USIU

BUS 3010 A & D

SALE OF GOODS LAW

THE SALE OF GOODS LAW

Sale of goods law in Kenya is largely based on the English Common Law and the English
Sale of Goods Act of 1893. The latter statute was substantially re-enacted as the Sale of
Goods Act, Chapter 31 of the Laws of Kenya in 1931. In addition to these sources, the
English Factors Act of 1889 also applies to contracts for the sale of goods. The provisions
of Section 59(2) of the Kenyan Act are quite clear in applying the general rules of
contract law to sale of goods.
A contract for the sale of goods is defined in Section 3(1) of the Act as a contract
whereby the seller transfers or agrees to transfer the property in the goods to the buyer for
a money consideration called the price. This contract of sale is different from other
contracts such as exchange, bailment, hire-purchase, loan on the security of the goods,
skill and labour, labour and materials, and a contract of agency. Because of the
requirement that in a contract of sale, property be transferred from one party to another,
there must be clear and separate parties to such a contract. Apart from sales by auction
which are specifically regulated by the Act, the formation of contract is governed by the
common law rules of offer, acceptance, consideration and capacity.

The formalities of a contract of sale are governed by Section 5 which provides that the
contract may be in writing, oral or partly oral and partly in writing, or it may be implied
from the conduct of the parties. It should be noted however that by virtue of the
provisions of Section 6(1), contracts for the sale of goods of the value of more than two
hundred shillings must be evidenced in writing in order to be enforceable.

The subject-matter of the contract is goods which are defined in Section 2(1) as all
chattels personal other than things in action and money, and all emblements, industrial
growing crops and things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale. Goods therefore include all tangible and
moveable property except money. The goods may be owned or possessed by the seller or
he may intend to acquire them after the contract of sale or they may be goods to be
manufactured in the future,
The consideration given by the buyer for the transfer of property in the goods is the price
which must be expressed in monetary terms or else the contract will be one of exchange
or barter and not for the sale of goods. Under Section 10(1) of the Act, the price may be
fixed by the contract itself, or by valuation of a third party and where it is not so fixed a
reasonable price is payable.

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The term property is not very well defined by the Act. Section 2(1) defines property as
the general property in the goods and not merely special property. This may seem to
signify title or ownership. Such ownership is a collection of rights to use and enjoy
including the right to transmit or give this right to others. It therefore includes the right to
possession, enjoyment and disposal of the property in the goods Property in the goods is
said to pass to the buyer when he acquires proprietary rights over them. Many rights and
obligations of the parties are linked with the passing of property.

Basically four effects follow from the passing of property between buyer

Firstly, unless otherwise agreed the risk of accidental loss or damage to the goods passes
with the passing of property. Secondly, when the property in specific goods has passed
from the seller to the buyer, the buyer can no longer reject them for breach of condition
but can only sue in damages. Thirdly, the seller is generally not entitled to sue for the
price unless the property has become the property of the buyer. Finally, if the seller is a
company, the buyer will generally have a good title against the liquidator in the event of
the company being wound up while the goods are still in its possession.

Rules relating to the transfer of property in the goods

The exact moment at which property becomes possession depends on whether the goods
are specific, ascertained or unascertained. If the goods are specific or ascertained property
passes to the buyer at the time when the parties intend it to pass. Such intention is to be
seen from the terms of the contract, the conduct of the parties and the surrounding
circumstances of the case. If the intention of the parties cannot be seen from the contract,
the four rules contained in Section 20 of the Actare applied.
The first rule states that where there is an unconditional contract for the sale of specific
goods in a deliverable state, the property passes to the buyer when the contract is made.

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Goods are in a deliverable state within the meaning of the |Act when they are in such a
state that the buyer could be bound under the contract to take delivery of them.

Secondly, where there is a contract for the sale of goods that are not in a deliverable state,
the property does not pass until the goods are put into a deliverable state.

Thirdly, 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 particular
action is taken and the buyer has notice thereof.

Fourthly, when goods are delivered to the buyer on approval or on sale or return terms,
the property passes therein to the buyer first when he signifies his approval or acceptance
to the seller, or does any other act adopting the transaction or, secondly, if he retains the
goods without giving notice of rejection beyond the time fixed for their return, or if no
time is fixed, beyond a reasonable time.

The last rule deals with the passing of property in unascertained goods. Property in
unascertained goods does not pass until the goods are ascertained. The property in
unascertained or future goods sold by description passes to the buyer when the 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 the assent of the
seller. When the seller delivers the goods to the buyer without the buyer reserving the
right of disposal, he is said to have unconditionally appropriated the goods to the buyer.

