LAW OF SALE OF GOODS

Contents

Introduction Formation of the Contract Conditions and Warranties Effects of the Contract Performance of the Contract Unpaid Seller Suits for Breach of the Contracts and Auction

Sales

Introduction Scope of the Act

The sale of goods act applies only to movable goods and not to immovable goods which is governed by Transfer of Property Act,1882

Goods (1) Existing Goods:Specific goods & Generic goods (2) Future Goods

Shares and stock, goodwill, patent, copyright , trademark

If Goods are sold against goods ,it is 'EXCHANGE' governed by the Transfer of Property Act 1882.

Document of Title To Goods:

A document of title to goods is a proof of possession or control over the goods.

The holder of the document of title to goods is authorized to receive the goods.

He is also authorized to transfer the possession of goods either by endorsement or by delivery.

Property: It Means General property in goods and not

merely a special property

Formation Of The Contract Sale

When under a contract of sale the property in the goods transferred from seller to buyer, the contract is called “sale”

Essential of a valid sale There must be two parties Transfer of property By writing or by word of mouth Consideration for a sale of goods must be money Includes both an actual sale and agreement to sell

Agreement To Sell Ownership in the goods is to take place at a future

date or subject to some condition to be fulfilled, is called agreement to sell

•Sale and Agreement to sell – Difference

Sale Nature of Contract

Executed Creation of Right

Right in Rem Passing of Property

Goods and risk passes to buyer

Risk of lossBuyer

Agreement to Sell Nature of Contract:

Executory Creation of Right

Right in Personnam Passing of Property

Goods and risk is with seller

Risk of LossSeller

Remedies: BreachSeller is entitled to Sue

for PriceRight of LienStoppage in transitResale

Insolvency of BuyerSeller must deliver

goodsto official

assignee Insolvency of Seller

Buyer is entitled to receive

Remedies: BreachSeller can only sue

for damages for non

performance of

Contract.

Insolvency of Buyer Seller may refuse to

deliver the goods

unless paid Insolvency of Seller

Buyer has to prove the amount.

Contract of Sale of Goods and Contract of Work and Labour

Examples: A dentist makes a set of false teeth for his

patient with materials wholly found by the dentist and the buyer agrees to pay Rs.2000 when they are properly fitted into his mouth

A customer gives his tailor a length of suiting and requires him to make a suit for him, the lining materials and the buttons to be supplied by the tailor.

Formalities of The Contract

How the contract made?Offer of acceptanceDeliveryAscertainment of price

Price to be fixed when agreement is to sell at valuation

GoodsContract

Hire Purchase Agreement

Sumit sells a refrigerator to Riddhi with a stipulation that Riddhi shall pay Sumit a fixed sum every month by way of installments till the full price of the refrigerator is paid.

Now till Riddhi pays the full amount to Sumit by way of installments, she does not become the owner of the refrigerator . She can discontinue payment of further installments. In such a case Sumit takes back the refrigerator . Riddhi has no right to recover the installments already paid by her to Sumit because the amount paid by her is adjusted towards the hire charges of refrigerator.

Example : Hire Purchase Agreement

Bilva hires a piano from Rajul on an agreement that Bilva should pay Rs500 a month as rent. The stipulation is that if she regularly pays the rent for 36 months the piano becomes her property at the end of 36 months. Further it is provided that Bilva can return the piano at any time and she need not pay any more. This is a hire purchase agreement proper.

If however, it is agreed that 36 months rent must be paid and that he cannot return the piano, the agreement is a contract of sale and not a hire purchase agreement

Hire Purchase Agreement

A hire purchase agreement has 2 aspects:Bailment of Goods subject to hire purchase.Element of Sale,which fructifies when the

option to purchase has been exercised

Hire purchase =Bailment + Agreement to

Agreement Sell In hire purchase agreement a buyer cannot

exercise any ownership rights. Hire purchase agreement is regulated by Hire

Purchase Act, 1972.

Subject Matter of Contract

Goods that form a subject matter of contract of sale may be either :Existing goodsFuture goods

Goods Perishing – Effects of Destruction of goodsGoods perishing before making of contractGoods perishing before sale but after agreement

to sell

Conditions and Warranties

Condition: A condition is a stipulation essential to the main purpose of the contract, breach of which gives right to treat the contract as repudiated or broken.

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 to a right to reject the foods and treat the contract as repudiated or broken.

