Buying and selling goods is the most common contract there is. The law has a statute for it, the Sale of Goods Act 1893. The key questions it answers are: what counts as goods, what must the seller promise about them, and, above all, when does the ownership pass from seller to buyer?
That last question decides who bears the loss if the goods are destroyed, who can claim the goods if the seller goes bankrupt, and whether a buyer from a thief gets good title. Examiners ask for the classes of goods, the implied terms, the rules on passing of property and the exceptions to the rule that only an owner can pass title.
This topic covers the nature of a contract of sale and its difference from other contracts, the elements of the contract, the classes of goods, the implied conditions and warranties, the difference between property and possession, the five rules on when property passes, reservation of the right of disposal, the risk, and the transfer of title with its exceptions.
The performance of the contract and the rights of seller and buyer are in the next topic.
In 30 seconds
Section 1 of the Sale of Goods Act defines a contract of sale as a contract in which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. A sale transfers property at once, and an agreement to sell transfers it later or on a condition. Goods are all chattels personal other than choses in action and money (section 62).
They are existing, future, specific (ascertained) or unascertained. The seller impliedly promises title, correspondence with description and sample, satisfactory (merchantable) quality and fitness for purpose. Property means ownership and may pass apart from possession. For specific goods in a deliverable state under an unconditional contract, property passes when the contract is made (rule 1). Risk goes with property unless otherwise agreed.
Only the owner can pass good title (nemo dat quod non habet), with seven exceptions: market overt, voidable title, estoppel, seller in possession, buyer in possession, mercantile agent, and statutory or common law powers.
The contract of sale of goods
The main law is the Sale of Goods Act 1893, a statute of general application. It applies only in states that have not enacted their own sale of goods laws. But many states have enacted laws in substantial conformity with it, and the syllabus cites the 1893 Act for convenience. Common law rules apply as well.
Section 1 defines the contract as one “whereby the seller transfers or agrees to transfer the property in goods to the buyer for a monetary consideration called the price”. In addition to the usual elements of a valid contract, there must be goods and a money price. There must be both an agreement to sell and a sale.
- A sale is a contract in which the property in the goods passes from seller to buyer for a money price. A sale cannot be by barter.
- Where the transfer of property is to take place at a future time or subject to conditions, it is an agreement to sell. When the time passes or the conditions are met, the agreement becomes a sale.
- The seller must, at the time of sale, have good title to sell, expressly or impliedly.
November 2020 Section A asked what a contract of sale in which property passes immediately and unconditionally is, and the answer was an outright sale. November 2016 asked what price is called.
Goods
Section 62 defines goods as “all chattels personal other than choses in action and money”. They include things attached to or forming part of land that, under the agreement, will be severed before sale or under the contract of sale. This was asked in November 2015 and November 2016.
Classes of goods
May 2016 asked for three classes (3 marks), and May 2021 asked the examiners to classify a subject matter and explain the significance (2 + 3 marks).
| Class | Meaning |
|---|---|
| Existing goods | Owned by the seller and in his possession at the time of the contract |
| Future goods | To be manufactured or acquired by the seller after the contract is formed |
| Specific (ascertained) goods | Identified and agreed upon at the time of the contract (section 62) |
| Unascertained goods | Not identified and agreed upon at the time of the contract |
The significance of the classification is that it decides when property passes and so who bears the risk, and it is relevant at the time of the contract. Property in unascertained goods cannot pass until they are ascertained.
Sale compared with other contracts
| Contract | Difference from a sale |
|---|---|
| Hire purchase | The two resemble each other only in the end result. In a sale, property is transferred on the sale. In hire purchase, there is no transfer of property until the last instalment is paid and the hirer exercises his option to purchase. On default the agreement ends and the property reverts to the owner |
| Pledge | Delivery of goods to secure a debt. There is no absolute transfer of property |
| Bailment | A mere transfer of possession, whereas a sale transfers possession and property. The bailee must redeliver the goods as the bailor directs |
| Mortgage | A transfer of property to secure a debt, and the property is redeemable on payment. A sale permanently transfers property |
Elements of the contract
- A contract between the parties, which may be oral, in writing, or partly written and partly oral.
- A price fixed, or left to be fixed in a manner the parties agree.
- Capacity to contract. The rules on infants, drunken and insane persons apply.
- Conditions and warranties as parts of the contract. A condition is a fundamental term going to the root of the contract and entitles the aggrieved party to rescind it. A warranty entitles him to damages only, or in the case of goods to reject them and treat the contract as repudiated. Conditions and warranties may be implied or express, and whether a term is one or the other depends on the construction of the contract.
