CHAPTER FOUR: LAW OF SALES – A SPECIAL CONTRACT

As it is known, members of the society do not produce all kinds of goods that they consume and
they do not provide all the services they need in their daily activities. A given society produces
some goods and obtains the rest from the market through trade or other forms of exchange. In
primitive society, people used to barter one kind of goods for another. However, with the
emergence of modern money, people began exchanging goods by using money as medium of
transaction. As a result, exchange goods and services through the medium of money started. To
facilitate the transaction, set of rules regulating these types of agreements emerged. These
agreements are contracts of sale and the rules regulating them are Law of sales.

Law of sales is a branch of business law that regulates the relationship between the buyer and seller
of goods. It is a collection of rules pertaining to the formation, performance and breach of contract
of sale. It also regulates the effects of failure to perform in accordance with contract of sale.
Principally, the subject matter of sale is goods which are generally things such as chair, desk,
electricity and etc. which can be appropriated by human beings. The price of goods is also an
important subject of law of sales. The parties must define the subject of their dealings with
precision. The parties to the contract of sale must specify the price of the thing sold. If the parties
do not determine the price of the thing or if the price of the thing is not determinable, there is no
contract of sale.

Functions of law of sales

Law of sales has role, which aims at shaping the social interaction in certain area of contractual
relationship. That function is generally encouraging contractual behavior of sales contract to be in
a way it conforms to public policy. It also provides gap filling provisions in case the contracting
parties fail to agree on all the terms of the contract. There are some elements of contract of sale
that are important for the performance of such contract but not for the validity of it and if parties
fail to agree on these points the law of sales fills the gap, which might result from an imperfect
nature of a contract, by providing default provisions that determine how the issue has to be dealt
with. Such issues include time and manner of delivery and what to deliver, the place of delivery
and the specific time of delivery or similar issues.
Law of sales, therefore, governs and helps the movement of goods from the original maker to the
final user to fulfill the needs of the society by facilitating exchange of goods and services. The
movement of goods from the original maker to the ultimate user through the marketing process is
done by an agreement between parties, which is contract of sales, and such contract is governed
by the law of sales.

Sales contract can be generally defined as a "contract whereby one person who is called the seller,
obligates himself to transfer to another the ownership of a thing, while the other party who is the
buyer, obligates himself to pay to him its value in money". This definition seems to give the idea
of modern sale.

In Ethiopia, Article 2266 of the Civil Code defines sales contract as follows:

A contract of sale is a contract whereby one of the parties, the seller, undertakes to deliver
a thing and transfer its ownership to another party, the buyer, in consideration of a price
expressed in money which the buyer undertakes to pay him.

The essential characteristics of sales contract lies in the obligation of the seller to deliver and
transfer ownership and in the obligation of the buyer to pay a price. The elements of the definition
of contract of sale shows that contract of sale has certain peculiar characteristics different from the
general definition of contract under Article 1675. The elements of definition under Article 2266
are:

Contract of sale is a special kind of contract. Since it is a contract, the parties should comply with
the essential conditions for the validity of contracts in general (Art. 1768). Therefore, parties
should be capable before the law; they must have given their consent freely without influence of
mistake, duress from anybody or any other ground that vitiates their consent, the objective of their
contract should be sufficiently defined, possible, lawful and moral, and the parties have to conform
to any form provided by the law or any form they agreed to follow when entering into the contract.

The Thing: the definitional provision also puts “things” as an essential element of sale. The subject
matter of contract of sale must be things and this requirement make sales a special contract. What
we sale or buy should always be goods and this doesn’t include “immovable goods.” Things can
be corporeal chattels that have physical existence which can move from place to place or can be
moved by human beings like desks, computers, cattle, horse etc. or incorporeal chattels that have
no physical existence but have economic benefits to its owner like copy rights and patents or
electricity. Nevertheless, the contract of sale of special immovable is subject to other rules and
they do not fall under rules of law of sales as movable objects.

Two Parties: there must be two distinct parties to a contract of sale, as a person cannot buy his
own goods. But this does not mean that the parties to the contract of sale are only two individuals.
Two persons are the minimum requirement. These two distinct parties are the buyer and the seller.
The seller is the person who assumes the obligation to deliver a thing while the buyer is the person
who assumes the obligation to pay money as a price. The requirement of two persons is also there
under Art. 1675 that defines general contract. However, what makes a contract of sale a special
contract is the fact that it tell us who the parties are in addition to putting requirement of at least
two persons. They are always buyer and seller.

