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THE SALE OF GOODS ACT

Contract of Sale
A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a certain price. Characteristics : 1. Buyer & seller 2. Goods 3. Price 4. Transfer of ownership 5. Element of a valid contract

SALE : When the ownership of goods is transferred from the seller to the buyer under a contract of sale , a sale is said to have been made.
AGREEMENT TO SELL : when the transfer of ownership of goods under a contract of sale is to take place at a future date or on the fulfillment of a condition, it’s called an agreement to sell.

Difference between Sale & Agreement to Sell
1. Nature : Sale – execution is complete. AOS - execution is yet to take place. 2. Transfer of ownership : Sale- ownership is transferred AOS- ownership is not transferred

3. Right of usage : Sale- buyer has the right to usage AOS – buyer does not have the right to usage. 4. Consequences of Breach: Sale – if the buyer defaults in making the payment, the seller can sue the buyer AOS – if buyer fails to take delivery of goods & payment for the same , the seller is entitled to sue the buyer for damages only and not the cost of goods.

the buyer can claim the goods from the official representative of the seller. . Insolvency of seller: Sale – if the seller is declared insolvent before the delivery of the goods.5. AOS – seller will bear the loss. Risk of loss : Sale – the buyer will bear any kind loss or damage to the goods. 6.

. Insolvency of buyer – Sale – the seller is required to deliver the goods to the official representative of the buyer. AOS – the seller has the right to refuse to deliver the goods.AOS – the buyer has no right claim the goods in event of insolvency of the seller 7.

.8. Default by seller : Sale – the buyer can not only claim for the damages but also file a suit against a third party . AOS – the buyer can sue for damages only when the seller refuses to deliver the goods.

3. 2.TYPES OF GOODS 1. unascertained (generic) goods. Future goods. Existing goods – in the possession of the seller. ascertained (specific) goods b. Contingent goods (if the seller gets the goods from the 3rd party then he will deliver the goods to the buyer) . a.

Conditions & Warranties Condition – A stipulation essential to the main purpose of the contract . If the condition is not met . .the breach of which gives rise to a right to treat the contract as repudiated. the aggrieved party is entitled to terminate the contract.

the breach of which gives rise to a claim for damages but not a right to reject the goods & treat the contract as repudiated. But if a condition is violated . the contract terminates . only the aggrieved party can file a suit for damages. If warranty is violated .Warranty – it’s a stipulation collateral to the main purpose of the contract . . the contract does not terminate .

Remedies : Condition – if the condition is breached . the aggrieved party has the right to break the contract & claim for damages. Warranty – aggrieved party can only claim for damages but cannot break the contract .Difference b/w Condition & Warranty : Nature : Condition – it’s the main object of the contract Warranty – it’s a supportive or collateral object of the contract.

does not insist on its fulfillment on the part of seller . then the seller is not bound to fulfill such condition .e. Later on the buyer cannot hold the seller responsible for non performance of such condition. . decides to waive such condition i. Waiver of conditionIf the seller fails to fulfill a condition and the buyer of his own will .When does a condition become a warranty ? 1.

he has accepted it as a breach of warranty & can only sue for damages.eg : Ram makes a contract to deliver 500 bales of cotton to Hari on 15th jan. and he accepts the delivery. and the latter considers the delivery by that date to be the condition & says that he will not accept the goods after that date . Hari had the right to break/repudiate the contract. But the goods are delivered to Hari on 18th jan. If Ram had committed a breach of condition by not delivering the goods on the appointed date . By accepting the goods on 18th Jan . .

2. Compulsory treatment of breach of condition as breach of warranty – When a contract of sale is not divisible . the breach of condition is deemed (viewed as) to be breach of warranty .& the buyer has accepted the delivery of a part of the goods or when the contract relates to the goods that have been already delivered to the buyer .

Implied Conditions & Warranties Implied Conditions : 1. Condition as to the title of goods Sale by description Quality & fitness Condition as to sale by sample Condition as to usage of trade . 5. 4. 2. 3.

2.Implied Warranties : 1. Quite & peaceful possession. Warranty as to specific care. .

Reservation of the right of disposal . Time when property changes hand 2.Transfer of Property or Ownership : It means transfer of all rights to the property in goods from the seller to the buyer by virtue of which the buyer can use the goods as he desires & this right of the buyer cannot be restricted. 1.

