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UNIT 1: FORMATION OF CONTRACTOF SALE
• INTRODUCTION :
It came into force on the 1st of July, 1930.
It is applicable to whole of India except Jammu & Kashmir.
The Law relating to this statute was contained in the Chapter VII of the
Indian Contract Act, 1872.
Where the Sale of Goods Act is silent on any point, the general principles
of the law of contract apply.
• CONTRACT OF SALE
Sale Agreement to sell
(Executed) (Executory)
The term ‘contract of sale’ is defined in Section 4 (1) of the Sale of Goods Act, as under :
“A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in the goods to the buyer for a price. “
“Buyer means a person who buys or agrees to buy goods.” [Sec. 2(1)]
2. Seller :
“Seller means person who sells or agrees to sell goods.” [Sec. 2(13)]
3. Goods :
“Goods” means every kind of movable property other than actionable
claims and money; and includes stocks and shares, growing crops, grass
and things attached to or forming part of the land which are agreed to the
severed before sale or under the contract of sale. [Sec. 2 (7)].
An actionable claim is a claim to any debt. For example: a money
debt, book debts, etc.
Money here means legal tender of money, i.e. the recognised
circulation in the country; but not old rare coins.
Things attached to the earth are not movables, but trees, growing
crops which can be easily severed from the earth before sale.
Fruits, vegetablesand flowers which can be separated from the
trees, are included in ‘goods’.
Livestock i.e. cows, buffaloes, cats etc are ‘goods’.
Patents, copyrights, goodwill, trade-marks, are all considered goods
which can be the subject matter of a contract.
A ship has also been considered to come within the definition of the
word “goods”. Similarly water, gas and electricity are included in the
definition, though some writers doubt if they can be classed among
“goods”.
As per English law, “shares and stock” are not treated as “goods”.
To conclude, everything movable is goods, except the
following:-
- Money
- Actionable Claims
- Immovable assets
- Services
Specific/Ascertained
Goods
Goods which are
identified and agreed
upon at the time of a
contract Example: A
particular painting
General /Unascertained
Goods
Goods which are not
specifically identified but
indicated by description at the
time of the Contract
Example: Any 1 pen out of
50 pens
4. Price
“Price’ means the money consideration for a sale of goods.” [Sec. 2 (10)].
No sale can take place without a price.
Therefore,
a. Exchange of goods for goods will not be considered as sale
b. Gift of goods will not be considered as sale
c. Exchange of goods for goods along with price will be considered as
sale
5. Property:
General property Special property
(ownership) (interest)
But in Sale Of Goods Act, ‘property’ means the general property in goods and not
merely a special property
Example: A who owns the goods pledges them to B, then A has the general property in
the goods, while B has a special property or interest in them.
v Classification of Goods:
Existing Goods
Goods which are
already in existence
at the time of
contract of sale
Future Goods
Goods which are yet
to be manufactured
in future.
Example: A contracts
to sell to B all the
apples which will be
produced in his garden
next year
Contingent Goods
Acquisition of such
goods depends upon a
contingency which may
or may not happen.
Example: A agrees to sell
to B a certain car
provided he is able to
purchase it from its
present owner.
There must be two parties, one seller and the other buyer. The reason for
the same is that in a contract of sale, the ownership of the goods has to
pass from one person to another.
3. There must be some goods as a subject-matter: The ‘goods’ as defined
in Section 2 (7) of the Sale of Goods Act.
4. The property in the goods must be transferred to the buyer:
The term ‘property’ in the goods means the ownership of the goods. In
every contract of sale, the ownership of the goods must be transferred by
the seller to the buyer, or there should be an agreement by the seller to
transfer the ownership to the buyer. The term ‘property’ here means the
general property, i.e., all ownership rights of the goods, and not merely a
special property, i.e., limited rights such as right of a Pawnee.
5. There must be some price for the goods:
The goods must be sold for some price. The term ‘price’ is defined in
Section 2 (10)
6. A contract of sale can be absolute or conditional [Section 4(2)].
• DISTINGUISH BETWEEN
1. SALE AND AGREEMENT TO SELL
SALE AGREEMENT TO SELL
1.Transfer of property : the property
in goods passes from the seller to
the buyer immediately
1.Transfer of property: In agreement to
sell, the ownership of the property will
pass from the seller to the buyer at
some future time or on fulfilment of
some conditions.
