The Subject matter of law of sales
As knowing the subject matter of law of sales is of paramount importance in understanding the general nature of law of sales contract, existing goods, goods belonging to third parties, future goods, contingent goods, and price as a subject matter of law of sales will be discussed. Thus, upon successful completion of this section, you will be able to
- list the type of goods and show their difference
- analyze the relationship between these goods and the formation requirement of sales contract
- analyze the relationship between price and the formation requirement of sales contract
- analyze the requirements for the formation of general contract and contract of sales in light of the subject matter of 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 imposes certain duties on the buyers and sellers the breach of which gives rise to remedy. When the dispute between buyer and seller result in litigation before the court of law, the court applies law of sales and general contract provisions to adjudicate the dispute. Article 1676 of the civil code clearly indicates that the general contract provisions are applicable to contracts including contract of sale in a way they do not contradict with special provisions.
Principally the subject matter of sale is “goods”. Goods are generally things such as chair, desk, electricity which can be appropriated by human beings. Although goods can be classified differently, goods can be classified into existing goods, future goods and contingent goods. Although there is no such classification in the Ethiopian law of contract of sales Article 2266 and 2267 shows that it is corporeal chattels which are under the ambit of contract of sale.
In addition, goods price is also the subject of law of sales. The parties must define the subject of their dealings with precision. The subject of contract of sale, according to Article 2270, could be existing thing, future thing or things belonging to third party.
Art. 2270. – Subject of sale.
(1) A sale may relate to an existing thing belonging to the seller.
(2) A sale may also relate to a future thing which the seller undertakes to make for delivery to the buyer.
(3) It may also relate to a thing belonging to a third party.
1.1.1 Existing goods
Existing goods are goods, which have physical existence. In addition to physical existence, the goods should be in the seller’s ownership or possession when the contract is concluded. It does not matter that the thing is in possession of third party. The owner is considered to have general property right to sell the goods. Article 2270 of the civil code in its sub article (1) and (3) obviouly connotes that existing goods belonging to the seller and belonging to third parties can be subject of contract of sales.
Existing goods can also be classified into specific and unascertained goods. Specific or certain goods are goods identified and agreed upon at the time of conclusion of the contract.
In contrast, unascertained goods are goods which are not separately identified or ascertained when the contract of sale is concluded. Although they are not separately identified unascertained goods shows goods defined by description.
1.1.2 Goods belonging to third party
The seller may sell the thing that belongs to the third party at the conclusion of the contract. Things belonging to third parties are existing goods. Bailee and pledgee sell the thing that belongs to the bailor or pledger. The seller shall have actual control of the thing to be sold and in the examples given above, both the bailee and pledgee have actual control over the thing. Although the goods can belong to third party, that third party shall have the ownership or possession of the goods to be sold. As possession does not necessarily mean actual control, a person who does not have possession but has actual control may conclude sales contract. Even a person who is not the owner and who does not have actual control can also conclude sales contract whose subject belongs to the third party. An agent can be the best example of this when he agrees to sell a thing which is under the ownership and possession of the seller.
1.1.3. Future goods
Future goods are goods which do not exist at the time of the contract or are not in the hands of the seller although they do have material existence. Goods to be produced manufactured or acquired by the seller after the formation of the sale contract are termed as “future goods”. Concerning this, Article 2270 (2) clearly states “a sale may relate to a future thing which the seller undertakes to make for delivery to the buyer”.
If for example Mr. Belay agreed to sell milk but the milk, which his cow may yield during the coming year, is an illustration of future goods, which did not have material existence at the time of the conclusion of the contract of sale.
If Mr. Belay agreed to sell too kilos of coffee which will be delivered to him after one month, the subject of contract of sale is said to be future good which has material existence but not yet in the hand of the seller.
1.1.4. Contingent goods
There are also special future goods, which are called contingent goods. Contingent goods are future goods which the seller acquires depending on an uncertain contingency. The specialty with contingent goods is that the seller may or may not acquire the goods depending on the condition.
Can the parties make non-existent goods the subject matter of contract of sale?
The answer seems negative. The subject matter of contract sale must only be existing thing, future thing or things belonging to third party. Thus, if Naol agreed to sell to Becky his tape recorder, which was destroyed by fire yesterday, their contract is null and void. To begin with it might be said that the object of the contract is impossible. A contract whose object is impossible is said to be void contract. In addition it is moot if, mistake of the existence of the object can be valid ground to invalidate the contract. Doctor Girma in their commentary on general contract under the Ethiopian law has put inexistence of the object of the contract to make the contract invalid for the object is impossible and there is mistake as to the existence of the object of the contract.
However, contrary position seems to exist under Article 2326 that deals with things under voyage. This provision transfers risk, even when the thing does not exist at the time of the conclusion of the contract. Risk is transferred in cases where the seller did not and should not have known that the thing was damaged or perished. Transferring risk for a thing, which does not exist at the time of the conclusion of a contract, connotes the formation of a contract even when the thing does not exist. Then this might lead us to conclude that sales contract may relate to things which do not exist at the time of the formation of the contract as is indicated under things under voyage.
In addition to goods price expressed in the form money is also the subject matter of contract of sale. 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. The parties may make the price determinable by referring to the arbitration of the third party according to Art.2271.
Art. 2271. Price estimated by third party
(1) The price may be referred to the arbitration of a third party.
(2) There shall be no sale where such third party refuses or is unable to make an estimate.
According to this article, to say that a contract of sale is formed the party must specify the price in their contract or refer to the arbitration of the third party. And the price referred to the arbitration of the third party must be determined as agreed. Otherwise, there would not be formation of the contract of sale. However, it should be noted that if the price is determined in a way it can be easily ascertained by judicial interpretation as in Articles 2305 – 2308 of the civil code, the formation of the contract cannot be questioned.
For example, Aden agreed to buy a used computer from Bushra for satisfactory price without determining the price of the computer. Thus, Eden agreed to pay the price determined by Guled who is a mechanic. Aden has taken delivery of the computer. Unfortunately, Guled died before he determined the price in a car accident. Thus, there is no contract of sale in this hypothetical example as the arbitrator is unable to determine the price of the used computer. However, Aden agreed to pay a price usually charged by the seller, it can be determined by referring article 2307.
Can the parties refer the determination of the price to the market force? For example, can the party agree that the price would be the market price to be determined at some future date?
In some jurisdictions, for example in India, the parties may refer the price to be determined by a magazine which contains a list of items and their price and which is published regularly. The same is true in Ethiopia. For example, in Ethiopia, Ethiopian Tea and Coffee Authority, announces the price of coffee through Ethiopian Radio. Thus, the parties can agree that their price is the price to be announced by Ethiopian Tea and Coffee Authority. Still, there will be no contract of sale if the authority fails to announce the price on radio. It is not necessary that the third party be a natural person.
Price of the thing sold can also be determinable when the thing has a current price or market price or when the seller normally deals in the thing sold. In such situation, the price would be the market price or the price normally charged by the seller.