Transfer of Title by a Non-Owner

The purpose of law is to ensure that the buyer obtains such property him as will enable
him to exercise all the of the Act entitled Transfer of Title deals o right to the goods may
still pass simply put means, that no one can possesses. The principle demonstrates the by

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law to private property. However it is statutory and common law exceptions which
illustrates of circulation and distribution of goods and the purchaser for value who buys
in good faith, defective title. Examples of such situations to a third party who buys in
good faith and or where a person having sold goods but still has them in them to a third
party.

The law therefore, in such situations seeks to balance the interests of al owner of the
goods and the third party who purchases the goods ,good faith and without notice that the
apparent seller cannot pass a good title in the goods. Certain exceptions to the Nemo Dat
have therefore been developed in order to facilitate commercial

The estoppel doctrine

The estoppel doctrine is embodied in Section 23(1). In other words, unless the owner of
the goods is by his conduct precluded from denying the seller's authority to sell. Under
common law there are two situations under which an owner may be prevented from
denying the seller's authority to sell.

First, where he has by his words or conduct represented to the buyer that the seller is the
true owner or has the owner's authority to sell. This is termed estoppel by representation.
Secondly, where the owner by his negligent failure to act allows the seller to appear as
the owner or as having the owner's authority to sell. This is termed as estoppel by
negligence. In these two situations the seller passes a good title to a bona.fide purchaser.

Sale by mercantile agent

This is found under section 2 of the Factors Act 1889 of England. Although this particular
exception was not directly incorporated in the Kenyan Sale of Goods Act, in the Kenyan
case of Kapadia v.Laxmidas, the Factors Act was indirectly held to be a statute of general
application to Kenya.

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Under that Act a mercantile agent who sells the goods in his possession with the consent
of the owner in the ordinary course of his business, to a buyer who takes in good faith
and for value without notice that the sale was made without the owner's authority passes a
good title.

Sale under special power to sell

Section 23(2) (b) of the Act provides that nothing in the Act shall affect the validity of
any contract of sale under any special common law or statutory power of sale or under
the order of a court of competent jurisdiction.

Common law powers of sale may be exercised by pledges of goods or documents of title,
agents acting with apparent authority to sell goods, agents of necessity, auctioneers and
executors and administrators of estates acting in their representative capacity. The
statutory powers of sale include the unpaid seller's right to resell the goods under the Act,
the mortgagees power of sale of mortgaged property under the Indian Transfer of
Property Act, the landlord's power to sell property seized from the tenant in distress for
rent under the Distress for Rent Act, the trustee in bankruptcy's power to sell a bankrupt's
property under the Bankruptcy Act and the liquidators power to sell a company's assets
under the Companies Act.

Finally an order of a court of competent jurisdiction to sell property can be executed by a

court broker. In all these situations a good title passes to the purchaser.

Sale under a voidable title

Section 24 is concerned with a sale under a voidable title. It states that when the seller of
goods has a voidable title thereto but his title has not been avoided at the time of the sale,
the buyer acquires a good title to the goods, provided he buys them in good faith and
without notice of the seller's defect in title. This section declares the general rule that a

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party cannot avoid a voidable contract once third party rights have been acquired. The
third party will be protected if he buys before the original contract has been avoided.

Sale by buyer in possession

The fifth exception is the seller in possession exception contained in Section 26(1) which
provides that where a seller after having sold the goods continues to be in possession of
the goods or documents of title to the goods and again sells or pledges the same goods
either by himself or through a mercantile agent to a person who buys in good faith, he
passes a good title to the second buyer provided the physical possession of the goods was
continuous after having sold the goods and property in them having passed to the buyer .

Sale by buyer in possession

Section 26(2) provides that where a buyer having bought or agreed to buy goods obtains
possession or title of the goods with the consent of. the seller, sells or pledges them either
himself or through a mercantile agent to a person who buys in good faith without notice
of any lien or other rights of the original seller in respect of the goods, he passes a good
title to the goods.

Sale in market overt

Finally, it should be noted that one of the oldest exceptions to the principle of nemo dat is
the sale in market overt which is still incorporated in Section 22 of the English Sale of
Goods Act 1893 to the effect that where goods are sold in market overt, that is, an open,
public market according to the usage of the market, the buyer acquires a good 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. This particular exception is not included in the Kenyan Sale
of goods Act.

