By Mercy
Maina
Section
3 of the sale of goods act, cap 31 laws of Kenya
defines a contract of 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. This definition brings six elements into the
meaning of a contract of sale of goods, namely;
a)
A seller
b) Transfer
c) Agreement
to transfer
d) Property
in goods
e) A
buyer
f)
Price
SELLER
Section
2 of the Sale of Goods Act, Cap 31 Laws of Kenya
defines a seller as a person who sells or agrees to sell goods. The Black’s law
dictionary defines a seller as one who sells anything; the party who transfers
property in the contract of sale. Section
3 of the Sale of Goods Act, cap 31 Laws of Kenya defines a contract of sale
of goods as a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer………… It therefore follows that for a contract of
sale of goods to exist there must be a seller who is transferring or agreeing
to transfer the property in the goods to a buyer. A seller can therefore be
simply defined as the person who transfers or agrees to transfer property in
goods to another under a contract of sale.
Who a seller is in a contract will
depend on the terms of the contract, in some contracts a seller maybe be
defined to include his agents, representatives, employees etc. this however
does not negate the fact that at the end of the day the seller is the entity or
person who has the responsibility to transfer the property in the goods.
To determine who a seller is in a
contract, it is therefore prudent to look into who bears the legal obligation
to transfer property in the goods. Though it may be done on his behalf by an
agent or representatives and though payment for the goods may be received by
another on his/its behalf, the seller of goods is the person who is directly
obligated to transfer property in the goods as the terms of the contract.
In the case of Geoffrey Munyua v Mombasa Centre
Complex & John Felix Kariuki [2014] eKLR, the 1st
Respondent claimed that the agreement of sale subject of this case exited
between the Appellant and the 2nd Respondent as the 1st
Respondent’s seal had not been used in execution of the contract. The court
however found from evidence tendered that the 2nd Respondent worked
for the 1st Respondent and he executed the contract on behalf of the
1st Respondent. The court found that the contract existed as between
the Appellant and the 1st Respondent as the 2nd
Respondent was merely an agent of the 1st Respondent. In reaching
this conclusion the court relied on Section
38 of the Companies Act which states that
“a document or proceeding requiring authentication by a company may be
signed by a director, secretary or other authorized officer of the company, and
need not be under its common seal.”
The general rule is that where a person
contracts as agent for a principal, the contract is the contract of the
principal and not that of the agent so that, the only person who may sue or be
sued and to whom all rights and obligations in the contract vest is the
principal and not the agent as was held in Montgomerie versus United Kingdom Mutual
Steamship Association (1891) 1QB 370.
A seller is therefore in whom the
obligation to ensure a transfer of the property to the buyer vests. All others
whether agents, representatives or employees simply act on behalf of the seller
and cannot therefore are deemed to be the seller. Similarly, even in contracts
where parties get into a contract upon the introduction of another party, the
third party falls out of the contract and the only parties existing as seller
and buyer is the supplier of the goods (seller) and the consumer (buyer).
TRANSFER
The Black’s law dictionary defines
transfer as the passing of a thing or of property from one person to another.
It is an act of the parties or of the law by which the title to property is
conveyed from one person to another.
John
Bouvier's 8th edition law dictionary of 1914 defined a
transfer as "the act by which the owner of a thing delivers it to another
person, with the intent of passing the rights which he has in it to the
latter". A mere change of possession does not amount to transfer.
Transfer is only complete when ownership
changes from one person to another. While possession is a de facto relationship in which one has the physical control over a
good or property, ownership is a de jure
relationship that denotes one’s legal control over a good. Transfer is
concerned with change of ownership.
Transfer is closely intertwined with the power of control. The question to be asked in determining transfer is, who has control over the good? The point was decided in the taxation case of Estate of Sanford v. Commissioner, 308 US 39 - Supreme Court 1939 where it was held that a gift upon trust, with power in the donor to revoke it is not taxable as a gift because the transfer is incomplete, and that the transfer whether inter vivos or at death becomes complete and taxable only when the power of control is relinquished.
