LEGAL ASPECTS OF BUSINESS

(PGP-1 Term-II 2010-11)

SALE OF GOODS
Section B Group 16
Rakesh S |Nishit Mistry |Praveen Mundlapati
|Conrad Janong Sooting | Felix G
Introduction
 Operative Law - Sale of Goods Act 1930
 Allows parties to agree to any term they like

 Lays down positive rules of general application for cases where parties
have failed to contemplate for contingencies which may interrupt smooth
performance of contract of sale
 Ex. Destruction of goods sold before its delivered

 General contracts under Indian Contract Act are applicable if not

inconsistent with former
 Ex. Rules regarding to capacity of parties, free consent and measure of
damages
 Consideration must only by way of “price”(money)
Essential Characteristics of Sale of Goods

 Sale of Goods means “A contract where by the seller transfers or agrees

to transfer the property in goods to the buyer in price” (Section 4.1 Sale of
Goods Act)
 Essential Characteristics of Sale of Goods
 Two Parties

 Transfer of Property

 Goods

 Price

 Sale/Agreement to Sell

 No Formalities to be Observed
Essential Characteristics of Sale of Goods
(Contd.)
 Two Parties
 A buyer and a seller
 Undivided Joint Owners and “part-owners”
 Students taking meal from a students’ run mess – No contract of sale
(undivided joint owners)
 Only case where a person can buy his own goods is when the persons
goods are sold in execution of a decree
 Transfer of Property (“Ownership”)
 “Property” -> “general property” (Sale of Goods Act)
 To constitute a contract of sale the seller must either transfer or agree to
transfer the property in the goods to the buyer
 Not mere transfer of possession
Goods

 Subject matter of contract of sale must be “goods“

 “Goods means every kind of movable property other than actionable
claims and money; includes stock and shares, growing crops, grass, and
things attached to or forming part of the land which are agreed to be
severed before sale and under the contract of sale”
 ‘Actionable Claims’ are claims which can be enforced by a legal action or
a suit. Ex. Book debt, bill of exchange, promissory note. These can be
assigned or transferred but not sold
 Money is a ‘medium of exchange’ not ‘goods’. But old and rare coins can
be treated as goods
 Sale of immovable property – Transfer of Property Act 1882
Classification of Goods

 Existing Goods : Goods which are physically in existence and are in

possession of seller at time of sale
 Future Goods : Goods that are to be manufactured or produced or yet to
be acquired by seller
 No present sale as property cannot pass. Only contract for sale for
‘future’ goods.
 Ex. A agrees to sell B all the milk that his cow may yield during coming
year
 Contingent Goods : Type of future goods where acquisition of the goods
by the seller depends upon a contingency
 Ex. A agrees to sell B all the fish in his fishing boat, when it arrives.
Price

 Consideration for contract of sale must be money which is

called ‘Price’
 Goods sold for other goods then transaction is governed by
the Transfer of Property Act
Sale

 Immediate conveyance of the ownership and mostly of the

subject matter of the sale as well
 Kind of Executed contract

An Agreement to Sell
 Transfer of property in goods is to take place at future time or
subject to some condition thereafter to be fulfilled
 Kind of executory contract
Distinction between Sale and An Agreement
to sell

 Transfer of Property (Ownership)

 Risk of Loss
 Consequences of breach
 Right of Resale
 Insolvency of buyer before he pays for the goods
 Insolvency of seller if buyer has already paid the price
No Formalities To Be Observed

 Can be made by mere offer and acceptance

 Neither payment nor delivery is necessary at time of making
the contract of sale
 Can be made either orally or in writing or partly orally or
partly in writing or may be even implied from the contract of
the parties
Conditions and Warranties
 In contract of sales of goods, Stipulations regarding quality,
price, mode of payment, etc. are known Conditions and
Warranties
 Condition – stipulation essential to the main purpose of the
contract
 Breach of Condition gives aggrieved party right to repudiate
the contract
 In addition, aggrieved party can claim damages from the
guilty party
Conditions and Warranties (Contd.)
 Warranty – a stipulation collateral to the main purpose of the
contract
 Breach of Warranty, gives the aggrieved party right to sue
for damages only
 Aggrieved party can not avoid contract itself

 There is no hard and fast rule as to which stipulation in a

contact is a condition or warranty
 It depends in each case on the construction of the contract
 Mere nomenclature is not enough to distinguish
Examples

 Breach of Condition
 P goes to R, a horse dealer, and asks for horse which runs at
a speed of 30 km per hour, P buys a horse from R
 Later P finds that horse can only run at a speed of 20 km
per hour. This is a breach of condition
 Breach of Warranty
 P says to R, “I want a good horse”, R shows him a horse and
says, “ This is a good horse and it can run at a speed of 30
km per hour”, and P buys the horse
 Later, P finds that horse can only run 20km/hour
Distinction between Condition and Warranty

