CPT Section B Mercantile Laws Chapter 2 Unit 1

Dr. V.Seshadri

Act was originally a part of Indian Contract

Act,1872.Subsequently it was separated
and became a separate law in 1930
Act covers all commercial transactions
relating to sale of goods

Contract of sale of goods are subject to the general principles of

contract such as

offer
acceptance
free consent
competent to contract
lawful consideration and
lawful object.

Therefore the provisions of Indian Contract Act continue to

apply to the contracts for sale of goods so far they are not
inconsistent with the express provisions of the Sale of Goods Act
1930.

Formation of the contract of sale

Conditions and warrantees
Transfer of ownership and delivery of goods
Unpaid seller

Section 4(1)

Contract of sale:Contract
whereby seller, transfers or
agrees to transfer
the
property in goods to the
buyer for a price.

Contract of sale is a generic term which includes both sale

as well as agreement to sell.
Sale: a contract whereby the seller transfers the property
in goods to the buyer for a price. This is a concluded
transaction i.e. executed contract.
Agreement to sell: a contract whereby the seller agrees to
transfer the property in goods to the buyer for a price. This
is a transaction to be concluded i.e. executory contract.

SECTION
4(3)

Where under a contract of sale the

property in goods is transferred from the
seller to the buyer,the contract is called
sale.
Where under a contract of sale the
transfer of property in goods is to take
place at a future time or subject to some
condition thereafter to be fulfilled ,the
contract is called an agreement to sell.

There may be a contract of sale between one part

owner and another.

Contract of sale may be absolute or conditional.

Contract of sale may be express (oral) or in writing.
It may be implied from the conduct of the parties or
from the course of dealing between the parties.

Two parties: presence of two distinct

parties is essential for a germination of
a contractual alliance. There must be a
Buyer and a seller to make a sales
contract.
Buyer: A person who buys or agrees to buy
goods.
Seller: A person who sells or agrees to sell
goods.

Goods:

The subject matter must

necessarily be goods.

Goods:

every kind of movable

property other than
actionable claims and money
and includes stocks.

Goods includes:
Stocks and shares

Growing crops

Grass
Things attached and forming part of the
land, which are agreed to be severed before
sale or under the contract of sale.

Actionable
claim:

A Disputed claim(like debt)

which can be enforced through
court of law and is excluded
from the definition of good.

Money:

though it is movable is not a

good as per the Act since value
of goods is always expressed in
terms of money as price.

Goods
Existing
Goods

Future
Goods

Contingent
Goods

Goods which are in existence at the time of

contract of sale.
These goods are owned and possessed by the
seller.

Existing goods

Specific goods

Ascertained
goods

Unascertained
goods

Specific
goods:

Ascertained
goods:

Those which are identified and

agreed upon at the time of
contract of sale.

Though similar to specific goods

are those goods which become
ascertained subsequent to the
formation of a contract of sale.

Unascertained
goods:

Goods which are not identified and

agreed upon at the time of contract
of sale. These goods also called
generic goods are defined by
description only and may form part
of big lot of goods.

Goods not in existence at the time of contract of

sale.
Goods are to be manufactured or produced or
acquired by the seller after making the contract of
sale.
Contract to sell future goods is not sale but an
agreement to sell.

Goods whose availability depends upon a contingency which may or

may not happen.

Contract to sell contingent goods is an agreement to sell similar to that

of future goods.

Example:
A contracts to sell laptop to B when the ship carrying electronic goods
arrives shore. This contract can be performed only when the ship arrives
shore.

Goods perishing before making of contract:

(Section 7)
A contract for sale of
specific goods is void, if at the time the
contract was made the goods have without
the knowledge of the seller either perished
or became so damaged as no longer to
answer to the description in the contract.
This is similar to the effect of mutual or bilateral
mistake.

(B) Goods perishing after agreement to sell but

before sale:
An agreement to sell specific goods becomes
void if subsequently the goods, without any fault
on the part of the seller or buyer perish or
become so damaged as no longer to answer to
the description in the agreement before the risk
passes to the buyer.
This rule is based on impossibility of
performance.

Value of goods expressed in terms of money is

called price.
Consideration for a sales contract shall be money
only.
Price in the contract of sale may be
-fixed in the contract itself (or)
-left to be fixed in an agreed manner (or)
-determined in the course of dealing between the
parties
In the absence of the above the buyer may pay a
reasonable price.

Sometimes the parties may agree that the price is to be

fixed by the valuation of a third party.

If such third party cannot or does not make such

valuation the agreement becomes void.

However if the goods have been delivered to and

appropriated by the buyer, he shall pay a reasonable price
to the seller.

There must be transfer of property in goods from the seller to the

buyer.
A distinction may be made between general property and special
property. If the seller owns certain goods, he has general ownership in
goods. If he pledges the goods then he has special property in goods.
The transfer of property under the contract of sale means transfer of
general property (ownership) in goods.