2.Nature of contract: A sale is an
executed contract
2.Nature of contract: An agreement to
sell is an executory contract
3. Consequences of Breach by
buyer : In a sale, if the buyer fails
to pay for the goods, the seller
can: a) Sue him for recovery of
price
b) Claim damages
3. Consequences of Breach by buyer :
In an agreement to sell, the seller can
only sue for damages for breach of
contract
4. Consequences of Breach by
seller : In a sale, if the seller
defaults, i.e. commits a breach,
the buyer can:
- Claim delivery of the goods
from third party
- Sue for damages 4. Consequences of Breach by
seller: In the case of an agreement to
sell, if the seller commits a breach, the
buyer can only claim damages.
5. Transfer of risk: In a sale, if the
goods are destroyed, the loss falls
on the buyer even though they are
in the possession of the seller.
5. Transfer of risk: In an agreement to
sell, if the goods are destroyed, the
loss falls on the seller, even though
they are in the possession of the
buyer.
6. Subsequent destruction: A 6. Subsequent destruction: Such loss
subsequent loss or destruction of
the goods is the liability of the
buyer.
or destruction is the liability of the
seller.
2. SALE AND HIRE- PURCHASE
SALE HIRE-PURCHASE
1. Property in the goods is
transferred to the buyer
immediately at the time of
Contract.
1. The property in goods passes to the
hirer upon payment of the last
instalment.
2. The position of the buyer is that of
an Owner of the goods.
2. The position of the hirer is that of a
bailee till he pays the last instalment.
3. The buyer cannot terminate the
contract and is bound to pay the
price of the goods.
3. The hirer may, if he so likes, terminate
the contract by returning the goods to
its owner without any liability to pay
the remaining instalments.
4. The seller takes the risk of any
loss resulting from the insolvency
of the buyer.
4. The owner takes no such risk, for if the
hirer fails to pay an instalment the owner
has right to take back the goods.
5. The buyer can resell the goods. 5. The hirer cannot resell the goods till
the last instalment.
6. Tax is levied at the time of the
contract.
6. Tax is not leviable until it eventually
ripens into a sale.
3. SALE AND BAILMENT
SALE BAILMENT
1. The property in goods is
transferred from the seller to the
buyer.
1. There is only transfer of possession of
goods from the bailor to the bailee for
any of the reasons like safe custody,
carriage,etc.
2. The return of goods in contract of
sale is not possible.
2. The bailee must return the goods to the
bailor on the accomplishment of the
purpose for which the bailment was
made.
3. The consideration is the price in
terms of money.
3. The consideration may be gratuitous or
non-gratuitous.
• BARTER AND EXCHANGE
Barter:
Where goods are transferred for goods, the transaction is one of a ‘barter’ and
not sale, i.e. wheat is given in exchange of rice. Exchange :
Where money is exchanged for money, the transaction is one of ‘exchange’ and
not sale, i.e. 100 rupee note is exchanged for 2 notes of Rs. 50.
Goods are destroyed
after agreement to
sell but before sale
Contract becomes
void
(Risk if goods is with
the seller)
*Aggrieved party can
claim dama : 78 :
• PRICE AND MODES OF FIXING THE PRICE
The price means the money consideration for the sale of goods [Section 2 (10)].
Price may be fixed in any of the following modes provided in Section 9:
1. The fixation of price by the contract of sale [Section 9 (1)]:
The price may be expressly fixed the contract of sale. The parties may fix
any price they like.
2. The fixation of price in a manner provided in the contract of sale
[Section 9 (1)]:
The contract of sale may provide for some manner in which ‘price is to, be
fixed. In such cases, the price may be fixed in a manner provided in the
contract.
3. The fixation of price by course of dealings [Section 9 (1)]:
Sometimes, the customs or usage of trade provides certain principles for
the determination of the price. In such cases, the price may be determined
from the course of dealings between the parties.
4. The fixation of a reasonable price [Section 9 (2)]:
Sometimes, none of the above principles is applicable. In such cases, the
buyer shall pay to the seller a reasonable price. The term ‘reasonable’ price
is a question of fact which depends on the circumstances of each particular
case.
5. The fixation of price by third party [Section 10]:
The parties may agree to sell and buy goods on the terms that the
price shall be fixed by the valuation of a third party.
However, if such third party fails to make the valuation, the contract
becomes void. But if the buyer has received the goods and has
appropriated them, he becomes bound to pay reasonable price to
the seller.
Sometime, the third party is influenced or prevented by the buyer or
the seller from fixing the price. In such cases, the innocent party may
recover damages from the defaulting party.
Example:
A agreed to sell his 100 bags of rice to B at a price to be fixed by C. But C
failed to fix the price. In this case, the agreement becomes void on C’s
failure to fix the price.