The Duties of the Seller and Buyer in a Contract Sale

The duties of the Seller

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Seller under no duty to ensure goods are in existence
The first duty of the seller is in essence a negative duty in the sense that there is no
implied condition on the part of the seller that the goods are in existence at the time the
contract is made as per Sections 8 and 9 of the Act.
Duty to pass a good title
Secondly, as per section 14(a) is the duty of the seller to pass a good title. That means that
in a contract of sale, unless the circumstances of the contract are such as to show a
different intention, there is an implied condition on the part of the seller that in the case of
a sale, he has a right to sell the goods and that in the case of an agreement to sell, he will
have a right to sell the goods at the time when the property is to pass. If the seller is in
breach of this condition the buyer may repudiate the contract and or sue for damages and
recover interest or special damages.
In addition Section 14(b) and (c) imply two warranties on the part of the seller; first, the
implied warranty that the buyer shall have and enjoy quiet possession of the goods, and
secondly, that the goods shall be free from any charge or encumbrance in favour of any
third party not declared or known to the buyer before or at the time when the contract is
made.

Duty to deliver the goods

Thirdly, it is the duty of the seller to deliver the goods as per sections 28 and 30 of the
Act. Under section 29 payment and delivery are conditions that must be met at the same
time. However there, is no general rule requiring the seller to send off the goods to the
buyer. Section 30(1) has two effects. First it presumes that in a contract of sale of specific
goods, the place of delivery is the place where the goods are at the time of making the
contract. Secondly, in all other cases, the place of delivery is the seller's place of business
and if he does not have business premises, then it is the place where he lives. This
therefore means that it is actually the duty of the buyer to collect the goods and not the
seller to send them provided the latter has put the goods in a deliverable state.

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Duty to supply goods in the right quantity
Fourthly, a duty is cast on the seller to supply goods of the right quantity according to
Section 31. In the absence of a different agreement where seller delivers less than the
quantity contracted, the buyer can either reject the goods or pay for them at the contract
rate. Where the seller delivers more than the contracted quantity the buyer can accept the
quantity contracted for and reject the rest or he may accept or reject the whole. If he
accepts the whole of the goods delivered then he must pay for them at the contract rate. If
the seller delivers goods mixed with others of a different description not included in the
contract, the buyer may accept only those goods conforming with the contract and reject
the rest or he may reject the whole.

Duty to supply goods of the right quality: doctrine of caveat emptor

The last duty on the part of the seller relates to the supply of goods of the right quality. In
this connection the applicable doctrine is that of caveat emptor or let the buyer beware.

Here, in the absence of fraud or express agreement by the seller, he is not liable to the
buyer should the goods lack the quality or character expected of them by the buyer. At
common law, there existed no obligation on the part of the seller to ensure that the goods
were of the right quality. This doctrine is embodied in Section 16 of the Act but there are
certain statutory exceptions to the caveat emptor doctrine.

First, under Section 15 where there is a sale of goods by description, there is an implied
condition that the goods shall be the same as the description both where the buyer has not
seen the goods but relies on a description of them or has actually seen the goods.

Secondly, under Section 6(a) the buyer expressly or by implication makes known to the
seller the particular purpose for which the goods are bought, there is an implied condition
that the goods are reasonably fit for the purpose. However if the goods are sold under

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their patent or other trade name, there is no implied condition as to their fitness for any
particular purpose.

Thirdly, under Section 16(b) where the seller sells goods in the course of a business there
is an implied condition that the goods are of merchantable quality provided that where the
buyer has examined the goods, there is no implied condition as regards defects which
such examination ought to have revealed.

Fourthly, under Sections 15 and 17 is the implied condition in sales by sample. In a sale
by sample, the bulk must correspond with the sample in quality, the buyer must have a
reasonable opportunity of comparing the bulk with the sample and the goods must be free
from any defect rendering them unmerchantable which a reasonable examination of the
sample would not reveal.

Finally, under Section 16(c) where the transaction is connected with a particular trade, the
customs and usages of that trade must be considered as part of the background against
which the parties contracted.
Despite these exceptions to the caveat emptor principle section 55 is to the effect that the
parties may contract out of these implied conditions. This then champions caveat emptor
and freedom of contract subject only to the application of the doctrine of fundamental
breach.

The Duties of the Buyer

Basically the buyer has two duties.

First, is the duty to pay the price of the goods he has bought. He is not entitled to claim
possession of the goods unless he is willing to pay the price. This can be found in
Sections 12, 28, 29 and 48(3) of the Act. Secondly, is the duty to take delivery as seen
from Sections 29,31,37,38 and 48(3) of the Act.

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The general rule is that it is for the buyer to take delivery of the goods from the seller's
business premises and not for the seller to send the goods to the buyer. The buyer's duty
to take delivery at a particular time is not of essence to the contract. Thus the buyer's
failure to take delivery of the goods at the agreed time does not entitle the seller to
dispose of them to a third party except in cases of a contract for the sale of goods of a
perishable nature that can go bad such as fruits and vegetables. In the latter case the
buyer's default in taking delivery at the right time justifies the seller in reselling the goods
immediately.

