DELVE REVIEW CLASS

SALE OF GOODS CONTRACTS

Sale of goods contracts is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a money consideration called price.

The subject matter of the contract

Goods which form the subject of a contract of sale may either be existing goods or goods
to be manufactured or acquired by the seller after the making of a contract of sale. The
term goods include tangible movable property or chattel such as cars, books, sugar
packed in bags etc it does not include immovable property that is land and any other
permanently fixed on it. This should be differentiated from the sale of service.

THE DIFFERENCE BETWEEN THE NCONTRACT FOR SALE AND

CONTRACT OF SALE

CONDITION AND WARRANTIES

Condition – is a term which goes to the root of the contract, a break of which gives rise to
a right to treat contract as repudiated.

Warranty – is a term which is not of such importance as to go to the root of the contract,
but is collateral to the main purpose of the contract, the break of which gives rise to a
claim for damages.

Express and implied condition and warranties

Express – Conditions and warranties are said to be express when at the will of the parties
they are inserted in the contract.

Implied Conditions and warranties - this is when presumes their existence in the contract
automatically though they have not been put into it in express words.

E.g. If one want to buy a car. Type BENZ red in colour

- BENZ car is the condition
- Red colour is the warranty.

Implied Conditions
1. Title

There is an implied condition of the part of the seller that in the case of a sale he has the
right to sell the goods and in the case of the agreement to sell, he will have such right at
the time when the property is to pass. If the sellers’ title is defective, the buyer is entitled
to reject the goods, the buyer cannot acquire a better title to the goods than the seller had.
Where the seller sells without such right the buyer can repudiate the contract and recover
the full price paid.

Case:

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P goes to R, the horse dealer, and said I want a good horse which can run at a speed of
30km per hour. P buys the horse, letter P finds that the horse can run only 20Km hour.
There is a breach of contract. P can repudiate and recover back the price and return the
horse. But if P says to R “I want a good horse “R shows him a horse and says this is a
good horse and it can run at a speed of 30 km per hour, if later P finds that it run 20 Km
there is a breach of warranty because the stipulation made by the seller don’t form the
basis of the contract and was only subsidiary one.

Held – he was entitled to recover it in full

2. Sample

When under a contract of sale, goods are to be supplied according to a sample agreed
upon, the implied conditions are:-

i) That the bulk shall correspond with the sample in quality.

ii) That the buyer shall have a reasonable opportunity of comparing the bulk with
sample.
iii) That the goods shall be free from any defect rendering them un merchantable.

3. Description

Where there is contract of sale of goods by description, there is an implied condition that
the goods shall correspond with description. The description may be in terms of the
qualities or characteristics of the goods

Case: A buyer responded to an advertisement describing car as a 2001 model. He

inspects the car before buying it. After buying it he discovered that the car consisted of
half a 2001 model and half of an earl car.

Held. The seller was liable, since the buyer had relied at least to some extent on the
description.

4. Condition in a sale by sample as well as description.

Where goods are sold by sample as well as by description the bulk of goods should
correspond both with the sample and with description.

5. Condition as to fitness for purpose

Where the seller sells goods in the course of a business and the buyer makes known to the
seller any particular purpose for which the goods are being bought, there is and implied
condition that the goods are reasonably fit for that purpose.

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6. Merchantable quality.
This applies only the sale is by description. There is an implied condition that the goods
should be of merchantable quality. But for making this condition applicable, the
following must also be satisfied:-
i) The seller should be a dealer in goods of that description
ii) The buyer must not have any opportunity of examining the goods or there
must be some latent defect in the goods which would not be apparent on
reasonable examination of the same.
In order to be merchantable the goods such as are reasonably saleable under the
description by which they are known in the market.

Case: where under wears supplied contained chemicals which could cause skin disease to
a person wearing them.

Held. The underwear was not of merchantable quality.

IMPLIED WARRANTIES
a) Free from encumbrance.

There is an implied warranty that the goods shall be free from any charge or
encumbrance infavour of any third party, when the buyer has notice of such a charge,
this warranty will not apply.

b) Quite possession.

There is an implied warranty that the buyer shall have and enjoy quiet possession of
the goods. If the buyers’ right of possession or enjoyment is disturbed he has the right
to sue the seller for damages.

Different between sale and agreement to sale

Agreement to sale (conditional sale) Sale (absolute sale )

 The transfer of property in goods is to  The property in goods passes from
take place at sometime in future. seller to buyer immediately
 If buyer defaults seller an sue for  If buyer defaults seller can sue for the
damage and recovery of goods price and damage
 If seller defaults, buyer can only sue  If seller defaults buyer can sue for

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for damage damage and delivery of goods.

