Sales of good transactions are incomplete without the use of cheques, credit cards, foil vouchers and other payment instruments

Sales of goods transactions are necessary for our day to day commercial activities to go as expected. This area of commercial of law is peculiar because the transaction involves the happenings every day in our market, hostel, department, offices, shop, etc.
The law concerning the sales of goods is principally statutory and the major statutes are as follows;
(1) The Sales of Goods Acts of 1893: it is a statute of general application and it is applicable in the northern state and Lagos.
(2) Sales of Goods Law of 1973: its applicable in the South Western State and Lagos
(3) The Sales of Goods Act 1976: this is also applicable in Edo and Delta state.
(4) The rules of common law in exceptional cases as in misrepresentation, mistake. This means case law.
The pertinent question here is what a sale of goods transaction under the statute is the question of what amounts to sales of transaction is a matter of law and it is important at this level to examine the legal terminologies involved in this concept. Section 3(1) of the sales of goods law, provides that,
“ a contract of sale of good is a contract whereby the seller transfer or agrees to transfer the property in the goods to the buyer for a money consideration called price, there may be a contract of sales of goods act between a pent owner and another person”.
It is important to emphasis that for a transaction to amount to sales of goods it must involve a contract, such contract usually are bilateral agreement between a party refer to as the “seller” and another party referred to as the “buyer”.
A sale of goods transaction usually involves a sale of good and purchase. In other words, there must be an element of buying and selling. In circumstances where the property is transferred by other means other than sales, then it is not a sale of good transaction. For example, the transfer of gifts, mortgage or pledge, section 59(4) of the sale of good law.
“Good” are specifically defined in the statute; section 62 of the sale of good law defines goods as;
“all chattels, personal other things in action and money, this term includes imbelliments, industrial growing of crops and things attached to or forming part of the land which are agreed to be severed before sale or under the sale”.
The definitions include the following;
(1) Chattel personal e.g. cars, books, bags, shoes, phone, foams, etc.
(2) Imbelliments includes vegetable products that do not grow naturally e.g. groundnuts, potatoes, wheat, maize, etc.
(3) Industrial growing crops e.g. rubber, cocoa, colanuts, etc.
(4) Thing attached to or form part of the land which are agreed to be severed before sale e.g. door, air conditioner, etc.
A contract for the sale of goods must be involved in transfer or the agreement to transfer the property in the goods from one party to another. There must be what has been referred to as conveyance effects which distinguish a sale of goods transaction from a pledge to hire purchase.
The consideration for a contract for sale of goods must be money. This money consideration in case in buying and selling is referred to as the price where the consideration is not money then it is not a sale of goods transaction.
Price is an essential element of a sale of goods transaction. It must be paid in money or partly money.
As earlier mentioned, if price is not envisaged in s transaction, it is not a sale contract, it is more a gift. In a sale of contract, if the buyer defaults in the payment of the price of the goods, the seller may recover the goods. Sections 8 & 9 of the sales of goods Act “price may be fixed in any of the following ways;
(1) Price may be fixed by contract
(2) It may be left to be fixed in a manner agreed by a contract
(3) It may be determine in the course of dealing with the parties
(4) The buyer may pay a reasonable price. Reasonable price may be determined by the valuation of the third party.”
In the case of Folax v. Classique, a sale of contract for the supply of petrol was agreed upon provided the price is agreed from time to time by the parties and when they disagreed it would be referred to the arbitrator. It was held to be a void contract of sale.
If the valuation of the third party had being agreed upon such valuation cannot be set aside because of the negligence of the valuer or by reason of in correct valuation, the valuer maybe however be sued for negligence by the injured third party.
Distinction between sale of goods & agreement to sale
A particular section in the sale of goods act defines the distinction by stating that where under the contract of sale the property in the goods is to be transferred from the seller to the buyer the contract is called sale. Where a transfer of the property in the goods is to take place at a future time or subject to a condition thereafter is to be fulfilled, the contract called an agreement to sell. The implication of the above provision is that sale contract whereas agreement itself is an executory contract.
Sales and other contract
One of the problems posed by the statutory definition of the contract of sale is when is a sale not a sale? In other words, when can we say a sale is actually a sale strictly so called? In determining whether a particular agreement or contract of sale is a sale or other transaction, the court considers its substance and not merely its form or intention of the party to the contract. It does not depend on what the parties have chosen to call or label their transaction. Thus in the case of Odufunade v. Antoine Rossek, the Federal supreme court held that the transfer of an interest in land to a government under terms of compulsory purchase order is not a transfer under a contract of sale.
Similarly, in Sovmots Investment limited v. Secretary of State Environment, the court held that a person, whose property is compulsory acquired against his will, does not make a contract with the acquiring authority even though he receives compensation. A contract of sale should be distinguish from other contract.
There is one thing all sales transactions have in common: a credit entry to the sales account. The rest depends on the particular circumstances surrounding the transaction, and there can be a lot of variation in those circumstances
For instance, the way your company makes sales has an impact on your transactions. Sales can be made for cash, resulting in a debit to cash; or on credit, resulting in a debit to accounts receivable. Then there’s the “when” factor to consider: companies using the cash method record sales only when actual cash is received, whereas companies using the accrual method record sales in the moment regardless of payment. Finally, your inventory method plays a part in transactions as well. If your company uses a perpetual inventory system, every entry for a product sale must have a corresponding entry for cost of goods sold. Under a periodic inventory system, though, no cost of goods entries are recorded during the accounting period, resulting in a single-entry sales transaction.

