WHAT IS CONSIDERATION IN A SALE OF GOODS CONTRACT?

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.”

LEGAL DEFINITION OF 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."

PROPERTY IN SALE OF GOODS CONTRACT

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 m2ay 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 comprised 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."

The absolute property that one can have in a good is 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

Possession is also a form 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.

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.

LEGAL MEANING OF TRANSFER OF GOODS

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……………..”