Implied terms
Express terms are stated by the parties. The Act implies the following into contracts of sale and agreements to sell. May 2017 asked which conditions are implied where goods are sold by sample (3 marks).
| Term | Implied condition or warranty |
|---|---|
| Title (s.12) | Condition: in a sale, the seller has a right to sell, and in an agreement to sell he will have the right when property is to pass. Warranties: the goods are free from any charge or encumbrance not disclosed to or known by the buyer before the contract, and the buyer will enjoy quiet possession |
| Description | Where goods are sold by description, they must correspond with the description. If sold by sample and by description, they must correspond with both |
| Sample | (i) The bulk will correspond with the sample and the buyer has a reasonable opportunity to compare them; and (ii) the goods are free from any defect that would not be apparent on reasonable examination of the sample |
| Quality | Where the seller sells in the course of business, the goods are of satisfactory quality and fit for the intended purpose, which has two parts: merchantable quality and fitness for purpose |
| Merchantable quality | The goods must be of good quality. The condition does not apply where the defects could have been found by the buyer’s examination |
| Fitness for purpose | Where the buyer makes known the purpose and trusts the seller’s skill or judgment, the seller must ensure the goods fit the purpose. Reliance need not be total or exclusive, but must be substantial and effective |
The goods must also not have perished or been destroyed at the time of the agreement to sell or of the sale. The Act also prescribes customs and usages that must be complied with. A deviation is a breach of an implied condition or warranty.
The maxim caveat emptor, “let the buyer beware”, was tested in March/July 2020, and it expresses the old rule that the buyer takes the risk of defects, which the implied terms now limit.
Property and possession
In a contract of sale, property in the goods, which means ownership or title, passes to the buyer by virtue of the contract, with no need for an instrument of transfer. Possession is, as a general rule, physical control or custody of the goods. The transfer of property does not depend on the transfer of possession, so one person may have possession while another has property. November 2023 asked for an explanation of property and possession (2 marks).
When property passes
The Act lays down rules that depend on whether the goods are unascertained or specific.
- Unascertained goods. Property does not pass until the goods are ascertained. If something must be done before delivery, property does not pass until the goods are ascertained and that thing is done.
- Specific goods. Property passes when the parties intend it to pass, expressly or impliedly. If they have not said, the following rules apply.
| Rule | Facts | Property passes |
|---|---|---|
| 1 | An unconditional contract for the sale of specific goods in a deliverable state | When the contract is made, irrespective of the time of payment or delivery |
| 2 | Specific goods, and the seller must do something to put them in a deliverable state | When the thing is done and the buyer has notice |
| 3 | Specific goods in a deliverable state, but the seller must weigh, measure or test them | When the act is done and the buyer has notice |
| 4 | Goods delivered on approval or sale or return | (a) When the buyer signifies approval or does something adopting the transaction; or (b) if he keeps the goods beyond a fixed or reasonable time without giving notice of rejection |
| 5 | Unascertained or future goods sold by description | When goods of that description in a deliverable state are unconditionally appropriated to the contract by either party with the other’s assent, express or implied. A seller who delivers to the buyer or a carrier without reserving a right of disposal is deemed to have appropriated them |
November 2022 asked for the rules where no intention of the parties appears (6 marks), and the examiners expected these five rules.
Reservation of the right of disposal
In a contract for specific goods, or on appropriation of unascertained goods, the seller may reserve the right of disposal until stated conditions are met. Then, even after delivery to the buyer or a carrier, property does not pass until the conditions are satisfied. The seller is deemed to reserve it where:
- he ships goods and the bill of lading makes them deliverable to the seller’s order or his agent; or
- he sends the buyer a bill of exchange for the price together with the bill of lading for acceptance. The buyer, if he does not accept the bill of exchange, must return the bill of lading.
Consequences of sale: risk
When the sale is complete, all rights and liabilities in the goods pass to the buyer as owner, so benefits and losses accrue to him. Unless otherwise agreed, the risk of loss or damage is borne by the seller until ownership passes to the buyer.
If delivery is delayed by the fault of either party, the risk is on the party at fault for loss that would not have occurred but for the fault. In short, risk follows property.
Transfer of title and its exceptions
As a general rule, only the owner of goods, or a person acting with his authority or consent, can give good title. A seller with no title, or a defective title, who acts without the true owner’s authority can pass only the same defective interest. This is the rule nemo dat quod non habet, “you cannot give what you do not have”.