When the goods are in a deliverable state. 2. Time when property changes hand : It depends on the type of goods being transferred a.1. Ascertained goodsRules – 1. Unascertained goods – The ownership is not affected till the goods have been ascertained. When specific goods need to be put in a deliverable condition. b. .

Goods must be delivered to the carrier. .Rules – 1. c. Goods sent on approval or on sale or returnRules – 1. Goods must be appropriated 3. Goods must be ascertained 2. When the buyer communicates his acceptance of the goods . the transfer of ownership is completed.

at the expiry of the time or within a reasonable time if no limit has been fixed . the seller reserves the right to disposal. 2. When the buyer does not indicate his acceptance of goods but retains the goods without communicating his disapproval to the seller . Reservation of the right of disposal (right to use something) – when the goods are sold to buyer who is far away & the goods are dispatched by public transport . . in order to ensure he gets the payment .2. the ownership is deemed to be transferred to the buyer. if a time limit is specified for approval .

Exceptions: 1. 6. Sale by co owner. 3. Sale by merchantile agent. Title by estoppels. . Sale by a buyer in possession of goods. 2. 5. Sale by unpaid seller. 4. Sale by a seller in possession of goods after sale.

Right against the goods. . or has been partially paid. 2.Unpaid Seller A person who has sold the goods to another person but has not been paid for the goods . Right against the buyer of goods. is called an unpais seller. Rights of an unpaid seller: 1.

When the buyer has become an insolvent. The goods are not sold on credit 2.Right against the goods 1. Right of lien – If the seller of the goods has not been paid & the ownership has been transferred to the buyer but the goods are in the possession of the seller. . Conditions : 1. the seller has the right to retain the goods till he receives the price of the goods.

Conditions : 1. the seller has the right to stop the goods in transit & retain their possession till such time as he is not paid the price of the goods. Right of stoppage of goods in transit – When the seller has delivered the goods to a carrier for transmission to the buyer & the goods are in transit . . When the goods are in transit.2. The price of goods is partially or totally not paid 2. When the buyer has become insolvent 3. if he receives the information that the buyer has become insolvent .

• When the carrier refuses to deliver the goods.Rules: • Delivery of goods to the carrier • The buyer taking delivery before destination • Holding the goods by the carrier on behalf of the buyer • When the goods are rejected by the buyer. . • When the goods are delivered to the ship chartered by t he buyer. • When partial delivery has been made to the buyer.

the unpaid seller can re-sell the goods. • If the unpaid seller gets the possession of the goods due to step 1 & 2 . • The unpaid seller may re sell the goods if the goods are perishable. if ownership is not transferred to the buyer. and the buyer does not pay for the goods . and he as given notice to the buyer of his intention to resell the goods.3. Right to re sell the goods. .

Right against the buyer • • • • Suit for price Suit the damages Repudiation of contract before due date Suit for interest .

1881 .The Negotiable Instruments Act.

1881 which applies and extends to the whole of India. .Introduction The law relating to negotiable instruments is contained in the Negotiable Instruments Act.

Negotiable Instruments Definition: The word negotiable means „transferable by delivery.‟ A negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery. the term “negotiable instrument” literally means „a written document which creates a right in favour of somebody and is freely transferable by delivery.‟ and the word instrument means „a written document by which a right is created in favour of some person. .‟ Thus.

Characteristics of Negotiable Instruments • Free transferability or easy negotiability • Property • Title • Rights • Transfer • Presumptions .

a certain person. or to the order of. signed by the maker.” . “A promissory note is an instrument in writing (not being a banknote or a currency-note) containing an unconditional undertaking. or to the bearer of the instrument.Promissory Note Definition: According to Section 4. to pay a certain sum of money only to.

Specimen of a Promissory Note .

In the above specimen if Ramesh endorses it in favour of Ranjan and Ranjan also endorses it in favour of Puneet. In the above. In the above specimen. In the above specimen it is Ramesh. They are: (i) The Maker or Drawer: The person who makes the note and promises to pay the amount stated therein.Parties to a Promissory Note There are primarily two parties involved in a promissory note. the parties involved may be – (a) The Endorser – the person who endorses the note in favour of another person. Sanjeev is the maker or drawer. (b) The Endorsee – the person in whose favour the note is negotiated by endorsement. it is Ranjan and then Puneet. . (ii) The Payee – the person to whom the amount is payable. then Ramesh and Ranjan both are endorsers. In course of transfer of a promissory note by payee and others.

