Terms of a Contract for the Sale of Goods

1. Terms of a Contract for the Sale of Goods SIRHOLY

2. Topics Covered • Classification of contractual terms • Duties of the seller • Duties of the buyer • Transfer of property and risk • Seller’s remedies • Buyer’s remedies

3. Classification of Contractual Terms When parties enter into a contract they discuss a whole lot of issues. The parties make a number of statements in the course of the negotiation. Some of the statements that they make are so important that they become part of the contract.

4. Contractual Terms These terms are known as contractual terms. Others will not be considered as contractual terms because they are less important or are not important at all. The law has for so many years grouped contractual terms into two. These are conditions and warranties. Conditions and warranties are the two basic types of express terms.

5. Conditions A condition is a very important term in a contract. It is so vital a term that it goes to the root of the contract. A condition is the fundamental obligation that a party to a contract has to perform. If a party is not able to perform that obligation, - that condition -, it means the party has breached the condition.

6. Conditions Since the condition is a vital term that goes to the root of the contract, if it is breached the innocent party will normally be entitled to treat the contract as at an end. That is the party, who because of the breach of the condition by the other party, can consider the contract as at an end. In other words the innocent party will repudiate the contract and also claim damages against the party who breached the condition.

7. Warranties A warranty is a term in a contract which is less important. A warranty is subsidiary to the main purpose of the contract. The breach of a warranty enables the injured party to claim damages but not to terminate the contract. Because a warranty is a less vital term, if it is broken the injured party would still have to go on with the contract. He may be compensated for that breach by an award of damages.

8. Warranties The Sale of Goods Act defined warranty as a term collateral to the main purpose of a contract of sale a breach of which give rise to a claim for damages, but not to a right to reject the goods and treated the contract as repudiated.

9. Innominate/Intermediate Term If the parties state that a term in a contract is a condition and the breach of that condition will cause only a small and unimportant (if any) loss, then the courts may hold that such a breach will not justify rescission even though the term is called a “condition” in the contract.

10. Innominate Term Thus, would the breach affect the party to the extent that he would lose something of a great significance when the term is described as a warranty? If the breach goes to the root of the contract depriving the plaintiff of the major benefits of the contract, the term will be classified as a condition and the courts will allow a rescission.

11. Innominate Term In Cehave MV v. Bremer (1975) the Court of Appeal held that there was a breach of the term that the goods must be “shipped in good condition” but this term was neither a condition nor a warranty, but an ‘intermediate term’ since the breach does not go to the root of the contract.

12. Merchantable Quality In the case of Cehave MV the courts ruled that the goods were of a merchantable quality. Merchantable quality means that the goods must be saleable commercially under the description by which they were sold. The goods must be fit for the purpose for which goods of that description are normally used and regard must be given to the price paid.

13. Duties of the Seller Section 1 (1) of the Sale of Goods Act, 1962, Act 137 posits that a contract for the sale of goods is a “contract whereby the seller agrees to transfer the property in the goods to the goods to the buyer for a consideration called the price, consisting wholly or partly of money. What are the obligations of the seller in this type of contract?

14. Fundamental Obligations of the Seller s.8(1) posits that in a sale of specific goods the fundamental obligation of the seller is to deliver those goods to the buyer. The word fundamental means no more than that if the seller delivers goods different from the one that the parties have identified and agreed upon. Duties of the Seller

15. Fundamental Obligations of the Seller s.8(2) postulates that in a sale of unascertained goods, the fundamental obligation of the seller is to deliver to the buyer goods substantially corresponding to the description or sample by which they were sold. Duties of the Seller

16. Fundamental Obligations of the Seller s.8(3) provides that any provision in a contract of sale which is inconsistent with or repugnant to the fundamental obligation of the seller, is void to the extent of the inconsistency or repugnancy. This means that the seller cannot be made to sell any other thing apart from that contracted or negotiated for. Duties of the Seller

17. Existence of the Goods s.9 of the Sale of Goods Act provides that in a contract for the sale of specific goods, there is an implied condition that the goods are in existence at the time when the contract is made. If the goods do not exist at the time the contract is made, the contract is void. A void contract is a contract which does not exist. Duties of the Seller

18. Title to the Goods s.10(1) of Act 137 provides that in a contract of sale there is an implied warranty on the part of the seller that s/he will have the right to sell the goods at the time when the property is to pass. If the seller had no title to the goods, s/he is liable in damages to the buyer. Duties of the Seller

