UNIT 1: FORMATION OF CONTRACTOF SALE
INTRODUCTION
It
is one of the special types of contract. Initially, it was the part of the
Indian Contract Act, 1872. Later it was deleted and a separate sale of Goods
Act was passed in 1930. It came into force on 1st July, 1930. It
extends to whole of India except the State of Jammu & Kashmir. Where the
Sale of Goods Act is silent on any point, the general principles of the law of
contract apply.
CONTRACT OF SALE
Sale Agreement
to sell
(Executed) (Executory)
The term ‘contract of sale’ is defined in Section 4
(1) of the Sale of Goods Act, as under : “A contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in the
goods to the buyer for a price. “
Contract of Sale
According
to Section 4 of the Sale of Goods Act, 1930, ‘A contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer the property in the goods to
the buyer for a price.’
The term
‘Contract of sale’ is a generic term and includes both a sale and an agreement
to sell. Where under a contract of sale, the property in the goods is
transferred from the seller to the buyer (i.e. at once), the contract is called
a ‘sale’ but where the transfer of the property in the goods is to take place
at a further time or subject to some condition thereafter to be fulfilled, the
contract is called an ‘agreement of sell’. [Section 4(3)].
An
agreement to sell becomes a sale when the time elapses or the condition,
subject to which the property in the goods is to be transferred, is fulilled.
[Section 4(4)].
DEFINITIONS
A.
Buyer :
“Buyer means a person
who buys or agrees to buy goods.” [Sec. 2(1)]
B.
Seller :
“Seller means person who sells or agrees to sell goods.” [Sec. 2(13)]
C.
Goods :
“Goods” means every
kind of movable property other than actionable claims and money; and includes
stocks and shares,growing crops, grass and things attached to or forming part
of the land which are agreed to the severed before sale or under the contract of
sale. [Sec. 2 (7)].
·
An actionable
claim is a claim to any debt. For example: a money debt, book debts, etc.
·
Money here means
legal tender of money, i.e.
the recognised circulation in the country; but not old rare coins.
·
Things attached
to the earth are not movables, but trees, growing crops which can be easily
severed from the earth before sale. Fruits, vegetablesand flowers which can be
separated from the trees, are included in ‘goods’.
·
Livestock i.e.
cows, buffaloes, cats etc are ‘goods’.
·
Patents,
copyrights, goodwill, trade-marks, are
all considered goods which can be the subject matter of a contract.
·
A ship has also
been considered to come
within the definition of the word
“goods”. Similarly water, gas and electricity are included in the definition,
though some writers doubt if they can be classed among “goods”.
·
As per English
law, “shares and stock” are not treated as “goods”.
·
To conclude,
everything movable is goods, except the following:-
1.
Money
2.
Actionable
Claims
3.
Immovable assets
4.
Services
D.
Price
o “Price’ means the money consideration for a sale of
goods.”
[Sec. 2 (10)].
o No sale can take place without a price.
o Therefore,
a) Exchange of goods for goods will not be considered
as sale
b) Gift of goods will not be considered as sale
c) Exchange of goods for goods along with price will be
considered as sale
E.
Property:
General property Special property (ownership) (interest)
But
in Sale Of Goods Act, ‘property’ means the general property in goods and not
merely a special property
Example:
A who owns the goods pledges them to B, then A has the general property in the
goods, while B has a special property or interest in them.
F.
Documents showing Title to Goods/ Documents of Title
to Goods
G.
Mercantile Agent:
“Mercantile Agent’ means an agent having in the
customary course of business as such agent, authority either to sell goods, or
to consign goods for the purpose of sale, or, to buy goods, or to raise money
on the security of goods.” [Section 2(9)].
If a person is
not carrying on business as such agent, he would not fall under this
definition. Thus, a contractor, a warehouseman, a carrier or a servant and a
friend would be excluded.
H.
Delivery:
“Delivery’ means
voluntary transfer of possession from one person to another”
[Sec. 2 (2)].Therefore, in case of theft,
there is no delivery, though there is a transfer of possession.
CONTRACT OF SALE OF GOODS
As
per Section 4(i) of the Sale of Goods Act, 1930, Contract of sale of Goods is a
contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price.
Essential Elements:
-
There must be
atleast two parties. (Bilateral Contracts)
-
The subject
matter of the contract must be goods.[ Section 2 (7)]
-
A price in money
should be paid or promised.[ Section 2 (10)]
-
A transfer of
property in goods from seller to the buyer must take place.
-
It must be
absolute or conditional. [Section 4(2)].
-
All other
essentials of a valid contract must be present.
