Contract of Sales of Goods – SS3 Commerce Lesson Note (First Term)

A contract of sale of goods is a contract in which the seller transfers the property in goods to the buyer for a money price.

Behavioural objectives

1. Define a contract of sale of goods and name the parties to it.
2. State the main provisions of the Sale of Goods Act 1893.
3. Explain the principle of caveat emptor.
4. State the conditions under which a buyer is deemed to have accepted goods.
5. List the duties of sellers and buyers under the contract.
6. State the meaning and main features of hire purchase.

What is a contract of sale of goods?

A contract of sale of goods is an agreement in which the seller transfers the property in goods to the buyer for a price.

• Property in goods: ownership of the goods, not just possession.
• Price: the money the buyer pays as consideration.

What are the essential features of the contract?

• Two parties: a seller and a buyer.
• Goods: movable personal property that can be sold.
• Price: payment in money.
• Transfer of ownership: the property in the goods passes from seller to buyer.

Who are the parties to the contract?

The two parties to a contract of sale of goods are the seller and the buyer.

What is the difference between a sale and an agreement to sell?

A sale passes ownership at once, while an agreement to sell passes it later.

• Sale: the property in the goods passes to the buyer at the time of the contract.
• Agreement to sell: the property passes at a future time or when a condition is met.

Which law applies to the sale of goods?

The Sale of Goods Act 1893 is the law that governs contracts for the sale of goods.

• Purpose: it sets the rules and regulations for buying and selling personal movable property.
• Coverage: it applies to movable goods and does not apply to land or houses.

What are the types of goods in a sale?

Goods in a sale are described as existing, future, specific or unascertained.

• Existing goods: goods the seller already owns or has in his possession.
• Future goods: goods the seller has yet to make or acquire, such as a table the carpenter will build.
• Specific goods: goods picked out when the contract is made, such as one particular car.
• Unascertained goods: goods described only by kind, such as 50 bags of rice from a larger stock.

What are conditions and warranties?

A condition and a warranty are the two kinds of term in a contract of sale of goods.

• Condition: an essential term that goes to the root of the contract.
• Warranty: a less important term, secondary to the main purpose of the contract.

What are the provisions of the Sale of Goods Act 1893?

The Sale of Goods Act 1893 sets out six main rules for sellers and buyers.

1. Right to sell: a seller has the legal right to offer goods for sale.
2. Sample: the sample goods offered to the customer must have the same quality as the actual goods displayed for sale.
3. Description: if the seller sells by description, it must correspond with the actual goods displayed for sale.
4. Fitness for purpose: the goods must be suitable for the purpose they are meant to serve.
5. Free from third-party claims: the goods must be free from any claim in favour of third parties (that is, equities).
6. Buyer’s duty to examine: the buyer must examine the goods carefully and make sure of the quality before buying.

What is caveat emptor?

Caveat emptor is a Latin phrase meaning “let the buyer beware”.

• Principle: a buyer who fails to examine the goods before buying bears the consequences of any default.
• Example: a buyer who does not test a second-hand generator cannot later blame the seller for a fault he could have seen.
• Limit: the buyer is still protected where the seller breaks a term of the Act, such as a sale by sample or description.

What conditions constitute acceptance in a contract of sale of goods?

Acceptance means the buyer is deemed to have taken over ownership of the goods.

• Effect: after acceptance, the buyer can no longer reject the goods, but he may still claim damages.

When is the buyer deemed to have accepted the goods?

1. Notice: he informs the seller that he has accepted them.
2. Act of an owner: after receiving the goods, he does an act that only the owner can do, such as reselling them.
3. Delay: he keeps the goods beyond a reasonable period without telling the seller that he has rejected them.

What are the duties of the parties to the contract?

The seller must deliver and give good title, and the buyer must accept and pay, subject to the express terms of the contract.

What are the duties of sellers?

• Delivery: deliver the goods at the right time.
• Quantity and quality: supply goods of the right quantity and quality.
• Title: pass good title to the buyer.

What are the duties of buyers?

• Acceptance and payment: accept and pay for the goods.
• Time: observe all stipulations as to time.

What are the rights of the parties?

Each party to the contract has rights it can enforce if the other fails to perform.

What are the rights of an unpaid seller?

• Lien: keep the goods until the buyer pays.
• Stoppage in transit: stop the goods on the way if the buyer becomes insolvent.
• Resale: resell the goods in certain cases, such as when the goods are perishable.
• Action for the price: sue the buyer for the price.

What are the rights of a buyer?

• Rejection: reject goods that fail to meet a condition of the contract.
• Damages: claim damages for breach of the contract.
• Refund: recover the price where there is a total failure to deliver the goods.

What is hire purchase?

Hire purchase is an agreement in which a person (the hirer) uses goods and pays for them by instalments.

• Ownership: the property in the goods passes to the hirer only after the last instalment is paid.
• Application: used for costly items such as vehicles, generators and household appliances.
• Law: the Hire Purchase Act regulates these agreements.

What are the main features of hire purchase?

• Deposit: the hirer pays an initial part of the price.
• Instalments: the balance is paid in agreed parts over a period.
• Possession: the hirer takes and uses the goods at once.
• Option to buy: the hirer becomes the owner after paying the last instalment.
• Default: if the hirer stops paying, the owner may take back the goods.

What are the steps in a hire purchase transaction?

1. The hirer chooses the goods and signs an agreement.
2. The hirer pays a deposit.
3. The hirer takes the goods and uses them.
4. The hirer pays the agreed instalments.
5. Ownership passes to the hirer after the final instalment.

How does hire purchase differ from a sale of goods?

In a sale of goods, ownership passes to the buyer on sale, while in hire purchase it passes after the last instalment.

Evaluation

1. State three provisions of the Sale of Goods Act 1893.
2. State three conditions that constitute acceptance in a contract of sale of goods.
3. State two duties of a seller and two duties of a buyer.
4. What is meant by “caveat emptor”?
5. Give two differences between a sale of goods and hire purchase.

Assignment

1. Define a contract of sale of goods, name the parties to it, and explain why the Sale of Goods Act 1893 does not apply to the sale of land and houses.