasonable time.
There are certain terms that must be fulfilled in a contract of sale of goods. These terms and conditions are accompanied by responsibilities for the buyer and seller. These terms are either conditions or warranties. Sellers and buyers determine conditions and warranties by how they make their contracts, for example through words. Conditions and warranties may either be express or implied.
- Condition- This is major term of the contract. If a party fails to perform his/her obligation regarding a condition, it will affect the root of the contract so that it allows the affected party not to perform his duty. However, the affected party may choose to treat this as a breach (failure to perform one’s duty) of warranty (defined below). Sometimes parties may call conditions warranties in their contracts, however, this does not change what they are.
- Warranty- This is a minor term of a contract, which if a party fails to perform, he will be asked to pay damages (a penalty) to the party that suffers from his actions. A failure to perform a warranty may also arise where a huge part of the contract has been fulfilled and the contract’s performance cannot be broken into parts.
- Express terms- Terms agreed upon by the parties. This may either be by word of mouth or in writing.
- Implied terms- Terms that may not be expressly agreed upon or written but are mutually understandable by both parties. Implied terms may either be conditions or warranties and they require both the seller and buyer to act with due diligence.
- An implied undertaking as to title. When a seller decides to sell goods, he must ensure that he is the owner of those goods or has a right to sell them. In the case of an agreement, he must ensure that he will have the right to sell at the time the property in goods will pass to the buyer. YOU CANNOT SELL WHAT YOU DO NOT OWN. That is to say, A cannot sell goods that belong to B, however, B may give A the right to sell his goods. Additionally, A may acquire ownership rights to B’s goods so that by the time property is being transferred to the buyer, he is has rights over the property. This is a condition that a seller must take due diligence to fulfill.
In selling something, the seller must allow the buyer to enjoy his goods with no interruption whatsoever. The seller must also ensure that, other than the buyer, there is no other person claiming over the goods he has sold to the buyer. Therefore a seller must not sell to more than one person.
Conditions implied by description.A seller may describe his goods to a buyer. It is the seller’s duty to ensure that he delivers exactly what he has described to the buyer otherwise; the buyer is allowed to reject the goods and refuse to make payment. In case the seller describes and provides the buyer with a sample of the goods, what he delivers must correspond with both the sample and description. The buyer must take due diligence to examine to goods upon delivery.
- Implied conditions as to quality/fitness. Quality is the state or condition of something. It is not the duty of a seller to deliver quality goods unless the buyer tells him the purpose for which he is buying the good. This shows that the buyer is relying on the seller’s expertise, skill or judgment. The seller must also deliver quality goods if it in his course of business to deal in the goods that the buyer has ordered for, whether he is the manufacturer of these goods or not.
However, the above does not apply in a situation where the seller is dealing in goods, whose content is specially created and owned by the manufacturer. For example Bata will not ensure the quality of shoes made my Louis Vitton. In addition, the seller is not responsible for poor quality goods where the buyer has examined the goods because he will have shifted the duty to ensure quality to himself.
- Sale by sample. Where goods are bought by sample, the sample and final product must correspond and be of the same quality. The buyer must also be given reasonable time to examine the goods so that he can compare the sample and final product.
In a situation where sale is by sample, goods should not be defective, making them unmerchantable (not in good enough condition to be sold). This is something that can be revealed during examination. Therfore, if a buyer that that does not exercise his right to examine goods will not be allowed to return them on the basis that they do not conform to the sample (BUYER BEWARE).
- To deliver goods according to contract terms. The seller must be willing to give goods in exchange for a price.
- The must ensure that the goods are in a deliverable state.
- The seller must deliver the quantity stated in the contract. Where he delivers either less or more, the buyer can either reject them or accept and pay accordingly.
- The seller must deliver goods as are described in the contract.
- Where the seller is delivering by carrier, he must make a reasonable contract for payment, with the carrier on behalf of the buyer.
- Where transporting goods will require insurance, the seller must inform the buyer of it because if he doesn’t, the goods will remain at his risk.
- To accept goods according to contract terms. Acceptance can be shown by retaining goods.
- The buyer must inform the seller that he has received goods.
- The buyer must also reply when the seller tells him that his good are ready. Otherwise, he will be liable for any loss caused due to his neglect and will be charged for care and custody of goods.
Delivery is the transfer of property from one person to another.
Delivery of goods may occur at the seller’s place of business, the seller’s residence or the place where the goods are (could be a garden, a factory etc).
Where the goods are with a person other than the seller, the goods will be delivered when he acknowledges that he is holding them for the buyer.
A buyer is not bound to accept goods delivered by installments unless agreed upon with the seller. However, if the buyer accepts delivery by installments and it is found that part installments are not according to the contract, the parties will decide whether to cancel the contract or only that installment that is affected.
In case the parties agree that the seller will deliver to a location other than his place of business, the buyer shall unless agreed, take risk of any deterioration that will happen to the goods as a result of transportation.
- Sue the buyer for the price.
- Sue the buyer for non-acceptance.
- Ask for special damages (by proving fundamental damage caused due to the buyer’s actions) and interest (money that could have been made if he had resold) in court
- He may also resell his goods if they are still in good condition.
- He may resell rejected goods to claim his price
- He may retain part of the goods where some have been delivered.
- He may stop transport in case the goods are in the course of travel.
- The seller may also cancel delivery where the buyer does not perform his obligations n the contract.
- Sue for non-delivery.
- Has a right to ask the seller to perform his obligation.
- He can claim for damages (penalty in form of cash).
- Ask for special damages (by proving fundamental damage caused due to the seller’s actions) and interest (money that could have been made if he had received the goods) in court.