REMEDIES IN SALE OF GOODS

THE REMEDIES OF THE SELLER

There are two types of remedies of the seller, that is, the remedies against the goods
themselves and secondly, the personal remedies for breach of contract by the buyer.

Real remedies
Real remedies are remedies against the goods and are termed as the rights of the unpaid
seller. The seller of the goods is deemed to be unpaid when whole of the price has not
been paid or a bill of exchange or negotiable instrument such as a cheque is dishonoured.
Remedies are categorised as three namely; the unpaid seller's lien (sections 40(1 )(a),
41,42 and 43), the right of stoppage in transit (sections 40(l)(b),44,45 and 46) and the
right of resale contained (sections 40(l)(c),47 and 48). These three rights are made
available to the unpaid seller notwithstanding that property in the goods has passed to the
buyer.

The unpaid seller’s lien

The unpaid seller's lien is the retention of specific goods for the payment of the price,
hence, is exercised in respect of a particular debt. The purpose of the lien is to enforce

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payment and protect the seller from manufacturing or acquiring goods payment for which
remains in doubt. Several conditions must be fulfilled before the exercise of a lien; the
seller must be unpaid, must be in actual or constructive possession of the goods and
should not be entitled to a lien, if the goods have been sold on credit except where the
credit terms have expired and where the buyer becomes insolvent. The right of lien is lost
in four ways.

i. If the price is paid or tendered;

ii. If the goods are delivered to a carrier, bailee or custodian for transmission to the
buyer without reservation of the seller's right of disposal,
iii. Upon the lawful obtaining of the goods by a buyer or his agent
iv. By the waiver of such rights.

Stoppage in transit

The second real remedy is the seller's right of stoppage in transit which is available
whether or not property in the goods has been transferred to the buyer. This is
available where the seller is unpaid, the goods are in transit, and the buyer is
insolvent. The right is lost once the transit terminates or ceases hence the seller can
only sue in contract. The effects of the exercise of a lien or stoppage in transit are
stated in Section 48 as follows :

i. The contract of sale is not rescinded,

ii. Where the unpaid seller who has exercised his right of lien or stoppage in
transit resells the goods he passes a good title,
iii. In the case of goods of a perishable nature or where notice to resell has been
given to the buyer, the seller can resell and recover damages for any loss
occasioned by the breach of contract;

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 iv. Where the seller has reserved the right of resale upon the buyer's default in
payment and the buyer makes such default and the seller resells, the contract
is rescinded subject to the recovery of damages

The Right of Re-sale

The third real remedy of the seller is the right of resale of the goods

i. where the seller has in the original contract of sale expressly reserved the right
to resell the goods in the event of the original buyer’s default;
ii. If the goods are of a perishable nature
iii. Where the seller gives notice to the buyer of Ms intention to resell and the
buyer fails within reasonable time thereafter to pay the
iv. Where the buyer repudiates his obligations under the contract or commits a
fundamental breach, then the seller is entitled at common law to terminate the
contract and deal with the goods as their owner.

The other remedies of the seller are the personal remedies namely; an action for the price
of goods sold under Section 49 and secondly, an action for damages for non acceptance
of the goods under Section 50 of the Act. An action for the price may be brought where
the buyer is in default of paying the price and either the property must have passed to the
buyer or the price must have been due on a certain day irrespective of delivery. To be
entitled to sue for the price, the contract must be continuing in force and where the goods
have not been delivered to the buyer on the continuing ability and willingness of the
seller to deliver them.

The action for damages arises in two situations namely,

i. Where property has not passed and the buyer refuses to accept; and

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 ii. As an alternative remedy where property has passed but the buyer neglects to take
delivery. Damages for breach of contract are a compensation to the non-defaulting
party for the damage, loss or injury sustained as a result of the breach.

The Buyer’s Remedies

The buyer's remedies may be listed as follows.

i. Damages for non-delivery of goods which arises when the seller wrongfully
neglects or refuses to deliver the goods to the buyer. The measure of damages is
the estimated loss naturally resulting from the breach of contract, which is prima
facie, when there is an available market for the goods, the difference between the
contract price and market price at the time when the goods ought to have been
delivered, if no time for delivery was fixed from the time of the refusal to deliver.
ii. The buyer can reject the goods for breach of a condition which was to be
performed by the seller.
iii. Where the goods are specific or ascertained, the buyer may have a right of
specific performance of the contract where damages are a n inadequate remedy.
The buyer has a right of action for damages for breach of a condition
iv. Where the buyer has paid the price, he can recover it for failure of consideration
as in cases where the seller has no title to the goods or where the buyer validly
rejects the goods
v. The buyer can sue the seller or third parties in the tort of conversion or detinue
where he is entitled to possession of the goods and the seller foils to surrender
possession or transfers it to a third party.

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