Example:
A agreed to sell his 100 quintals of wheat to B at a price to be fixed by C. C
is willing to value wheat and fix the price. But, A by his wrongful acts,
prevents C from making the valuation of the goods. In this case, B can
claim damages from A.
UNIT 2: CONDITIONS AND WARRANTIES
• INTRODUCTION :
In every contract of sale of goods there are certain stipulations made with
reference to goods which are the subject-matter thereof. Such stipulations differ in
character and importance. The clause divides stipulations into conditions and
warranties. Condition:
“A condition is a stipulation essential to the main purpose of the contract, that
breach of which gives a right to treat the contract as repudiated.” Warranty:
“A warranty is a stipulation collateral to the main purpose of the contract, the
breach of which gives rise to a claim for damages but not a right to reject the
goods and treat the contract as repudiated”.
CONDITION WARRANTY
- A condition is essential to the main
purpose of the contract.
- It is only collateral to the main
purpose of the contract.
- In case of breach of condition,
aggrieved party can:
i. Rescind the contract, return the
goods and claim refund.
ii. Claim damages
- In case of breach of warranty,
aggrieved party can only claim
damages.
- A breach of condition may be
treated as a breach of warranty
- A breach of warranty cannot be
treated as a breach of condition.
- Example: 4. Example:
• WHEN A CONDITION CAN BE TREATED AS A WARRANTY :
1. Voluntary waiver of condition:
Where a contract of sale is subject to any condition to be fulfilled by the
seller, the buyer may waive the condition or elect to treat the breach of the
condition as a breach of warranty and not as a ground for treating the
contract as repudiated.
2. Where the buyer elects to treat the breach of the conditions, as one of
a warranty. That is tosay, he may claim only damages instead of
repudiating the contract
3. Compulsory waiver of a condition:
Where a contract of a sale is not severable and the buyer has accepted the
goods or part thereof, the breach of any condition to be fulfilled by the
seller can only be treated as a breach of warranty and not as a ground for
Sometimes, the goods are sold by description. In such cases,
the implied condition is that the goods shall correspond with
the description.
The term ‘correspondence with description’ means that the
goods purchased by the buyer must be the same which were
described by the seller.
If subsequently, it is discovered that the goods do not
correspond with the description, the buyer may reject the
goods and claim the refund of the price, if already paid.
Example:
3. Condition as to sample:
In case of sale of goods by showing the sample to the buyer,
there are following three implied conditions,
(i) That the goods delivered shall correspond with the
quality of the sample
(ii) That the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
(iii) That the goods shall be free from latent defects (i.e.,
the defects which are not discoverable on reasonable
examination of sample)
4. Condition as to sample as well as description:
Sometimes, the seller shows sample of the goods to the
buyer and also gives him their description. In such cases, the
implied condition is that the goods shall correspond with both,
the sample as well as description.
5. Condition as to quality or fitness for buyer’s purpose:
Ordinarily, there is no implied condition that the goods shall
be fit for the particular purpose of the buyer.
Buyer is not responsible
(i) To know the particular purpose of buyer.
(ii) If buyer chooses the goods negligently.
However in following exceptions, there is an implied condition
that the goods shall be fit for the buyer’s specific purpose.
In following cases seller is responsible to the buyer:
(i) If the buyer makes his purpose clear to the seller.
(ii) If the buyer buys the goods ‘relying upon his skill and
judgment’.
Example:
6. Condition as to merchantability:
The term ‘merchantability’ has not been defined in the Sale of Goods
Act. However, it has been interpreted by the courts, and basically it
means the two things, namely: If goods are purchased for
Self use Resale
7. Condition as to wholesomeness:
This condition is a part of the condition as to merchantability. It is
applicable in cases of eatables, i.e., foodstuffs and other goods
which are used for human consumption. As per this condition, goods
sold must be fit for human consumption. Example:
WARRANTIES :
EXPRESS WARRANTIES IMPLIED WARRANTIES
Implied Warranties:
It is a warranty, which the law implies into the contract of sale. The law
presumes that the parties have incorporated it into their contract.
The implied warranties are read into every contract of sale unless they are
expressly excluded by the parties.
In case of conflict between the express and implied warranties, the express term
shall prevail and the implied terms shall not be considered. ü Following are the
implied warranties which are contained in the Sale of Goods Act :
1. Warranty as to quiet possession:
Where the buyer has obtained the possession of the goods, he has
a right to enjoy them in a way he likes, i.e., no one should interfere
with the quiet enjoyment of the buyer.
If buyer’s right of possession and enjoyment is disturbed by anyone,
then the buyer can recover damages from the seller.
Example:
2. Warranty as to free from encumbrance:
In every contract of sale there is an implied warranty that the goods
sold shall be free from any charge.
