COMMERCIAL LAW NOTES

 Sale of Goods

       ▪    Definition of Sale of goods,

• ·         Nature and formation of the contract of sale of   goods,
• ·         Conditions, Warranties and Representations,
• ·         Ownership and Passing of Property,
• ·         Transfer of Risk,
• ·         Duties of Seller and Buyer,
• ·         Remedies for Breach and Frustration,
• ·         Special Commercial Contracts in Outline Form.

SALE OF GOODS

The Kenya Law relating to the sale and purchase of goods is contained in the Sale of Goods Act (cap 31). The Act is a reproduction of the English Sale of Goods Act 1893 which was made part of the Kenya Law by the colonial administration in Kenya on 1st October 1931.

DEFINITION

Section 3 (1) of the Act defines a sale of goods as "a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price".

ELEMENTS OF THE DEFINITION

The legal consequences of the above definition are as follows:

(a)     A sale of goods is "a contract". Though Part II of the Act bears the heading "formation of the contract" there is nothing in it which regulates the actual formation of the contract of sale of goods. It therefore appears reasonable to assume that the contract envisaged by the Act is to be formed according to the rules which govern the formation of contracts in general, namely, the rules of the common law. Consequently, before a sale of goods can take place:

(i)      There must be an offer to buy, or sell, followed by a corresponding acceptance.

(ii)     All the other conditions prescribed by the common law for the validity of a contract must be met. However, s.6 provides that a contract for the sale of goods worth two hundred shillings or more must be entered into, or evidenced, in writing, otherwise the contract is unenforceable.

(b)     The contract effects a transfer of " the property in the goods" delineated by it to the buyer.

(i)      Where the transfer is immediate, the contract constitutes "a sale".

(ii)     Where the transfer is delayed, the contract constitutes "an agreement to sell."

"The property in goods" in this context means "the ownership of the goods" sold or agreed to be sold. In effect what the buyer pays for is not the physical goods but the right to own them. As soon as he has acquired the ownership he will be in a position to do anything he pleases—usually taking possession of them or reselling them.

(c)     The consideration for the transfer of ownership must be "a money consideration" . This means that barter is not a "sale" of goods. It is an exchange of goods since no "money" (cash or cheque) is paid by either party.

In Aldridge v Johnson an agreement provided for the exchange of 52 bullocks with 100 quarters of barley, the difference in their value being payable in cash. It was held that the agreement constituted a sale of goods within the statutory definition. The money paid by the one party would be regarded as the "money consideration" for the goods delivered or to be delivered by the other party. The apparent inadequacy of the consideration is, of course, legally irrelevant. In any case the owner of the goods must be assumed to know what he is doing.

(d)     The provision that the property in the goods is "transferred" means that there must be two different parties to the contract. Consequently, a person cannot sell goods to himself—although it appears probable that he can do so in two distinct capacities. However, there may be a sale by a "part-owner" of the goods.

GOODS

Although "goods" in common parlance has an obvious meaning  the Act has given the word a technical meaning. It provides that "goods" include "all chattels personnel other than things in action and money". This covers anything that can be touched, moved or taken away but does not cover land and other species of commercial property such as shares, debts, etc which cannot be physically moved or taken away.

"Money" may in exceptional cases be "goods". An example is where money is bought or sold as a curio by a person who collects coins. However, money which is used as currency, or legal tender, cannot be sold as "goods". So, if a person goes to a bank and "buys" some sterling pounds to take to his son who is studying in the United Kingdom, the pounds will have been transferred as part of a currency transaction or "foreign exchange". It legally does not constitute a sale.

TYPE OF GOODS

The Act classifies goods into:

(i)      Specific Goods

Specific goods are "goods" which are identified and agreed upon at the time the contract of sale is made (s.2). This definition embraces nearly all the goods which people buy in shops, market places and super-markets.

(ii)     Unascertained Goods

The phrase "unascertained goods" is used in contradistinction to specific goods. It includes goods to be manufactured or acquired by the seller after the making of the contract of sale.

The distinction between specific and unascertained goods is important because it governs the moment of transfer of property.

(iii)        Existing and future goods

Existing goods are goods owned and possessed by the seller when the contract of sale is made.  Future goods are goods to be acquired or manufactured by the seller after the contract is made.

CONTRACT FOR "WORK AND MATERIALS"

In Robinson v Graves a dispute arose over an agreement under which an artist had promised to make a portrait for 250 guineas. The question which had to be considered was whether the agreement constituted a sale of goods so that the provisions of the Act applied to it. It was held by the English Court of Appeal that the agreement was not sale of goods but a contract for "work and materials". Although a good was to be ultimately delivered, the substance of the contract was not a transfer of its ownership (since it did not exist at the time of the contract) but the application of the artist's skill towards its production. What was to be paid for was the work to be done by him, and having been paid for the work, he must deliver the physical object or material he produced or made. Such a contract, not being a sale of goods, is not governed by the Act.

CAPACITY

S.4 (1) provides that capacity to buy and sell is governed by the general law concerning capacity to contract. However, where necessaries are sold and delivered to an infant or a person who, by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price for them. "Necessaries" are defined as goods which are suitable to the condition in life of the infant or other incompetent person, and to his actual requirements at the time of sale and delivery.

FORM

S.6 provides that a contract for the sale of goods to the value of two hundred shillings or more cannot be enforced unless the buyer accepts and receives the goods, or gives an earnest or made past payment, or unless the party to be charged (whether buyer or seller) signed a written memorandum thereof. Contracts for the sale of goods whose value is less than two hundred shillings may be made in writing, by word of mouth, or implied from conduct.

SUBJECT-MATTER OF THE CONTRACT

By S.7(1) the goods which form the subject-matter of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods, to be manufactured or acquired by the seller after the making of the contract of sale.

(a)     By S.8, if, in a contract for the sale of specific goods, the goods have, without the knowledge of the seller, perished at the time when the contract was made, the contract is void. This provision codifies  the common law doctrine  of "res extincta" whose application is illustrated by Conturie v Hastie (See 4.1). The same rule applies where there is a sale of indivisible quantity of specific goods and part only of the goods have perished at the time when the contract is made. This was explained in Barrow, Lane and Ballard Limited v Phillip, Phillips and Company Limited in which the plaintiffs contracted to sell to the defendants 700 bags of nuts which were believed to be lying in certain warehouses. Unknown to them, 109 bags had disappeared (presumably by theft) at the time the contract was made, and a further 450 bags disappeared before the goods could be delivered to the defendants. The plaintiffs sued for the price of the goods. It was held that the contract was void and the defendants were not liable.