The exceptions were asked in March/July 2020 (four, 6 marks), November 2020 (five, 5 marks), May 2022 (six, 6 marks) and May 2024.
| Exception | Rule |
|---|---|
| 1. Market overt | Goods sold in a market according to the usage of the market give the buyer good title, though the seller neither owns nor has authority to sell. The buyer must act in good faith without notice of the defect. If the goods were stolen, they revert to the owner if the thief is prosecuted and convicted |
| 2. Sale under a voidable title | Where the seller’s title is voidable (gained by fraud, misrepresentation or fundamental mistake), the buyer gets good title if he buys in good faith without notice of the defect. If the title is void, he gets none |
| 3. Estoppel | A sale by a person who is neither owner nor authorised can still give good title to a bona fide buyer if the true owner, by words or conduct, led the buyer to believe that the seller was the owner or had authority |
| 4. Seller in possession | A seller who keeps the goods or documents of title after selling them, and sells, pledges or otherwise disposes of them to a person who takes in good faith without notice of the earlier sale, gives a valid title |
| 5. Buyer in possession | A buyer who has bought or agreed to buy, and obtains possession of goods or documents, and delivers or disposes of them to another who takes in good faith without notice of the original seller’s rights, gives good title |
| 6. Mercantile agent | A mercantile agent who disposes, in the ordinary course of business, of goods or documents of title entrusted to him, to a bona fide third party for value, gives a valid disposition, even without the principal’s authority |
| 7. Statutory and common law powers | A pledgee may sell the pledged goods. A sheriff may sell goods seized under a court order and pass valid title. (The examiners’ lists also add sale under special government power and a court’s power.) |
Working through the rules
Which rule on passing of property?
| Facts | Rule | Property passes |
|---|---|---|
| A buyer agrees to buy a particular used car, ready for collection, with payment in a month | 1 | When the contract is made |
| A buyer agrees to buy a particular generator, which the seller must first repair | 2 | When repaired and the buyer is told |
| A buyer agrees to buy a particular bag of rice, which the seller must weigh | 3 | When weighed and the buyer is told |
| A shop sends a sofa to a customer on approval for a week | 4 | When he approves, or keeps it beyond the time without rejecting |
| A buyer orders 500 bags from a stock of 5,000 | 5 | When 500 bags are unconditionally appropriated to the contract |
Who bears the loss?
| Facts | Result |
|---|---|
| Specific goods, unconditional contract, deliverable state. The goods are destroyed after the contract but before delivery, without anyone’s fault | Property had passed, so the buyer bears the loss and must pay |
| Unascertained goods destroyed before they are appropriated | Property had not passed, so the seller bears the loss |
| Delivery was delayed by the seller’s fault and the goods perished | The seller bears the loss |
Does the buyer get good title?
| Facts | Result |
|---|---|
| A buys a phone from a thief in an open market in good faith | Good title under market overt, unless the thief is later convicted |
| A obtains goods from S by fraud, and sells to B who knows nothing of it | B gets good title (voidable title) |
| A thief sells stolen goods privately to B | B gets no title. Nemo dat |
| A sells goods to B but keeps them, and then sells them to C, who knows nothing of B | C gets good title (seller in possession) |
| A shopkeeper tells B that his neighbour’s generator is his, and B buys it from the neighbour in good faith | Estoppel may confer title on B |
Worked problems
Problem 1: Christopher and Uche
Scenario. Christopher and Uche signed a sale agreement for 20 cartons of tomato puree identified in Christopher’s showroom. Uche collected them in his truck, which fell into a ditch before reaching his store, and the goods were destroyed. Uche refuses to pay, saying the goods did not reach him. Advise.
- The goods. Specific (ascertained) goods, because they were identified and agreed upon at the time of the contract.
- Property. The contract was unconditional and the goods were in a deliverable state, so under rule 1 property passed when the contract was made.
- Risk. Risk follows property. Property had passed to Uche, so he bears the loss.
- Advice. Christopher may sue Uche for the price.
Problem 2: the stolen generator
Scenario. Tola buys a generator from a stranger, Sam, for a good price. It turns out Sam stole it from Bimbo. Bimbo wants it back. Advise Tola.
- The rule. Only the owner can pass good title (nemo dat). A thief has no title.
- The exceptions. If Tola bought in an open market, in good faith, under the usage of the market, market overt may give him good title, though the goods revert to Bimbo if Sam is convicted. If he did not, none of the exceptions applies.
- Advice. Unless market overt applies, Bimbo may recover the generator, and Tola may sue Sam for breach of the implied condition as to title.
Problem 3: the goods on approval
Scenario. A shop delivers a television to a customer on seven days’ approval. The customer neither approves nor rejects it and keeps it for three weeks. A thief then steals it. Who bears the loss?
- The rule. Under rule 4, property passes if the buyer keeps the goods beyond a fixed or reasonable time without giving notice of rejection.