 If goods are damaged or deteriorated,  If goods are damaged or deteriorated,
seller bears the risk of loss the buyer bears the risk of loss

TRANSFER OF PROPERTY
Transfer of property in goods:- means transfer of ownership of the goods, property in
goods is different from possession of goods. Possession refers to the agrees to do so. That
to say one may possess something without necessarily owning it. That is legal expression
for ownership of goods in property in goods. It is important to determine the precise
moment.

TRANSFER OF PROPERTY IN GOODS

The property in the goods is said, to be transferred from the seller to the buyer when the
latter acquires the proprietary rights over the goods and the obligations linked thereto.
'Property in Goods' which means the ownership of goods, is different from ' possession of
goods' which means the physical custody or control of the goods.
The transfer of property in the goods from the seller to the buyer is the essence of a
contract of sale. Therefore the moment when the property in goods passes from the seller
to the buyer is significant for following reasons:
a. Ownership: The moment the property in goods passes, the seller ceases to be their
owner and the buyer acquires the ownership. The buyer can exercise the
proprietary rights over the goods. For example, the buyer may sue the seller for
non-delivery of the goods or when the seller has resold the goods, etc.
b. Risk follows ownership: The general rule is that the risk follows the ownership,
irrespective of whether the delivery has been made or not. If the goods are
damaged or destroyed, the loss shall be borne by the person who was the owner of
the goods at the time of damage or destruction. Thus the risk of loss prima facie is
in the person in whom the property is.
c. Action Against Third parties: When the goods are in any way damaged or destroyed
by the action of third parties, it is only the owner of the goods who can take action
against them.
d. Suit for Price: The seller can sue the buyer for the price, unless otherwise agreed, only
after the gods have become the property of the buyer.
e. Insolvency: In the event of insolvency of either the seller or the buyer, the question
whether the goods can be taken over by the Official Receiver or Assignee, will
depend on whether the property in goods is with the party who has become
insolvent.
Essentials for Transfer of Property
The two essentials requirements for transfer of property in the goods are:
1. Goods must be ascertained: Unless the goods are ascertained, they (or the property
therein) cannot pass from the seller to the buyer. Thus, where there is a contract
for the sale of unascertained goods, no property in the goods is transferred to the
buyer unless and until the goods are ascertained

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2. Intention to PASS Property in Goods must be there: In a sale of specific or

ascertained goods the property in them is transferred to the buyer at such time as
the parties to the contract intend it to be regard shall be had to the terms of the
contract, the conduct of the parties and the circumstances of the case.
There rules that govern transfer of property.

I. Specific goods in a deliverable state.

Where there is an unconditional contract for the sale of specific goods in a deliverable
state the property in the goods passes to the buyer when the contract is made and it is
immaterial whether the time of payment or the time of delivery, or both is postponed.

II. Specific goods not in a deliverable state

Where there is a contract for sale of specific goods and the seller is bound to do
something to the goods for the purpose of putting them into a deliverable state the
property does not until such thing be done, and the buyer has notice there of.

III. Specific goods to be tested weighed or measured to determine the price.

Where there is a contract for sale specific goods in a deliverable state, but the seller is
bound to weight, measure, test or do some other alt or thing with reference to the
goods for the purpose of ascertaining the price, the property does not pass until such
alt or thing be done and buyer has notice there of .

IV.Goods delivered to the buyer or sale on return or on approval.

Where goods are delivered to the buyer or approval or on sale or return or other similar
terms, the property there in passes to the buyer:-
a) When he signifies his approval or acceptance to the seller or does any other act
adopting the transaction.
b) If he does not signify his approval acceptance to the seller, but retains the goods
without giving notice of rejection, then if a time has been fixed for the return of
the goods on the expiration of reasonable time.
Case: Mussa Mahaba V. Rukia Shamte (1979)

V. Sale of unascertained/future goods.

- Where there is a contract of sale of goods which are unascertained or future goods the
property in goods passes to the buyer when such goods in a deliverable state are
unconditionally appropriate to the contract by either party with the consent of the other.
- Unascertained goods defined by description only, and not goods identified and agreed
upon when the contract is made, until goods are ascertained there is merely an agreement
to sale.

NOTE:

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Risk passes with property.

Unless otherwise agreed the goods remain at the seller’s risk until the property there in is
transferred to the buyer but when the property in goods were sold by a person who is not
the owner thereof and who does not sell them under the authority or with the consent of
the owner, the buyer acquires no better title to the goods than the seller had = NEMO
DAT QUOD NON HABET RULE, this is the Latin phrase means “No one can give what
one does not have”

EXCEPTIONS to this general rule are:

1) An unauthorized sale by a merchantile agent.

