LAW OF SALE OF GOODS

• Contract of Sales of Goods

• It is a contract where the ownership of
movable goods is transferred form a seller to
buyer.
• Section 4(1) of the Sale of Goods Act,1930
defines:
– “a contract whereby the seller transfers or agrees
to transfer the property in goods to the buyer for
a price”.
 Essentials of Contract of Sale
1. Contract
2. Seller and Buyer
3. Transfer of Property
4. Subject Matter
5. Price
6. Sale and Agreement to Sell
7. Other Formalities
 Essentials of Contract of Sale
1. Contract
A contract of sale relates to movable goods. All essentials of a
valid contract must be present in a contract of sale like capacity
of parties, free consent, legality of object.
2. Seller and Buyer
There must be a seller and buyer. A buyer is a person who buys
or agrees to buy goods. A seller is a person who sells or agrees
to sell goods
3. Transfer of Property
The transfer of property is an essential of the contract of sale.
Here, property means ownership of goods. A mere transfer of
possession of the goods cannot be termed as sale.
 Essentials of Contract of Sale
4. Subject Matter
The subject matter means the things for which the contract of sale is
made. Only goods can be the subject matter in a contract of sale.
Goods means every kind of movable property other than actionable
claims and money.
5. Price
The consideration in a contract of sale must be the price.
6. Sale and Agreement to Sell
The term contract of sale includes both sale and an agreement to sell.
When the ownership in the goods is transferred from a seller to buyer
at the time of formation of contract, the contract is called a sale.
When the transfer of ownership in the goods will take place at some
future date, the contract is called an agreement to sell.
7. Other Formalities
There is no specific procedure to make a contract of sale.
Difference between Sale and Agreement to Sell
SALE
1. Transfer of Property
The ownership in goods transfers to the
buyer at the time of contract.
2. Type of Goods
A sale take place if the goods are in
existence.
3. Recovery of Goods
If seller refuses to deliver the goods, the
buyer may sue for the recovery of goods.
4. Risk of Loss
If the goods are destroyed, the buyer
suffers loss even though the goods are in
possession of seller.
5. Consequences of Breach
If buyer fails to pay the price of goods, the
seller can sue for price, even though
goods are in the possession of seller.
AGREEMENT TO SELL
The ownership in goods is to be
transferred to the buyer at some future
date.
An agreement to sell takes place if there
are future goods.
If the seller refuses to deliver the goods,
the buyer cannot recover the goods but
may sue for damages.
If the goods are destroyed, the seller
suffers loss even though the goods are in
possession of buyer.
If buyer fails to pay the price of goods, the
seller can sue for damages and not for
price, even though goods are in the
possession of buyer.
Difference between Sale and Agreement to Sell
SALE AGREEMENT TO SELL

6. Right of Resale A seller can resell the goods to a new

A seller cannot resell the goods even buyer. The new buyer gets a good title to
though the goods are in possession of the goods.
seller.

7. Insolvency of Buyer If buyer becomes insolvent before

If buyer becomes insolvent before payment, the seller can refuse to sell the
payment, his legal representatives can goods until price is paid by legal
claim goods from the seller. representative of the buyer.