Where the contract of sale is divisible or severable it appears reasonable to assume that S.8 would avoid the contract as to the goods which had actually perished. Although the word "perished" literally would cover only cases of physical destruction of the goods, the case of Asfar and Company Limited v Blundell shows that it may, in appropriate cases, be construed to cover a change in the physical condition of the goods which renders them unfit for the purpose for which they would be normally bought. In such a case, the goods would be regarded as having "perished" in a commercial sense.

In that case the court held that dates which had been submerged for two days and when brought to the surface were, in the words of the judge, "simply a mass of pulpy matter impregnated with sewage and in a state of fermentation" had "perished".

(b)     By S.9, where the contract is for the sale of unascertained or future goods and subsequently the goods, without any fault of the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided. This provision appears to be a codification of the common law rule relating to discharge of contract by frustration. (Explained in paragraph 10 of lesson 3)

THE PRICE

Section 10 provides that the price for goods may be fixed by:

(i)      Contract;

(ii)     The manner provided in the contract; or

(iii)    The course of dealing of the parties.

If the price is not fixed or determined as aforesaid, the buyer must pay a reasonable price.

Where the contract specifies that the price is to be fixed by the valuation of a third party and he does not make the valuation the contract is unvoiced. If however the goods (or part of them) have been delivered to and appropriated by the buyer he must pay a reasonable price for them. If the failure to value is as a result of the fault of the buyer or seller, he must pay damages.

TERMS OF CONTRACT

The terms of a contract of a sale of goods are the same as the terms of other contracts, which were explained in Lesson 3, paragraph 8. They are governed by the common law which relies on the intention of the parties as the basis of their classification. They are express terms.

IMPLIED TERMS

There are certain terms, called conditions and warranties, which are implied into every contract covered by the Sale of Goods Act, unless the contract shows a different intention. They were implied for the first time by the English Sale of Goods Act 1893 in order to protect the buyer against certain unfair consequences of the common law rule 'caveat emptor' ("buyer beware"). For example, if A sold to B goods which he (A) had stolen from C, and C eventually recovered the goods from B, A would not be liable to B (either in damages or for the price) unless, before the sale, B had asked A whether the goods were his goods and he (A) had actually assured him that they were. If B merely assumed that A owned the goods he would have to suffer the consequences of his assumption. After all, he must have been aware that sometimes people sell stolen goods and A was not under any legal obligation to confide in him that he had in fact stolen the particular goods. The common law seems to have been oblivious of the fact that, in practice, buyers do not ask such questions—since it would be mutually embarrassing to ask such a question.

The implied terms are as follows.

1.       Conditions

There are seven conditions which are implied by the Act. They are:

(a)     Right to sell.

S.14 (a) provides that there is an implied condition that the seller has a right to sell the goods and, in the case of an agreement to sell, that he will have a right to sell at the time that the property is to pass.

It appears that the primary aim of this provision is to protect a buyer who unknowingly bought, or agreed to buy, goods which had been stolen. This is illustrated by Rowland v Divall (1923) in which the plaintiff bought a car from the defendants. Four months after the sale, it was discovered that the car had been stolen by the person from whom the defendant had bought it. The plaintiff, having surrendered the car to the owner, sued the defendant to recover the money he had paid to him as the price of the car. The defendant contended that:

(a)     Since the plaintiff had the use of the car for over four months, he had legally accepted it within S36 and his proper remedy must be a claim for damages for breach of warranty.

(b)     The damages must be reduced by the amount that the court would regard as payable by the plaintiff in respect of the benefit he had received while using the car for the four months. The court rejected both arguments. Atkin, L. J. stated:

"The buyer has not received any part of that which he contracted to receive namely, the property and right to possession and, that being so, there has been total failure of consideration".

The buyer was therefore entitled to recover the full purchase price from the seller.

Exceptionally, a seller who is selling goods which had not been stolen may be liable for breach of the condition. This is illustrated by Niblet Limited v Confectioners' Materials Company Limited (1921) in which the defendants sold the plaintiffs 3,000 cans of condensed milk which were being shipped to the United Kingdom from the United States Of America. The cans were labelled "Nissly", which was an infringement of the trademark of Nestle, an English company. Customs authorities in England refused to release the cans to the plaintiff until after the labels had been removed and destroyed. The plaintiff sold the unlabelled tins for the best price he could obtain and then sued for damages for breach of the implied condition. It was held that the defendants were in breach. Although they owned the goods and so had power to sell them they did not have the right to do so since Nestle could have obtained an injunction restraining them from selling the goods in England.

(b)     Correspond with description

S.15 provides that, where goods are sold by description, there is an implied condition that the goods correspond with the description. A sale is by description when:

(a)     The goods are unascertained or future goods

(b)     The goods are specific but are bought as "a thing corresponding with specific description".

An example of (a) is provided by Varley v Whipp in which the defendant agreed to buy from the plaintiff a second-hand reaping machine which was stated to have been new the previous year and hardly used at all. The defendant had not seen the machine at the time of the sale. He later refused to accept it, on the ground that it did not correspond with the description. The court agreed that the machine did not correspond with its description and held that the defendant was not liable for the price. The judge stated, inter alia, that the phrase "sale by description" must apply  to "all cases where the purchaser has not seen the goods but is relying on the description alone".

An example of (b) is provided by Grant v Australian Knitting Mills Limited (1936) in which the plaintiff went to the defendant's shop and asked for a pair of long woollen underwear. The goods were displayed on the counter before him and a sales assistant selected a pair which he bought. The underwear contained an excess of sulphite and the plaintiff contracted dermatitis after wearing it. The chemical should have been removed before the underwear was sold but this had not been done. It was held that there had been a sale by description.

The judge stated: "There is a sale by description even though the buyer is buying something displayed before him on the counter: a thing is sold by description, though it is specific, so long as it is sold not merely as the specific thing, but as a thing corresponding to a description, e.g. woollen undergarments, a hot-water bottle, a second-hand reaping machine ..."

(c)               Correspond to sample and description

S.15 (2) provides that, where there is a sale of goods by sample as well as by description, the goods must correspond with the description as well as the sample. This provision is illustrated by the following cases:

In Nichol v Godts (1854)

The plaintiff agreed to sell to the defendants some oil which was described as "foreign refined rape oil, warranted only to equal sample". He delivered oil equal to the quality sample but which was not "foreign refined rape oil". It was held that the defendant was entitled to reject the goods.