Similarly, according to the court in Burnet v. Chicago Portrait Co.,
285 U.S. 1,
16, 20, a transfer is only complete when "the transferor has so parted
with dominion and control as to leave in him no power to cause the beneficial
title to be revested in himself."
Whether a transfer has been effected and
is complete is a question of control over the good. Even where a party purports
to have transferred a good to the buyer, the transfer will not be complete if
he holds power and control over the good. This is so especially in contracts
with a Retention of Title Clause, where property in the goods only vests in the
buyer upon the fulfillment of a condition such as full payment of the purchase
price. In such contracts, though possession of the goods may change hands from
the seller to the buyer, transfer is not complete when the condition is
fulfilled and the clause becomes ineffective in the contract.
As the court observed in the case of Burnett
versus Guggenheim, 288 U.S. 280, 287, the essence of a transfer is the
passage of control over the economic benefits of a good rather than technical
changes. The court in Corliss versus Bowers, 281 U.S. 376, 378
was of a similar view when it stated that “retention of control over the
disposition of the property……………..renders the transfer incomplete until the
power is relinquished……………..”
PROPERTY
Too
often the term property is used to refer to things that belong to someone. It
is common for people to refer to property as a tangible thing. But in law,
property denotes the relationship existing between a person and a thing. It is
the bundle of rights that one has over something. As was stated by the court in
Yanner
versus Eaton (1999) 201 CLR 351;
The word "property" is often used to refer to
something that belongs to another. But in the law, "property" does
not refer to a thing; it is a description of a legal relationship with a thing.
It refers to a degree of power that is recognised in law as power permissibly
exercised over the thing. The concept of "property" may be elusive.
Usually it is treated as a "bundle of rights". But even this may have
its limits as an analytical tool or accurate description, and it may be that
"the ultimate fact about property is that it does not really exist:
it is mere illusion". Considering whether, or to what extent, there can be
property in knowledge or information or property in human tissue may illustrate
some of the difficulties in deciding what is meant by "property" in a
subject matter. So too, identifying the apparent circularity of reasoning from
the availability of specific performance in protection of property rights in a
chattel to the conclusion that the rights protected are proprietary may
illustrate some of the limits to the use of "property" as an
analytical tool. No doubt the examples could be multiplied.
Property consists primarily in
control over access. Much of our false thinking about property stems from the
residual perception that 'property' is itself a thing or resource rather than a
legally endorsed concentration of power over things and resources. There is a
huge difference between property and possession. One of the property interests
that one may have is ownership, it consist of legal rights that one has over a
thing, possession on the other hand denotes physical control over a thing.
Possession is often times controlled and limited by ownership.
"Property" is a term that
can be, and is, applied to many different kinds of relationship with a subject
matter. It is not "a monolithic notion of standard content and invariable
intensity". That is why, in the context of a testator's will,
"property" has been said to be "the most comprehensive of all
the terms which can be used, inasmuch as it is indicative and descriptive of
every possible interest which the party can have".
Because "property" is a
comprehensive term it can be used to describe all or any of very many different
kinds of relationship between a person and a subject matter. To say that person
A has property in item B invites the question what is the interest that A has
in B? The statement that A has property in B will usually provoke further
questions of classification. Is the interest real or personal? Is the item
tangible or intangible? Is the interest legal or equitable?
“Ownership" connotes a legal
right to have and to dispose of possession and enjoyment of the subject matter.
As Holmes J said in Missouri v Holland “possession is the beginning of
ownership." Property is most often understood to mean ownership as
ownership is the most exclusive property right one can have. As was observed by
the court in Manrell versus Canada (2003) FCA 128, "It
is implicit in this notion of property that property must have or entail some
exclusive right to make a claim against someone else. A general right to do
something that anyone can do, or a right that belongs to everyone, is not the
property of anyone."