Ownership = Title + Possession

DOCUMENT OF TITLE
It authorizes the possessor of document to receive or transfer
goods mentioned therein.
Eg: bill of lading, dock warrant, railway receipt,wharfingers
certificate and any other document used in the ordinary
course of business as proof of possession of goods.
DOCUMENT SHOWING
TITLE
It merely indicates the
entitlement in favor of a
person but doesn't allow
him transfer the goods
mentioned therein by mere
endorsement and delivery.
Eg:share certificate

Since contract of sale is a special type of contract all essential elements of contract
shall be fulfilled.

There is no prescribed form for making a contract of sale.

Contract of sale may be absolute or conditional.

There may be immediate delivery of goods or there may be an immediate payment

of price but, delivery of goods may be agreed to be made at a future date.

There may be immediate delivery of goods

as well as immediate payment of price.
Delivery of goods or payment of price
may be postponed to a future date.
Delivery of goods or payment of price or
both may be made in installments.

SALE

AGREEMENT TO SELL

Transfer of
property to
buyer

Immediate transferof
propertyat the time of
contract of sale

Property transfer at a future date

subject to fulfillment of certain
conditions

Nature of
contract

Executed

executory

Nature of
goods
involved

Existing and specific

goods

Existing goods,specific goods and

also future and contingent goods

Loss or damage
to goods

Sale

Agreement to sell

Risk falls on buyer since

he is the owner

If the goods are destroyed loss

falls on seller

Breach of
Seller can sue the buyer
contract by buyer for price

Seller can sue the buyer for

damages only and not for price.

Breach of
contract by seller

Buyer can sue for damages.

Buyer can sue the seller

for damages and can
recover the goods

Sale

Agreement to sell

right

Sale creates right to the

buyer to enjoy the goods
against the whole world
including the seller

Creates only a right in person

am i.e. right to the buyer
against seller only, to claim
damages.

Insolvency of
buyer before
payment of
price

Seller has to deliver the

goods to the official receiver
or assignee and claim rate
able dividend for the price.

Seller is not bound to deliver

the goods to the official
receiver or assignee.

Insolvency of
seller

Buyer is entitled to recover the If the buyer has paid

goods from official receiver or the price, buyer can
assignee since he is the owner. claim only a rate able
dividend because the
ownership has not
passed on to him.

Transfer of
ownership to
buyer

Immediate transfer Transfer only when certain

agreed installments including the
last installment are paid.

Title to goods

Buyer becomes
Buyer becomes an hirer and not
the owner of goods the owner of goods.

Termination of
contract

Buyer shall pay the

agreed price and
he cannot
terminate the
contract

Hire purchaser has the option to

unilaterally terminate the
contract and return the goods.
He cannot be compelled to pay
the further installments of price.

Adjustment of
installments

In case of payment of
price in installments,
each installment is
adjusted towards price.

Insolvency of
buyer/hirer

The seller takes the risk Seller has no risk of loss

of loss since he will get since he can take back the
only prorata dividend.
goods.

Transfer of title
on subsequent
sale by buyer

Buyer being the owner

can pass on a good title
to a bona fide
purchaser of goods
from him.

The installments paid is

treated as hire charges till
the option to purchase the
goods is executed by the
buyer.

Since hirer is not the owner

he cannot pass on good
title even to a bona fide
purchaser of goods from
him.

Point of taxation

Governing laws
and regulation

Levy of tax at the Tax not levied till

time of contract hire purchase
of sale
becomes the
sale.
Governed by
Governed by
Sale of Goods
Hire Purchase
Act 1930
Act 1972.

Transfer of
ownership to
buyer

Immediate
transfer

There is only transfer of

possession of goods and
not ownership from bailor
to the bailee

Purpose
of use of
goods

Buyer can use

the goods for
any lawful
purpose.

Bailee can use the goods

only for the purpose as
per the directions of the
bailor.

Consideration

Sale is always for money

consideration

Bailment may or may

not be gratuitous.

Return of goods
back

Since the buyer is the

owner of goods there is no
question of return of goods
back to the seller.

Bailee must return the

goods back to the
bailor as soon as the
purpose is
accomplished.

To Sum up
Sale is an executed contract whereby property
in goods is immediately transferred to the buyer.
Agreement to sell is the executor contract where
in the property in goods will be transferred to the
buyer at a future date.
The price in the contract of sale may be fixed by
the seller or by the seller and buyer or allowed to
be fixed in the course of dealings by the parties or
on the valuation of third party.
Since contract of sale is a special type of contract
all the essential elements of valid contract of sale
has laid down in the contract act shall be full filled.

MCQs

1 A contract of sale is a contract where by the

seller
a)Transfers the property in goods to the buyer
as a gift
b)Agrees to transfer the property in goods to
the buyer in exchange for Buyers goods.
c)Transfers the property in goods to the buyer for a
price

d)Agrees to transfer the property in goods to

the buyer without any consideration.

