Sale of Goods_Business_Law | Sales | Crime & Justice

Law of Sale of Goods Act 1930

Contract of sale
• Is a contract whereby a seller transfers or agrees to transfer the property in goods to the buyer for a price.(sec.4) • ESSENTIALS (1)At least two parties: Buyer/Seller. Part-owner may sell to another part-owner but no person could buy own goods. • E.g.: State of Gujarat Vs. Ramanlal.S & Co. (2) Transfer or agreement to transfer ownership of goods. Hence it is different from bailment/pledge where mere possession is transferred. (3)Subject matter of contract must necessarily be goods: Sale of immovable property is excluded & the term “goods” is defined in sec.2(7). (4) Price is the consideration for contract of sale & has to necessarily be “money”. (5) Contract of sale may be absolute or conditional. (6) All other essentials of a valid contract must be present.

Sale Vs Agreement to sell
• Sale is executed contract while agreement to sell is an executory contract. In Sale, there is transfer of ownership of goods whereas in agreement to sell, the transfer is to take place at a future time or subject to fulfillment of some condition. • In sale, seller can sue the buyer for price, in default of payment whereas seller can sue only for damages in an agreement for sale. • In sale, any loss of specific/ ascertained goods would fall on buyer even if goods are in possession of seller while in agreement it shall be borne by seller even if goods are in the possession of buyer. • In sale, if seller becomes insolvent after the contract, buyer can claim goods from official receiver or assignee. In agreement, buyer cannot claim goods, but only a rate able dividend. • In sale, if buyer becomes insolvent before payment, seller has to deliver the goods to official receiver or assignee. In agreement, the seller can refuse to deliver the goods to official receiver/assignee.

Contract of sale
• May be expressed: Writing/orally/partly written & partly oral. • May be Implied: from conduct of parties. • Different from hire-purchase. • Different from a contract for ”work & labor” or “labor & materials”. • Different from barter. • Different from bailment. • Different from lease. • Different from gift. • Different from mortgage/pledge/hypothecation.

Sale Vs Hire-purchase
• In sale the ownership in goods is immediately transferred while in H.P, it is only after last installment is paid. • In sale buyer becomes owner of goods while in H.P, the buyer stands in capacity of a bailee. • In sale, buyer has no option to rescind the contract and has to pay the price agreed, while in H.P, the hirer can set aside the contract by stopping payment of instalments. • In sale, buyer can transfer title to a subsequent purchaser while a hirer cannot do so, and the hiree can recover goods from such buyer. • In sale instalments are treated as part-payment while in H.P, they are treated so only when hirer exercises option to buy, if not it would be treated as hire-charges. • In sale, the sales tax could be levied at the time of contract, while in H.P, it could be levied only when hire ripens to a sale.

Definition of goods---sec.2(7)
• All kinds of movable property other than actionable claims & money (excluding rare coins) including stock & shares, growing crops, water, electricity, gas and even intangibles like goodwill, patents and trademarks. CLASSIFICATION (1) Existing Goods: Goods owned/possessed by seller at the time of making contract of sale. (2) Specific Goods: Those goods identified & agreed upon at the time of contract of sale. (3) Ascertained goods: Those goods identified & agreed upon, subsequent to contracting for sale. (4) Unascertained (generic goods): Those goods either not identified or not agreed upon at the time of making the contract of sale. Those defined by description only. (5) Future goods: Those goods to be manufactured/acquired by seller after making contract. Sec.2(6).There can be only an agreement to sell (6) Contingent Goods: When acquisition of goods by seller depends upon an uncertain contingency, they are called contingent goods.

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Voidability of contracts
• Goods perishing before making contract (sec.7) or damaged & no longer answering description in the contract. * Part-destruction means buyer has to accept those goods in good condition so long as the good ones & destroyed ones are divisible. * If indivisible, the contract becomes void. • However, if goods are unascertained, the contract is not void. • If goods are destroyed after agreement to sell but before sale, (sec.8) the contract is void on grounds of supervening impossibility if loss is caused to specific goods, it was beyond the control of either parties and if loss had occurred before risk passed on to buyer.

Conditions & warranties(sec.12)
• Representations forming an integral part of a contract of sale are “stipulations”. • Any stipulation essential to the main purpose of the contract ,the breach of which gives right to repudiate is called a “condition”. • Any stipulation collateral to the main purpose of the contract, the breach of which gives right to claim damages but not a right to reject/repudiate the contract. • Difference between condition & warranty. • Conditions may be precedent or subsequent to a contract of sale. • A buyer has the right to waive a condition & treat it as warranty if he chooses not to repudiate. • If contract is not severable, breach of any condition by seller can be treated as breach of warranty, unless specified/implied.