Property comprises legal relations
not things, and those sets of legal relations need not be absolute or fixed. In Yanner versus Eaton (1999) 201 CLR
351 Hohfeld
said this of "property”:
"Sometimes it is employed to indicate the physical
object to which various legal rights, privileges, etc., relate; then again -
with far greater discrimination and accuracy - the word is used to denote the
legal interest (or aggregate of legal relations) appertaining to such physical
object. Frequently there is a rapid and fallacious shift from the one meaning
to the other. At times, also, the term is used in such a 'blended' sense as to
convey no definite meaning whatever."
While property entails legal right that
can one have over property, it does not include any and every right that one
can have. As was stated in Vaillancourt
v. Deputy M.N.R., [1991] 3 F.C.
663 (C.A.), property has a very
broad meaning but it is not a word of infinite meaning. Consider the
case of a person who is injured in a car accident caused by the negligence of
another person. The injured person has the right, possibly a valuable right, to
claim damages against the negligent person. Suppose that claim is released in
consideration of the payment of a sum of money. One could say that the right to
claim damages was disposed of. But no one would accept the argument that the
payment is the proceeds of disposition of capital property.
Possession is an element of property
that one has over a good, though it is limited. It is a de facto relationship; it denotes physical control over a good and
not legal right over it. Possession can easily be defeated by a claim of a de jure relationship. Ownership is a de jure relationship. It entails legal
rights that one has over property, it is the most exclusive legal right that
one can have over a thing. That is why ‘property’ is commonly taken to mean ‘ownership’.
Ownership gives one the right to deal
with the good as he so wishes in exclusion of all others. The principles of
ownership include;
·
Control over the use of the good
·
Right to take any benefit from the good
·
Right to transfer or sell the good
·
Right to exclude others
In a contract, the rights that one gets
over a good depend on the agreement between the parties and the terms of the
contract. While for example, a sale of goods contract is intended to eventually
transfer property absolutely to the buyer, Retention of Title Clause may reduce
the right that the buyer gets to merely possessory until a certain condition be
fulfilled.
Section 3 of the Sale of Goods Act,
defines a contract of sale of goods as contract where a party agrees to
transfer the property in goods to a buyer. This implies that a contract of sale
does not entail transfer of possession but deals in transfer of ownership. If the
end goal of an agreement is not to transfer the ownership of the goods to the
buyer, this cannot be described as a contract for sale of goods.
BUYER
A buyer is a person who buys or agrees
to buy goods. To buy is simply to agree to have the property in a good
transferred to you pursuant to a contract. In determining who a buyer is in a
contract, regard must be had to the terms of the contract. The terms of the
contract should show the intention of the parties as to who was meant to supply
goods (seller) and who was meant to receive supply of those goods (buyer).
In the case of John Nderebe Kahuthia t/a
Kirurumo Filling Station v Jaribu Farmers Co-operative Society Ltd [2016]
eKLR the court observed that a
contract can only exist between the supplier and the consumer. Payment may be
made by the consumer or another third party on behalf of the consumer but that
cannot be implied as giving rise to a contract between the supplier and the
third party. The contract will still be between the supplier and the consumer.
In the case of John Nderebe Kahuthia t/a
Kirurumo Filling Station v Jaribu Farmers Co-operative Society Ltd [2016] eKLR the issue of who a buyer was in a
contract arose out of an agreement which was evidenced by a letter which read
in part;
“Please
issue fuel worth 3,500/= daily to Jaribu Farmers Co-operative Society.
They have been contracted by NKCC to transport milk for Passenga Scheme and
Siranga Scheme. Payments will be made monthly by themselves on payment of
their milk transport dues.
Yours
faithfully
For
New KCC LTD
The Respondents denied the existence of
the contract claiming that the contract existed between the appellant as the
seller and NKCC as the buyer. The court held that as per the wording of the
letter, the supplier of fuel was the Appellant while the consumer was the
Respondents. In that regard the court concluded that the Respondent was the
buyer.
