Post Graduate Programme in

Management1
(PGPM)

LEGAL ASPECTS OF BUSINESS

(LAB)

Dr Parul V Gupta
PhD (Law), LL.M., PGDBM

Dr. Parul Gupta

 Session 7
2

Sale of Goods Act, 1930

⚪ Meaning and Essential Elements of
Contract of Sale
⚪ Meaning of Goods,
⚪ Conditions and Warranties,
⚪ Doctrine of Caveat Emptor
Quiz Test One – Session 1 to 6

Dr. Parul Gupta

 The Sale of Goods Act, 1930
3

⚫ The law relating to the Sale of Goods or movable goods was a

part of the Indian Contract Act, 1872 and included in Chapter
VII of the Act from section 76 to 123.

⚫ The Sale of Goods Act is an Act to define and amend the law
relating to contracts of sale of goods.

⚫ Since the nature of a transaction determines the type of

contract law that applies, therefore the provisions of the
Indian Contract Act, 1872 continues to be applicable to the
contract of Sale of Goods.

⚫ Under the contacts for sale of goods law recognizes, certain

warranties that relate to the goods being sold

Dr. Parul Gupta

 Sale of Goods
4

Contract of Sale of Goods (Section 4(1))

"A contract whereby the seller transfers or

agrees to transfer the property in goods to
the buyer for a price.”

⚫ A contract of sale is a legal term which

includes both sale and an agreement to sale.

Dr. Parul Gupta

 Essential Characteristics of Contract
5
of Sale of Goods
(i) Two parties

(ii) There should be transfer of

property (ownership) in the goods
from the seller to the buyer

(iii) The subject matter of the contract

must necessarily be goods

Dr. Parul Gupta

 Kinds of Goods
6

(1) Existing goods

⚫ (i) Specific and ascertained goods
⚫ A picture painted by Mr. X from the stock of his picture

⚫ (ii) Unascertained and generic goods

⚪ In a contract of sale for one bag of wheat, the seller may deliver any
bag of wheat out of 50 bags of wheat, seller is in possession

(2) Future goods

⚪ X agrees to sell to Y all the mangoes which will be grown on the
mango trees in the month of May. But the contract between X and Y
was entered in the month of March i.e. before 3 month.

(3) Contingent Goods

⚪ X agrees to purchase from Y goods arriving by a particular ship,
if the ship arrives safely from America to India.

Dr. Parul Gupta

 Essential Characteristics of Contract
of Sale of Goods
7

(iv) Price to be the consideration of the

contract of sale

(v) Includes both a 'sale' and 'an

agreement to sell

(vi) No formalities to be observed

Dr. Parul Gupta

 Condition and Warranty
8

⚫ Condition (Section 12(2))

“A condition is a stipulation which is essential to the
main purpose of the contract, the breach of which gives
rise to a right to treat the contract as repudiated.”
⚫ Warranty (Section 12(3))
“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.”

Effect of Breach of condition and Breach of

Warranty

Dr. Parul Gupta

 Condition and Warranty
9

Case: Couchman v. Hill

Discussion Points
⚫ Whether a breach of warranty has
occurred?
⚫ Whether the buyer is entitled to
damages for such breach?

Dr. Parul Gupta

 Condition and Warranty
10
Judgment & Explanation
It was held in the above case that breach of warranty
had occurred and the seller was liable in damages
for breach of warranty. Although there was an
exemption clause in the catalogue but the decision of
the buyer to buy the heifer solely depended upon the
positive assurance given by the seller and the
auctioneer about her being unserved. Therefore, it
amounted to a special warranty which was
subsequently breached. The exemption clause
affected only the catalogue but not the oral
assurance which was given by the seller and the
auctioneer.

Take Away
Thus it is clear that the special warranty overrides
the printed conditions of sale.
Dr. Parul Gupta
 Implied Condition and Implied
Warranty
11

Implied Conditions
(i) Conditions as to title [Section 14(a)]

Case: Niblett v Confectioners' Material

Discussion Point
⚫ Were Confectioners’ the Defendant guilty of
breach of condition and Niblett’s the Plaintiff
were entitled to repudiate the contract.

Dr. Parul Gupta

 Implied Condition and Implied Warranty
12

Judgment & Explanation

It was held that the sellers did not have the
right to sell the goods and therefore the
buyers were entitled to repudiate the
contract.

Take Away
The buyer is entitled to repudiate the contract
if he discovers that the title of the seller to the
goods is defective.

Dr. Parul Gupta

 Implied Condition and Implied
Warranty
13

Implied Conditions

(ii) Condition as to description (Section 15)

Case: Re Moore v Landauer
Discussion Point
⚫ Was the construction of contract such that it
could be considered as a sale by description?
If yes, was the seller guilty of breach of
implied condition as to description?

