Contract of sale of Goods

 The law relating to sale of goods is contained

in sale of goods act 1930
 There are sixty six sections.
 A contract of sale of goods happens by an
offer from one party and acceptance by other,
it is consensual transaction.
 The parties agree to any terms they like
relating to delivery and payment of price etc.
 A contract whereby the seller transfers or
agrees to transfer the property in goods to
the buyer for a price.
1.Two Parties – Buyer and seller exception
Undivided joint owners, case of part
owners., In case of execution of a decree
(auction).
2.Transfer of property : Means ownership,
actual transfer of interest.
3. Goods : Any kind of movable property.
Trade mark copy rights, brands etc.
4. Price : Money should be exchanged , other
wise it is barter and governed by transfer of
property and not sales goods act.
5. Includes both sale and Agreement to sale:
 Sale : Under contract of sale the property in the goods is
immediately transferred at the time of making the contract
from the seller to buyer.
- It is referred to as true sale
- It is an executed contract
- there is immediate conveyance of ownership
 An Agreement to sell becomes a sale after time lapses or the
conditions are full filled subject to which property in goods is
transferred.

6. No Formalities Observed: Does not prescribe any particular

form to constitute a valid contract of sale.It can be made by
mere offer and acceptance, written or oral. Either party can
make the offer. Example
1. Transfer of property (Ownership)

 Immediate in case of sale

 No transfer at the time of contract, the conveyance of property takes place

later so that the seller continues to be owner until the agreement becomes a
sale or by the expiry of time or the fulfilment of some condition.

 An agreement to sale creates a jus in personam- that is it gives right to

buyer and seller against each other for any default in full filling his part of
agreement.
2. Risk Of loss

 The risk prima facie passes with property ,if goods were lost even before it
reached the buyer loss falls on buyer.
 In case of agreement of sale ownership is yet to pass such loss has to be
borne by the seller

3. Consequence of breach In sale:

 if buyer wrongfully neglects to pay the seller can sue for the price. Even
though the goods are in his possession.

 In case of agreement the seller can only sue for damages and not for price
even though the goods are in possession of buyer
4.Right Of resale
 The property is with the buyer and as such the seller (in possession of goods)
after sale cannot re sale.If he does the subsequent buyer having knowledge
of the previous sale cannot aquire title to goods.The original buyer can sue
and get the goods.

 In agreement to sale the seller can dispose off the goods if he likes, but
orginal buyer can sue and get damages.

5.Insolvency of buyer before he pays for the goods :

 In a sale if the buyer is adjudged insolvent before he pays then the seller in
absence of right of lien must hand over the goods to official receiver or
assignee, the seller is entitled to only a rateable dividend for price of goods.

 In agreement to sell the seller may refuse to deliver goods.

6.Insolvency of seller if the buyer has already paid the price :

 If seller is adjudged insolvent then the buyer is entitled to recover goods

from the official assignee.

 In agreement to sale if the buyer has already paid , then the buyer can only claim a
ratable dividend and not goods because property in them still rests with the seller
 Both the contracts resemble very much.

 However legal incidents are quite different

 Under hire purchase goods are delivered to the hire

purchaser for use, but owner agrees to transfer the
property only when certain instalments are paid.
 Till such time hirer remains the bailee and
instalments are regarded as hire charges.

 Hire purchase agreement is no agreement to buy

but there is only bailment of goods coupled with
option to purchase them which may be exercised.
 Goods is transferred to buyer immediately
 Position of buyer is owner here it is bailee
 In sale buyer cannot terminate contract,
hire purchase he can terminate the contract.
 In sale the seller takes risk of loss resulting
from insolvency of buyer, the owner takes
no risk, he gets right to take back goods
 The buyer can pass a bonafide title to
goods, the hire purchaser cannot
1. Existing Goods : Goods that are in existence and which are in sellers
ownership and or possession at the time of entering the contract of sale are
called existing goods. When the seller is the owner he has general property
in them. Existing goods may again be either specific or unascertained.

a) Specific Goods : Goods identified and agreed upon at the time of making
contract of sale are called specific goods.

b) Unascertained Goods: The goods which are not separately identified or

ascertained at the time of the making of the contract are known as
unascertained goods.

2. Future Goods: Goods to be manufactured, produced or acquired by the seller

after making of the contract of sale are called future goods. They may not be
in existence but not yet acquired by the seller. There can be no present sale
of future goods.

3. Contingent Goods : Goods the acquisition of which by the seller depends

upon an uncertain contingency are called contingent goods. They are a type
of contingent goods and a contract for the sale of contingent goods also
operates as an agreement to sell and not a sale. The property to goods does
not pass to buyer at the time of making the contract.