The method variables (inventory system and accounting method) are stable factors. Once you’ve chosen a method, it dictates that part of the entry every time. For example, if you use the cash method, you cannot ever record a sales transaction until you’ve been paid. Under a perpetual inventory system, you have to book a cost of goods transaction for every single inventory item you sell. The cash or credit issue may vary, because it depends on the actual sales transactions.
There are two major differences between cash sales and credit sales: timing and risk. With a cash sale, you get paid on the spot with currency, checks, or credit cards; with credit sales (where your company extends the credit), you get a promise that your company will be paid sometime in the future. Cash sales provide different levels of risk, ranging from none for actual cash to possible risk for credit card sales and customer checks. With credit sales, you run the risk that the customer won’t pay on time or that he won’t pay at all.

In either case, when you complete a sale you need to keep a record of it. With a cash sale, the standard source document (where you can find the details of the transaction) is the sales receipt, which contains such information as the date, amount, and description of what was sold. For credit sales (not credit card sales; those are treated like cash sales), the source document is an invoice. Invoices include all the same information as sales receipts, plus a bit more, such as:
•Customer name and contact information
•Customer account number
•Credit terms and due date
•Customer’s purchase order number (where applicable)
•Invoice number
To keep your records straight, use pre numbered sales receipts and invoices, and use them in order. That makes for much easier tracking, both now and down the line.
Companies using the cash method of accounting record sales only when cash has been received. Companies using the accrual method of accounting record sales when they take place; the cash part requires a second journal entry at the time of receipt. This doesn’t mean that cash-method companies can’t have credit sales, or that accrual method companies can’t have cash sales; these transactions happen all the time, and they get slightly special treatment (as you’ll learn later in this chapter). The accounting method dictates only when you count the revenue, not how you got it.
While you’ll want to keep track of every transaction, the accounting method tells you when to book the journal entry. It may seem unimportant whether you record a transaction now or four weeks from now, but sometimes that timing can make a very big difference. Take year-end, for example: Under the accrual method, you have to report all the income you earned for the year to the IRS and pay tax on it whether or not you’ve gotten the money. Using the cash method, though, you have to report and pay tax only on the cash you’ve actually received. A $2,500 sale made on credit on December 31 counts as this year’s taxable income under the accrual method, but not under the cash method.
Inventory adds an extra layer of complication to accounting in general; it’s much easier to do the accounting for a service business than a product-based one. At the most basic level, inventory may add extra journal entries to your sales transactions. Here’s the theory: With the perpetual inventory method, you write a journal entry every time inventory items are bought or sold; with the periodic method, you don’t. Practically speaking, though, you want to keep close track of your inventory for dozens of reasons, some much more important than journal entries.
From an accounting perspective, the difference between the two methods comes down to how many journal entries come with each sales transaction. With periodic inventory, you make no entry at the time of sale, so there’s just the sales side of the transaction. With perpetual inventory, two journal entries are required every time you sell a product: one to record the sale, and one to move the product out of inventory.
A negotiable instrument is a choice in action, the full and legal title to which is transferable by mere delivery of the instrument with the result that complete ownership of the instrument and all property it represents passes free from equities to the transferee, providing the latter takes the instrument in good faith and for value.
It is an instrument which does not merely embody a claim to payment but can give a holder a better claim to payment than the previous holder. It is a document which itself embodies a cause of action, without more, title to which can be transferred by delivery, or by endorsement and delivery, in such a way that a holder for value without notice can obtain a good title notwithstanding defects in the title of his transferor.
Characteristics of Negotiable Instruments
(1) Complete transfer of property in the instrument
(2) Transferee can in his own name
(3) Transferee takes free from equities
(4) Instrument must be complete and regular on the face of it
(5) Instrument must be it a delivery state
(6) Instrument must be current
Different kinds Negotiable Instruments
One the years, some instruments have come to be recognized as negotiable instruments. They includes: bills of exchange, cheques, travellers’ cheques, promissory notes, bankers’ drafts, treasury bills, bank notes, dividend warrants.
Bill of exchange
A bill of exchange is a written promise stating that the person who takes the bill at a form of payment will be paid in cash when he presents the bill at the proper place and at the proper time. According to section 3(1) of the Bill of Exchange Act:
“ a bill of exchange is an unconditional order in writing, addressed by one person and another, signed by the person giving it, requiring the person to whom its being addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or to bearer.”
Cheques
A cheque is a bill of exchange drawn on a banker payable on demand. It means then that the definition of a bill of exchange becomes relevant to an understanding of a cheque. Consequently, a cheque may be defined as “an unconditional order in writing, signed by the person giving it, requiring the banker to whom it is being addressed to pay on demand a sum certain in money to or to the order of a specified person or to bearer”. In H.M.S. v. First Bank, the court held that a cheque, in the strict sense, is an order or request for payment; until the cheque is honored or cleared and the amount stated on it, it is not money.
Travellers’ Cheques
A travellers’ cheque is a document prepared by a bank for use by its customers or other applicants, which will enable them to draw cash at branches of banks overseas. These instrument vary in form. They may or may not be negotiable instruments according to the form used. Some are drawn in form of of an order to a particular branch to pay the sum specified. When consideration is given, this order becomes a binding promise. This instrument is a special form of bankers’ draft.
More commonly, the travellers’ cheque is in the form of an order made by the customer, addressed to the bank and requiring it to pay to himself or his order the sum specified. As in ordinary bill of exchange, on consideration given, this is a binding promise by the customer. The customer negotiates this to the bank at which he applies for cash, signing his name as an endorsement. The foreign banks then become the holder, entitled to payment by the bank which issued the travellers’ cheque, the drawee.
Promissory Notes
A promissory note is a document which contains a promise, signed by the maker, that he will pay a certain sum of money. The promise is not legally binding until a consideration is given.
Bankers’ Draft
In A.C.B. Limited v. Alao, a bankers’ draft was defined as a cheque, draft or other payment of money drawn by an authorized officer of a bank upon either his own bank or some other bank in which funds of his bank are deposited. It is also called certified cheque. A bankers’ draft takes the form of an order to pay a specified sum of money, addressed by a banker to himself.
A bankers draft takes the form of a bill of exchange, but since the drawer and the drawee is the same person, the effect is similar to that of a promissory note. Thus, the holder may treat it as either a bill of exchange or a promissory note. Once consideration is given, the bank itself is liable to pay. These drafts are used for payment in deals where the vendor insists on being sure that the promise contained in the instrument will be honoured.
Treasury Bills
Treasury Bills are promissory notes issued by the Government to raise short term loans. They are issued for a fixed sum, for a fixed period, e.g. 90 days. The Central Bank of Nigeria acts as agent for the Government in issuing them. Banks use treasury bills as a means of short term lending. They purchase bills that will mature on a date when the bank will need repayment. They thus serve the purpose of channeling surplus funds from the money market into short term loans for the Government.
Bank Notes
A bank is a promissory note issued by a banker as payable on demand. It is therefore a particular form of bankers’ draft. Only the central bank of Nigeria has the right to issue bank notes. They are made legal tender and therefore circulate as money.
Dividend Warrants
A dividend warrant is a document issued by a company directing its banker to pay to a named a shareholder a specified sum, being the share of the declared dividend to which he is entitled. It is usually drawn in the form of a cheque or bankers’ draft and as such is a negotiable instrument unless, as it is often the case, it is expressed to be “not negotiable.”
Apart from the instrument recognized as negotiable, there are some others which share some but not all attributes of negotiable instrument. This are regarded as quasi-negotiable instruments. They include: bill of landing, I.O.U.s, dock warrants, etc.
Bill of Landing
A bill of landing is a document of title to goods, signed by the master of a ship or his agent, evidencing the terms of the contract of carriage, the actual shipment of the goods and the title of the holder or his endorsee, to the goods. A bill of lading is not a contract to pay money or security for money. It is therefore not regarded as negotiable, despite that it could pass freely from a transferor to a transferee by delivery.
I.O.U.s.
An I.O.U. is merely a written evidence of debt. Usually it will contain an admission of debt with an implied undertaking that the payment will be made sometime later. However, if the I.O.U. contains the promise to pay at a specified date, it will then be treated as a promissory note. In the case of Brooks v. Elkins, an instrument which contain the words I.O.U. $20 to be paid on the 22nd instant was held to constitute either a promissory note or an agreement to pay the sum of money mentioned.
Dock Warrants
This is a receipt issued by the dock authorities to signify the document of title to the goods, with a promise to store them and eventually to deliver them to the person named on it or to an endorsee.

