THE SALE OF GOODS ACT- SUMMARY NOTES, MAY 2021
The law relating to the sale of goods is contained in the Sale of Goods Act (Cap.
31). This Act is mainly based on English Sales of Goods Act of 1893. At the same
time, the general rules of contract law apply to contracts for the sale of goods.
Definition
Section 3(1) of the Act defines a contract for the 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.
The essential characteristics of a contract of sale of goods are as follows:
1. There must be two distinct parties to a contract of sale, viz, a buyer and a seller.
2. There must be a transfer of property. Property here means ‘ownership’. A seller
must either transfer or agree to transfer the property in goods to the buyer.
3. The subject-matter of the contract of sale must be goods. ‘Goods’ includes 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. It means every
kind of movable property, other than actionable claims and money, is referred to as
goods.
4. The consideration for a contract of sale must be money. The consideration is
called the price. If goods are sold or exchanged for other goods, the transaction is
barter and not sale of goods.
5. There term “contract of sale” includes both a sale and an ‘agreement to sell’.
Distinction between Sale and Agreement to Sell
Section 3(4) of Act provides that:
Where under a contract of sale the property in the goods is transferred from the
seller to the buyer, the contract is called a sale: but, where the transfer of the
property in the goods is to take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called an agreement to sell.
,The following are the main points of distinction between a ‘sale’ and ‘an
agreement to sell’.
1. Transfer of property (ownership)
In a ‘sale’ the property in goods passes to the buyer immediately at the time of
making the contract. In other words, a sale implies immediate conveyance of
property so that the seller ceases to be the owner of the goods and the buyer
becomes the owner thereof.
In ‘an agreement to sell’ there is no transfer of property to the buyer at the time of
the contract. The conveyance of property takes place later so that the seller
continues to be the owner until the agreement to sell becomes a sale either by the
expiry of certain time or the fulfillment of some condition.
2. Risk of loss
The general rule is that unless agreed, the risk of loss prima facie passes with
property. Thus, in case of sale, if the goods are destroyed, the loss falls on the
buyer even though the goods may never have come into his possession because the
property in the goods has already passed to the buyer. On the other hand, in case of
an agreement to sell where the ownership in the goods is yet to pass from the seller
to the buyer, such loss has to be borne by the seller even though the goods are in
the possession of the buyer.
3. Consequences of breach
In case of sale, if the buyer wrongfully neglects or refuses to pay the price of the
goods, the seller can sue for the price, even though the goods are still in his
possession. In case of an agreement to sell, if the buyer fails to accept and pay for
the goods, the seller can only sue for damages and not for the price, even though
the goods are in the possession of buyer.
4. Right of resale
In a sale, the property is with the buyer and as such the seller (in possession of
goods after sale) cannot resell the goods. If he does so, the subsequent buyer
having knowledge of the previous sale does not acquire a title to the goods.
,In an agreement to sell, the property in the goods remains with the seller and as
such he can dispose of the goods as he likes and the original buyer can sue him for
the breach of contract only. In this case, the subsequent buyer gets a good title to
the goods irrespective of his knowledge of previous sale.
5. Insolvency of buyer before he pays for the goods
In a sale, if the buyer is adjudged insolvent before he pays for the goods, the seller,
in the absence of a ‘right of lien’ over the goods, must deliver the goods to the
Official Receiver or Assignee. The seller is entitled only to a ratable dividend for
the price of the goods. But in an agreement to sell, in these circumstances, the
seller may refuse to deliver the goods to the Official Receiver or Assignee unless
paid for as ownership has not passed to the buyer.
6. Insolvency of seller if the buyer has already paid the price
In a sale, if the seller is adjudged insolvent, the buyer is entitled to recover the
goods from the Official Receiver or Assignee, as the property in the goods rests
with the buyer. On the other hand, in an agreement to sell, if the buyer has already
paid the price and the seller is adjudged insolvent, the buyer can only claim a
rateable dividend. (as creditor) and not the goods because property in them still
rests with the seller.
Distinction between Sale and Contract for Work and Material
A distinction has to be made between a contract of sale and contract for work and
material. The Sale of Goods Act does not apply to contracts for work and material.