In Re: Moore and Company, and Landauer and Company (1921)

The buyer ordered 3,100 cases of Australian canned fruit to be packed in crates containing 30 cans per crate. When the goods arrived it was found that about half the crates contained 24 cans and the remainder 30 cans. The buyer rejected the goods although it was agreed that there was no difference in market value between goods packed 24 cans and goods packed 30 cans. The English Court of Appeal held that the way in which the goods were to be packed was part of the description and the buyer had rightly rejected them, even though he was not in any way affected by the wrong packing. The correctness of this decision has been doubted in later English cases which seem to suggest that words of description are only those words necessary to identify the goods sold. This is illustrated by Ashington Piggeries Limited v Christopher Hill Limited (1972) in which the buyers, who were breeders of mink, ordered a foodstuff called "King Size" from the sellers, who were manufacturers of animal food-stuff. The recipe, which was supplied by the buyers included herring meal. The sellers were told that the "King Size" was required for feeding minks.

The herring meal used to make the King Size had been stored in a chemical which, unknown to the sellers, had reacted with the herring to create a poisonous substance which killed the mink. The buyers sued the sellers claiming, inter alia, breach of S.15.

The House of Lords held that there had been no breach of the section, because the purpose for which the goods were required did not form part of their identification. The words "for mink" would have formed part of the description by helping to identify them for "King Size" for the other type of animals.

(iii)    "Merchantable quality".

Section 16 (b) provides that, where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that they are of "merchantable quality. Although "merchantable quality" is not defined by the Act it is generally stated in legal textbooks that goods are of "merchantable quality" if they are reasonably fit for the purpose or purposes for which the goods of that kind are generally bought. The following examples from decided cases show when goods would be regarded as not being merchantable:

•        In Wren v Holt it was held that beer which contained an abnormal quantity of arsenic acid was not of merchantable quality. The fact that plaintiff became sick after drinking the beer proved that it was not fit for its general use as beer.

•        In Godley v Perry a catapult which broke while being used by a child for whom it had been bought and captured his eye was held not to be of merchantable quality.

•        In Frost v Aylesbury Dairy Company it was held that milk which was contaminated with germs of typhoid fever, from which the plaintiff died after drinking the milk, was not of merchantable quality.

The case of Mash and Murrel v Emmanuel lays down the rule that goods must be of merchantable quality at the time of delivery. In that case the sellers who were in Cyprus, sold potatoes "C and F Liverpool". The potatoes, though fresh when loaded, were rotten by the time the ship arrived. It was held that the sellers were liable for breach of the implied condition.

(e)          fitness for purpose

That goods which are bought for a particular purpose are reasonably fit for that purpose:(S.16 (a))

This condition is implied only if:

•        The particular purpose was made known to the seller, expressly or by implication. This is illustrated by:

Baldry v Marshall (36) in which the purpose was expressly made known to the seller.

Priest v Last (37) in which the purpose was deemed to have been impliedly made known to the seller.

•        The goods are of a description which it is in the course of the seller's business to supply.

This provision limits liability to manufacturers, wholesalers, retailers and dealers. Private sales of second-hand goods are presumably excluded from its operation.

•        The buyer relied on the seller's skill or judgement. The reliance will generally be assumed, and is based on the fact that selling the goods is the seller's profession or business.

Although Section 16 (a) contains the words "whether he be the manufacturer or not" the case of Frost v Aylesbury Dairy Company (38) shows that the liability which it imposes is not restricted to manufactured goods and may, in appropriate cases, apply to non-manufactured goods as well. That is presumably why the words are put in brackets.

Exception

The seller would not be liable if he proves that the goods were sold under a patent or other trade name, as was explained in Bristol Tramway Company Limited v Fiat Motors (39), and that the buyer did not rely on his skill and judgement, as explained in Baldry v Marshall (36).

(f)      Bulk oods shall correspond with the sample.

S.17 (a) that where the goods are bought by sample, there is an implied condition that the bulk will correspond with the sample in quality. If a sale is by sample and description the goods supplied must correspond with both the sample and the description, as was held in Nichol v Godts (supra).

(g)     Opportunity to compare bulk and sample

That the buyer will have a reasonable opportunity of comparing the bulk with the sample: s.17 (a). This condition suspends the operation of s.28 which provides that the time of delivery and the time of payment are concurrent conditions. The seller cannot therefore demand the price when he delivers the goods. He must wait for a reasonable time during which the buyer will examine the goods to check if the bulk correspond with the sample.

(h)     Goods free from defect rendering them unmerchantable

That the goods will be, free from any defect rendering them unmerchantable which would not be apparent on a reasonable examination of sample.

Liability for breach of this condition is illustrated by Godley v Perry in which the plaintiff, a boy of six, bought a plastic catapult from the defendant, a stationer. He used the catapult properly but it broke in his hands and part of it ruptured his eye. The evidence showed that the catapult had a defect which was not discoverable on a reasonable examination of it.

The defendant had himself bought a quantity of the catapults from a wholesaler by sample and his wife had tested the sample, before placing the order, by pulling back its elastic.

It was held that the defendants were liable because:

(a)     The catapult was not reasonably fit for the purpose for which it had been bought; and

(b)     The catapult was not of merchantable quality and the defect of the goods could not be discovered by a reasonable examination of the sample.

The judge explained that a buyer is not expected to carry out every test that might be practicable. The statutory yardstick is "not extreme ingenuity but reasonableness".

(i)            A condition may be annexed by trade customer usage

Effect of Breach

S.13 (1) provides that the breach of a condition entitles the buyer to treat the contract as at an end and to sue for damages, or to affirm the contract and sue for damages.

 

TREATMENT OF CONDITIONS AS WARRANTIES

By section 13(1) a buyer may waive a breach of condition by the seller, or elect to treat it as a breach of warranty. However, Section 13(3) provides that a buyer must treat a breach of condition as a breach of warranty where the contract is not severable and he has accepted the goods or some of them.

Exclusion of Liability

Section 55 enables the seller to exclude or limit liability for a breach of any of the implied conditions. It however provides that an express condition does not negate a condition implied by the Act unless they are mutually inconsistent.

But an express warranty cannot negate the effect of an implied condition. This is illustrated by Baldry v Marshall in which a clause which exempted the sellers from liability for breach of any "guarantee or warranty, statutory or otherwise", was held not to exonerate them from liability for breach of implied condition that the goods were reasonably fit for the particular purpose for which they had been bought.