Delivery and Transfer of ownership: the owner of the thing, the seller, must agree with the other
person, the buyer, to deliver and transfer ownership of the thing. A mere agreement to transfer
possession cannot be termed as a contract of sale. The seller must transfer or agree to transfer
ownership so that contract of sale is concluded. This is also is an important element of contract of
sales and makes it special contract.

The Price: in addition to the requirement of goods, consideration expressed in terms of money is
also an essential element of the definition. The consideration that a seller receives in contract of
sales must be money it is called price. The apparent uniqueness of sales contract from the general
contract is the presence of consideration, which requires exchange of some benefit by both parties
as its element. Thus, a contract of sale must involve consideration in return for transfer of
ownership and one party must take obligation to pay price in terms of money. Consideration
normally means reciprocal obligation of the parties assumed in the contract. This requirement
excludes bartering transactions (exchange of gods for goods) from the coverage of contract of sale
and application of law of sales as well.

Generally, a close reading of Art. 2266 of the Civil Code, which defines contract of sale, indicates
that all elements of the definition put a requirement that the definition of general contract under
Art. 1675 of the Civil Code does not provide as essential requirement. Accordingly, a contract of
sale is a special contract. It should, however, always be remembered that since contract of sale is
“a contract”, it should fulfill definitional elements of general contract (1675) and validity
requirements (1678) of general contracts.

Obligations of Parties to Contract of Sale

Obligations of the Seller

The seller assumes certain obligations under the contract of sales. These obligations are: the
obligation to deliver the thing, the obligation to transfer ownership, the obligation to warrant the
buyer against dispossession, defects and non-conformity to the contract and other obligations.
Failure to perform these obligation amounts to non-performance and may bring liability upon the
seller.

1. Obligation to deliver the thing sold: The characteristic obligation of the seller is to deliver the
thing sold. Delivery generally refers to transfer of possession willingly. Delivery takes place in
accordance with the contract and if parties have not agreed, in accordance with the default rules of
the law. It consists of handing over in not only the principal subject of the contract but also its
accessories. The thing to be delivered shall be the agreed thing in quantity and type. Art. 2274 of
the civil code says “Delivery consists in the handing over of a thing and its accessories in
accordance with the contract.” The obligation of the seller to deliver the thing includes the
obligation to deliver the agreed amount as well as the obligation to deliver the thing at an agreed
time and place. If the parties fail to agree, it will be delivered in accordance law. The laws that
apply only when parties fail to agree on specific issue are called “default rules.”

Modes of Delivery: Delivery can be conducted in different modes. These modes of delivery can
be actual delivery, constructive delivery, and symbolic delivery. Different legal systems may apply
different modes of delivery and modes of transfer of ownership.

A. Actual delivery is the physical handing over of the thing directly to the buyer or his
representative. It is the most frequently used mode of delivery. The party to whom delivery is
made takes the actual control over the thing by receiving it from the hands of the person making
delivery.
B. Constructive delivery does not involve physical handing over of the thing to the buyer. It is
employed when the thing is (1) already in possession of the buyer; (2) when the thing is to remain
in possession of the seller after the contract of sale or (3) where the things is in the possession of
the third party and the buyer decided to keep the thing with that third party. For example, X has
hired his horse to Y and Y is using the horse and driving a cart with it. If X agrees to sell this horse
to W and W decides to keep the horse with Y, there is constructive delivery made by X. In Ethiopian
law, Article 1145 of the Civil Code shows the possibility of transfer of possession by constructive
delivery although the seller can be holder.

Sometimes delivery when the buyer is in possession of the thing to be sold there is no need of
undertaking actual handing over of the thing. The seller points out the buyer where the thing is and
makes it ready to be taken. The buyer can take the thing whenever he/she pleases. In this situation,
the seller only identifies the thing and show the buyer who can simply take delivery.

In some other cases, the thing sold may already be in the possession of the buyer. In such case, the
conclusion of the contract by itself is understood as delivery of the thing. Delivery was effected
when the buyer become in actual control of the thing before the conclusion of the contract and
there is no further requirement for delivery. This avoids unnecessary repeated retaking back of the
thing which has been in the hand of the buyer and sold to the buyer. It is indeed impractical to give
subject of sale, which has been in the hands of the buyer, to the seller and re-take it.