The term goods under Sale of Goods Act, means

a)Any movable property
b)Any movable property or immovable
property
c)Any property
d)Any movable property other than actionable
claim
or money
3
The term property in goods refers to
a)Possession
b)only title
c)Possession and Ownership
d)Goods

Contract of sale includes

a)Sale
b)Agreement to sell
c)Exchange
d)(a) and (b)
In the case of agreement to sell the ownership in
goods is transferred to the buyer
a) Immediately
b)At some future date
c)When the delivery of good is made
d)When the price in paid

Ascertained goods means

A)Goods specially identified at the time of contract
B)Goods which are in existence and apportioned
C)Goods not specially identified at the time of contract
of sale
D)None of these.
Contingent goods means
a)Goods which are not in existence
b)Goods which are yet to be manufactured
c)Existing or future goods the availability of which
depends upon happing of an event
d)Specific goods identified and agreed upon at the
time of contract of sale

The term sale indicates

a)Executed contract
b)Executory contract
c)Contingent contract
d)None of these
9 In the case of sale the responsibility for loss of
goods
a)Lies on the buyer
b)Lies on the seller
c)Needs to be shared by buyer and seller
d)None of these

10 A contract of sale without consideration is

a)Void
b)Voidable
c)Valid
d)Illegal
11 In a cotract of sale consideration Shall be
a)money only
b)Goods
c)Anything positive
d)Any abstinence
12 A by a contract agrees to sell a TV to B in
consideration of Bs watch plus Rs. 1000/-.The contract is
a)Sale
b)Exchange
c)Transfer
d)None of these

13. Which of the following is not an essential element of a contract

of sale?
a)Transfer of title in goods
b)Consideration in the form of price
c)Three parties viz seller, buyer and guarantor
d)Transfer of possession goods
14. A contract of sale many provide for
a)Immediate payment of price
b)Immediate delivery of goods
c)Postponement of either delivery of goods or payment of price
or both to a future date
d)All of these
15 Which of the following is not a good?
a)Money
b)Stock in trade
c)Actionable claim
d)Both (a) and (c).

16 Which of the type of goods can form the subject

matter of contract?
a)Existing goods
b)Contingent goods
c)Future goods
d)All of these
17. A contract of sale of future good is
a) Sale
b) Voidable
c)Void
d)Agreement to sell
18 A agreed to sell a LCD TV to B on Arrival of As ship. It
is a contract of sale of
a)Future good
b)Contingent good
c)Unascertained good
d)None of these

19. A agreed to sell 10 bags of cement to B at certain price. But unknown

to A the cement bags were already damaged due to rain water before
making the contract of sale. The agreement is
a)Valid
b)Void
c)Voidable
d)Contingent
20
In the case of contract of sale of specific goods, the goods perished
without the fault of the buyer before the agreement to sell becomes sale,
the contract of sale is
a)Valid
b)Voidable
c)Void
d)Illegal
21
A delivered a horse to B for trial for 8 days on an agreement that B
shall buy the horse if found suitable. The house died on the third day
without any fault on the part of B. The agreement became
a)Void and A cannot recover price from B
b)Valid and enforceable and A can recover price
c)A quasi contract
d)None of these

22 Price in a contract of sale can be fixed

a)Entirely by parties themselves by mutual consent
b)In a manner provided in the contract of sale
c)By a course of dealings based an custom or trade practice
d)By any of these methods
23 In a contract of sale price may be allowed to be fixed
a)By the third party
b)By the valuation of a third party
c)Both (a) and (b)
d)None of these
24 In a contract of sale if the price is to be fixed by the valuation of
a third party and the third party fails to make valuation
a)The contract becomes void
b)The contract is voidable
c)The contract is valid and enforceable
d)None of them

25 . A agreed to sell certain furniture to B at a price to be fixed by

the valuation of C. But C failed to fix the price. The contract is
a)Valid
b)Void
c)Void able
d)None of these
26 When the price is to be fixed by the valuation of the third party
who has failed to do so, but the buyer has received and
appropriated the goods, the buyer is liable
a)To pay penalty
b)Damages
c)A reasonable price
d)Special damages and interest
27 In the installment purchase the buyer becomes the owner
a)When the goods are delivered to him
b)When the last installment is paid
c)Both (a) and (b)
d)None of these

28

In the hire purchase agreement the buyer

a)Must buy the good
b)has an option to buy the goods
c)Is not given the possession of goods
d)Is the owner of goods
29 Hire Purchase includes
a)sale
b) agreement to sell
c)agreement to sell and bailment
d) none of these
30 The main object of contract of sale is
a) Transfer of possession
b) Payment of price
c) Passing of property in goods
d) Both a) & b)