Illustration: Conditions and Warranty

Samir places an order to Rushi for supply of machine parts strictly according to the sample, delivery to be made within 3 mths.

Now supply of parts strictly according to the sample is an essential condition while delivery withing 3 mths is a warranty.

If , therefore, Rushi does not supply the machine parts strictly according to the sample, Samir can repudiate the contract and reject the goods and also claim damages.

If, however, Rushi supplies the parts later than 3 mths, A can claim damages only for late delivery but he cannot repudiate the contract.

Implied Warranties and Conditions

• Warranty as to title• Sale by description• Sale by sample• Sale by sample as well as by

description• Warranty as to quality or fitness• Warranty as to quiet possession

free from encumbrances

Difference between Condition & Warranty

Condition Essential Affects the legality of

contract May be treated as

breach of warranty Contract can be

cancelled

WarrantySubsidiary

It does not affect

Warranty cannot become a condition

At best damages are to be paid

Caveat Emptor Caveat emptor means" let the buyer

beware” ex. the buyer must take care Exception

Custom or usage of tradeFraud : seller is guilty of fraud, he is liable.For specific purposeMerchantable quality : where (1) sale is by

description & (2) purchased form the seller deals in goods of that description., implied condition is that the goods are of merchantable quality.

Where goods are sold by a person who is not the owner thereof and does not sell them under the authority or with the consent of the owner, the buyer acquires no better title than the seller had.

Transfer of Title

Title by estoppelSale by mercantile agentSale by one of the several joint ownersSale of goods by a person in

possession of goods under a voidable contract

Sale by seller in possession after saleSale by buyer in possession after saleSale by an unpaid sellerSale in market overt

Exception to the general rule

Performance of the contract Delivery of goods

Actual delivery Symbolic or constructive delivery

Rules for Delivery of goods Delivery and payment Delivery to be made to buyer Part delivery Buyer to apply for delivery Mode of delivery Place of delivery Time of delivery Demand at reasonable hour Expenses Installment delivery Goods in possession of third party

Delivery of wrong Quantity Short delivery Excess delivery Mixed delivery

Acceptance of delivery Rules

Examining goods When accepted?

• Buyer intimates• When after the lapse of reasonable time, he

retains the rejected items Buyer not bound to return the rejected goods:

• Mere Intimation of rejection by buyer is sufficient

Carriage by sea :

1) C.I.F(Cost – insurance –freight) Contracts

2) F.O.B(Free on Board) - Contracts

3) Ex - ship contracts:

Seller has to deliver the goods after the arrival of the ship.

Seller has to pay freight.

The goods are at the seller's risk during the voyage.

Delivery to carrier

Unpaid Seller

Who is an unpaid seller?

A seller of the goods is deemed to be an unpaid seller when: The whole of the price has not been paid or tendered. A bill of exchange or other negotiable instrument has

been received as conditional payment. Rights of an unpaid seller

When the property in the good s has passed to the buyer

When the property in the goods has not passed to the buyer

When the property in the good s has passed to the buyer Right of lien Right of stoppage in transit Right of re-sale

When the property in the goods has not passed to the buyer Right of withholding delivery Reservation of right of disposal Other rights

Remedies for breach of the contract of sale

Remedies available to the seller Suit for price Suit for damages

Remedies available to the buyer Suit for damages for non-delivery of the goods Suit for specific performance Suit for breach of warranty Suit for repudiation of the contract-anticipatory breach

Auction Sales Implied warranties in an auction sale

– (1)Auctioneer warrants his authority to sell

– (2)He warrants that he knows of no defect in principals title.

– (3)He warrants to give quiet and peaceful possession of goods against payment of the price

Knock-out agreement A knock-out agreement means an

agreement between a group of persons not to bid against each other

CASE STUDY - 1

Case Summary Harish bought a second-hand refrigerator from Manoj for

Rs 450. An agreement made between them that refrigerator

should be put in order at Rs 320. Harish took delivery. Harish found it is not working properly and gave two

parts for repair to Manoj. The full Bill for repair has not been paid. Manoj claimed Lien on two parts and refuse to return

until balance is paid.

QUESTIONS

Is Manoj right what he did?

Is the Lien justified?

JUDGEMENT

Manoj has no right of Lien. His refusal to return until payment is made

is not justified. The contract had been fully performed. Once the refrigerator is handed over , the

Lien had ended. The contract cant revive

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