Implied conditions:
• Condition as to title---sec.14(a) Eg: Rowland Vs Divall, Niblett Vs Confectioners materials Co. Ltd • Sale by description—condition that goods shall correspond with description ,ie words / symbols/ grade/ brand/ number etc • Sale by sample---That bulk shall correspond with sample in quality, free from defect & that buyer would have reasonable opportunity to compare. • Sale by sample as well as description: That goods shall correspond with both. • Condition as to quality/fitness: (sec16) Though it is not an implied condition of the contract generally on the principle of “Caveat emptor” it becomes so when buyer relies on skill/judgment of seller, buyer makes seller know the purpose for which goods are required. • Condition of merchantability. • Condition as to wholesomeness :(for food stuffs)

Implied warranties:sec.14
• Warranty of quiet possession. • Warranty of freedom from encumbrance. • Warranty implied by usage of trade. • Warranty of disclosing dangerous nature of goods

• • • • • • Butterworth Vs Kingsway Motors Harlington Vs. Christopher Fine Art Rowland Vs Divall Niblett Vs Confectionary Co. Beale VS Taylor Varley Vs.Whipp

Doctrine of Caveat emptor
• There is no implied warranty or condition as to quality/fitness for any particular purpose of goods supplied under a contract of sale. • Ward Vs Hobbs(Swine-flu case) • Exceptions • Misrepresentation by seller.(Baldry ) • Concealment of latent defect. • Non-conformity in case of sale by sample/description/both. Fitness for a purpose. Merchantable quality.

Passing of property in goods(sec.18 to 25)
• Pertinent to know to find who is to bear the cost in the event of loss to goods. • Who could have actionable rights over third parties responsible for loss. • Whether official receiver/assignee could claim goods in the event of insolvency of buyer/seller.

Ownership transfer vis-à-vis Goods-type
• • • • • • • Specific/ascertained goods: Property transferred to buyer at such times as parties to contract intend to be transferred.(sec.20 to 24) Specific goods in deliverable state: Here the property passes at the time of contract (unconditional) is made, irrespective of time of payment/ delivery. Specific goods not in deliverable state: Here something is left to be done by the seller to put goods in a deliverable state & hence property passes only when such a thing is done and buyer is given notice. Unascertained or future goods: Here property is transferred to buyer only after goods are ascertained. Unconditional appropriation: Property in goods passes after unconditional appropriation either by the seller or buyer with mutual assent. But it may be given before or after appropriation. Mode of appropriation is also to have mutual consent. Sale on’ approval’ or ’sale or return” contracts: In such cases property passes when buyer (1) signifies acceptance/approval or(2) does any act adopting the transaction like pledging (3) retains goods without giving notice of rejection. If it is cash only, then property passes on seller receiving payment & hence it cannot be pledged till then.

Transfer of title by non-owners(sec27-30)
• Sale by mercantile agent. • Sale by joint owner. • Sale by person in possession under voidable contract. • Sale by a seller in possession of goods after sale. • Sale by a buyer in possession of goods. • Sale by unpaid seller.

Performance of contract
• Duty of seller to deliver & buyer to accept goods and pay. • Delivery of goods---Actual, symbolic (giving a railway receipt/key of warehouse) constructive (where bailee or carrier of seller agrees to hold the goods for buyer. • Terms of delivery: Could be part-delivery with fixed time/place. • Buyer has options for delivery of wrong quantity/installment delivery (not agreed) • Goods delivered to buyer without personal examination. • Buyer not bound to return rejected goods. • Liability of buyer in the event of rejection.

Types of Sale-contracts
• • • • Ex-works/Ex-factory FOB/FOR/FOA Contracts. CIF Contracts. Warehouse-to-warehouse.

• • • • McEntire Vs Crossley Vasantha Vs Elayalwar Dennant Vs Skinner Consolidated Coffee Vs Coffee Board

Unpaid seller
• Meaning of unpaid seller: (a) When whole of the price has not been paid/tendered (b) When a bill of exchange/negotiable instrument is received as conditional payment & condition was not fulfilled due to dishonor of instrument

Rights of an unpaid seller
• Right against goods: (1) Right of lien or right to retain possession till receipt of payment & can be exercised: (a) Goods sold without stipulation of credit. (b) Goods sold on credit but credit period has expired (c) Buyer becomes insolvent before expiry of credit period. (2) In part delivery, seller may exercise lien on remainder. However, in sale through instalment payment, default in an instalment would not entitle seller to stop delivery until buyer has become insolvent

Termination of lien
• (a) Delivery of goods to buyer. • (b) Delivery of goods to carriers. • © Waiver of lien (express waiver in contract) • Implied waiver (assenting to sub-sale) • Tender of price by buyer.

Right of stoppage in transit
• This right can be exercised by an unpaid seller who has parted with the goods and the goods are in transit. But to exercise the right, the buyer must be insolvent. • The right gets terminated when seller delivers goods to buyer or his agent/interception by buyer/carrier or bailee acknowledges arrival of goods or part delivery is effected.

Right of resale
• An unpaid seller having exercised the right of lien or right of right of stoppage in transit can effect resale of goods. • Obligation to serve notice on buyer does not apply for perishable goods

Additional rights
• Suit for price (where property in goods has passed, seller can sue for price) • Suit for damages (seller could also claim other costs incidental to non-payment or rejection of goods by buyer)

Buyer’s rights
• Suit for non-delivery : Where delivery of goods has not been carried out by seller, the buyer could file suit for costs arising out of the act along with penalties. • Suit for specific performance :In case of breach to deliver certain specific/ ascertained goods courts may direct specific performance over & above payment of damages. • Remedy for breach of warranty: If price is paid, buyer has to file suit for damages. If price is unpaid, buyer has to deduct the loss suffered & then pay the balance amount. • Repudiation of contract before delivery: In such circumstances, buyer could treat the contract as rescinded & file suit for damages or wait till actual date of delivery. • Recovery of price + interest : Courts award interest on the price from the date of payment till date of refund.

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