19. Rowland v. Divall R bought a motor-car from D and used it for four months. D had no title to the car, and consequently R had to surrender it to the true owner. R sued to recover the total purchase price. The courts held that he was entitled to recover it in full Duties of the Seller seyramkawor@gmail.com

20. Sale by Description If before a sale takes place the seller describes the goods, after the buyer has bought it, there is a sale by description. When there is a sale by description, there is an implied condition that the goods shall correspond to the description. Goods are sold by description when the buyer contracts in reliance on the description though s/he does not see the goods. Duties of the Seller

21. Grant v. Austin Mills Ltd. The plaintiff bought an undergarment from a retailer. It was contaminated with chemicals that caused him dermatitis. The Courts of Appeal held that there was a breach of the implied term of fitness for purpose in the contract. It was held that this was a sale by description. Duties of the Seller

22. Implication of a sale by description If the seller does not state that the goods correspond exactly to the description the law imply that the goods must correspond exactly to the description. If the goods do not correspond to the description the seller is in breach of the contract and the buyer can terminate the contract and claim damages. Duties of the Seller

23. Sale by Sample Often goods are purchased by a buyer after s/she has been shown a sample of the goods and the bulk of the goods will arrive at a later time. Conditions that are implied include: • The bulk will correspond with the sample • The buyer will have a reasonable opportunity of comparing the bulk with the sample • The goods shall be free of any defect making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample. Duties of the Seller

24. Godley v. Perry The court held that G could recover from P because: • The catapult was not fit for its purpose and • It was not of merchantable quality and further more • The defect of the goods could not be discovered by reasonable examination of the sample. Duties of the Seller

25. Quality and Fitness s.13(1) (i) provides: That there is an implied condition that the goods are free from defects which are not declared or known to the buyer before or at the time when the contract is made – provided that the buyer has examined the goods in respect of defects which should have been revealed by the examination. Duties of the Seller

26. Quality and Fitness s.13(1) (ii) provides: That in the case of sale by sample, in respect of defects which could have been discovered by reasonable examination of the sample and s.13(1) (iii) provides: Where the goods are not sold by the seller in the ordinary course of his business in respect of defects of which the seller was not and could not reasonably have been aware. Duties of the Seller

27. What is quality in a contract for the sale of goods? Quality, means goods must be saleable commercially under the description by which they were sold. The goods must be fit for the purpose for which goods of that description are normally used. And price paid for the goods and other factors also affect the quality. Duties of the Seller

28. Quality There is an implied condition that the goods shall be reasonably fit for the purposes where the buyer buys the goods in reliance upon the sellers skills or judgement after making known to the seller the particular purpose for which the goods are required. Duties of the Seller

29. Caveat Emptor Rule s. 13(1) provides for the ‘Caveat Emptor’ rule which simply means ‘let the buyer be aware’. This is subject to so many exceptions but not completely abolished. The buyer must critically examined what s/he wants and tell the seller exactly what s/she is looking for. Duties of the Seller

30. Quantity of Goods A buyer will usually request the quantity of goods s/she wants but there is no guarantee that they will receive exactly what they ordered. The buyer may receive: • Less goods than contracted for • More goods than contracted for • Goods they ordered mixed with other goods Duties of the Seller

31. Quantity of Goods s.14(1) provides that where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them but if he accepts the goods so delivered he must pay for them at the contract rate. Duties of the Seller

32. Quantity of Goods s.14(2) provides that where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may not reject all the goods delivered by the person by reason only of the excess in quantity but he may accept all the goods so delivered, paying for the extra goods at the contract rate or may accept the goods which should have been delivered and reject the remainder. The buyer can recover damages from the seller for the cost of separating the goods. Duties of the Seller

33. Quantity of Goods -Mixed s.14(4)(a) provides that the buyer may accept all the goods so delivered, paying a reasonable price for the extra goods; s.14(4)(b) provides that if the goods which the seller contracted to sell and has delivered less than the quantity specified in the contract, the buyer may reject the whole. Duties of the Seller

34. Quantity of Goods - Mixed s.14(3)(c) posits that the buyer may accept the goods included in the contract and reject the remainder. In this event, the buyer may recover damages from the seller for any cost involved in separating the goods and in respect of any deficiency on the goods so delivered. Duties of the Seller