2.       Warranties

The following are the warranties implied by the Act:

(a)     quiet possession  (s.14 (b)). This provision is intended to protect the buyer against defects of title which arise after the contract is entered into. Although such situations are extremely rare, they may arise occasionally, as illustrated by Microbeads v Vinhurst Road Markers Limited in which the facts, briefly, were as follows.

In January 1970 the sellers sold a number of road marking machines to the buyer. Unknown to both parties, another company was in the process of patenting their own road marking apparatus under the Patents Act which gave them rights to enforce the patent from November 1970. In 1972 the patentee sued the buyer for using the road marking machines in breach of patent. The buyers then claimed against the sellers for breach of implied condition as title and breach of the implied warranty as to quiet possession. It was held that:

(a)     There was no breach of the implied condition since at the time of the sale the sellers could not have been prevented by injunction from selling the goods, but

(b)     There was a breach of the implied warranty as to quiet possession. Lord Denning explained that the warranty is a continuing warranty which applies not just at the time of the sale but also in the future.

(b)     Free from charge or enaumbrance

                           

That the goods shall be free from any charge or encumbrance in favour of any third party which is not declared or made known to the buyer before or at the time when the contract is made: s.4 (c). This provision is intended to protect the buyer against the defects in the seller's title which exist at the time the contract is made.

(c)     A warranty may be annexed by trade customers.

         

"NEMO DAT QUOD NON HABET"

Another common law maxim that applies to sale of goods is "nemo dat quod non habet": a person cannot give that which he does not have. This maxim has been incorporated into every contract of sale of goods by s.23, which provides that "where goods are sold by a person who is not the owner thereof and who does not sell them with the consent or authority of the owner, the buyer acquires no better title to the goods than the seller had".

This principle was developed by the common law courts to protect the interest of the true owner of the goods.  It was the case in Cundy v Lindsay & Co.

The classical illustration of the conflict between the interests of the owner and the bonafide purchaser was enutiated by Lord Denning in Bishopsgate Motor Finance Corporation v Transport Brakes Ltd

Consequently, if the goods had been obtained by fraud and the seller had a voidable title thereto, the buyer would acquire a voidable title even if he were not aware of the fraud. If the seller had a valid title, the buyer would get a valid title.

Exceptions

The "nemo dat" rule is subject to the following exceptions which are provided by the Act:

(a)     Estoppel

S.23 (1) provides that the "nemo dat" rule will not apply if "the owner of the goods is by his conduct preluded from denying the seller's authority to sell". This is illustrated by Pickard v Sears (44). An estoppel will be raised against the owner of the goods only if his conduct misled a third party into believing that the person who was selling the disputed goods was either their owner, or had the owner's authority to sell them.

(b)     Sale by a Factor

Sale by a factor gives a good title to the buyer in good faith. The factor is a mercantile agent whose business is to sell or otherwise deal in goods. Under the Factors Act 1889, he can sell goods entrusted to him and give a good title provided the conditions of the Act are complied with. These conditions are that the goods shall have been entrusted to him in the ordinary course of his business and that they shall be in his possession with consent of the owner.

(c)     Sale under a Voidable Title

Where the seller of goods has a voidable title thereto but his title has not been avoided at the time of the sale, a buyer in good faith without notice of the defect in the seller's title acquires a good title. (Section 24). An example of Lewis v Avery.

         

(d)     Resale by a Seller in Possession

If a person who has sold goods, but has remained in possession of them or of the documents of title to them, transfers the goods or documents of title to a third person, that person acquires a good title if he receives the goods in good faith and without notice of the previous sale (Section 26 (1)).

(e)     Sale by a buyer in Possession

Where a person having bought or agreed to buy goods obtains with the seller's consent possession of the goods or the documents of title to them, a transfer by that person of the goods or documents of title to a third person receiving them in good faith and without notice of lien or other right of the original seller in regard to the goods, has the same effect as if the person making the transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner. The seller has rights against the original purchaser but cannot claim the goods from the second purchaser (Section 26 (2)). Cahn v Pockett's Bristol Channel Steamer Packet Co. Ltd.: C forwarded to X, a foreign purchaser, a bill of exchange drawn on X for acceptance. Without accepting the bill of exchange X transferred the bill of landing to P for value. It was held that P had acquired a good title as X had obtained possession of the bill of lading with C's consent.

(f)      Sale Under Statutory powers of sale, such as a sale under the Uncollected Goods Act.

(g)     Sale under a common law power of sale, such as a sale by an agent of necessity.

(h)          Sale under a court order.

(i)            Sale in market.

Stolen Goods

Where goods have been stolen and the thief has been prosecuted and convicted, the property in the goods revests in the original owner. This is so even if the goods had been resold or otherwise dealt with in the meantime.

This provision may be viewed as supplementing the provisions of the Penal Code pertaining to theft by making it impossible for a client of a thief to plead his innocence as a ground for retaining stolen goods. This rule should make people extremely careful when buying goods so that they do not buy them from a thief. If that really happened thieves would have no buyers and would be forced to abandon stealing. Unfortunately this is not so and some people knowingly buy stolen goods because they are generally cheaper to buy.

TRANSFER OR PASSING OF PROPERTY

Assuming that the seller has a right to sell the goods, it becomes necessary to determine the precise moment when the transfer of the property in goods, envisaged by the contract of sale, takes place. Such determination is important because:

                  

(a)             It determines when risk in the goods pass to the buyer; if the goods were destroyed accidentally it would be necessary to know which party has to bear the loss.

(b)            It determines the remedies available to the parties.

(c)             It is the essence of the contract of sale of that property.

General Rule

The general rule is that the property passes in accordance with the intention of the parties, express or implied. In practice, however, buyers and sellers, not being lawyers, never advert to this question. They do not distinguish, as the lawyer does, between ownership and possession of goods. In realisation of this fact, the Act provides the rules which will govern the passing of property from the seller to the buyer. These rules are contained in S.20 of the Act and are as follows.

(a).    Where there is an unconditional contract for sale of specific goods in deliverable state, the property passes to the buyer at the time when the contract is made.

It is immaterial in such a case that the time of payment or of delivery, or both, is postponed.

Goods are said to be in a deliverable state if they are in such a state that the buyer would, under the contract, be bound to take delivery of them. This is a very vague statement whose purport may be illustrated by the following cases:

In Underwood Limited v Burgh, Castle, Brick and Cement Syndicate (1922)

In this case there was a contract for the sale of a condensing engine weighing 30 tons. At the time of the sale, it was still fixed to the floor of the building in which it was installed. However, it was agreed between the seller and the buyer that the engine would be detached, dismantled and delivered by the seller "free on rail". The seller detached the engine and dismantled it but while it was being taken to the railway station it was damaged. The buyer refused to accept it and the seller sued for the price. It was held that the property had not passed to the buyer, because the engine was not in a deliverable state at the time the contract was made.