In determining who a buyer is,
the court will give regard to the wording of a contract. As was stated in Jiwaji
& Others -vs- Jiwaji & Another (1968) EA 547:
“---
where there is no ambiguity in an agreement it must be construed according to
the clear words actually used by the parties, and it would be wrong to adopt a
different construction or to imply a term to contrary effect. --- I think I am
not entitled to put into the instrument something which I did not find there in
order.”
Therefore, who a buyer is in a contract will largely depend on the
intention of the parties as expressed in the terms of their agreement. The easy
and quick way to discover who a buyer is in a contract is to evaluate who is
receiving the goods. Even if the goods are received on his behalf by a third
party or payment made by a third party on his behalf. The buyer will still be
the person who the parties intended to supply the goods to.
PRICE
Section
3 of the Sale of Goods Act defines a contract of sale of
goods as one where property is transferred for a money consideration called the
price. Consideration is anything of value promised to another in exchange of
what the other is providing when making a contract. I use the word promised because though Section 29 of the Sale of Goods Act
provides that delivery and payment are concurrent conditions, in that 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 possession of the goods; the two do not have to happen at
the same and their happening does not affect the time of passing of property. Section 19 of the Sale of Goods Act provides
that where there is a sale of ascertained goods, property passes at such time
as the parties intend it to pass. It therefore follows that consideration is anything
of value promised to be given, and the time of giving it depends on the
intention of parties.
A sale of goods contract is characterized
by a money consideration. It should be money. It has to have an economic value
though it need not be ‘adequate’, and it has to move from the buyer to the
seller.
The question then is; what is money?
The Black’s Law Dictionary defines money as a
generic term that embraces every description of coin or bank-notes recognized
by common consent as a representative of value in effecting exchanges of
property or payment of debts. It goes ahead to quote the case of Hopson
versus Fountain 5 Humph Tenn 140
in which the court stated “Money is used in a specific and also in a general
and more comprehensive sense. In its specific sense, it means what is coined or
stamped by public authority, and has its determinate value fixed by
governments. In its more comprehensive and general sense, it means wealth.”
The court in Moss v Hancock ([1899]
2 QB 111, England), in defining money sated;
"Money ... (is) that which
passes freely from hand to hand throughout the community in final discharge of debts
and full payment for commodities, being accepted equally without reference to
the character or credit of the person who offers it and without the intention
of the person who receives it to consume it or apply it to any other use than
in turn to tender it to others in discharge of debts or payment of
commodities."
Similarly, the court in
Re Alberta Statutes ([1938] SCR 100)
defined money as
"Any
medium which by practice fulfills the function of money and which everyone will
accept as payment of a debt is money in the ordinary sense of the word even
though it may not be legal tender."
If the parties to a contract have not
fixed a price, their agreement cannot fall under the sale of goods. The consideration
is a sum of money combined with another thing; it will still be good
consideration. As was held in Chappall & Co. versus Nestle Co Ltd
(1960) money plus chocolate wrappers would amount to good consideration
because part of the consideration was in the form of money.
Objects other than money will not form a
good consideration and a contract based on consideration of any kind other than
money will not be enforceable in court. An example is the case of Bret v
JS & Wife (1600) Cro Eliz
756 where the court held that
good consideration in law did not include natural affection.
Consider also the case of White v
Bluett (1853) 23 LJ Ex 36, where
a father lent a son money and told the son that if he stopped complaining about
how the father wanted to distribute his property, then he did not need to
refund the money. The son pleaded in court that “not complaining” was good
consideration and he therefore did not have an obligation to refund the money,
the court held;
“The
plea is clearly bad. …………….the father said, if you will promise me not to
complain, I will give up the note. If such a plea as this could be supported,
the following would be a binding promise: A man might complain that another
person used the public highway more than he ought to do, and that other might
say, do not complain, and I will give you five pounds. It is ridiculous to
suppose that such promises could be binding…………….. In reality, there was no
consideration whatever. The son had no right to complain, for the father might
make what distribution of his property he liked; and the son's abstaining from
doing what he had no right to do can be no consideration.”