A mercantile agent can convey a good title to the buyer even though he sells
goods without having any authority from the principal to do so, provided:-
a) He should be in possession of the goods or document of title to the goods in his
capacity as merchantile agent and with the consent of the owner.

b) He should sell the goods while acting in the ordinary course of business.

2) Sale in market overt

This is an exception under English sale of goods act which is not recognized in
Tanzania. A market overt is an open public legally constituted market. All shops in
the city of London are markets overt by custom for such goods that the shopkeeper
normally deals in. The buyer acquires a goods title to the goods provided he buys
them in good faith and without notice of any defect or want of title on the part of the
seller.

3) Sale under avoidable title

Where the seller goods has a voidable title but his title has not been avoided at the time
of the sale, the buyer acquires a good title to goods provided he buys them in good
faith and without notice of the seller’s defect title.
Case: Philips V. Brooks

4) Transfer title by Estoppel (implied authority to sale)

Estoppel arises when you are precluded from denying the truth of anything, which you
have represented fact, although it is not a fact, thus estoppels mean that a person who
by his conduct or words certain state of affair existed. Estoppel may arise in the
following:
a) The owner standing by, when the sale is affected.
b) Assisting the sale.
c) Permitting goods to go into the possession of another.

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5. Sale by a seller in possession (Re- Sale)

Where the property in the good has passed but the sellers still retain possession. If
the property in goods has not passed, the seller gives a good title by virtue of this
ownership, that the subsequent buyer obtains better title, provided he buys and take
delivery in good faith and without notice of the seller’s defect in title.

6) Sale by a joint owner.

If one of several joint owners of goods has the sale possession of them by permission of
the co-owners, the property in the goods in transferred to any person who buyers them
from such joint owner in good faith without notice of the fact that the seller has no
authority sell.

7) Sale by the order of a court

Where goods are sold under order of a court of competent jurisdiction, the buyer obtains
a good title.

RIGHT OF UNPAID SELLER

The seller of goods is deemed to be an unpaid seller;
a) When the whole of the price has not been paid or part of it.
b) An unpaid seller of goods even though the property in the goods has passed to the
buyer has the following rights against the goods:-
i) A Lien for the price
ii) If the buyer is insolvent, a right of stoppage in transit
iii) Limited right of resale.

1. RIGTH TO LIEN: A lien is the right to retain possession (to keep) of goods until
payment of the price. It is available when
 Good have been sold without any stipulation as to credit.
 Where the term of the credit has expired.
 Where the buyer becomes insolvent.

2. RIGHT OF STOPPAGE OF GOOD IN TRANSIT: Means the right of stopping

further transit of the goods while they are with a carrier for the purpose of transmission
to the buyer. This is possible when:-

 The buyer becomes insolvent.

 The goods are in transit.
The transit is at an end in the following cases;

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 If goods are ordered to be sent to an intermediate place from which they are to be
forwarded to their ultimate destination.
 If the buyer obtains delivery before the arrival of the goods at their destination.
 If the carrier wrongfully refused to deliver the goods to the buyer.

3. A RIGHT OF RE SALE: If the above has not happen. The seller has the right of
resale. If unpaid seller resale the goods the buyer obtain a good title to them as against
the original buyer. The resale can happen when:-
 Where the goods are of perishable.
 Where he gives notice to the buyer of his intension to resell and the buyer doesn’t
within reasonable time pay.
 Where the seller expressly reserves a right of resale in case a buyer should make
default.
4. RIGHT TO WITHHOLD DELIVERYOF GOODS: Where the property in the
goods has not passed to the buyer.

The right of unpaid seller against the buyer personally:-

5. RIGHT TO CLAIM FOR THE PRICE: Lies when the property in goods has passed
to buyer, the seller has the right to claim for the price.

6. RIGTH TO SUE FOR DAMAGES: When the buyer refuses to pay the price for the
goods, the seller has the right to sue for damages.

BUYER’S RIGHT AGAINST SELLER.

.
1) For non delivery
When the seller wrongful neglects or refuses to deliver the goods to the buyer, the buyer
may sue the seller for damages.

2) For recovery of the price

If the buyer has paid price and the goods are not delivered he can recover the amount
paid plus interest.

b) For specific performance

A buyer can only get his contract specifically performed,

4) For breach of condition

On breach of condition the buyer is entitled to reject the goods. He can’t reject the goods
however of;
a) He forego ( waive) the breach of condition and elects to treat it as a breach of
warranty
b) The contract is not severable (not in parts) and he has accepted the goods or part
of them.