In Philip Head and Sons v Showfronts (1970)

The defendants bought a carpet from the plaintiffs. When the carpet was delivered to their showroom where it was to be laid, it was found that it could not fit properly and had to be sent away for stitching. It was returned the next day wrapped in heavy bales. It was stolen before it could be laid and the defendants refused to pay for it. It was held that they were not liable. The property in the carpet had not passed to them since, at the time it was stolen, it was not in a deliverable state.

(b).    Where there is a contract for the sale of specific goods not in a deliverable state, and the seller has to do something to the goods to put them in deliverable state, the property does not pass until that thing is done and the buyer has notice of it. The application of this rule is also illustrated by the Underwood Limited v Burgh Castle case, above. The property in the engine could not have passed until the engine had been safely put on rail and the buyer notified.

(c)        Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test or do something with reference to the goods for the purpose of ascertaining the price, the property does not pass until that thing is done and the buyer has notice of it.

In Acraman v Morrice the defendant had agreed to buy the trunks of certain trees. Although the contract did not expressly say so, the custom of the particular trade was that the buyer measures and marks the portions of the trees that he wanted and the seller would then cut off the rejected parts. The seller did not do so but nevertheless sued for the price. It was held that the defendant was not liable because no property in the trees had passed to him. The property would have passed after the seller had actually severed the rejected parts and the buyer had been notified of it.

(d).    When the goods are delivered to the buyer on approval or "on sale or return" or other similar terms, the property therein passes to the buyer:

(a)     When he signifies his approval or acceptance to the seller; or

(b)     if he does not signify his approval or acceptance, he retains the goods, without giving notice of rejection—

(i)      Beyond the time fixed for the return of the goods, or

(ii)     If no time is fixed, beyond the expiration of a reasonable time; or

(c)     He does any act adopting the transaction.

The effect of this provision is to change the relevant common law rules relating to offer and acceptance. At common law, there would have been no contract between the parties. However, the provision creates a contract by converting what would have been lapse of an offer into an acceptance thereof.

The meaning of "any act adopting the transaction"  was explained in Kirkham v Attenborough (1897) in which the plaintiff delivered jewellery to a third party "on sale or return". The third party pledged the jewellery with the defendant without informing the plaintiff that he had accepted his offer. The plaintiff sued for the recovery of the jewellery on the ground that it was still his property.

It was held that the pledge was an act by the third party (offeree) "adopting the transaction" and, therefore, the property in the jewellery had passed to him, so that the sale to the defendant was effective.

This case should be compared to Kempler v Bavington in which the plaintiff, a diamond merchant, delivered a quantity of diamonds to a third party "on sale or return". The delivery note which accompanied the diamonds informed the third party that the plaintiff would debit his account with the price of any diamonds if they were not returned within seven days, and that, until the account was charged, the diamonds belonged to the plaintiff. As soon as he received the goods, the third party sold them to the defendant and disappeared with the money. As the third party's account had not been charged with the price of the diamonds at the time he sold them, it was held that the property in them still rested with the plaintiff. For this reason the plaintiff was able to recover the diamonds from the defendant.

e.       Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with assent of the seller, the property in the goods thereupon passes to the buyer.

In Hayman v M'Lintock, A sold to B 50 sacks of flour out of 200 lying in his warehouse, for which B obtained a storage warrant. Nothing was done to appropriate any particular sacks to the sale. It was held that no property in any sacks passed to B.

Where the seller delivers the goods to a carrier or to any other person for the purpose of transmission to the buyer, he is deemed to have unconditionally appropriated the goods to the contract provided that when he makes such delivery he does not reserve the right of disposal.

In Pignatorio v Gilroy it was explained that where the seller gives notice of appropriation and the buyer makes no objection within a reasonable time, his assent is presumed and the property passes on the expiration of that time.

(f)      Seller's reservation regarding disposal

Where the seller reserves the right of disposal of the goods until certain conditions are fulfilled, the property in the goods does not pass until such conditions are fulfilled.

(g)     Sale by Auction

On a sale by auction the property in the goods knocked down passes to the buyer at the fall of the hammer, in the absence of any agreement to the contrary.

PERFORMANCE OF CONTRACT

Obligations of the parties

Duties of the seller

a)      Duty to deliver the goods

b)      Duty to pass a good title

c)      Duty to put the goods into a deliverable state

"It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale." (Section 28.)

"Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for the possession of the goods." (Section 29)

Where goods have been delivered to the buyer, and he has had a reasonable opportunity of inspecting them, he is deemed to have accepted them.

In Molling v Dean certain goods were sold in Germany to buyers who lived in England. The goods were sent direct to America. When they reached America, they were examined and it was discovered that they were not in conformity with the contract.

The Court held that the goods could properly be rejected since America was the assumed place for inspection. The buyers right to reject the goods was not lost by reason of the fact that the goods had not been examined at the port of shipment.

d).     Duty to Deliver Right quantity

Delivery must be of the exact quantity—if it is too much or too little the buyer may reject the whole.

In Hart v Mills buyers ordered two-dozen bottles of wine. In response, the sellers sent four dozen. It was held that all the four-dozen could be returned. Although the buyer’s behaviour appeared to be unreasonable, it was consistent with the provision of the Act. However, where the delivery is greater, or less, than the amount contracted for, and the buyer accepts part of whole of the delivery, he is liable for the price at the contract rate. He cannot then claim damages afterwards. This is illustrated by:

In Gabriel, Wade and English Limited v Arcos Limited: in which there was a contract for the sale of a thousand standards, about 85% red wood and about 15% white wood. A delivery was made and accepted by the buyers in which white wood largely exceeded 15%. It was held that the buyers could not sue for damages. They could have rejected the consignment, had they so wished, but having accepted it, they could not sue for damages.

If quantities are stated as "more or less" the seller is allowed a reasonable margin. If, however, that margin is exceeded, the buyer may reject the goods. Each case has to be judged on its own merits. For example:

(i)      In Payne and Routh v Lillico and Sons a contract was made for the sale of 4,000 tons of meal within "2% or less". The sellers considerably exceeded the allowance and the buyers refused to take delivery. It was held that the buyers were entitled to refuse and the court would not make further variation in the quantity; and that where a margin is expressly limited for variation, it should be adhered to unless the difference delivered is trifling, in which case it may be disregarded.