. for value received” Both the above instruments are valid promissory notes. It must be in writing: • A promissory note has to be in writing • An oral promise to pay does not become a promissory note • The writing may be on any paper or book • Illustrations: A signs the instruments in the following terms: • • “I promise to pay B or order Rs. 500” “I acknowledge myself to be indebted to B in Rs. 000 to be paid on demand.Essentials of Promissory Note 1. 1.

000. 500” The above instruments are not promissory notes as there is no undertaking or promise to pay.Essentials of Promissory Note 2.” there is a valid promissory note . • Where A signs the instrument in the following terms: •“I acknowledge myself to be indebted to B in Rs. It must contain a promise or undertaking to pay: • There must be a promise or an undertaking to pay • The undertaking to pay may be gathered either from express words or by necessary implication • A mere acknowledgement of indebtedness is not a promissory note. although it is valid as an agreement and may be sued upon as such • Illustrations: A signs the instruments in the following terms: •“Mr. There is only an acknowledgement of indebtedness. 1. B I owe you Rs. for value received.000” •“I am liable to pay to B Rs. to be paid on demand. 1.

. by himself or by his authority with the intention of authenticating a document . It must be signed by the maker: • It is imperative that the promissory note should be duly authenticated by the „signature‟ of the maker • „Signature‟ means the writing or otherwise affixing a person‟s name or a mark to represent his name. The promise to pay must be unconditional: • • A promissory note must contain an unconditional promise to pay The promise to pay must not depend upon the happening of some uncertain event. a contingency or the fulfillment of a condition Illustrations: A signs the instruments in the following terms: • “I promise to pay B Rs. i.e. 500 seven days after my marriage with C” • “I promise to pay B Rs. 500 as soon as I can” The above instruments are not valid promissory notes as the payment is made depending upon the happening of an uncertain event which may never happen and as a result the sum may never become payable • • 4.Essentials of Promissory Note 3.

The maker must be a certain person: • The instrument must itself indicate with certainty who is the person or are the persons engaging himself or themselves to pay • Alternative promisors are not permitted in law because of the general rule that “where liability lies no ambiguity must lie” 6.Essentials of Promissory Note 5. the reason being the same person is both the promisor and the promisee . The payee must be certain: • Like the maker the payee of a pronote must also be certain on the face of the instrument • A note in favour of fictitious person is illegal and void • A pronote mad epayable to the maker himself is a nullity.

first deducting thereout any money which he may owe me” • The above instruments are invalid as promissory notes because the exact amount to be paid by A is not certain .Essentials of Promissory Note 7. 500. The sum payable must be certain: • For a valid pronote it is also essential that the sum of money promised to be payable must be certain and definite • The amount payable must not be capable of contingent additions or subtractions • Illustrations: A signs the instruments in the following terms: • “I promise to pay B Rs. 500 and all other sums which shall be due to him” • “I promise to pay B Rs.

1000/Then Mr. directing a certain person to pay a certain sum of money only to. S for Rs. 1000/Mr. a certain person or to the bearer of the instrument. Y for Rs. X to pay Rs. .” Illustration: Mr. Y may order Mr. S which will be nothing but a bill of exchange. Y buys goods from Mr. 1000/. or to the order of.Mr.Bill of Exchange Definition: Section 5 of the Negotiable Instruments Act defines a Bill of Exchange as follows: “A bill of exchange is an instrument in writing containing an unconditional order. signed by the maker. X purchases goods from Mr.

Specimen of Bill of Exchange .

Parties to a Bill of Exchange There are three parties involved in a bill of exchange (i) The Drawer – The person who makes the order for making payment. (iii) The Payee – The person to whom the payment is to be made. In this case it is Tarun. The drawer can also draw a bill in his own name thereby he himself becomes the payee. . This is called a Demand Bill. Rajiv is the drawer. Here the words in the bill would be Pay to us or order. He is generally a debtor of the drawer. In the above specimen. It is Sameer in this case. is called a Time Bill. In a bill where a time period is mentioned. But a bill may be made payable on demand also. (ii) The Drawee – The person to whom the order to pay is made. just like the above specimen.

