SALE OF GOODS

LEGAL ASPECTS OF BUSINESS

(PGP-1 Term-II 2010-11)

Section B Group 16Rakesh S |Nishit Mistry |Praveen Mundlapati

|Conrad Janong Sooting | Felix G

Introduction

Operative Law - Sale of Goods Act 1930 Allows parties to agree to any term they like Lays down positive rules of general application for cases

where parties have failed to contemplate for contingencies which may interrupt smooth performance of contract of sale

Ex. Destruction of goods sold before its delivered General contracts under Indian Contract Act are applicable

if not inconsistent with former Ex. Rules regarding to capacity of parties, free consent

and measure of damages Consideration must only by way of “price”(money)

Essential Characteristics of Sale of Goods

Sale of Goods means “A contract where by the seller transfers or agrees to transfer the property in goods to the buyer in price” (Section 4.1 Sale of Goods Act)

Essential Characteristics of Sale of Goods Two Parties Transfer of Property Goods Price Sale/Agreement to Sell No Formalities to be Observed

Essential Characteristics of Sale of Goods (Contd.)

Two Parties

A buyer and a seller

Undivided Joint Owners and “part-owners”

Students taking meal from a students’ run mess – No contract of sale (undivided joint owners)

Only case where a person can buy his own goods is when the persons goods are sold in execution of a decree

Transfer of Property (“Ownership”)

“Property” -> “general property” (Sale of Goods Act)

To constitute a contract of sale the seller must either transfer or agree to transfer the property in the goods to the buyer

Not mere transfer of possession

Goods

Subject matter of contract of sale must be “goods“

“Goods means every kind of movable property other than actionable claims and money; includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale and under the contract of sale”

‘Actionable Claims’ are claims which can be enforced by a legal action or a suit. Ex. Book debt, bill of exchange, promissory note. These can be assigned or transferred but not sold

Money is a ‘medium of exchange’ not ‘goods’. But old and rare coins can be treated as goods

Sale of immovable property – Transfer of Property Act 1882

Classification of Goods

Existing Goods : Goods which are physically in existence and are in possession of seller at time of sale

Future Goods : Goods that are to be manufactured or produced or yet to be acquired by seller No present sale as property cannot pass. Only contract

for sale for ‘future’ goods. Ex. A agrees to sell B all the milk that his cow may yield

during coming year Contingent Goods : Type of future goods where acquisition

of the goods by the seller depends upon a contingency Ex. A agrees to sell B all the fish in his fishing boat, when

it arrives.

Price

Consideration for contract of sale must be money which is called ‘Price’

Goods sold for other goods then transaction is governed by the Transfer of Property Act

Sale

Immediate conveyance of the ownership and mostly of the subject matter of the sale as well

Kind of Executed contract

Transfer of property in goods is to take place at future time or subject to some condition thereafter to be fulfilled

Kind of executory contract

An Agreement to Sell

Distinction between Sale and An Agreement to sell

Transfer of Property (Ownership) Risk of Loss Consequences of breach Right of Resale Insolvency of buyer before he pays for the goods Insolvency of seller if buyer has already paid the

price

No Formalities To Be Observed

Can be made by mere offer and acceptance Neither payment nor delivery is necessary at

time of making the contract of sale Can be made either orally or in writing or partly

orally or partly in writing or may be even implied from the contract of the parties

Conditions and Warranties

In contract of sales of goods, Stipulations regarding quality, price, mode of payment, etc. are known Conditions and Warranties

Condition – stipulation essential to the main purpose of the contract

Breach of Condition gives aggrieved party right to repudiate the contract

In addition, aggrieved party can claim damages from the guilty party

Conditions and Warranties (Contd.) Warranty – a stipulation collateral to the main

purpose of the contract Breach of Warranty, gives the aggrieved party

right to sue for damages only Aggrieved party can not avoid contract itself

There is no hard and fast rule as to which stipulation in a contact is a condition or warranty

It depends in each case on the construction of the contract

Mere nomenclature is not enough to distinguish

Examples

Breach of Condition P goes to R, a horse dealer, and asks for horse

which runs at a speed of 30 km per hour, P buys a horse from R

Later P finds that horse can only run at a speed of 20 km per hour. This is a breach of condition

Breach of Warranty P says to R, “I want a good horse”, R shows

him a horse and says, “ This is a good horse and it can run at a speed of 30 km per hour”, and P buys the horse