- The application. After seven days, property passed to the customer.
- Advice. The customer bears the loss and must pay the price.
Problem 4: sale by sample
Scenario. A buyer orders 200 bags of cement by sample. The bulk is of poorer quality than the sample. What may he say?
- The implied conditions. The bulk will correspond with the sample, the buyer may compare them, and the goods are free from defects not apparent on reasonable examination of the sample.
- Advice. There is a breach of an implied condition, so the buyer may reject the goods and refuse to pay, or claim damages.
Questions that have been asked on this topic, and how to answer them
| Question theme | What a full answer contains |
|---|---|
| Meaning of goods (November 2015 Q6(c); November 2016 Q5(c)) | All chattels personal other than choses in action and money |
| Classes of goods (May 2016 Q6; May 2021 Q5(a)) | Existing, future, specific, unascertained, and why the classification matters |
| Conditions implied in a sale by sample (May 2017 Q5(d), 3 marks) | Bulk matches sample, opportunity to compare, no hidden defect |
| Christopher and Uche (November 2021 Q5(a)) | Worked problem 1 |
| When ownership passes (November 2022 Q6(c), 6 marks) | The intention of the parties, and then rules 1 to 5 |
| Property and possession (November 2023 Q3(b)(i)) | Property is ownership and possession is physical control, and they can be separated |
| Exceptions to the rule that only the owner can pass title (March/July 2020 Q4(b); November 2020 Q4(c); May 2022 Q2(c); May 2024 Q6(a)) | Four to six of the seven exceptions, each stated |
| Section A items | An outright sale; price; caveat emptor (buyer beware) |
Common mistakes in the exam
- Confusing a sale with an agreement to sell. A sale transfers property now.
- Saying a sale can be by barter. It needs a money price.
- Saying property passes on delivery or on payment. For specific goods in a deliverable state under an unconditional contract, it passes when the contract is made.
- Saying property can pass in unascertained goods before ascertainment.
- Mixing up who bears the risk. It follows property.
- Forgetting that title and possession are different.
- Saying a buyer from a thief always gets good title. Only the seven exceptions give it.
- Calling “market overt” a sale in any shop. It is a sale in a market according to its usage.
- Naming warranties as conditions. Title to sell is a condition, while freedom from encumbrance and quiet possession are warranties.
Quick revision
- Sale of goods: seller transfers property for a money price. Sale versus agreement to sell. Goods: chattels personal except choses in action and money.
- Classes: existing, future, specific, unascertained. Implied terms: title, description, sample, quality, fitness.
- Property and possession are different. Five rules on passing of property. Right of disposal reserved by bill of lading or bill of exchange. Risk follows property.
- Nemo dat. Exceptions: market overt, voidable title, estoppel, seller in possession, buyer in possession, mercantile agent, statutory and common law powers.
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Section A style: multiple choice
Question 1. A contract of sale of goods in which property passes immediately and unconditionally is:
- An outright sale
- An agreement to sell
- A hire purchase
- A bailment
Show the answer
A. An agreement to sell passes property later or on a condition.
Question 2. Which is NOT goods under the Sale of Goods Act?
- A bag of rice
- A house
- A carving
- A bag of tomatoes
Show the answer
B. Land is not a chattel personal.
Question 3. Goods to be manufactured by the seller after the contract is made are:
- Existing goods
- Future goods
- Specific goods
- Stolen goods
Show the answer
B. Property in them passes when they are ascertained and appropriated.
Question 4. The Latin maxim meaning “you cannot give what you do not have” is:
- Caveat emptor
- Nemo dat quod non habet
- Volenti non fit injuria
- Ultra vires
Show the answer
B. Caveat emptor means “buyer beware”.
Question 5. Under rule 1, property in specific goods in a deliverable state under an unconditional contract passes:
- On delivery
- On payment
- When the contract is made
- When the goods are weighed
Show the answer
C. Whatever the time of payment or delivery.
Question 6. The risk of loss is borne, unless otherwise agreed, by:
- The carrier
- The party who has the property
- The auctioneer
- The insurer
Show the answer
B. Risk follows property.
Question 7. In a sale by sample, which condition is implied?
- The bulk corresponds with the sample
- The price is lowered
- The seller is a bank
- The buyer pays in advance
Show the answer
A. And the goods have no defect that is not apparent from reasonable examination of the sample.
Question 8. Which is an exception to the nemo dat rule?