Dr. Parul Gupta

 Implied Condition and Implied Warranty
14

Judgement & Explanation

It was held that the contract described in the above case
was a contract for the sale of goods by description, and
it was part of the description of the goods that specific
fruits were to be packed in thirty tins to the case.
Therefore it was by operation of law an implied
condition that the goods should correspond to that
description while the supplied goods did not
correspond with the description.

Take Away
where the seller delivers to the buyer the goods be
contracted to sell mixed with goods of a different
description not included in the contract, the buyer may
accept the goods in accordance with the contract and
reject the rest, or he may reject the whole.
Dr. Parul Gupta
 Implied Condition and Implied
Warranty
15

⚫ Implied Conditions: (iii) Sale by sample

(Section 17)
⚫ Implied Conditions: (iv) Sale by description
as well as sample (Section 15)

Case: Nichol v Godts

Discussion Point
⚫ Could the Buyer reject the goods in a
condition where the goods delivered matched
the sample but not the description?
Dr. Parul Gupta
 Implied Condition and Implied Warranty
16

Judgment & Explanation

It was held that the buyer had a right to reject the
goods as there was a sale of goods by sample as
well as by description. In such cases the goods
must not only correspond with the description
but as well as sample. Here the goods
corresponded with the sample but not with the
description.

Take Away
In a sale by description as well as by sample, the
goods must not only correspond to sample but
also to description.
Dr. Parul Gupta
 Implied Condition and Implied
Warranty
17

Implied Conditions
(v) Condition as to quality or fitness (Section
16(1)]
Prerequisite conditions for application

Case: Vacwell Engineering Co. Ltd. V. B.D.H.

Chemicals Ltd.
Discussion point
⚫ Whether the chemical was fit for the use for
which it was required?
Dr. Parul Gupta
 Implied Condition and Implied Warranty
18

Judgment & Explanation

It was held that the chemical was not fit for the use for
which it was required or for purpose. Therefore a
breach of condition as to fitness of goods occurred.
The reasoning behind the judgement was that the
ampoules did not bear labels drawing attention to
the danger which would ensue if the chemical was
brought into contact with water.

Take Away
When the buyer relies on the skills and judgment
of the seller it becomes essential that the goods
meet the purpose of the buyer

Dr. Parul Gupta

 Implied Condition and Implied
Warranty
19

⚫ Implied Conditions:(vi) Condition as

to merchantability [Section 16(2)]
⚫ Implied Conditions: (vii) Condition as
to wholesomeness

Case: Frost v Aylesbury Dairy Co. Ltd.

Discussion Point
⚫ Whether any breach of condition has
occurred?
Dr. Parul Gupta
 Implied Condition and Implied
Warranty
20

⚫ Implied Warranties: (i) Implied

warranty as to quiet possession
[Section 14(b)]

Case:Microbeads A.C. v Vinhurst Road

Markings
Discussion Points
Whether there was a breach of condition as to title?
Whether there was a breach of warranty as to quiet
possession?
Dr. Parul Gupta
 Implied Condition and Implied Warranty
21
Judgment & Explanation

It was held that the Sellers were not liable for breach of
implied condition but they were liable in damages for
breach of implied warranty as to quiet possession. The
reasoning behind the judgement was that there was no
breach of condition because at the time of the sale the
Sellers had had every right to sell. The goods were not
yet brought under patent. The contract was made
before May 1970 and the patent came in to force in
November 1970. Therefore, the contract was not
affected under the Patent Act at the time of its
formation. However there was a breach of warranty as
to quiet possession because that was an undertaking
as to the future course of time, hence applicable even
after the passage of two years time (1972) from the
formation of contract (1970).
Dr. Parul Gupta
 Implied Condition and Implied
Warranty
22

⚫ Implied Warranties

⚫ (ii) Implied warranty against

encumbrances [Section 14(C)]
⚫ (iii) Sale of Dangerous Goods
Case: Clarke v Army & Navy co operative
society ltd
Discussion Point
⚫ Was the seller liable for the breach of any
warranty?
Dr. Parul Gupta
 Doctrine of Caveat Emptor
23

⚫ Caveat means caution or warning or beware; and

Emptor means the buyer or the purchaser.

⚫ The doctrine of caveat emptor passes the

responsibility to buyer.

⚫ A buyer must employ best of his discretion, not less

than the discretion of a common man, while
purchasing goods.

⚫ The general rule is that the seller is under no

obligation to tell the defects of his goods.
Dr. Parul Gupta
 Doctrine of Caveat Emptor
24

⚫ Important Exceptions
(i) Misrepresentation by seller
(ii) Consent by fraud
(iii) Merchantable quality
(iv)Purchase by description
(v) Sale by sample
(vi) Purchase by sample and description
(vii) Fitness or purpose
(viii) Trade usage

Dr. Parul Gupta

 Next Session 8
25

⚫ Transfer of ownership
⚫ Transfer of Title by Non-Owners
⚫ Rights of an Unpaid Seller

Dr. Parul Gupta

 26

Dr. Parul Gupta