Exchange of goods or documents
(1) For the purposes of this Act, the consideration necessary for the validity of a sale, pledge or other disposition of goods may be either a payment in cash, or the delivery or transfer of other goods, or of a document of title to goods, or of a negotiable security, or any other valuable consideration.
(2) If goods are pledged by a mercantile agent in consideration of the delivery or transfer of other goods, or of a document of title to goods, or of a negotiable security, the pledgee acquires no right or interest in the goods so pledged in excess of the value of the goods, documents or security when so delivered or transferred in exchange.

Acceptance
The buyer is deemed to have accepted the goods when;
(a) the buyer intimates to the seller that the buyer has accepted them,
(b) the goods have been delivered to the buyer, and the buyer does any act in relation to them which is inconsistent with the ownership of the seller, or
(c) after the lapse of a reasonable time, the buyer retains the goods without intimating to the seller that the buyer has rejected them.
Buyer not bound to return rejected goods
Unless otherwise agreed, if goods are delivered to the buyer and the buyer refuses to accept them, having the right so to do, the buyer is not bound to return them to the seller, but it is sufficient if the buyer intimates to the seller that the buyer refuses to accept them.
Liability of buyer for neglecting or refusing to take delivery of goods
(1) When the seller is ready and willing to deliver the goods, and requests the buyer to take delivery, and the buyer does not within a reasonable time after the request take delivery of the goods, the buyer is liable to the seller for
(a) any loss occasioned by the buyer’s neglect or refusal to take delivery, and
(b) a reasonable charge for the care and custody of the goods.
(2) Nothing in this section affects the rights of the seller if the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.
Sale not generally rescinded by exercise of right of lien or stoppage in transit
(1) Subject to this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of the right of lien, or retention or stoppage in transit.
(2) When an unpaid seller who has exercised the right of lien, or retention or stoppage in transit, resells the goods, the buyer acquires a good title to it as against the original buyer.
(3) If the goods are of a perishable nature, or if the unpaid seller gives notice to the buyer of the seller’s intention to resell, and the buyer does not within a reasonable time pay or tender the price, the unpaid seller may resell the goods and recover from the original buyer damages for any loss occasioned by the buyer’s breach of contract.
(4) If the seller expressly reserves a right of resale in case the buyer should default, and on the buyer defaulting resells the goods, the original contract of sale is rescinded by that act, but without prejudice to any claim the seller may have for damages.
Action for price
(1) If, under a contract of sale, the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against the buyer for the price of the goods.
(2) If, under a contract of sale, the price is payable on a day certain, irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed, and the goods have not been appropriated to the contract.
Damages for non acceptance
(1) If the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against the buyer for damages for non-acceptance.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.
(3) If there is an available market for the goods in question, the measure of damages is to be ascertained, unless there is evidence to the contrary, by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was set for acceptance, then at the time of the refusal to accept.
Damages for non delivery
(1) If the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non delivery.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