(ii)     In McConnel v Murphy: The contract was for "all the spares manufactured by X, say about 600, averaging 16 inches". 496 of the specified kind and measurement were tendered. The tender was held good.

(iii)    In Morris v Levison: The contract was for "a full and complete cargo, say 1,100 tons". The vessel would take 1,210 tons, and only 1,080 were ordered. It was decided that, under these circumstances, this would not suffice.

(iv)    In Miller v Borner: An undertaking was to load a "cargo of ore, say about 2,080 tons, although the capacity of the ship was greater. The charterer satisfied the contract by loading 2,840 tons, although the capacity of the ship was greater. The absence of the words "full and complete" led to a result opposite to that of Morris v Levison.

(iv)        In Re Harrison and Micks Lambert: On the sale of the "remainder of a cargo (more or less) 5,400 quarters wheat", the buyers were held bound to accept 5,574 quarters, on the ground that there was a sale of the whole remainder, whatever the quantity might be; the seller's collateral estimate not affecting the meaning of the word "remainder".

Delivery by Instalments

Section 32 (1) of the Act states that unless otherwise agreed the buyer of goods is not bound to accept delivery thereof by instalments. If the contract states definitely that the goods are to be delivered by instalments, each instalment to be paid for separately, "it is a question in each case depending on the terms of the contract and the circumstances of the case" whether a breach is a breach of the contract as a whole, or whether such breach can be dealt with apart from the main contract.

Each instalment must fulfil the conditions of sale as to quality, description, etc., and the fact that the buyer has accepted previous instalments does not preclude him from rejecting a subsequent instalment which is not of the contract quality (Jackson v Rotax Motor Company (1910)).

In Maple Flock Company Limited v Universal Furniture Products (Wembley) Limited (1934) it was held that the tests to be applied to determine whether the breach is such as to give the buyer the right to regard the contract as at an end are:

(a)     The quantitative ratio which the breach bears to the whole contract; and

(b)     The degree of probability or improbability that the breach will be repeated.

In Brandt v Lawrence it was held that repudiation by the buyer cannot take place until after proper performance of the contract has become impossible. This means that if tender of part of the goods only is made, tender of that part cannot be refused because at that time the buyer does not know for certain that the balance will not be delivered.

DELIVERY

This is the voluntary transfer of possession from one person to another.  Delivery generally takes any of the following forms, namely

(a)    Physical transfer of the goods

(b)   Delivery to common carrier

(c)    Delivery of documents of title

(d)   Transfer of the means of obtaining the delivery

(e)    Delivery by attornement

RULES OF DELIVERY

(a)    The goods must be in a deliverable state

(b)   Unless otherwise agreed, the cost of putting the goods into a deliverable state is borne by the seller

(c)    Whether it is for the seller to transmit the goods to the buyer or for the buyer to take delivery thereof depends on the terms of the contract

(d)   Unless otherwise agreed the place of delivery is the sellers place of business, if any if not, his residence.

(e)    In a sale f specific goods which the parties know are in some other place, that other place is the place of delivery.

(f)    If the goods are in the hands of a third party, delivery takes place when such party notifies the buyer that he holds goods on his behalf.

(g)    If the seller is bound to transmit the goods

(h)   Delivery by common carrier is prima facie complete when the goods are handed on to the carrier.

(i)     If the seller delivers more goods than contracted the buyer is entitled to

      (i)          Reject all the goods

(ii)                 Accept those included in the contract and reject the balance or

(iii)               Accept all the goods and pay at the contract rate.

(j)     If the seller delivers less goods than contracted, the seller is entitled to:

(i)           reject all the goods or

(ii)         accept and pay at the contract rate.

(k)   If the goods delivered are mixed with goods of a different description, the buyer is entitled to

(i)      reject the goods or

(ii)         accept those included in the contract and reject the balance.

(l)     Unless otherwise agreed the buyer is not bond to accept delivery by instalments

(m) Where delivery is by instalments to be paid for separately and the seller makes one or more defective deliveries or the buyer neglects or refuses to accept and pay one or more deliveries, whether this is treated as a severable breach or a total repudiation of the contract depends on

(i)           the terms of contract

(ii)         the circumstances of the case.

(n)   if the buyer refuses to take delivery as of right he would not be bound to return the goods but must notify the seller his refusal.

DUTIES OF THE BUYER

a)      Take delivery;  Under section 2 of the Act, it is the duty of the buyer to take delivery of the goods failing which the seller may maintain an action against him for damages for non-acceptance pursuant to section 50(1) of the Act.

b)      Pay the price  Under section 28 of the Act it is the duty of the buyer to pay the price of the goods failing which the seller may maintain an action against him for the price pursuant to section 49 of the Act.

BREACH OF CONTRACT

Remedies of the parties

A buyer commits a breach of the contract of sale if he wrongfully fails to pay for the goods in accordance with the terms of the contract. In such a case, the seller is legally known as "the unpaid seller".

Section 39 defines an unpaid seller as follows:

(a)     The seller of goods is deemed to be an unpaid seller within the meaning of this Act:

(i)      When the whole of the price has not been paid or tendered.

(ii)     When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.

(b)               In this part of the Act, the term "seller" includes any person who is in the position of a seller, as for instance, an agent of the seller to whom the bill of landing has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price"

Remedies of the Unpaid Seller

Remedies of the unpaid seller are either real or personal.  Real remedies are remedies against the goods and are enforceable without judicial intervention.  Personal remedies are remedies against the buyer and enforceable through the courts.

Personal Remedies:

(a)     Action for Price

Section 49 provides that the unpaid seller has a right of action for the price of the goods:

(i)      Where the property in the goods has passed to the buyer and he refuses to pay for them according to the contract.

(ii)     If the buyer has agreed to pay for the goods on a certain day, and he wrongfully refuses to pay for them.

(b)     Action for damages

Section 50 provides that where the buyer wrongfully neglects or refuses to accept and pay for the goods (i.e. the property in the goods has not been passed to the buyer) the seller may maintain an action against him for damages for non-acceptance. The amount of damages will be the estimated loss caused by the buyer's breach of contract.

                  

Real remedies

                  

(c)     Right of Lien or retention of goods

Sections 41 to 43 give the unpaid seller who is still in possession of the goods the right of lien (i.e. the right to retain them until payment or tender of price ) in the following cases:

(i)      Where the goods have been sold on credit but the term of credit has expired.

(ii)     Where the goods have been sold without any stipulation as to credit.

(iii)    Where the buyer becomes insolvent.

