Distinguishing a Sale of Goods Contract from other similar contracts

Provisions of Cap 31 apply only to a Sale of Goods Contract.

There are 8 transactions that resemble Sale of Goods contract but are not a sale of goods contract.

1.            Contract of Barter or Exchange.
2.            Contract of Gifts
3.            Contract of Bailment
4.            Contract of Hire Purchase
5.            Contract of Loan on Security of goods
6.            Contract of Supply of services
7.            Contract of Agency
8.            Contract of Licences of intellectual property such ‘sales’ of computer software and patents.

The distinction is important because the results are critical to the resolution of disputes if they do go to court.

Remedies available are different for different types of contracts.

Read Distinction of Sale of Goods from the other 8 contracts.

Sale of Goods Act Cap 31 Laws of Kenya Section 3 (4)

“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.”

Section 3(5)

An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”

Section 2 (1)
“action”                                               includes counterclaim and set-off;
“buyer”                                               means a person who buys or agrees to buy goods;
“contract of sale”                              includes an agreement to sell as well as a sale;
“delivery”                                            means voluntary transfer of possession from one person to another.
“document of title to goods”           includes a bill of lading, dock warrant, warehouse-keeper’s certificate or warrant or order for the delivery of goods, and any other document used in the ordinary course of business as proof of possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented;
“fault”                                                  means wrongful act or default;
“future goods”                                   means goods to be manufactured or acquired by the seller after the making of the contract of sale;
“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 a contract of sale;
“plaintiff”                                            includes a defendant counterclaiming;
“property”                                           means the general property in goods, and not merely a special property;
“quality of goods”                             includes their state or condition;
“sale”                                                  includes a bargain and sale as well as a sale and delivery;
“seller”                                                means a person who sells or agrees to sell goods; “specific goods” means goods identified and agreed upon at the time a contract of sale is made;
“warranty”                                          means an agreement with reference to goods which are the subject of a contract of sale, but collateral to the main purpose of the contract of sale, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated.

1.         Sale of Goods Distinguished from Barter

In a sale of goods contract or in any sale, there must be a consideration and in the case of sale of Goods it must meet all the criteria of a contract.  The consideration must be money consideration.

The term Goods is defined to exclude money in the Act.

Barter Exchange is a contract where goods are exchanged for goods or where the consideration is anything but money.  No money is involved in barter.  It is a valid contact but it is not a Sale of Goods Contract because it does not entail money.  You cannot buy money but you can exchange one currency for another.  There are occasions when money as a collector’s coin can be sold so long as it has ceased to be legal tender.  You can exchange the collector’s coins for money.


Gift is transfer of property without any consideration.  It is not binding unless it is made by a deed i.e. in writing.  It is not easy to distinguish gifts from sale of goods.

Esso Petroleum Limited V. Commissioners of Customs & Excise [1976] Vol 1 AER 177

The Esso petrol station put out on the signboard the following advert  “free gift of a coin bearing the likeness of a footballer to anyone buying 4 gallons of petrol.”  The Defendant bought petrol from this petrol station and when the petrol station was required to pay taxes by the Customs Department, the argument was whether this transaction consisted a sale of goods or a gift.  Their Lordships were confused

“Although the transaction was not a gift, in as much as the garage was contractually bound to supply coins to anyone buying 4 gallons of petrol… but it was not a sale of goods contract either.

It was not a sale of goods and it was not a gift.    Getting the coin there was no money involved the consideration

“There was no intention to create legal relationship between Esso and the customers

“In substance it was a collateral contract existing alongside a contract for the sale of petrol.”

If there were a Sale of Goods, then the company would have been liable to pay taxes.


A bailment is a transaction under which goods are delivered by one party (the bailer) to another (the bailee) on terms, which normally require the bailee to hold the goods and ultimately to redeliver them to the bailor or in accordance with his directions.  The property in the goods is not intended to pass and does not pass on delivery, though it sometimes be the intention of the parties that it should pass in due course, as in the case of the ordinary hire-purchase contract.  But where goods are delivered to another on terms which indicate that the property is to pass at once, the contract must be one of sale and not bailment.

In bailment, the goods are delivered by the bailer to the bailee on terms which normally require the bailee to hold the goods and ultimately deliver those goods in accordance with the instructions of the bailer.  There is no intention in bailment that property in ownership is to pass from the bailer to the bailee.  The bailee only has custody for a small fee to take care.  The bailee is empowered to sell the goods only for purposes of recouping the demurrages.