(3) If there is an available market for the goods in question, the measure of damages is to be ascertained, unless there is evidence to the contrary, by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was set, then at the time of the refusal to deliver.
Specific performance
(1) In any action for breach of contract to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, order that the contract be performed specifically without giving the defendant the option of retaining the goods on payment of damages.
(2) The order may be unconditional, or on terms and conditions as to damages, payment of the price, and otherwise, as the court thinks just, and the application by the plaintiff may be made at any time before judgment.
Remedy for breach of warranty
(1) If there is a breach of warranty by the seller, or if the buyer elects, or is compelled, to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not merely because of the breach of warranty entitled to reject the goods, but the buyer may
(a) set up against the seller the breach of warranty in diminution or extinction of the price, or
(b) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.
(3) In the case of breach of warranty of quality, the loss is, unless there is evidence to the contrary, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.
(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent the buyer from maintaining an action for the same breach of warranty if the buyer has suffered further damage.
Interest and special damages
This Act does not affect the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid if the consideration for the payment of it has failed.
Part 7 — Disposition of Goods by Agents
Exception
Sections 59 to 62 do not apply to a consignment to which the Personal Property Security Act applies.
Transfer of documents
For the purposes of this Act, the transfer of a document may be by endorsement, or if the document is by custom or by its express terms transferable by delivery, or makes the goods deliverable to the bearer, then by delivery.
Common law, bills of sale and mortgages
(1) Except so far as they are inconsistent with the express provisions of this Act, the rules of the common law, including the law merchant and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake or other invalidating cause, continue to apply to contracts for the sale of goods.
(2) This Act does not affect the enactments relating to bills of sale.
(3) The provisions of this Act relating to contracts of sale do not apply to any transaction in the form of a contract of sale that is intended to operate by way of mortgage, pledge, charge or other security.

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2 thoughts on “Sales of good transactions are incomplete without the use of cheques, credit cards, foil vouchers and other payment instruments

  1. Thanks for finally talking about >Sales of good transactions are incomplete without the use of cheques,
    credit cards, foil vouchers and other payment instruments | Tomiwa Olasiyan’s Blog <Liked it!

  2. Hello. I extracted the information below from a question I’m trying to solve- “incomplete records”, account of Alison Ltd.

    – Balance brought forward December 31, 2001: Owing from Kay Ltd $196.

    – Current year bank statement for the year ended December 31, 2002: Cheques from Kay Ltd $7840.

    Additional information: For some of the sales, Kay credit cards are accepted. Kay Ltd charges 2% commission. At the end of the year, the amount outstanding from Kay Ltd was $ 294.

    Kindly, Tomiwa, what is the accounting treatment for the above? Is Kay Ltd a creditor and debtor of the company (Alison Ltd) ? Who is the recipient of the 2% commission? What’s the posting to profit and loss a/c as well as balance sheet?

    Thanks.

    The question says to prepare a trading, profit and loss account for the year ended December 31, 2002.

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