- Contract of sale of contingent goods is enforceable only if the event on the

happening of which performance of the contract is dependent happens
 Perishing not only means physical destruction but
also damage to goods that have ceased to exist,
loss of goods by theft, where goods have been
requisitioned lawfully by govt.

1. Perishing goods at or before making of the

contract:
a) In case of perishing of the whole of goods
b) In case of perishing of only part of the goods:
depends on whether contract is whole or
divisible.

2. Perishing of goods before sale but after agreement

to sell
 The money consideration for sale is known as price. The price
is an essential element in every contract of sale of goods, that
is no valid sale can take place without a price. The price
should be paid or promised to be paid in legal tender money,
unless other wise agreed.

 Modes of fixing price:

1. It may be expressly fixed by the contract itself.
2.It may be fixed in an agreed manner provided by the
contract.
3. It may be decided by the course of dealings between
parties
4. If price cannot be decided by any of the method above the
buyer is bound to give a reasonable price
 Money deposited with the seller by the buyer as
security for due fulfillment of the contract .

 Where contract is carried through earnest money is

taken as part of payment

 If contract goes off the seller is entitled to forefeit

the amount.

 If contract goes off due to the seller’s default the

buyer can recover the money in addition to
damages.
 Stipulation relating to time of delivery of goods- The time
fixed for delivery of goods is the essence of contract.

-If there is a delay in delivery the contract becomes voidable

at the option of the buyer, the buyer may refuse to accept
and put an end to contract.

 Stipulation relating to time of payment of the price – As

regards the time fixed for payment of price, time is not
deemed to be the essence of the contract. Thus even if the
price is not paid as agreed the seller cannot avoid the
contract on that account.

- He has to deliver if the buyer tenders the price within

reasonable time before the re-sale
 Any document which is used in an ordinary
course of business as proof of possession
or control of goods, authorising or
purporting to authorise either by
endorsement or delivery, the possessor of
document to transfer or receive goods
thereby is a document of title of goods

 Example BL,Railway receipt etc, the right of

the transferee (even if bonafide ) will not be
superior to that of the transferor.
 Condition and Warranties

- A contract of sale of goods contains various

stipulations regarding quality of goods, the price,
mode of payment, the delivery of goods, its time
and place.

- All the terms are not equally important .

- Some of these terms may be major and go to roots

of the contract.

- Their breach may frustrate the very purpose of the

contract.
- Other terms may be minor ones which are
not vital that their breach may lead to breach
of the whole contract as such.

- The major terms are the condition

- The minor terms are the warranties

- Mere statements of commendations or
praise or expressions by the seller do not
constitute condition and warranties

- They do not from a part of contract and

hence give no right to action

- Example
 It is a stipulation essential to the main
purpose of a contract.

 The breach of this gives the aggrieved party

the right to repudiate the contract

 An action for damages or losses can also be

claimed.
 It is a stipulation collateral to the main
purpose of the contract

 The breach of this gives the aggrieved party

the right to sue for damages

 The party cannot avoid the contract

 Meaning and legal effects of condition and warranty is very
clear , condition is fundamental to contract and warranty is of
only secondary importance.

 There are no hard and fast rule as to which is condition and

which is warranty.

 Whether a stipulation is a condition or a warranty in a

contract of is determined by the construction of the contract.

 The court is not guided by terminology but looks at intention

of parties by referring to terms, its construction and
surrounding circumstances to judge whether a stipulation is a
condition or warranty

 Example A man purchases a horse

 As to value – condition is essential to
contract, warranty is collateral to main
purpose of contract
 As to breach – Breach of condition give
aggrieved party the right to repudiate, the
breach of warranty give right to claim
damages.
 As to treatment – A breach of condition may
be treated as breach of warranty, a breach
of warranty cannot be treated as breach of
condition
 Voluntary waiver by buyer: Example

 Acceptance of goods by buyer

 Acceptance of only part of goods : If the
contract is indivisible acceptance of part
means acceptance of whole.i.e breach of
condition will be treated as breach of
warranty.

 If the contract is divisible he can repudiate

as regards, the remaining goods
- When he intimates to the buyer that he has
accepted
- When he does any act in relation to goods
which is inconsistent with the ownership of
the seller – i.e consumes, uses, pledges etc.
- when after the lapse of reasonable time he
retains the goods without intimating him
that he has rejected.
 Condition and warranties may be expressed or
implied

 They are said to expressed when with the will of

parties they are included in the contract.

