Legal Environment

of Business

Sales of Product And Liability

Merchants
• A merchant is someone who routinely deals in the particular goods
involved, or who appears to have special knowledge or skill in those
goods, or who uses agents with special knowledge or skill in those
goods.

Buyer, Seller and Goods

• Buyer means a person who buys or agrees to buy goods. Whereas
seller means a person who sells or agrees to sell goods. The term goods
include every kind of moveable property except (i) actionable claims
and (ii) money.
 Goods further can be divided into;

Existing goods which are already in existence and which

goods are physically present in some person’s possession
and ownership

Future goods goods which will be manufactured or produced or

acquired by the seller after the making of the
contract of sale

Contingent there may be a contract for the sale of goods the

goods acquisition of which by the seller depends upon
the contingency which may or may not happen. In
such cases the goods sold are called contingent
goods

Sale: A contract for the sale of goods may be either a sale or an agreement to sell. Where
the property in the goods is transferred from the seller to the buyer to contract is called a
sale.
Agreement to sell: When the transfer of ownership is to take place at a future time or
subject to some condition to be fulfilled later, the contract is called an agreement to sell.
• Differences between a sale and an agreement to sell
 
Sale Agreement to Sell
The property passes to theThe property in the goods
buyer and the goods cannotremains with the seller until
Transfer of be seized in execution of a
the agreement to sell
ownership decree against the seller.becomes a sale by the expiry
of the agreed time or the
fulfillment of the agreed
conditions.
The goods belong to the Until the goods are not
Transfer of risk buyer and he has to bear transferred to the buyers the
the loss if the goods are risk is also not transferred
subsequently damaged or
destroyed.
Remedial The unpaid seller has The seller’s remedy for
measures certain relief available. breach of contract by the
buyers is a suit for damage.
Nature of contract Sale
contract.
is an executed Agreement to sell is an
executory contract.
The essential elements of contract of a Sale of Goods:
• Movable goods: The Sale of Goods Act deals only with moveable goods, excepting actionable
claims and money.
• Moveable goods for money: There must be a contract for the exchange of moveable goods for
money. Therefore in a sale there must be money-consideration.
• Two parties: Since a contract of sale involves a change of ownership, it follows that the buyer
and the seller must be different persons.
• Formation of the contract of sale: A contract of sale is made by an offer to sell or buy goods
for a price and the acceptance of such offer.
• Method of forming the contract: Subject to the provision of any law for the time being in
force, a contract of sale may be writing, or by word of mouth, or may be implied from the
conduct of the parties.
• The terms of contract: The parties may agree upon any term concerning the time, place and
mode of delivery. The terms may be of two types: essential and non-essential.
• Other essential elements: A contract for the sale of goods must satisfy all the essential elements
necessary for the formation of a valid contract.
Condition: A condition is a stipulation essential to the main purpose of
contract, the breach of which gives rise to a right to treat the contract as
repudiated. 
Warranty: A warranty is a stipulated collateral to the main purpose of the
contract, breach of which gives rise to a claim for damage, but not a right to
reject the goods and treat the contract as repudiated.

Condition Warranty
Condition is a term which is Warranty is only a collateral term.
essential to the main purpose of the It is subsidiary to the main purpose
contract. of the contract.
Breach of contract gives the Breach of warranty entitles the
aggrieved party a right to repudiate aggrieved party to claim damages
the contract. only.
A breach of condition may under A warranty cannot become a
certain circumstances treated as a condition.
warranty.
Rights of buyer of goods
• Inspection: The buyer generally has the right to inspect the goods before
paying or accepting. May reject non-conforming goods, but the seller has
the right to cure, by delivering conforming goods before the contract
deadline.
• Cover: If the seller breaches, the buyer may ‘cover’ by reasonably
obtaining substitute goods. Buyer may then obtain the difference between
the contract price and the cover price, plus incidental and consequential
damages, minus expenses saved.
• Delivery: The buyer has the right to have delivery of the goods according
to the terms of the contract.
• Repudiation: Unless otherwise agreed, the buyer of goods is not bound to
accept delivery by installments. Even, the buyer is not bound to accept the
delivery of a wrong quantity.
Rights of seller of goods
• The seller may at any time stop or refuse delivery of goods.
• Resale: The seller may recover difference between the resale price and contract
price, plus incidental damages, minus expenses saved.
• Action for the Price: The seller may recover the contract price if the buyer has
accepted the goods, or the seller’s goods are conforming and he is unable to resell
after a reasonable effort.
• Remedies: Unpaid, sellers have certain remedies i.e. Seller’s Lien, Right of Stoppage
in Transit, Suit for the Price.
• Enforcement of liabilities of buyer: The seller can enforce the liabilities of buyer for
not taking delivery.
• Other rights: The seller has been given certain rights to the aggrieved party for the
following reasons: Damages for Non-delivery; Remedy for breach of warranty;
Repudiation of contract; Interest and special damages; Increasing of the amount of
duty imposed or increased.
Delivery: Delivery means a voluntary transfer of possession from one person to another.
Rules regarding delivery
• Possession of buyer: Delivery of goods sold may be made by doing anything which
the parties agree shall be treated as delivery.
• Effect of part delivery: A delivery of part of goods, in progress of the delivery of the
whole, has the same effect.
• Application for delivery: Apart from any express contract the seller of goods is not
bound to deliver them until the buyer applies for deliver.
• Place of delivery: Whether it is for the buyer to take possession of the goods or for the
seller to send them to the buyer is a question depending in each case on the contract,
express or implied, between the parties.
• Time of delivery: Where under the contract of sale the seller is bound to send the
goods to the buyer but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
• Possession of a third person: Where the goods at the time of sale are in the possession
of a third person, there is no delivery by seller to buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf.
• Expenses of delivery: Unless otherwise agreed, the expenses of and incidental to putting
the goods into a deliverable state shall be borne by the seller.
• Delivery of the wrong quantity:
• (a) Where the seller delivers to the buyer a quantity of goods less than he contracted to
sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall
pay for them at the contract rate.
• (b) Where the seller delivers to the buyer a quantity of goods larger than he contracted to
sell, the buyer may accept the goods included in the contract and reject the rest, or he
may reject the whole. If the buyer accepts the whole of the goods to delivered, he shall
pay for them at the contract rate.
• (c) Where the seller deliverers to the buyer the goods he contracted to sell mixed with
goods of a different description not included in the contract, the buyer may accept the
goods which are in accordance with the contract and reject the rest or may reject the
whole.
• Installment delivery: Unless otherwise agreed, the buyer of goods is not bound to
accept delivery thereof by installments.
• Examining the goods: The buyer has the right to examine the goods for the purpose
of ascertaining whether they are in conformity with the contract.
• Acceptance: The buyer is deemed to have accepted the goods when he intimates to
the seller that he has accepted them, or when the goods have been delivered to him
and he does any act, in relation to them which is inconsistent with the ownership of
the seller, or when, after the lapse of the reasonable time, he retains the goods
without intimating to the seller that he has rejected them.
• Buyer is not bound to return rejected goods: Unless otherwise agreed, where
goods are delivered to the buyer and he refuses to accept them, having the right so to
do, he is not bound to return them to the seller, but it is sufficient if he intimates to
the seller that he refuses to accept them.
• Liability of buyer: The buyer is liable to the seller for any loss occasioned by his
neglect or refusal to take delivery, and also for a reasonable charge for the care and
custody of the goods.