Unit 1. Formation of Contract of Sale

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UNIT 1. FORMATION OF CONTRACT OF SALE

INTRODUCTION OF SALE OF GOODS ACT, 1930
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SOME IMPORTANT DEFINITIONS
Ex: Auctioneers, factors, brokers

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Ex: If A who owns certain goods pledges them to B, he has general property in goods, whereas B has
special property in goods to extent of amount of advance he has made.
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TYPES OF GOODS
A. EXISTING GOODS
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Ex: X goes to a Maruti car showroom where 10 Maruti cars have been displayed. X agrees to buy one Maruti car 800
& seller agrees to sell. Here, 10 cars will be classified as under:
 10 cars are unascertained goods before identification of a particular car to be sold.
 9 cars are unascertained goods after identification of 1 particular car to be sold. Such one particular car to be sold is
an ascertained goods.
 If 1 particular car identified & agreed upon at time of contract of sale, it would be called specific goods.
Ex: A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales & these bales were selected & set
aside. On selection, goods become ascertained. In this case, contract is for sale of ascertained goods, as cotton bales
to be sold are identified & agreed after formation of contract. It may be noted that before ascertainment of goods,
contract was for sale of unascertained goods.
B. FUTURE GOODS
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Ex: X agrees to sell to Y all crops to be grown at his farm in Haryana during year 2,000 season for a sum of Rs.
1,00,000. This is an agreement to sell future goods & not a sale.
C. CONTINGENT GOODS
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MEANING OF DELIVERY & ITS FORM

TYPES OF DELIVERY
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Ex: Where a warehouseman holding goods of A agrees to hold them on behalf of B, it is constructive delivery.
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Ex: Delivery of key of godown in which goods are lying, transfer of document of title/bill of lading.
DOCUMENT OF TITLE & DOCUMENT SHOWING TITLE

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Ex: Bill of lading, dock-warrant, warehouse keeper’s certificate, wharfinger’s certificate, railway receipt, multimodal
transport document, warrant or order for delivery of goods. [Mate’s receipt is not document of title].
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Ex: Share certificate shows that person named therein is entitled to shares represented by it, but does not allow transfer
of shares by mere endorsement & delivery of certificate.
CONTRACT OF SALE & AGREEMENT TO SELL

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ESSENTIAL OF CONTRACT OF SALE
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FORMALITIES OF CONTRACT OF SALE

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SUBJECT MATTER OF CONTRACT OF SALE [SECTION 6]

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Ex: A contract for sale of certain cloth to be manufactured in a mill is a valid contract.
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EFFECT OF DESTRUCTION OF SPECIFIC GOODS [Section 7 & 8]

FIXATION OF PRICE (Sec 9 & 10)

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Ex: X agrees to sell 100 bags of cement Y at a price to be fixed by Z & to be delivered in 4 equal instalments. Y receives a
delivery of 25 cement bags. State legal position (a) if Z refuses to value goods & fix price;
(b) if Z is prevented from fixing price by fault of X; (c) if Z is prevented for fixing price by fault of Y.
Solution: (a) Agreement to sell becomes void. But Y must pay a reasonable price for 25 cement bags.
In (b) & (c), Agreement to sell becomes void.
(b) Y must pay a reasonable price for 25 cement bags. However, Y may maintain a suit for damages against X.
(c) Y must pay a reasonable price for 25 cement bags. However, X may maintain a suit for damages against Y.
EARNEST MONEY VS. ADVANCE PAYMENT:

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2. CONDITIONS & WARRANTIES

STIPULATION (AGREEMENT) AS TO TIME (Sec 11)

CONDITIONS & WARRANTIES

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Ex: P wants a bike which will give mileage of 80 km/litre. B, a bike dealer states that a particular bike will give required
mileage. A believing on representation of B buy that bike. Later on, bike gave mileage of only 55 km/litre. In this case,
there is a breach of condition as mileage of bike formed basis of contract & hence A is entitled to repudiate contract &
claim damages.
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Ex: I went to a showroom & ask seller for a good bike. He showed me one & said that this will give mileage of 80
km/litre. I bought bike. Later on, it gave mileage of 55 km/litre only. In this case, there is a breach of warranty as
mileage was only a collateral stipulation & i am entitled only to claim damages.
DIFFERENCE BETWEEN CONDITIONS & WARRANTIES
WHEN CAN CONDITION BE TREATED AS WARRANTY [SEC 13]

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Ex: He may accept defective goods & claim for damages. But if buyer has once waived condition, then he cannot
insist for its performance.
EXPRESS & IMPLIED WARRATIES & CONDITIONS