If the possession of the buyer is disturbed due to such charge in
favour of third party, he can claim damages from the seller.
Example:
Then they should be reasonably
fit for the purpose for which they
are generally used.
Example:
Then they should be immediately re-
saleable in the market under their
description.
Example:
TRANSFER OF PROPERTY (OWNERSHIP) :
A. Meaning:
The term ‘property in the goods’ may be defined as the legal
ownership of the goods.
Transfer of Ownership means transfer of Risk, Rights and Returns
pertaining to the goods.
The term ‘property in the goods’ must be distinguished from the term
‘possession of the goods’. The term ‘property in the goods’ means
the ownership’ of the goods, whereas the term ‘possession of goods’
simply means the custody or physical control over the goods.
B. Rules:
1. The ownership is transferred at the time of making the contract
if the following conditions’ are fulfilled:
(a) The sale must be of specific goods:
These are the goods which are identified and agreed upon at
the time of contract.
(b) The goods must be in a deliverable state:
The goods are said to be in a deliverable state when they are
in such a state that the buyer would, under the contract, be
bound to take delivery of them.
(c) The contract of sale must be unconditional:
A contract is unconditional in which no condition is imposed
regarding the transfer of ownership of the goods.
2. Transfer of ownership in case of sale of unascertained goods.
The unascertained goods are the goods which are not specifically
identified at the time of making the contract of sale.
In case of sale of unascertained goods, the ownership is transferred
to the buyer on the fulfilment of both the following conditions:
(i) Ascertainment of goods:
It is the process by which the goods to be delivered under the
contract are identified and set apart. It is a unilateral act of the
seller alone to identify and set apart the goods.
(ii) Appropriation of goods:
It is the process by which the goods to be delivered under the
contract are identified and set apart with the mutual consent
of the seller as well as buyer. It is a bilateral act of the seller
and the buyer to identify and set apart the goods.
Example:
3. Where the specific goods are to be put in a deliverable state by
the seller: The ownership is transferred as soon as the seller has
put the goods in a deliverable state and the buyer comes to know
about the act of the seller.
4. Where the specific goods in a deliverable state are to be
weighed or measured by the seller to ascertain the price, the
ownership is transferred to the buyer as soon as the seller has done
the act of ascertaining the price and the buyer comes to know about
this act of the seller.
Example:
5. However, parties may decide to pass the ownership as per the
contract.
6. Transfer of ownership in case of sale on approval
The ownership of goods is with seller and the possession of
goods is with buyer
The buyer has an option to return the goods.
The ownership is transferred to the buyer in any of the
following three ways:
(i) When the buyer accepts the goods:
The acceptance by the buyer may be express or
implied.
(ii) When the buyer adopts the transaction:
The buyer may adopt the goods by doing some act
which shows that he has accepted the goods e.g.,
where he further sells or pledges the goods.
(iii) Where the buyer fails to return the goods within
fixed or reasonable time
7. Reservation of right of disposal
The seller may like to retain the ownership of the goods until
some later date, e.g., until the price is paid or some
conditions are fulfilled. The seller may do so by reserving his
right of disposal.
Where the seller has reserved his right of disposal, the
ownership of the goods is not transferred to the buyer even if
the goods are delivered to the buyer or some carrier for the
purpose of transmission to the buyer. The ownership is
transferred to the buyer only when the conditions imposed by
the seller are fulfilled
In the following two circumstances the seller is presumed to
have reserved the right of disposal :
- By taking the documents showing title in his own name
or his agent’s name
- By sending the bill of exchange for the price, to the
buyer, along with the documents of title
v Example:
3) Sale by estoppel: When the owner of goods, by his
conduct or by statement, wilfully leads the buyer to
believe that the seller has the authority to sell, then he
is estopped (i.e., prevented) from denying the seller’s
authority to sell
Example:
4) Sale by unpaid seller: To be done in Unit 4
5) Sale by a seller in possession of goods after their
sale: If the seller continues to have the possession of
the goods even after their sale and if he resells the
same goods to a new buyer then in such cases, the
second buyer gets a valid title to the goods if he buys
them in a good faith. Example:
6) Sale by a buyer in possession of goods after their
sale: If the buyer obtains the possession of the goods
which he has bought or agreed to buy from the seller
and the seller still has some lien or other rights over
the goods. If the buyer resells the same goods to a
new person. In such cases, the second buyer gets a
valid title free.