The lien will be lost if the unpaid seller delivers the goods to a carrier or other bailee for transport to the buyer, without reserving the right of disposal of the goods. It will also be lost where the buyer (or his agent) lawfully obtains possession of the goods, or where the unpaid seller waives his rights.

Where part delivery has been made, the unpaid seller has a lien over the rest of the goods, provided that the part delivery already made does not amount to a waiver of the right of lien.

The lien is for the price or for the unpaid balance of price only, and not for any accidental expenses, such as storage charges.

(d)     Stoppage in transitu

Sections 44 to 46 provide that, where a buyer becomes insolvent, the unpaid seller has a right of stopping the goods "in transitu". This right is exercisable only while the goods are still in transit. If transit is at an end, the right is also at an end.

Goods are in transit from the time they are delivered to a carrier by land or water or other bailee, for the purpose of transport to the buyer, until the buyer or his agent takes delivery of them from the carrier or bailee. If the buyer obtains the goods before they reach the appointed destination the transit is at an end. The transit is also at an end when the goods reach the appointed destination and the carrier or bailee informs the buyer that he (the carrier or bailee) holds them on his (i.e. the buyer's) behalf.

Where part delivery has been made, the right of stoppage in transitu is effective over the remainder of the articles, unless the part delivery was made in such a way as to show that the seller has agreed to give up possession of the whole of the goods.

In Dixon v Baldwen it was explained that transit would be if an end of the goods have so far approached the end of their journey that they await further orders. This is illustrated by Kendall v Marshall, Stevens and Company, where the railway company which transported the goods gave notice that after a certain date they would hold the goods not as carriers but as  warehousemen. The goods were not cleared until after the expiration of the time stated, and it was held that the vendor's lien was lost on the expiration of that time.

The unpaid seller exercises his right of stoppage in transitu either by taking possession of the goods or by giving notice to the carrier or bailee that he wishes to exercise the right. The carrier or bailee must then return the goods to the unpaid seller who must pay all the expenses connected with such return.

In Verschure's Creameries v Hull and Netherlands S.S. Company it was held that if the unpaid seller gives notice of his right to the carrier, and the carrier ignores such notice, he can sue either the carrier for damages or the buyer for the price. He can do only one of these things.

Section 47 deals with any sub-sale or pledge by the buyer. It provides that, subject to the provisions of the Act, the unpaid seller's right of lien or retention or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto.

However, the unpaid seller's right of stoppage in transitu is lost if a document of title relating to the goods has been sent to the buyer and the buyer has endorsed it to another party, who takes it in good faith and for value, as in  Cahm v Pocketts Bristol Channel Steam Packet Co.

(c)     Right of Re-Sale

The seller may re-sale the goods under s.48 if the buyer does not pay for the goods, or tender their price, within the agreed or a reasonable time.

This right of re-sale is allowed in the following three cases:

(i)      Where the goods are of a perishable nature.

(ii)     Where the unpaid seller gives notice to the buyer of his intention to re-sell, and the buyer does not within a reasonable time pay or tender the price.

(iii)    Where the seller expressly reserves a right of re-sale.

If, in spite of reselling the goods, the seller still suffers a loss, he can bring an action for damages for non-acceptance, but the first buyer will be discharged from any further liability to pay the price. Where a seller resells under section 48, therefore, the first contract with the original buyer is rescinded. If the seller of the goods obtains more for them than the original contract price, he can retain the whole of the proceeds. The case of R. V. Ward v Bignall (1967) has held that this is the legal position. The resale terminates the sale and revests title in the seller for transfer to the second buyer.

Section 48 (2) states that "where an unpaid seller who has exercised his right of lien or retention or stoppage in transitu re-sells the goods, the buyer acquires a good title thereto as against the original buyer".

Right to with hold delivery of goods where the property has not passed to the buyer.

Computation of Damages

Section 50 (2) provides that the amount of damages is the estimated loss (to the seller) which is directly and naturally caused by the buyer's breach of contract. Section 50 (3) further provides that, where there is an available market for the goods, the measure of damages is the difference between the contract price and the market or current price at the time when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept.

In W. L. Thompson Limited v R. Robinson (Gunmakers) Limited (1955), X Limited agreed in writing with a company of motor agents to purchase a Standard Vanguard motor car. Later X Limited refused to accept delivery and the sellers claimed as damages for breach of contract the amount of profit which they would have obtained on the sale. At the time of the agreement the demand in the district of Standard Vanguard cars was insufficient to absorb all such models available for sale, but it was not proved that there was no available market in the wider sense of the country as a whole. It was held that in the circumstances Section 50 (3) afforded no defence to X Limited and that the vendors were entitled to the amount of profit which they had lost by the breach of contract.

The above statutory provisions in effect codify the common law rule in Hadley v Baxendale.

3.       Remedies of the buyer

(a)     Damages for non-delivery

Section 51 (1) provides that: Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.

Section 51 (2) further provides that "the measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events, from the seller's breach of contract."

S.51 (3) provides that "where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the differences between the contract price and the market or current price of the goods at the time when they ought to have been delivered, or, if no time was fixed, then at the time of the refusal to deliver."

(b)     Specific Performance

Section 52 states that "in any action for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, on the application of the plaintiff, by its judgement or decree, direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The judgement or degree may be unconditional, or upon such terms and conditions as to damages, payment of the price, and otherwise, as to the Court may seem just, and the application of the plaintiff may be made at any time before judgement or decree". This is the remedy of specific performance.

Judgements for specific performance are usually only made where the goods are unique or of some special value e.g. an article of special artistic value or of rarity.

(c)     Damages for Breach of Warranty

Section 53 provides that, where there is a breach of warranty by the seller, the buyer is not entitled to reject the goods on that account. He may, however, "set up against the seller, the breach of warranty in diminution of extinction of the price"; or he may sue the seller for damages for the breach of warranty. Here again, the measure of damages is the "estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty". If the buyer has set up breach of warranty in diminution or extinction of the price, he is not thereby prevented from maintaining an action for the same breach of warranty if he suffered further damage.

Where there is breach of warranty of quality, the measure of damages is the difference between the value of the goods at the time of delivery to the buyer, and the value they would have had if they had answered to the warranty.

(d)   Recovery of price

(e)Rejection of the goods

IMPORT AND EXPORT TRADE

A Kenyan businessman may wish to import goods from another country, or to export his goods to a buyer in another country. He may do so under one or other of the following standard contracts.

1.       F.O.B. Contracts

Under an f.o.b. (free on board) contract it is the duty of the seller to put the goods on board a ship for the purpose of their transmission to the buyer. The contract of carriage by sea has to be made by, or on behalf of, the buyer.