Chapman Bros V. Verco Bros & Co.  Ltd [1933] Vol. 49 CLR P306

Farmers delivered bags of wheat to a company carrying on business as millers and wheat merchants.  The wheat was delivered in unidentified bags which were identical to those in which other farmers delivered wheat to the company.  The terms of the transaction required the company to buy and pay for the wheat on request by the farmer or failing such a request, on a specified date, to return an equal quantity of wheat of the same type; but there was no obligation to return the identical bags.  Although the contract referred to the company as ‘stores’, it was held by the Australian High Court that this transaction was necessarily one of sale as the property passed to the company on delivery.  Property must pass even if not at once.  That is the nature of transaction and this transaction seems inconsistent with the possibility of a bailment.

The question was whether this was a sale of goods contract in terms of the ownership of the bags.  The court held it to be an agreement of sale within Section 2 (1) of Cap 31

One of the difficulties is that where goods are given to the buyer before the buyer has paid for those goods, where this happens, then we say that he is a buyer in possession because the seller has agreed to transfer the property.

In conversion if you went to a car dealer who allowed you to test drive it but instead of test driving it you advertised by putting adverts on the car, that is behaviour inconsistent with the owner’s wishes and you will be converting.


Contracts of hire-purchase resemble contracts of sale very closely and, indeed, in practically all cases of hire-purchase the ultimate sale of the goods is (in a popular sense) the real object of the transaction. A contract of hire-purchase is a bailment of the goods coupled with an option to purchase them which may or may not be exercised. Only if and when the option is exercised is there a contract of sale.

A contract of Hire Purchase is a bailment of goods coupled with an option to purchase those goods.  That option may or may not be exercised.  Only after the option has been exercised does hire purchase become sale of goods contract.  In a sale of goods contract there is no option to acquire property of goods you have no option of whether to retain goods or not but in Hire Purchase you have the option to become the owner of the goods by exercising the option of paying the nominal fee.  You are given possession and enjoyment of the goods before you finish payment and even before you have expressed your intentions to own.  The risk in Hire Purchase there is the intention that if the hirer opts to own the goods, they can become owners but in Sale of Goods there is no option of owning or not owning, you pay for the goods you own them.  Possession is usually after payment.

The owner of the goods in Hire Purchase undertakes the risk that the seller transfers or agrees to transfer to the buyer and by virtue of possession of the goods the owner of the goods takes the risk that the owner may sell the goods to a third person and the only safe area is with durable goods such as a car where to sell the car again you need to transfer the logbook.

Section 2 (1) and Section 23 (2) (a) 47

The fear of a financier is that having given possession or documents of title in durable goods then any disposition by the person who has acquired possession with consent of the owner if they sell the goods to another person who is without notice and for value, the 2nd buyer acquires better title than the first buyer.


This is a transaction that is designed to enable someone ‘A’ who owns some goods to borrow money from ‘B’ and give possession of those goods to the money-lender.  The goods can only be reclaimed upon completion of repaying the loan.  This transaction does not mean that the person borrowing the money has delivered the goods to the money-lender but only delivers the goods to the money lender to hold as security.  He has not sold the goods but has only given them to operate as security.  The understanding is that A will retain possession of the goods and the borrower will repay the lender capital plus the agreed interest and lastly the borrower will have the right to take back the goods if he has repaid or paid all the claims by the lender to him.  The lender has no right at all to resell the goods unless the borrower has defaulted.  This transaction differs from hire-purchase contract which is designed to enable a person to acquire goods on credit. A loan on security is designed to enable someone who already owns goods to borrow money on the security of the goods.


Historically contracts for supply of services were divided into two:
1.            Contracts for Skill and labour
2.            Contracts for labour and material.

It was also assumed that the applicable law was not the Sale of Goods Law for example services of a lawyer. When you contract a lawyer to draw a will, you pay for the services of the lawyer making the will but you receive a document which is incidental.  The contract is for the services of making a will and the document that you receive is incidental.

In the United Kingdom until 1954, the law required that contracts for sale of goods of £10 or more be evidenced in writing.  If the goods were valued at over £10, it had to be in writing for services there was no value limit.
A contract in which one party is to manufacture goods and then supply the same as a finished product.  Is it a contract in Sale of Goods or is it a contract for services?

A more general reason why it may be necessary to distinguish between a contract of sale of goods and a contract for services is simply that provisions of the Sale of Goods Act do not in general apply to contracts for services.  The other reason concerns the implied duties of the seller or supplier as to the quality and fitness of the goods or services supplied. If the contract was for the supply of services only then, insofar as the services themselves were concerned, the supplier’s duties were generally duties of due care only where in the contract for sale of goods the duties remain, prima facie duties of strict liability, that is to say the seller is responsible for defects in the goods, even in the absence of negligence.

For supply of services, you apply the law of torts and the measure is reasonable care.  The test in supply of services is due or reasonable care but in Sale of Goods, goods are of a particular perceivable quality.  They are tangible.