 They are implied when law presumes their

existence in contract.

 Implied condition and warranties may be negatived

or varied by express agreement or by course of
dealing between the parties.
 Conditions to title: In every contract the
implied condition is that the seller has right
to sell.
- He has the right if owner or agent
- If the title turns out to be defective then he
can reject and recover his price.
- In some case if there is a claimant he may
have to return to original owner, treat the
the breach as breach of warrenty and claim
damages
 Condition in sale by description :Where there is a
contract of sale of goods theris a implied condition
that goods correspond with the
description.Example

 Condition in a sale by sample : When under

contract of sale goods are to be supplied according
to a sample agreed upon the implied conditions
are:

- The bulk shall correspond with sample in quality

- The buyer shall have reasonable opportunity of
comparing the bulk with sample
- Goods shall be free from defect.
 Condition in a sale by sample and description: Implied
condition that the bulk of goods shall correspond with
the sample and description.

 Condition as to fitness for quality : No implied

condition or warranty as to quality. This is governed by
Caveat Emptor “ Buyer shall be aware” But an implied
condition appllies that the seller shall give goods which
are reasonably fit for and this applies when:
- Buyer expressly makes known to seller his
requirement
- The buyer relies on sellers skill or judgement
- The goods sold must be of description which the
seller deals in ordinary course of business
 Condition to Merchantability : This is implied only
when in sale by description, not only this following
condition also needs to be satisfied:
- The seller should be dealer in goods of that
description
- The buyer must not have an opportunity to
examine or some latent flaws that was not visible.

 Condition to Wholesomeness: Implied only in

eatables and provision, must be according to
description and merchantable but also wholesome,
free from defect.
 Warranty of Quiet Possession
- Buyer should have quiet posession of goods
- Should not be disturbed by someone with
superior rights
- This is an extension of implied condition
 Warranty of freedom from encumberance
- Goods shall be free from any encumberance
- If goods are found to be subject to a charge ,
the buyer can claim warranty
 Warranty to disclose dangerous nature of
goods to the ignorant buyer
- The seller would warn if goods are
dangerous in nature
- If there is breach of warranty the buyer is
entitled to claim damages
 Let buyer beware.

 It is duty of buyer to be careful and in

absence of an enquiry by the buyer the
seller is not bound to disclose every defect
in the goods.

 The buyer may examine the goods and

check for its suitability

 The buyer should depend on his own ability

 Seller makes mis- representation
 Seller makes false representation
 Goods purchased on description do not correspond
to description
 Goods purchased are not merchantable quality
 Goods brought by sample caveat emptor does not
apply
 Brought by sample and description and bulk goods
do not correspond
 When buyer tells the purpose for which goods are
purchased
 Trade usage attaches an implied condition
 a) A, while showing a piece of cloth to B, say
s “this is the best piece of cloth in the
market”. B buys thecloth. Does this settlemen
t amount to a condition ?
 (b) A tells B, “this radio will get all the Europ
ean stations” or “this truck will do 15
miles on 5 litres”.Are these representation co
nditions ?
 (c) A ordered a certain quantity of a specified gr
ade of leather. He plans to use it for
making suit cases.
 When
he finds that the leather is not suitable for that
 Purpose he sues the
seller for damages on a breach of
implied conditions. Will he succeed ?
 (d) A sold certain grain by description to B, a ret
ailer. Part of the grain delivered by A
was wet and decayed. Was there a breach of cond
ition ?
 (e) R Ltd. agreed to supply 500 tons of coal t
o Manchester Liners for S.S. “Manchester.Imp
orter”. The coal wasfound to be unsuitable for
that particular ship. Has the
buyer any remedy ?
 (f) A bought 100 bales of “Fair Bengal” cotto
n by sample and after having inspected the
bulk, the cotton proved not to be such as was
known in the market “Fair
Bengal”. Was there a breach ofcondition.
 (a) No. the statement does not amount to an
y condition, but only an opinion or sales talk,
B has no right against A.
 (b) Yes, these representations amount to ex
press conditions and their breach entitles the
buyer to repudiate the contract
or claim damages.
 (c) No, he will not succeed because he had o
rdered a specific grade of leather and there
is no implied conditionas to fitness for a part
icular purpose in such a case.
 (d) Yes, there was a breach of implied condit
ion as to merchantability.
 (e) The buyer can reject the coal or claim da
mages as the coal is not suitable for the
particular ship.
 (f) Yes, there is a breach of implied conditio
n as the cotton did not correspond to
description.