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IMPLIED CONDITIONS

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Ex: A purchased a tractor from B who had no title to it. After 2 months, true owner spotted tractor and demanded it
from A. Held that A was bound to hand over tractor to its true owner and that A could sue B, seller without title, for
recovery of purchase price.
Ex: A ship was contracted to be sold as “copper-fastened vessel” but actually it was only partly copper-fastened. Held
that goods did not correspond to description and hence could be returned or if buyer took the goods, he could claim
damages for breach.
Ex: I went to grocer shop to purchase wheat. The grocer showed me sample. I purchased that wheat. But wheat was
found to contain a defect which was not discoverable by ordinary examination. The buyer was liable to refund me
price & give damages.
Ex: A agreed with B to sell certain oil described as refined sunflower oil, warranted only equal to sample. The goods
tendered were equal to sample, but contained a mixture of hemp oil. B can reject goods.
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Ex: A went to B’s shop and asked for a ‘Merrit’ sewing machine. B gave A same and A paid price. A relied on trade name
of machine rather than on skill and judgement of seller ‘B’. In this case, there is no implied condition as to fitness of
machine for buyer’s particular purpose.

Ex: If a person orders motor horns from a manufacturer of horns, & horns supplied are scratched & damaged owing
to bad packing, he is entitled to reject them as merchantable.
Ex: A supplied F with milk. The milk contained typhoid germs. F’s wife consumed milk and was infected and died. Held,
there was a breach of condition as to fitness and A was liable to pay damages.
IMPLIED WARRANTY
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Ex: A pledges his car with C for a loan of Rs. 15,000 & promises him to give its possession next day. A, then sells car
immediately to B, who purchased it on good faith, without knowing fact. B, may either ask A to clear loan or himself
may pay money & then file a suit against A for recovery of money with interest.
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Ex: A drug was sold by an auction & according to usage of trade, it was to disclose in advance of any vast damage
caused in quality of drugs. If no such disclosure has been made & goods are found to be defective, it will be taken as
breach of warranty.
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A purchases a horse from B. A needed horse for riding but he did not mention this fact to B. The horse is not suitable
for riding but is suitable only for being driven in carriage. Caveat emptor rule applies here and so A can neither reject
horse nor can claim compensation from B.
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Ex: An order was placed for some trucks to be used for heavy traffic in a hilly country. Trucks supplied by seller were
unfit for this purpose and broke down. There is a breach of condition as to fitness.
Ex: P, a draper, purchased a hot water bottle from a retail chemist, P asked chemist if it would stand boiling water. The
Chemist told him that bottle was meant to hold hot water. The bottle burst when water was poured into it and injured

his wife. It was held that chemist shall be liable to pay damages to P, as he knew that bottle was purchased for purpose
of being used as a hot water bottle. [Priest vs. Last]
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In readymade garment business, there is an implied condition by usage of trade that the garment shall be
reasonably fit on the buyer.
3. TRANSFER OF OWNERSHIP & DELIVERY OF GOODS

PASSING OF PROPERTY (Sec 18-24)
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PASSING OF OWNERSHIP IN CASE OF SPECIFIC/ASCERTAINED GOODS

X goes into a shop and buys a television and asks shopkeeper for its home delivery. The shopkeeper agrees
to do it. The television immediately becomes property of X.
A stock of wheat was sold at an agreed price. The wheat was to be weighed by seller for ascertainment of
price. A part of wheat was weighed & carried by buyer but remaining was swept away by flood. It was held
that loss of remaining wheat should be borne by seller since property in goods has not passed to buyer
because required weighing was not done.
A sold carpets to Company which were required to be laid. The carpet was delivered to company’s
premises but was stolen before it could be laid. It was held that carpet was not in deliverable state as it was
not laid, which was part of contract and hence, property had not passed to buyer company.
PASSING OF PROPERTY OF UNASCERTAINED/ FUTURE GOODS

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Ex: A agrees to purchase 1000 quintals of cotton from warehouseman, out of which he took delivery of 500
quintals & remaining to take later on. The warehouseman weighed cotton & kept remaining separately &
informed A to take them & agreed to do so. Before he takes delivery of remaining goods warehouse caught
fire & destroyed the cotton. A, is liable for price to warehouseman since he has appropriated goods, &
ownership is transferred to him.
Ex: A bill of lading of railway parcel is made out in name of buyer and is sent to him, ownership in goods
passes from seller to buyer. In case goods are subjected to accidental loss or by theft, seller will not be liable.
PASSING OF PROPERTY IN CASE OF ‘SALE ON APPROVAL’

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PASSING OF PROPERTY IN CASE OF ‘RESERVATION OF RIGHT OF DISPOSAL’

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Ex: X sends furniture to a company by a truck and instructs driver not to deliver furniture to company until payment is
made by company to him. The property passes only when payment is made.
PASSING OF RISK (Sec 26)