The cost of putting the goods on board must be borne by the seller, but once the goods cross the ship's rail they remain at the risk of the buyer. Delivery is complete when the goods are put on board the ship, but the seller should give notice of the shipment to the buyer so as to enable him to insure; if the seller fails to do this, the goods will be at his risk.

In Colley v Overseas Exporters it was explained that the property in the goods does not pass to the buyer until the goods cross the ship's rail. If, therefore, the seller is prevented from putting them on board by failure of the buyer to nominate an effective ship, i.e. a ship able and ready to carry the goods, the proper remedy of the seller is an action for damages for non-acceptance and not an action for the price.

2        C.I.F. Contacts

A c.i.f. (cost, insurance, freight) contract is a contract for the sale of goods to be performed  by the delivery of documents representing the goods, i.e. of documents giving the right to have the goods delivered, or the right, if they are lost or damaged, of recovering their value, from the shipowner, or from insurers, respectively. The duties of the seller under such a contract were explained in Clemens Horst v Biddel Brothers and are:

(i)      To ship at the port of shipment goods of the description contained in the contract.

(ii)     To procure a contract of carriage by sea, under which the goods will be delivered at the destination contemplated by the contract.

(iii)    To arrange for insurance upon the terms current in the trade which will be available for the benefit of the buyer.

(iv)    To make out an invoice for the goods

(v)     To tender, within a reasonable time after shipment, the bill of lading, the policy or certificate of insurance and the invoice to the buyer so that he may obtain delivery of the goods, if they arrive, or recover for their loss if they are lost on the voyage. The bill of lading tendered must correctly state the date of shipment, otherwise the buyer can reject the goods: Finlay v Kwik Hoo Tong.

Under a c.i.f. contract the buyer has a right to reject the documents of title if, on delivery, they show non-compliance with the terms of the contract. He also has a separate right to reject the actual goods if, when delivered, they are found not to conform to the contract. For example in Kwei Tek Chao v British Traders and Shippers Limited. B sold goods to K who were merchants, shipment to be made by October 31. The goods were shipped on November 3. The date of shipment shown on the bill of lading was forged to show a shipment in October, but B was ignorant of and not a party to the forgery. In ignorance of the forgery K paid the price and received the documents, but before the goods arrived K discovered it. K took delivery, but as the market had fallen was unable to sell the goods.

Held:

                   (a)     The bill of lading, though forged, was not a nullity as the forgery did not go to the essence of the contract;

                   (b)     K, although he had not rejected the documents, still had a right to reject the goods and could recover the difference between the contract price and the market price.

In Panchand v Establissent General Grain Company it was explained that if the buyer accepts the documents knowing that they are not in order he is stopped from later trying to reject them. In that case P sold a quantity of Brazilian yellow maize to E. The contract was c.i.f. Antwerp and provided that the shipment had to take place from Brazilian ports "during the period of June/July 1965" and that "bill of lading to be considered proof of date of shipment in the absence of evidence to the contrary". The goods were, in fact, shipped on August 11 and 12, 1965 but the bill of lading was antedated and, falsely, gave as the date of shipment July 31, 1965. However, a certificate of shipment issued by a superintendent company in Brazil stated as date of shipment August 10 to 12, 1965, and this certificate was tendered together with the bill of lading.

Held:

By taking up the documents and paying for them, the buyers were aware that the goods were shipped later than provided in the contract and were estopped from complaining of the late shipment or the defect of the bill of lading.

The duties of the buyer under a c.i.f. contract are:

1.      To pay the price, less the freight, on delivery of the documents. He cannot defer payment until after he has inspected the goods.

2.      To pay the cost of unloading, lighterage and landing at the port of destination according to the bill of lading.

3.      To pay all import duties and wharfage charges, if any.

During the voyage the goods are at the risk of the buyer, for whom the seller has insured the goods in respect of the risk. However, if the goods are lost from a peril not covered by the ordinary policy of insurance, the buyer must nevertheless pay the full price on delivery of the documents. This is illustrated by Groom Limited v Barber (1915) in which the defendants sold to the plaintiffs 100 bales of cloth in c.i.f. terms. He shipped the goods, insuring them under a policy which did not cover war risks. This was customary. The ship carrying the goods was sunk by a German warship. It was held that he was bound to pay the price on tender of the shipping documents, notwithstanding that the policy did not cover the risk by which the goods were lost.

The seller is also entitled to the price of the goods even if he knows that the goods have been lost at the time shipping documents are tendered. The buyer must accept them and pay for the goods: Mabre Company v Corn Products Company.

3.       EX-SHIP CONTRACTS

When goods are sold ex ship, the duties of the seller are-

(i)      To deliver the goods to the buyer from a ship which has arrived at the port of delivery at a place from which it is usual for goods of that kind to be delivered.

(ii)     To pay the freight or otherwise release the shipowner's lien.

(iii)    To furnish the buyer with delivery order, or some other effectual direction to the ship to deliver.

In Yangtze Insurance Association v Lukmanjee it was explained that the goods are at the seller's risk during the voyage and there is no obligation on the seller to effect insurance on the buyer's behalf.

IMPLIED CONDITIONS AND WARRANTIES

      Section 8 of the Act implies that the following terms in every hire purchase agreement:

          a)       Right to sell: A condition that the owner will have a right to sell the goods at the time when the property is to pass

          b)      Merchantability: A condition that the goods are of merchantable quality, unless the goods are second hand and the agreement contains a statement to that effect.

          c)       Fitness for particular purpose: A condition that the goods will be reasonably fit for the particular purpose for which they are required (if the hirer expressly or impliedly makes known the purpose for which he requires them).

          d)      Legal Ownership: A condition that the legal ownership of, and the title to, the goods shall automatically be vested in the hirer upon payment by him of the hire purchase price in full.

          e)       Quiet possession: A warranty that the hirer shall have and enjoy the quiet possession of the goods.

f)       Free from charge or encumbrance: A warranty that the goods shall be free from any charge or encumbrance in favour of a third party at the time the property is to pass.

No conditions shall be implied for defects which the owner could not reasonably have been aware of at the time the agreement was made neither will any conditions be implied where the hirer had examined the goods or a sample of them in respect of defects which the examination revealed or ought to have revealed.

The conditions and warranties implied above cannot be excluded by the agreement (via exclusion clauses) except for the implied condition of fitness for the particular purpose which can be excluded if the owner can show that before the agreement such exclusion clause was brought to the notice of the hirer and its effect made clear to him.