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5) For breach of warranty

Where the buyer elects or is compelled to treat breach of condition as breach of warranty,
the buyer is entitled to claim for damages if the price has already been paid. But if the
buyer has not yet paid the price he may ask for reasumable reduction in price.

EFFECTS OF DESTRUCTION OF GOODS - ALREADY CONTRACTED

There are various kinds of goods and the parties have various options to agree about the
delivery of the goods. What shall be the fate of a contract if the goods are perished or
destroyed?
A) Destruction before making of contract
Where in a contract for sale of specific goods, at the time of making the contract, the
goods, without knowledge of the seller, have perished or become so damaged as no
longer to answer to their description in the contract, the contract shall become null
and void. This is based on the rule of impossibility of performance. Since the subject
matter of the contract, which is one of its essential ingredients, itself is destroyed, the
contract cannot be carried out.
'Perishing of goods' includes not only complete destruction of the goods when the
seller has been irretrievably deprived by the goods or when the goods have been
stolen or have in some other way been lost and are untraceable, but also when the
goods become un merchantable i.e. when the goods has lost their commercial value.
B) Destruction After the Agreement to Sell but before Sale
Where in an agreement to sell specific goods, if subsequently the goods, without any
fault on the part of the seller of buyer, perish or become so damaged as no longer
answer to their description in the agreement, the agreement shall become void,
provided the goods are perished before the ownership and risk passes to the buyer.
This rule is based on the ground of impossibility of performance.
If the title to be goods has already passed to the buyer, he must pay for the goods
though the same cannot be delivered.

TYPES OF CONTRACTS (WITH REGARD TO DELIVERY OF GOODS)

There are various types of contracts from the point of view of the delivery of goods.
i) F.A.S. or F.A.R. Contract
F.A.S stands for 'Free Alongside Ship' and F.A.R stands for 'Free Along with Rail'.
Under FAS or far contracts, the seller is required to deliver the goods alongside the ship
or rail named in the contract and to notify the buyer that the goods have been so
delivered. The property in the goods passes to the buyer when the seller delivers the
goods alongside the ship or rail. Thereafter, it is the buyer's duty to arrange for the
contract of affreightment and insurance of the goods while the transit.
ii) F.O.B. OR F.O.R Contracts
F.O.B stands for 'Free on Board' and F.O.R stands for 'Free on Rail'. In a F.O.B. (or
F.O.R.) contract, the seller is required to deliver the goods on board the sip (or on rail),
named in the contract. Thus, the seller has to bear all expenses upto and including
shipment of goods on behalf of the buyer, who is responsible for their freight, insurance
and subsequent expenses.
Thus, as soon as the goods are put on board the ship, the property in them passes to the
buyer. This will be so even if the goods are not specific or ascertained. The buyer is liable

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to pay the price even if the goods are lost in transit. The property in goods shall, however
not pass if the seller reserves the right of disposal.
iii) C.I.F. Contract
The words 'C.I.F.' stand for cost, insurance and freight. A CIF contract is a type of
contract wherein the price includes cost, insurance and freight charges. Under a CIF
contract the seller is required to insure the goods, deliver them to the shipping company,
arrange for their affreightment and send the bill of lading and insurance policy together
with the invoice and a certificate of origin to a bank. The documents are usually delivered
by the bank against payment of seller since he continues to be the owner of goods until
the buyer pays for them and obtains the documents. The property in the goods passes to
the buyer on the delivery of documents. The buyer is equally protected as he is called
upon to pay only against the documents and the moment he pays, he obtains the
documents, which enable him to get delivery of the goods. If in the meantime the goods
are lost neither the buyer nor the seller is put to loss, whoever is the owner at the time of
the loss can recover it from the insurer.
iv) Ex-ship contracts
Under an 'ex-ship contract the seller has to delivery the goods to the buyer at the port of
destination. In such contracts the property in the goods does not pass until actual delivery.
The goods are at the seller's risk during the voyage. It is therefore, for the seller to insure
the goods to protect his interest. The seller is to pay the freight, or otherwise release the
ship owner's lien and to furnish the buyer with a delivery order or an effectual direction
to the ship owner to deliver.

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PAST QUESTION
QN 1
a) with reference to the sale of goods ordinance distinguish conditions a warranties

QN 2
a) under the sale of goods ordinance cap 214 what are the rights of the unpaid seller?
b) It is provided under the sales of goods ordinance cap 214 that a person who is not
the owner of the good can not sell and pass good title to another person,. It
follows that, when the seller’s title is defective so is the buyer. Comment

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