35. Delivery of Goods Delivery is the voluntary transfer of possession from one person to another. Delivery of goods may be: • Actual delivery or • Constructive delivery Duties of the Seller

36. Constructive Delivery In a constructive delivery the goods themselves are not delivered, but the means of obtaining possession of the goods is delivered e.g. by delivering the key of a lock-up garage where the sold car is kept or the bill of lading which will entitle the holder to receive the goods. Duties of the Seller

37. Delivery of Goods Act 137 provides that it is the duty of the seller to deliver the goods. The buyer also has the obligation arising from the contract to accept the goods and pay for them (s.15(1)). Duties of the Seller

38. Time of Delivery Where the seller is bound to deliver the goods, but no time is fixed, then the seller is bound to send them within a reasonable time. s.16(1) states that if no time is fixed for the delivery of the goods, they must be delivered within a reasonable time. Duties of the Seller

39. Time of Delivery s.16(2) stipulates that unless a contrary intention appears, stipulations as to the time of delivery are conditions of a contract of sale. s.16(3) provides that the parties can vary the time of delivery of the goods in their contract. Duties of the Seller

40. Expenses on Delivery s.17 provides that unless otherwise agreed, the expenses of ensuring the goods are in a deliverable state must be carried by the seller. Where the buyer refuses to accept delivery within a reasonable time he will be liable to the seller for: • Any loss occasioned by his neglect or refusal to accept delivery • A reasonable charge for the care and custody of the goods Duties of the Seller

41. Means of Delivery of Goods s.18(1) provides that unless otherwise agreed, the seller may deliver the goods to the buyer by: • Transferring to the buyer the actual physical control over the goods • Transferring to the buyer the means of obtaining actual physical control over the goods • Transferring to the buyer the documents of title to the goods Duties of the Seller

42. Means of Delivery of Goods s.18(2) provides that unless a contrary intention is apparent, delivery of the goods to the buyer’s agent or to the buyer’s order is a delivery to the buyer. Duties of the Seller

43. Means of Delivery of Goods s.18(3) posits that unless a contrary intention is apparent, delivery of the goods to a carrier, pursuant to, or consequent on a contract of sale, for transmission to the buyer is a delivery to the buyer. Duties of the Seller

44. Means of Delivery of Goods s.18(4) stipulates that where the goods are in the possession of a third party, they are delivery to the buyer when the third party acknowledges to the buyer that the third party holds the goods on behalf of the buyer. Duties of the Seller

45. Place of Delivery s.19(1) provides that unless a contrary intention is apparent, the place of delivery is the seller’s place of business, if the seller has one, and if not, the residence of the seller. s.19(2) stipulates that in a contract for the sale of specific goods which to the knowledge of the parties when the contract is made are in some other place, then subject to a contrary intention that place is the place of delivery. Duties of the Seller

46. Arrangement with Carrier In s.20(1) where in pursuant of a contract of sale the seller is authorized or required to send the goods to the buyer by a carrier, their is an implied condition that the seller shall make the contract with the carrier on behalf of the buyer which is reasonably having regard to the circumstances of the case. Duties of the Seller

47. Arrangement with Carrier s.20(2) provides that in situations where the goods are sent by air or sea to the buyer, it is the duty of the seller to inform the buyer that the goods should be insured. If the seller fails to inform the buyer any damaged caused to the goods would be at the risk of the seller. Duties of the Seller

48. Duties of the buyer Section 1 (1) of the Sale of Goods Act, 1962, Act 137 posits that a contract for the sale of goods is a “contract whereby the seller agrees to transfer the property in the goods to the goods to the buyer for a consideration called the price, consisting wholly or partly of money. What are the obligations of the buyer in this type of contract? Duties of the buyer

49. Fundamental Obligations of the Buyer s.21 provides that the fundamental obligations of the buyer in a contract of sale are to pay the price and accept delivery of the goods. If the buyer refuses to pay for the goods and accept delivery of the goods, he is in breach of the contract of sale and the seller can terminate the contract and claim damages. Duties of the buyer

50. Concurrent Payment s.22 provides that unless otherwise agreed upon, the buyer shall be willing and ready to pay the price in exchange for the delivery of the goods. Payment should therefore be concurrent with delivery Duties of the buyer