C. Symbolic delivery is similar to constructive delivery in that it does not involve the physical
handing over of the thing sold. But it is different from constructive delivery as it involves the
physical handing over of other things that represent the things sold. For example, if the seller gives
the key of the store to the buyer, he makes symbolic delivery. Similarly, giving bill of lading, with
which the goods can be cleared/received from a port, to the buyer is a symbolic delivery.

Quantity to be delivered: The seller has to deliver the agreed quantity of things. If the seller
delivers in excess or in short of the agreed amount, there is non-performance of contract. The buyer
may accept or reject the things delivered at his discretion. If the buyer accepts the quantity that is
less than the agreed amount, he has to pay the agreed price for quantity delivered; but he cannot
require additional delivery. In case of excess quantity, the buyer has to pay a contractual price of
the quantity delivered and needs to understand that he is exposing himself to additional price
charge by receiving excess amount.

Time and Place of delivery: The seller cannot deliver the thing whenever and wherever he likes.
He must observe the provisions of the law and that of the contract. The seller should deliver the
thing sold at agreed time. Failure to deliver at such time amounts to non-performance of the
contract. However, the parties may fail to specify the time of delivery and when this occurs the
case is governed by gap filling provision of the law. The law says the seller shall deliver the thing
as soon as the buyer requires him to do so. (Article 2276) As soon as the seller requires means that
delivery of the thing shall be simultaneous with the payment of the price unless there is agreement
to deliver at other time. If the parties agreed on the time of payment of the price, but fail to specify
time of delivery, the seller should deliver at the time of payment of the price.

Where the parties have agreed that delivery shall take place during a given period, it shall be for
the seller to fix the exact date of delivery unless it appears from the circumstances that it is for the
buyer to do so. Regarding this, Article 2277 provides: “Where the parties have agreed that delivery
shall take place during a given period, it shall be for the seller to fix the exact date of delivery
unless it appears from the circumstances that it is for the buyer to do so.” For example, if the seller
agreed to deliver the thing sold between July14 and August 16, he has the right to make delivery
at any time during this period. But the buyer determines the exact date where the circumstances of
the case may give a power to determine the exact date of delivery to the buyer. For example, if Y
agrees to deliver a cake for wedding ceremony between June 6 and 19 to X, it is clear from
circumstances that X needs the cake on the day of his wedding. Thus, it is X (the buyer) who
should decide the exact date. Y (the seller) has no interest in the date of delivery and for that matter
because he does not know when the date of wedding is going to be.

Place of delivery: If the parties have not agreed otherwise, the seller shall deliver the thing at the
place where, at the time of the contract, he had his place of business. If he had no business place
he shall deliver the thing at the place of his normal residence at the time of the contract. On the
other hand, where the sale relates to a specific thing and the parties know the place where such
thing is at the time of the contract, the seller shall deliver the thing at such place. The same is true
where the contract relates to things selected from a store or a specified supply or to things, which
are to be made or produced in a place known to the parties at the time of the contract.
2. Obligation to Transfer ownership: The seller shall take all necessary steps to transferring to
the buyer rights of ownership over the thing. Ownership transfers when the buyer takes the
possession of the good. Buyer takes possession upon delivery. Thus, the first and necessary step
to be taken by the seller to transfer ownership is to deliver the thing to the buyer in any of the
modes of delivery discussed in the previous section. The seller cannot transfer a thing upon which
he himself has no right.

3. Warranty Obligation: Warranty is a contractual promise by the seller regarding the quality,
character, or suitability of the goods he sold. The obligation of the seller to warrant includes:
warranty of dispossession, warranty of defect, and warranty of non-conformity. Warranty is
classified into express warranty and implied warranty.

Express warranty is created when the seller makes a statement of facts or a promise to the buyer
concerning the goods sold. The seller who gives an opinion or recommends the goods does not
create an express warranty. In negotiation, a seller may use descriptive terms to convey to the
buyer an idea of the quality or characteristics of the goods. Similarly, a seller might use pictures,
drawings, prints or technical specification or in some cases a sample or model to explain about the
thing to the buyer.

Implied warranty is responsibilities imposed by law on the seller for the quality of goods he sells.
Implied warranty arises whether or not the seller has made express promises as to the quality of
the goods.