The test for deciding whether a contract falls into the one category or the other is to ask what is ‘the substance’ of the contract.  If the substance of the contract is the skill and labour of the supplier, then the contract is one for services, whereas if the real substance of the contract is the ultimate result – the goods to be provided, then the contract is one of sale of goods.
The law of Sale of Goods was developed and has developed as a consumer protection mechanism.  It came in to bridge the gap between the seller and the buyer.  The seller is supposed to have more knowledge than the buyer and the buyer is no longer bound by ‘caveat emptor’.

Goods must be fit for the purpose.  The sale of goods law was meant to bridge the gap in terms of product knowledge between the seller and the buyer.

Cap 31 has been overtaken by technological development.  It is difficult for the buyer to know all the information about for instance a computer just by looking at it.  The protection has to keep pace with the changes and buyers cannot keep up.

Robinson V. Graves [1935] Vol. 1 KB P 579

The issue in this case was the distinction between sale of goods and supply of services.

The contract here was one whereby an artist agreed to paint a portrait of his client’s wife.   It would appear that such a transaction should be regarded as one of sale.  In the event however this transaction was held as one for services and in reaching this conclusion, the court sought to identify the prime purpose of the contract. In the often quoted words of LJ Greer: -
If the substance of the contract … is that skill and labour have to be exercised for the production of the article and … it is only ancillary to that that there will pass from the artist to his client or customer some material in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture.”

This case lays down an elastic test of this nature for distinguishing contracts of sale from contracts for skill and labour, and a similar approach may sometimes be justified here.


Items of intellectual property such as copyrights, patents and trademarks are not ‘personal chattels or corporeal movables and so fall outside the definition of goods although goods may exist which embody these intellectual property rights.  In modern times, an important point, not yet wholly resolved, is whether computer software may constitute ‘goods’ within the meaning of the Act. Software is normally embedded in some physical form, such as disks or as part of a package in which it is sold along with computer hardware, that is computer or computer parts.  It is protected as a literary work by the law of copyright.

Usually only the medium in which the software is embedded, e.g. a disk is sold.  The copyright in the software remains in the software house which developed it.  The software house licences the user to make working copies of the disks and to load the software into a computer, acts which otherwise would be infringements of copyright.  Software can also, of course, be delivered on-line subject to licensing terms.

The question as to whether or not a supply of computer software is a sale of goods was answered by the Court of Appeal in Beta Computers (Europe) Ltd v. Adobe Systems (Europe) Ltd.  The Defendant had ordered from the pursuer by telephone a standard computer package to upgrade its existing software.  The software was delivered in a package, which bore the words ‘Opening the Informix S.I. software package indicates your acceptance of these terms and conditions’.  These were the terms and conditions of Informix’s copyright licence, Informix being the proprietor of the software.  The defendant did not return, and sued for payment of the price.  The pursuer argued that it was not concerned with the terms of the licence imposed by the authors of the software.  The defender argued that acceptance of the licence conditions was an implied suspensive of its agreement with the pursuer.  Lord Penrose held that the supply of proprietary software for a price was a single contract sui generis though it contained elements of contracts such as sale of goods and the grant of a licence.   It was an essential feature of such a contract that the supplier undertook to make available to the purchaser both the medium on which the program was recorded and the right to access and use the software.  There could be no consensus ad idem until the conditions of use stipulated by the copyright owner were produced and accepted by the parties, which could not occur earlier than the tender of those conditions to the purchaser.  Furthermore, whether the tender of software subject to conditions for use was regarded as a breach of a previously unconditional contract, or as being subject to a suspensive condition entitling the purchasers to reject if the conditions for use were unacceptable, or as made when there was no concluded contract, the defender was entitled to reject.


Distinction between a Sales of Goods Contract and a contract of agency is a difficult one.  For example where A asks B a commercial agent, to obtain goods for him from a supplier or from any other source, and B complies by sending the goods to A, it may well be a fine point whether this is a contract under which B sells the goods to A, or is a contract under which B acts as A’s agent to obtain the required goods from other sources.  In an agency contract there may be privity of contract between the buyer and the agent’s supplier, which will enable action to be brought between them.  On the other hand, if it is a sale, there will be no privity between the buyer and the seller’s own supplier.  The duties of a commission agent are less stringent than those of a seller and, in the event of a breach of contract; the measure of damages may also be different.  Thus if a seller delivers less than he is bound to under the contract, the buyer can reject the whole, but if despite his best endeavours, a commission agent delivers less than his principal has ordered he has committed no breach of contract and the principal is bound to accept whatever is delivered.  Should the commission agent deliver goods of the wrong quality he will only have to pay as damages the actual loss suffered by the buyer but should a seller be guilty of such a breach he may have to pay damages for the buyer’s probable loss of profit.  The contract is not a Sale of Goods.


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