Later, P finds that horse can only run 20km/hour

Distinction between Condition and Warranty

As to value Condition – essential to the main purpose of the

contract Warranty – collateral to the main purpose of the

contract As to breach

Condition – right to repudiate the contract and also to claim damages

Warranty – right to claim damages only As to treatment

Breach of condition may be treated as a breach of warranty

Breach of warranty cannot be treated as breach of condition

When breach of condition to be treated as breach of warranty

Voluntary waiver by buyer Buyer of goods may treat breach of condition

as a breach of warranty, and accept goods and sue the seller for damages

E.g. If A agrees to supply B 10 bags of first quality sugar @Rs. 625 per bag, but supplies only second quality sugar (Rs. 600 per bag)

Buyer may treat it as breach of warranty, accept the goods and claim damages @Rs. 25 per bag

When breach of condition to be treated as breach of warranty

Acceptance of goods by buyer When the buyer accepted goods, but later comes

to know of the breach of contract Buyer can not reject goods, can only claim

damages In this case, law treats breach of condition as

breach of warranty i.e. does not depend on the will of buyer

In case of indivisible contract, buyer should treat breach of condition as breach of warranty

In case of divisible contract, buyer can repudiate as regards remaining goods

Conditions and Warranties (contd.)

Express and Implied Conditions and Warranties

Implied Conditions Conditions as to title Condition in a sale by description Condition in a sale by sample Condition in a sale by sample as well as by

description Condition as to fitness or quality

Implied Conditions Contd..

Condition as to merchantability Goods should correspond with description and be ‘merchantable’

quality

i) Seller should be a dealer of that description, whether he is a manufacturer or not

ii) The buyer must not have any opportunity to examine the goods or there must be some latent defect in the goods, which should be apparent on reasonable examination

Condition as to Wholesomeness Implied only in contract of sale of eatables and provisions Goods should answer to description, must be merchantable and

must be wholesome, i.e., free from any defect which render them unfit.

W bought a bottle of beer from H and the beer was contaminated with arsenic and W fell ill. H was held liable to W for the illness

Implied Warranties

Warranty of quite possession “the buyer shall have and enjoy quite possession of goods”. If the buyer is disturbed by a person with superior right than the

seller, the buyer can claim damages from the seller. Regarded as an extension of the implied condition of the title. A buys a typewriter and spent money on repairs. It turns out be a

stolen article. A is entitled to get back what he paid plus repair charges.

Warranty of freedom from encumbrances “The goods shall be from any charge or encumbrance in favour of

any third party not declared or known to the buyer before or at the time when the contact is made”

A pledges a watch to B. Later he sells it to C. B tells C about the pledge. C has to make payment for the pledge amount to B. Here is a breach of warranty and C can get compensation from A.

Implied Warranties (Contd.)

Warranty of disclosing the dangerous nature of the goods to the ignorant buyer If the goods sold are of dangerous nature, the seller is

bound to warn the ignorant buyer. Buyer entitles to claim damages for injury in case of a

breach of warranty. C purchases a tin of disinfectant powder from A. A knows

the lid is defective and if opened without special care it may be dangerous but tells nothing to C. C opens the tin in the normal way and gets injured. A is liable in damages to C as he should have warned C of the probable danger.

Doctrine of Caveat Emptor

“let the buyer beware” It is the duty of the buyer to be careful while purchasing

goods of his requirement The buyer must examine the goods thoroughly and must

ensure they serve the purpose for which he wants them No implied undertaking by the seller that he shall supply

goods to suit the buyer’s purpose Ex. A buys a horse from B for riding – but did not mention

this. The horse was found fit only for carriage. A cannot claim damage.

Exceptions of the doctrine of caveat emptor Seller makes a misrepresentation and the buyer relies on it.

Buyer has a right to rescind the contract. Seller makes a false representation amounting to fraud or

seller conceals a defect in the goods Goods purchased by description and do not correspond with

the ‘description’ Goods purchased by description are of not ‘merchantable

quality’. But the doctrine applies, if the buyer examined the goods where such examination ought to have revealed the defect.

If the bulk does not correspond with the sample or if the buyer is not provided an opportunity to compare the bulk with the sample or if there is any hidden or latent defects in the goods.

Exceptions Cont…

Goods bought by sample as well as description and the bulk does not correspond with the both, the buyer is entitled to reject it.

Buyer makes known to the seller the purpose for which he requires the goods and relies upon the seller's skill but the goods supplied are unfit for that purpose.

Trade usage attaches an implied condition or warranty as to quality or fitness and the seller deviated from that, the seller is liable in damages.

Thank You

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