A) Warranty of dispossession: Dispossession means taking away of the thing’s ownership from
the buyer by third party who claims that he has right over the thing the seller delivered to the buyer.
Such right can be a collateral right or ownership right. The seller shall warrant the buyer against
any total or partial dispossession, which he might suffer in consequence of a third party exercising
a right the seller enjoyed at the time of the contract. The seller has to assure the buyer that he is a
rightful owner of the thing and has to verify that nobody can come to challenge the right the buyer
obtains over the thing.

The seller is duty bound to warrant the buyer against total or partial dispossession. Warranty
against dispossession is an implied warranty and does not depend upon the agreement of the
parties. The seller has no duty to warrant dispossession when:
(1) The buyer is aware of the threat or presence of fear of dispossession: The awareness of the
buyer about the threat of dispossession is among the limits of warranty of dispossession. The buyer
may sometimes know that there is a possibility that a third party would dispossess him. For
example, the buyer may know that the thing has been given as a security for loan. Where, at the
time of the contract, the buyer knows that he takes risk of dispossession, the seller shall not warrant
the thing. If the buyer is aware of the risk of dispossession he is expected to have taken advantage
of the risk in their negotiation to enter in a contract of sale.

(2) The parties excluded or restricted warranty against dispossession: The parties exclude the
warranty against dispossession when they agree that the seller would not be responsible if the third
party dispossesses the buyer. Contracting parties can exclude or restrict the warranty of
dispossession which emanates from the law and in such cases the seller will not be under obligation
to warrant dispossession.

B) Warranty against defects in the thing: In addition to the warranty of dispossession, the seller
shall guarantee to the buyer that the thing sold conforms to the contract and is not affected by
defects. The seller will be responsible if the think sold is defective or doesn’t conform to the quality
and standard agreed in the contract of the sale. Not all defects are warrantable; some defects are
warrantable and others are not warrantable. A warrantable defect for which warranty shall become
effective is where the thing:

 Does not possess the quality required for its normal use or commercial use
 Does not possess the quality required for its particular use as provided expressly or
impliedly in the contract; (warranty of fitness for particular use)or;
 Does not possess the quality or specifications provided expressly or impliedly in the
contract (warranty of fitness specified in the contract)

C) Warranty against non-conformity: A seller has the obligation to warrant against non-
conformity of the thing to the contract of sale. The thing is deemed not to conform to the contract
where:

(1) The seller delivered to the buyer part only of the thing sold or a greater or lesser quantity
than he had agreed in the contract to deliver; or
(2) The seller delivered to the buyer a thing different to that provided in the contract or a thing
of a different species. For example, if the seller agrees to deliver a Sony TV, he

breaches the warranty against non-conformity when he delivers a tape

Obligation of the Buyer

The main obligations of the buyer under the contract of sale are the obligation to pay price and the
obligation to take delivery of the thing sold. These are the conditions of contract of sale with the
exclusion of which no contract of sale can be made. The buyer must appropriately discharge all
obligations under contract to avoid suit on non- performance of contract of sale.

A) Obligation to pay price: The buyer has the obligation to pay the price. The price is the amount
of money that the buyer undertakes to pay to the seller in consideration for a thing. It is the cost at
which a thing is bought. The seller should deliver the quantity of the thing agreed upon in the
contract. Where the seller delivers a quantity greater than that provided in the contract, the buyer
may accept or reject the excess quantity as he pleases. If the buyer accepts the quantity in excess,
he should pay a price increased in proportion to the quantity delivered to him. For example, A
agreed to deliver 10 quintals of sugar to B at 500 Birr per quintal. If A delivers 15 quintals, B has
an option to accept or reject the additional 5 quintals. If he accepts, he should pay 500 Birr for
each additional quintal. With regard to the place of payment, if no place is fixed in the contract,
the buyer should pay the price at the address of the seller.

B) Obligation to take delivery of the thing: The buyer must take necessary steps to complete the
delivery. These necessary steps include the obligation to go to the place of the business of the seller
and physically receive the thing from the seller or to keep at home if delivery is to be made at the
buyer’s place. The seller has the duty to accept when the thing does not suffer from any defects.
In case constructive mode of delivery the buyer may take deliver by only telling the seller to keep
the thing on his behalf.