When property in the goods is intended to be transferred and goods are ultimately
to be the buyer’s, it is a contract of sale even though some labour on the part of the
seller of the goods may be necessary. Where, however, the essence of the contract
is rendering of service and exercise of skill and no goods are delivered as such, it is
a contract of work and material and not of sale.
Illustrations
a) A dentist agreed to make a set of false teeth for a lady and fit it into her mouth.
Held: it is a contract for the sale of goods (Lee v. Griffin7).
, b) An order for making and fixing curtains in a house is a contract of sale of goods,
though it involves some work and labour in fixing the same (Love v. Norman
Wright (Builders) Ltd1).
c) G engaged an artist to paint a portrait and supplied the necessary canvas and
paint. Held: it is a contract for work and labour as the substance of the contract is
the application of the skill and labour in the production of the portrait (Robinson v.
Graves2). If the canvas and paint are also to be supplied by the painter, it will
become a contract of sale of goods.
The distinction between a sale and a contract for work and material is important
due to the following two reasons:
1. A contract for work and material does not require to be in writing
2. The implied conditions and warranties under the Sale of Goods Act do not apply
to contracts of work and material.
Capacity to Buy and Sell
Section 4 of the Act deals with the capacity to buy and sell. Under this section, the
capacity to buy and sell is governed by the general law concerning capacity to
contract and to transfer and acquire property. Infants and persons of unsound mind
must pay a reasonable price for necessaries and not necessarily the agreed price.
Necessaries are defined by section 4(2) as “goods suitable to the condition in life
of such or minor or other person, and to his actual requirements at the time of sale
and delivery”.
Form of Contract
Section 5 of the Act states that a contract of sale may be made in writing (either
with or without seal) or by word of mouth, or partly in writing and partly by word
of mouth, or may be implied by the conduct of parties. Under section 6 of the Act,
a contract for the sale of any goods of the value of two hundred shillings or
upwards shall not be enforceable by action unless the buyer accepts part of the
goods so sold, and actually receives them, or gives something in earnest to bind the
1
(1944) 1 All E.R. 618
2
[1935] Vol. 1 KB P 579
The law relating to the sale of goods is contained in the Sale of Goods Act (Cap.
31). This Act is mainly based on English Sales of Goods Act of 1893. At the same
time, the general rules of contract law apply to contracts for the sale of goods.
Definition
Section 3(1) of the Act defines a contract for the 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.
The essential characteristics of a contract of sale of goods are as follows:
1. There must be two distinct parties to a contract of sale, viz, a buyer and a seller.
2. There must be a transfer of property. Property here means ‘ownership’. A seller
must either transfer or agree to transfer the property in goods to the buyer.
3. The subject-matter of the contract of sale must be goods. ‘Goods’ includes 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. It means every
kind of movable property, other than actionable claims and money, is referred to as
goods.
4. The consideration for a contract of sale must be money. The consideration is
called the price. If goods are sold or exchanged for other goods, the transaction is
barter and not sale of goods.
5. There term “contract of sale” includes both a sale and an ‘agreement to sell’.
Distinction between Sale and Agreement to Sell
Section 3(4) of Act provides that:
Where under a contract of sale the property in the goods is transferred from the
seller to the buyer, the contract is called a sale: but, where the transfer of the
property in the goods is to take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called an agreement to sell.
,The following are the main points of distinction between a ‘sale’ and ‘an
agreement to sell’.
1. Transfer of property (ownership)
In a ‘sale’ the property in goods passes to the buyer immediately at the time of
making the contract. In other words, a sale implies immediate conveyance of
property so that the seller ceases to be the owner of the goods and the buyer
becomes the owner thereof.
In ‘an agreement to sell’ there is no transfer of property to the buyer at the time of
the contract. The conveyance of property takes place later so that the seller
continues to be the owner until the agreement to sell becomes a sale either by the
expiry of certain time or the fulfillment of some condition.
2. Risk of loss
The general rule is that unless agreed, the risk of loss prima facie passes with
property. Thus, in case of sale, if the goods are destroyed, the loss falls on the
buyer even though the goods may never have come into his possession because the
property in the goods has already passed to the buyer. On the other hand, in case of
an agreement to sell where the ownership in the goods is yet to pass from the seller
to the buyer, such loss has to be borne by the seller even though the goods are in
the possession of the buyer.