Example:
7) Sale by a finder of goods:
If the expenses on the goods ≥ 2/3rd of Market Value
8) Sale by a person in possession under a voidable
contract: The buyer gets a valid title only if the
following conditions are satisfied:-
a. A person must obtain the possession of the
goods by coercion, undue influence, fraud or
misrepresentation.
b. The seller must have obtained the possession of
the goods under a voidable contract and not
under a void contract.
c. The contract must not have been rescinded (i.e.,
put to an end) at the time of sale
d. The buyer must act in a good faith. Example:
If the goods are perishableIf the goods are non-perishable
9) Sale Under the Provision of Other Acts :
a. Sale by an Official Receiver or Liquidator of the
Company will give a valid title to the purchaser.
b. Sale by a pawnee/pledgee under default of
pawnor in repayment of debt will give valid title
to the purchaser.
v In case of hire-purchase, hirer cannot pass a
good title even to a bonafide buyer.
DELIVERY OF GOODS
A. Meaning:
“Delivery” means a voluntary transfer of possession from one person to
another”.
Delivery of goods may be actual, symbolic or constructive
B. Rules:
1. Buyer in position to access the goods:
The delivery of the goods may be made in any of the modes, but it must
have the effect of putting the goods in the possession of the buyer or his
agent.
2. Demand for delivery of goods:
It is seller’s duty to put the goods in deliverable state and inform the buyer
regarding same. It is buyer’s duty to make a demand for the delivery of the
goods.
3. Goods in the possession of a third person:
Sometimes, at the time of sale, the goods are in the possession of a third
person. In such cases, the effective delivery takes place when such person
acknowledges to (i.e., inform) the buyer, that he holds the goods on his
(buyer’s) behalf.
4. Delivery to a carrier or wharfinger:
Where the sold goods are delivered to a carrier/wharfinger for the purpose
of transmission to the buyer or safe custody, the delivery of goods to the
carrier/wharfinger is treated as a delivery to the buyer
5. Place for the delivery of goods:
Specified in the
contract
The goods must
be delivered at
such place
Not specified in the contract
v In case of sale- Place of Sale
v In case of an agreement to sell- Place of
agreement to sell
v If at the time of agreement to sell, the
goods are not in existence- Place of
manufacture
ACCEPTANCE OF DELIVERY OF GOODS
Acceptance is deemed to take place when the buyer-
(a) Intimates to the seller that he had accepted the goods; or
(b) Does any act to the goods, which is inconsistent with the ownership of the
seller; or
(c) Retains the goods after the lapse of a reasonable time, without intimating to
the seller that he has rejected them.
UNIT 4 : UNPAID SELLER
MEANING OF UNPAID SELLER:
A seller will be called ‘unpaid’ if the following conditions are fulfilled:
(1) The whole or part of the price has not been paid or tendered and that the
seller has immediate right of action for the price.
(2) A bill of exchange or other negotiable instrument has been received but the
same has been dishonoured.
12. Delivery of wrong quantity:
Short delivery Excess delivery Mixed delivery
or or or or
Accept
the
Goods
Acceptall
the
Goods
Accept
the
Goods
Reject
the
Goods
Reject
the
Goods
Reject
the
Goods
Accept
the
quantity
ordered
He shall have
to pay at the
contract price
for the goods
actually
delivered to
him
The buyer rejects the whole quantity the contract is
not treated as cancelled, it is valid and subsisting.
The seller still has the right to tender again the
contract quantity of goods, and the buyer can
claim damages for delay.
(A) Rights against the Goods:
1. Where the ownership of the goods has transferred to the buyer: In this
case, the unpaid seller has the following rights: (a) Right of lien
The right of lien is the right to retain possession of the
goods.
This right can be exercised only when the possession of
goods is with the seller.
The unpaid seller of goods can retain his possession of goods
until payment of the price in following cases:
a) Where the goods are not sold on credit.
b) Where the goods have been sold on credit, but the
term of credit has expired
c) Where the buyer becomes insolvent.
The unpaid seller can retain the goods only for the payment
of the price of the goods: He cannot retain the goods for any
other charges, e.g., maintenance, charges for storage of
goods during the exercise of lien etc.
The right of lien is indivisible in nature.
Termination of Lien:
a) By delivery of goods to the carrier
b) By delivery of goods to the buyer
c) By waiver of the lien
d) By payment of price by the buyer
v Example:
(b) Right of stoppage in transit
RIGHTS OF UNPAID SELLER
Against Goods Against Buyer
When property in When property in
goods is transferred goods is not transferred
- Right of Lien
- Right of
stoppage in
transit
- Right of resale
- Right of
withholding
delivery
- Any other
right
- Suit for recovery of
price
- Rescind the contract
- Suit for damages
- Suit for interest