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TRANSFER OF TITLE (Sec 27-30)

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Ex: When a thief sells the goods, buyer will not get a valid title.
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Ex: X fraudulently obtains a diamond ring from Y. This contract is voidable at option of Y. But before contract could
be terminated, X sells ring to Z, an innocent purchaser. Z gets good title and Y cannot recover ring from Z even if
contract is subsequently set aside.
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Ex: P buys a TV from R. R agrees to deliver TV after some days. But, R sells same to S at higher price,
who buys in good faith & without knowledge about previous sale. S gets a good title.
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Ex: A took a car from B on this condition that A would pay a monthly installment of Rs. 5,000 as
hire charges with an option to purchase it by payment of Rs. 1,00,000 in 24 installments.

Ex: ‘A’ said to ‘B’, a buyer, in presence of ‘C’ that he (A) is owner of horse. But ‘C’ remained silent though horse belonged
to him. ‘B’ bought horse from ‘A’. Here buyer (B) will get a valid title to horse even though seller (A) had not title to
horse. In this case, ‘C’, by his own conduct, is prevented from denying ‘A’s authority to sel horse.
DELIVERY OF GOODS (SEC 31 - 44)
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4. UNPAID SELLER
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RIGHTS OF UNPAID SELLER

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A. RIGHTS AGAINST GOODS
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EFFECT OF SUB-SALE OR PLEDGE BY THE BUYER (SEC 53)

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Ex: A sold certain goods to B of Mumbai & goods are handed over to railways for transmission to B. In meantime, B sold
these goods to C for consideration. B becomes insolvent. A can still exercise his right of stoppage in transit.
B. RIGHTS AGAINST THE BUYER

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REMEDIES OF BUYER AGAINST THE SELLER
Ex: ‘A’ agreed to sell a rare painting of Mughal period to ‘B’. But on due date of delivery, ‘A’ refused to sell same. In
this case, ‘B’ may file a suit against ‘A’ for obtaining an order from Court to compel ‘A’ to perform contract (i.e. to
deliver painting to ‘B’ at agreed price).
AUCTION SALE
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(e.g. by saying 1,2,3)
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SOME IMPORTANT DISTINCTION

SALE HIRE-PURCHASE
SALE BAILMENT

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Ex: Where gold is supplied to a goldsmith for preparing an ornament or when an artist is asked to paint a picture, even
when he himself arranges for all colors etc.

Unit 1. Formation of Contract of Sale

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LAW BY CA PRANAV CHANDAK BUY BOOKS @ WWW.PRANAVCHANDAK.

UNIT 1. FORMATION OF CONTRACT OF SALE

SOME IMPORTANT DEFINITIONS

Ex: Auctioneers, factors, brokers

Telegram @ Pranav Chandak Academy “Care & Share on YouTube 1

MEANING OF DELIVERY & ITS FORM

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DOCUMENT OF TITLE & DOCUMENT SHOWING TITLE

CONTRACT OF SALE & AGREEMENT TO SELL

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ESSENTIAL OF CONTRACT OF SALE

FORMALITIES OF CONTRACT OF SALE

SUBJECT MATTER OF CONTRACT OF SALE [SECTION 6]

EFFECT OF DESTRUCTION OF SPECIFIC GOODS [Section 7 & 8]

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FIXATION OF PRICE (Sec 9 & 10)

EARNEST MONEY VS. ADVANCE PAYMENT:

2. CONDITIONS & WARRANTIES

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CONDITIONS & WARRANTIES

DIFFERENCE BETWEEN CONDITIONS & WARRANTIES

WHEN CAN CONDITION BE TREATED AS WARRANTY [SEC 13]

EXPRESS & IMPLIED WARRATIES & CONDITIONS

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3. TRANSFER OF OWNERSHIP & DELIVERY OF GOODS

PASSING OF OWNERSHIP IN CASE OF SPECIFIC/ASCERTAINED GOODS

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PASSING OF PROPERTY OF UNASCERTAINED/ FUTURE GOODS

PASSING OF PROPERTY IN CASE OF ‘SALE ON APPROVAL’

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PASSING OF PROPERTY IN CASE OF ‘RESERVATION OF RIGHT OF DISPOSAL’

PASSING OF RISK (Sec 26)

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TRANSFER OF TITLE (Sec 27-30)

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DELIVERY OF GOODS (SEC 31 - 44)

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RIGHTS OF UNPAID SELLER

A. RIGHTS AGAINST GOODS

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EFFECT OF SUB-SALE OR PLEDGE BY THE BUYER (SEC 53)

B. RIGHTS AGAINST THE BUYER

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REMEDIES OF BUYER AGAINST THE SELLER

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SOME IMPORTANT DISTINCTION

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