8. Insolvency of Seller If buyer has paid the price and seller

If seller becomes insolvent, the buyer can becomes insolvent, he can recover the
recover the goods from official receiver. price proportionately.
 Kind of Goods
• 1. Existing Goods
• The goods which are owned and possessed (physical
existence)by the seller at the time of contract of sale are
called existing goods. These goods can be divided into three
categories:
– a. Specific Goods
– b. Ascertained Goods
– c. Unascertained Goods
2. Future Goods
The goods which will be manufactured, produced or acquired by
the seller after making the contract of sale are called future
goods. The seller can only make an agreement to sell the future
goods.
 Kind of Goods
• Example: A agrees to sell to Y all the mangoes which will be
produced in his farm next year. It is a contract of sale of
future goods.
• 3. Contingent Goods
• The goods, the acquisition of which by the seller, depend
upon an uncertain event are called contingent goods. In this
case, the performance of contract by the seller depends upon
uncertain events which may or may not happen.
• Example: A agrees to sell B a rare painting if he will be able
to purchase from its present owner. This is a contract of
sale of contingent goods.
 Destruction of goods
• The effects of destruction of goods are as follows:
• 1. Perishing before formation of Contract
• where there is a contract for sale of specific goods, the
contract is void if the goods have perished without the
knowledge of seller at or before the making of contract.
However, if the seller has knowledge of the destruction of
goods and he enters into a contract of sale with a buyer, the
seller is bound to compensate the buyer.
• If part of goods perishes and contract is divisible, the buyer
will have to accept the goods available in good condition. If
contract is indivisible, the contract becomes void.
• Example: A agrees to sell 100 bags of sugar which are in transit
by ship. On arrival of the ship, A discovers that the sugar is spoiled.
The Contact becomes void.
 Destruction of goods
• 2. Perishing before Sale but after Agreement to Sell
• when there is an agreement to sell specific goods and the
goods perish, the contract becomes void and the parties are
not liable for performance.
• Example: A took a horse for 8 days on condition that if found
suitable the bargain would complete. The horse died on third day.
Held, the contract became void and the seller would bear the loss.
(Elphick Vs. Barnes)
• 3. Perishing of Future and Contingent Goods
• A contract of sale of future and contingent goods is an
agreement to sell. The destruction of future and contingent
goods makes the contract void.
• Example: A agrees to sell to B, 200 tons of potatoes to be grown
on A’s land. A sowed potatoes but a disease attacked the crop and
he could deliver only 10 tons. The contract was held to be void.
 Fixation of price
• A price is an essential element in contract of sale of
goods. A valid sale cannot take place without a
price.
• A price may be fixed by the following modes:
• 1. Parties
• 2. Agreed Method
• 3. Course of Dealings
• 4. Reasonable Price
• 5. Third Party
 CONDITIONS AND WARRANTIES
• Meaning and definition of warranty
A contract of sale of goods contains various terms or
stipulations regarding the quality, price, mode of
payment. The major terms of contract are called
Conditions and minor terms of contract are called
Warranties.
CONDITION
A condition is a stipulation essential to the main
purpose of the contract, the breach of which gives rise
to a right to treat the contract as repudiated and claim
damages in case of acceptance of contract. (sec 12(2)).
 CONDITIONS AND WARRANTIES
• Example: A contracts to deliver 100 Royal fans to B. But A
delivers Climax fans. It is a breach of condition. B can
accept or reject them and claim damages.
• Definition of Warranty
• A warranty is a stipulation collateral to the main purpose of
the contract, the breach of which give rise to a claim for
damages but not a right to reject the goods and treat the
contract as repudiated. (sec 12 (3)).
• Example: C promises to deliver 10 fans to B at his office. C
delivers the fans at his home. It is breach of warranty. B
cannot cancel the contract. B can claim damages.
 CONDITIONS AND WARRANTIES
• Change of Condition into Warranty
• A breach of condition is a breach of warranty under
the following cases:-
• 1. when the buyer waives the performance of the
condition for his own benefit.
• 2. when the buyer decides to treat the breach of
condition as breach of warranty, he can claim
damages instead of rejecting the contract.
• 3. where the contract is indivisible and the buyer has
accepted the whole goods or any part thereof.
 Change of Condition into Warranty
• 4. when the condition of any contract cannot
be fulfilled due to impossibility or any other
reason.
• Example:-
• C agrees to supply first grade sugar to B but supplies
second grade sugar. B can reject it. B may accept the
second grade sugar and claim damages.
 CONDITIONS AND WARRANTIES
• Implied Condition and Implied Warranties
• Implied Condition
• 1. Condition as to Tile
• 2. Sale by Description
• 3. Sale by Sample
• 4. Sale by Sample and Description
• 5. Condition of Fitness or Quality
• 6. Condition of Merchantability
 Implied Warranties
• The law includes the following warranties into a contract of
sale of goods unless otherwise agreed;
• 1. Possession of Goods
• It is an implied warranty that the buyer shall have and enjoy
quite possession of the goods.
• 2. Freedom from Encumbrances
• The term encumbrance means a claim against the goods by a
party that is not the owner. It is implied warranty on the part
of seller that the goods shall be free from encumbrance.
• 3. Custom of Trade
• An implied warranty for a particular purpose may be linked to
the custom of trade. It will apply if a particular practice
prevails in a particular trade.
• 4. Dangerous Goods
• The implied warranty on party of the seller is that if goods are
dangerous nature, he must warn the buyer about the
particular danger.
 CONDITIONS AND WARRANTIES
• Doctrine of Caveat Emptor
• The term “Caveat Emptor” means “let the buyer
beware”. According to this principle, it is the duty of
the buyer to be careful while purchasing goods of his
requirement.
• It is the duty of the buyer to examine the goods
thoroughly.
• If the goods prove to be defective, the buyer cannot
hold the seller liable.
 Doctrine of Caveat Emptor
• According to section 16(a), the seller must
inform the buyer of any hidden defect in
goods at the time of contract which are in his
knowledge. But if the defects are obvious, the
seller is not bound to inform to the buyer.
• Exceptions:-
• The doctrine of Caveat Emptor is subject to
the following exceptions:
 Doctrine of Caveat Emptor
(Exceptions)
• 1. Purchase by Description
• When goods are purchased by description, the doctrine
of caveat emptor does not apply if goods do not match
with the description. (section 15)
• Example:- A sold a machine to B, describing it as 1 year old. B
found it to be 2 years old. B can return it as it does not match with
description.
• 2. Purchase by Sample
• When goods are bought by sample, the doctrine of
caveat emptor does not apply if goods do not match with
the sample or if the buyer is not provided an opportunity
to compare the goods with the sample. (section 17)
 Doctrine of Caveat Emptor
(Exceptions)
• 3. Purchase by Samples and Description
• When the goods are bought by sample as well as by
description and the goods do not match with the sample
or description, the buyer is entitled to reject the goods.
(section 15)
• 4. Fitness for Purpose
• The doctrine of caveat emptor does not apply when the
buyer informs the seller about particular purpose for
which he needs the goods and relies upon the seller’s
skill and judgment. The seller must supply the goods
which shall be fit for the buyer’s purpose.
 Doctrine of Caveat Emptor
(Exceptions)
• 5. Merchantable Quality
• The goods shall be of merchantable quality. It means that if
the goods are not fit for consumption, the seller will be liable.
• 6. Dangerous Goods
• The doctrine of caveat emptor does not apply if goods are of
dangerous nature, and the seller fails to inform the buyer
about the particular danger.
• 7. Consent by Fraud
• If the consent of the buyer has been taken by concealment of
defects in the goods, the principle of caveat emptor does not
apply.
• 8. Consent by Misrepresentation
• When a seller makes a misrepresentation and the buyer relies
on it, the doctrine of caveat emptor does not apply.