3. Consequences of breach
In case of sale, if the buyer wrongfully neglects or refuses to pay the price of the
goods, the seller can sue for the price, even though the goods are still in his
possession. In case of an agreement to sell, if the buyer fails to accept and pay for
the goods, the seller can only sue for damages and not for the price, even though
the goods are in the possession of buyer.
4. Right of resale
In a sale, the property is with the buyer and as such the seller (in possession of
goods after sale) cannot resell the goods. If he does so, the subsequent buyer
having knowledge of the previous sale does not acquire a title to the goods.
,In an agreement to sell, the property in the goods remains with the seller and as
such he can dispose of the goods as he likes and the original buyer can sue him for
the breach of contract only. In this case, the subsequent buyer gets a good title to
the goods irrespective of his knowledge of previous sale.
5. Insolvency of buyer before he pays for the goods
In a sale, if the buyer is adjudged insolvent before he pays for the goods, the seller,
in the absence of a ‘right of lien’ over the goods, must deliver the goods to the
Official Receiver or Assignee. The seller is entitled only to a ratable dividend for
the price of the goods. But in an agreement to sell, in these circumstances, the
seller may refuse to deliver the goods to the Official Receiver or Assignee unless
paid for as ownership has not passed to the buyer.
6. Insolvency of seller if the buyer has already paid the price
In a sale, if the seller is adjudged insolvent, the buyer is entitled to recover the
goods from the Official Receiver or Assignee, as the property in the goods rests
with the buyer. On the other hand, in an agreement to sell, if the buyer has already
paid the price and the seller is adjudged insolvent, the buyer can only claim a
rateable dividend. (as creditor) and not the goods because property in them still
rests with the seller.
Distinction between Sale and Contract for Work and Material
A distinction has to be made between a contract of sale and contract for work and
material. The Sale of Goods Act does not apply to contracts for work and material.
When property in the goods is intended to be transferred and goods are ultimately
to be the buyer’s, it is a contract of sale even though some labour on the part of the
seller of the goods may be necessary. Where, however, the essence of the contract
is rendering of service and exercise of skill and no goods are delivered as such, it is
a contract of work and material and not of sale.
Illustrations
a) A dentist agreed to make a set of false teeth for a lady and fit it into her mouth.
Held: it is a contract for the sale of goods (Lee v. Griffin7).
, b) An order for making and fixing curtains in a house is a contract of sale of goods,
though it involves some work and labour in fixing the same (Love v. Norman
Wright (Builders) Ltd1).
c) G engaged an artist to paint a portrait and supplied the necessary canvas and
paint. Held: it is a contract for work and labour as the substance of the contract is
the application of the skill and labour in the production of the portrait (Robinson v.
Graves2). If the canvas and paint are also to be supplied by the painter, it will
become a contract of sale of goods.
The distinction between a sale and a contract for work and material is important
due to the following two reasons:
1. A contract for work and material does not require to be in writing
2. The implied conditions and warranties under the Sale of Goods Act do not apply
to contracts of work and material.
Capacity to Buy and Sell
Section 4 of the Act deals with the capacity to buy and sell. Under this section, the
capacity to buy and sell is governed by the general law concerning capacity to
contract and to transfer and acquire property. Infants and persons of unsound mind
must pay a reasonable price for necessaries and not necessarily the agreed price.
Necessaries are defined by section 4(2) as “goods suitable to the condition in life
of such or minor or other person, and to his actual requirements at the time of sale
and delivery”.
Form of Contract
Section 5 of the Act states that a contract of sale may be made in writing (either
with or without seal) or by word of mouth, or partly in writing and partly by word
of mouth, or may be implied by the conduct of parties. Under section 6 of the Act,
a contract for the sale of any goods of the value of two hundred shillings or
upwards shall not be enforceable by action unless the buyer accepts part of the
goods so sold, and actually receives them, or gives something in earnest to bind the
1
(1944) 1 All E.R. 618
2
[1935] Vol. 1 KB P 579