- Sale in market overt
- Sale by a thief in private
- Sale at a loss
- Sale of land
Show the answer
A. Subject to good faith and no notice of the defect.
Question 9. A seller who ships goods under a bill of lading deliverable to his own order is deemed to have:
- Passed property
- Reserved the right of disposal
- Waived the price
- Lost his lien
Show the answer
B. Property does not pass until the conditions are met.
Question 10. Property in goods means:
- Physical custody
- Ownership
- A lien
- A charge
Show the answer
B. Possession is physical control.
Section B style: written questions
Question 11 (10 marks). (a) Define a contract of sale of goods. (2 marks) (b) State the four classes of goods and explain why the classification matters. (4 marks) (c) State the implied conditions where goods are sold by sample. (4 marks)
Question 12 (10 marks). (a) State the rules on when property passes in specific goods. (6 marks) (b) Explain how the right of disposal may be reserved. (4 marks)
Question 13 (20 marks). Ada contracts to buy a particular second-hand car from Sade for ₦4,000,000, payable in a month. The car is in a deliverable state. It is destroyed in a flood the next day. Sade had earlier stolen the car’s log from Bola, from whom he obtained the car by fraud, and he sold it to Ada, who did not know.
(a) Advise who bears the loss of the flood. (5 marks) (b) Explain whether Ada has good title. (6 marks) (c) State the exceptions to the nemo dat rule. (7 marks) (d) Distinguish sale from hire purchase. (2 marks)
Model answers
Show the model answer to Question 11
(a) Definition. Section 1 defines a contract of sale of goods as a contract in which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.
(b) Classes. Existing goods, owned by the seller and in his possession at the time of the contract; future goods, to be made or acquired after the contract; specific (ascertained) goods, identified and agreed at the time of the contract; and unascertained goods, not identified at that time. The classification matters because it decides when property passes and so who bears the risk. Property in unascertained goods cannot pass until they are ascertained.
(c) Sample. The bulk will correspond with the sample and the buyer will have a reasonable opportunity to compare them; and the goods will be free from any defect that would not be apparent on reasonable examination of the sample.
Show the model answer to Question 12
(a) Rules. Property passes when the parties intend.
Otherwise: rule 1, in an unconditional contract for specific goods in a deliverable state, property passes when the contract is made; rule 2, where the seller must put the goods in a deliverable state, when he does so and the buyer has notice; rule 3, where the seller must weigh, measure or test them, when he does and the buyer has notice; rule 4, for goods on approval or sale or return, when the buyer approves or adopts, or keeps them beyond a fixed or reasonable time without rejecting; and rule 5, for unascertained or future goods by description, when goods in a deliverable state are unconditionally appropriated to the contract with the other party’s assent.
(b) Right of disposal. The seller may reserve it in the contract or on appropriation, and then property does not pass until his conditions are met, even after delivery.
He is deemed to reserve it where goods are shipped under a bill of lading deliverable to his order or his agent, or where he sends the buyer a bill of exchange with the bill of lading and the buyer, if he does not accept the bill of exchange, must return the bill of lading.
Show the model answer to Question 13
(a) The loss. The car is specific goods in a deliverable state and the contract was unconditional, so under rule 1 property passed to Ada when the contract was made. Risk follows property, so Ada bears the loss and must pay.
(b) Title. Only the owner can pass good title. Sade obtained the car from Bola by fraud, so his title was voidable and not void. Where the seller has a voidable title, the buyer who buys in good faith without notice of the defect acquires good title, unless Bola has avoided the contract before the sale. Ada did not know, so she has good title.
(c) Exceptions. Sale in market overt; sale under a voidable title; estoppel; sale by a seller in possession; sale by a buyer in possession; sale by a mercantile agent; and sale under common law or statutory powers, such as a pledgee or a sheriff selling under a court order.
(d) Sale and hire purchase. In a sale property passes on the sale. In hire purchase, there is no transfer of property until the last instalment is paid and the hirer exercises his option to purchase.
Pathfinder on the sale of goods and passing of property
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
The meaning of goods under the Sale of Goods Act. Revise goods.
Revise first: Goods
Three classes of goods, and classification with its significance. Revise the classes of goods.
Revise first: Goods
Conditions implied where goods are sold by sample. Revise implied terms.
Revise first: Implied terms
Christopher and Uche: the kind of goods, who bears the loss, and the seller’s rights. Revise worked problem 1.
Revise first: Worked problems
When ownership passes where no intention appears, and property versus possession. Revise passing of property.
Revise first: Property and possession
Exceptions to the rule that only the owner of goods can pass title. Revise transfer of title.
Revise first: Transfer of title and its exceptions
An outright sale, price, and caveat emptor. Revise the contract of sale.
Revise first: The contract of sale of goods
Source: ICAN Pathfinder, Corporate and Business Law. Diets covered: November Diet, 2014 to May Diet, 2024.
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