A mere request to pay on account. stamps. 3. . will not amount to an order The order to pay must be unconditional It must be signed by the drawer The drawer. 7. consideration. A bill cannot be drawn on two or more drawees but may be made payable in the alternative to one of two or more payees The sum payable must be certain The bill must contain an order to pay money only It must comply with the formalities as regards date. 4. 5. 8. etc 6. It must be in writing It must contain an order to pay. drawee and payee must be certain. 2.Essentials of a Bill of Exchange 1.

Cheque A cheque is the means by which a person who has fund in the hand of a bank withdraws the same or some part of it. A cheque is a kind of bill of exchange but it has additional qualification namely1. .it is always drawn on a specified banker and 2-it is always payble on demand without any days of grace.

Ohio Dollars For simulation use only Signature 041200257 103 7943 For Memo 000801 Identification Numbers Account Number Slide 46 .STANDARD FEATURES OF PERSONAL CHECKS Maria Mills 12 River Street Pettisville. OH 43553-0177 Check Number Date Date $ Amount 801 56-25 412 Pay to the Payee order of Amount Pettisville Bank Pettisville.

. A holder must therefore have the possession of the instrument and also the right to recover the money in his own name.Holder & Holder in due course • Holder means any person entitled in his own name to the possession a promissory note bill of exchange or cheque and to recover or receive the amount due thereon from the parties thereon.

• “Holder in due course means any person who for consideration became the possessor of a promissory note. if payble to the bearer or the payee or indrosee there of .if payble to the order before the amount mentioned in it became payble . and without having sufficient cause to believe that any defect existed in the title of the person from who he derived his title’ . billl of exchange or cheque.

Difference between holder and holder in due course • Meaning-holder means any person entitled in his own name possession of the instrument in other hand holder in due course a holder who takes the instrument in good faith for consideration before it is overdue and without any notice of defect in the title of the who transferred it to him. • Consideration• Title• Liability-sue to all the parties by holder in due course • Maturity .

Dishonour and discharge of negotiable instrument • Dishonour:. the instrument may be dishonour by following two modes:1. Dishonour by non-payment .a negotiable instrument is said to be dishonoured when the drawee refuses to accept the same or make payment thereon . Dishonour by non-acceptance 2.

.• The bill of exchange is dishonour by nonpayment and acceptance . whenever the other instrument the promissory not and by the non-payment.

. • When a drawee commits in accepting the bill of exchange . • When the drawee is incapable to contract.Dishonour by non-acceptance A bill of exchange is dishonoured by nonacceptance. • When the presentment for acceptance person and cannot be found even after due search.

acceptance of bill of exchange and drawee of the cheque commits a defaults in payment on the non-acceptence and non.payment. . bill of exchange or change is said to be dishonoured due to non-payment when the makes of the promissory note .Dishonour by non-payment A promissory note .

since he is not a party notice of dishonour on all other parties. etc. the drawer can file a suit for recovering the noting and protesting charges. acceptance . the acceptance of a bill of exchange or the bank reuses to make payment thereof. along the amount of the loan.Difference between non-acceptance and non-payment Non-payment Non-aceeptance • Dishonour by non-aceeptance occur when the bill is presented by the drawee to be drawer to the debtor for acceptance and acceptance is non granted by him.a suit cannot be filed the holder can file a suit if he has served against debtor. • in case of dishonour by non-payment. interst. • dishonour by non payment occur when the makes of the promissory note . . • In case of dishonour by non• in case of dishonour by non-payment. to the instrument before he accepts the same. •In case of dishonour by non-acceptance the creditor can file a suit only the recovery of the amount of the loan.

Notice of dishonour • • • • Notice by whom Notice to whom mode of giving notice what is reasonable time? .

Discharge of parties from liabilities In relation to negotiable instruments the word ‘discharge’ has been used in two contents. Discharge of the party or parties. . 2. Discharge of the instrument. namely: 1.

Discharge of party or parties • • • • • By cancellation By release By payment in due course by operation of law by allowing the drawee more than 48 honour • by making a qualified acceptance .

Discharge of instrument An instrument is said to be discharged when all the rights contained therein are the instrument ceases to be negotiable . .even the holder in due course does not get any the instrument in such a situation.