 As to value
 Condition – essential to the main purpose of the contract
 Warranty – collateral to the main purpose of the contract
 As to breach
 Condition – right to repudiate the contract and also to claim
damages
 Warranty – right to claim damages only
 As to treatment
 Breach of condition may be treated as a breach of
warranty
 Breach of warranty cannot be treated as breach of
condition
When breach of condition to be treated as
breach of warranty
 Voluntary waiver by buyer
 Buyer of goods may treat breach of condition as a breach
of warranty, and accept goods and sue the seller for
damages
 E.g. If A agrees to supply B 10 bags of first quality sugar
@Rs. 625 per bag, but supplies only second quality sugar
(Rs. 600 per bag)
 Buyer may treat it as breach of warranty, accept the goods
and claim damages @Rs. 25 per bag
When breach of condition to be treated as
breach of warranty
 Acceptance of goods by buyer
 When the buyer accepted goods, but later comes to know
of the breach of contract
 Buyer can not reject goods, can only claim damages

 In this case, law treats breach of condition as breach of

warranty i.e. does not depend on the will of buyer
 In case of indivisible contract, buyer should treat breach of
condition as breach of warranty
 In case of divisible contract, buyer can repudiate as regards
remaining goods
Conditions and Warranties (contd.)

 Express and Implied Conditions and Warranties

 Implied Conditions
 Conditions as to title
 Condition in a sale by description

 Condition in a sale by sample

 Condition in a sale by sample as well as by description

 Condition as to fitness or quality

Implied Conditions Contd..

 Condition as to merchantability
 Goods should correspond with description and be ‘merchantable’
quality
ii) Seller should be a dealer of that description, whether he is a
manufacturer or not
iii) The buyer must not have any opportunity to examine the goods or there
must be some latent defect in the goods, which should be apparent on
reasonable examination
 Condition as to Wholesomeness
 Implied only in contract of sale of eatables and provisions
 Goods should answer to description, must be merchantable and must be
wholesome, i.e., free from any defect which render them unfit.
 W bought a bottle of beer from H and the beer was contaminated with
arsenic and W fell ill. H was held liable to W for the illness
Implied Warranties

 Warranty of quite possession

 “the buyer shall have and enjoy quite possession of goods”.

 If the buyer is disturbed by a person with superior right than the seller,
the buyer can claim damages from the seller.
 Regarded as an extension of the implied condition of the title.

 A buys a typewriter and spent money on repairs. It turns out be a stolen

article. A is entitled to get back what he paid plus repair charges.
 Warranty of freedom from encumbrances
 “The goods shall be from any charge or encumbrance in favour of any
third party not declared or known to the buyer before or at the time
when the contact is made”
 A pledges a watch to B. Later he sells it to C. B tells C about the
pledge. C has to make payment for the pledge amount to B. Here is a
breach of warranty and C can get compensation from A.
Implied Warranties (Contd.)

 Warranty of disclosing the dangerous nature of the goods to the

ignorant buyer
 If the goods sold are of dangerous nature, the seller is bound to warn
the ignorant buyer.
 Buyer entitles to claim damages for injury in case of a breach of
warranty.
 C purchases a tin of disinfectant powder from A. A knows the lid is
defective and if opened without special care it may be dangerous but
tells nothing to C. C opens the tin in the normal way and gets injured. A
is liable in damages to C as he should have warned C of the probable
danger.
Doctrine of Caveat Emptor
 “let the buyer beware”
 It is the duty of the buyer to be careful while purchasing goods of his
requirement
 The buyer must examine the goods thoroughly and must ensure they serve
the purpose for which he wants them
 No implied undertaking by the seller that he shall supply goods to suit the
buyer’s purpose
 Ex. A buys a horse from B for riding – but did not mention this. The horse
was found fit only for carriage. A cannot claim damage.
Exceptions of the doctrine of caveat emptor

 Seller makes a misrepresentation and the buyer relies on it. Buyer has a
right to rescind the contract.
 Seller makes a false representation amounting to fraud or seller conceals a
defect in the goods
 Goods purchased by description and do not correspond with the
‘description’
 Goods purchased by description are of not ‘merchantable quality’. But the
doctrine applies, if the buyer examined the goods where such examination
ought to have revealed the defect.
 If the bulk does not correspond with the sample or if the buyer is not
provided an opportunity to compare the bulk with the sample or if there is
any hidden or latent defects in the goods.
Exceptions Cont…

 Goods bought by sample as well as description and the bulk does not
correspond with the both, the buyer is entitled to reject it.
 Buyer makes known to the seller the purpose for which he requires the
goods and relies upon the seller's skill but the goods supplied are unfit for
that purpose.
 Trade usage attaches an implied condition or warranty as to quality or
fitness and the seller deviated from that, the seller is liable in damages.
Thank You