-
GOODS - MEANING
-
As per Sec 2(7),
it means every kind of movable property other than actionable claims and money;
and 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 or under the
contact of sale.
-
Money means
current money and it includes rare and old coins.
-
Actionable claim
means what a person cannot make a present use of or enjoy, but can recover it
by means of a suit or an action. Thus, a debt due to a man from another is an
actionable claim and cannot be sold as goods, although it can be assigned.
Under the provisions of the Transfer of Property Act, 1882, goodwill, trade
marks, copyrights, patents are all goods, so is a ship. As regards water, gas,
electricity, it is doubtful whether they are goods.
TYPES
OF GOODS
-
Existing Goods:
It means such goods which are in existence at the time of the contract of sale
i.e. owned or possessed by the seller.
-
Specific or
Ascertained Goods: It means goods identified and agreed upon at the time the
contract of sale has been made.
-
Generic /
Unascertained Goods: It means the goods which are not specifically identified
but are indicated by description.
-
Future Goods: It
means goods to be manufactured or produced or acquired by the seller after making
the contract of sale.
-
Contingent
Goods: It means the goods the acquisition of which by the seller
-
depends upon a
contingency which may or may not happen.
DIFFERENCES
BETWEEN SALE AND AGREEMENT OF SELL
|
|
Sale |
Agreement of Sell |
|
1. |
It is an executed contract. |
It is an executory contract. |
|
2. |
Property in goods are transferred from seller to buyer when
the contract is made. |
Transfer of property in goods takes
place at some future date. |
|
3. |
Seller cannot
resell the goods
as the property is with
the buyer. |
Seller can further resell
the goods as the property in good
remains with him. |
|
4. |
Risks passes to the buyer, as he becomes the owner. |
Risks is with
the seller as he remains
the owner. |
|
5. |
Breach on part of buyer, seller
can sue for the price
and damages both. |
Breach on part of buyer, seller
can sue for damages only and not
for the price. |
|
6. |
Sale is contract
plus conveyance. |
It is pure and simple agreement. |
|
7. |
In this, if goods are
destroyed then loss will be of Buyer. |
In this, if goods are destroyed by accident, loss will fall
on seller. |
DIFFERENCES
BETWEEN SALE AND BAILMENT
|
|
Sale |
Bailment |
|
1. |
Property in goods is transferred from seller to buyer. |
There is only transfer
of possession of goods from bailor to bailee. |
|
2. |
Consideration is the price
in terms of money. |
Consideration may
be gratuitous or non- gratuitous. |
|
3. |
Buyer may use
the goods in any way he likes. |
Bailee can use
the goods only according to the bailor’s
direction. |
|
|
|
|
DIFFERENCES
BETWEEN SALE AND CONTRACT FOR WORK AND LABOUR
|
|
Sale |
Contract for Work
and Labour |
|
1. |
Property in goods is transferred from
the seller to the
buyer. |
It is a contract for performing some
work and not for transferring the property in goods. |
|
2. |
It involves the delivery of goods. |
It involves exercise of skill
and labour in rendering some work. It involves “the uses by means of money consideration”. |
DIFFERENCES
BETWEEN SALE AND HIRE PURCHASE AGREEMENT
|
|
Sale |
Hire Purchase Agreement |
||
|
1. |
Property in goods is transferred to the buyer immediately at the time of contract. |
The goods passes to the hirer upon
payment of the last installment. |
||
|
2. |
Position of buyer is that of owner of
goods. |
Position of hirer is that of a bailee
till he pays
the last installment. |
||
|
3. |
Buyer cannot
terminate the contract and is bound to pay the price of the goods. |
Hirer
may terminate the contract by returning the goods to owner without
any liability to pay the remaining installments. |
|
|
|
4. |
Seller takes the risk of any loss
resulting from the buyer’s insolvency. |
Owner takes
no such risk
for if hirer
fails to pay the installment, he has the right to take back
the goods. ' |
|
|
Ø BARTER AND
EXCHANGE
v Barter:
Where goods are transferred for goods, the
transaction is one of a ‘barter’ and not sale, i.e. wheat is given in exchange
of rice.
v Exchange :
Where money is exchanged for money, the transaction
is one of ‘exchange’ and not sale, i.e. 100 rupee note is exchanged for 2 notes
of Rs. 50.
Ø SALE AND
CONTRACT FOR WORK AND LABOUR
A contract of sale has to be distinguished from a
contract for work and labour. The contract of sale contemplates the delivery of
goods, whereas in contract for work and labour or materials, the contract is
for the exercise of the skill and labour, and delivery of goods is only
subsidiary.
Example:G commissioned R, an artist to paint a portrait and
supplied the canvas and the paint. Held, it is a contract for work and labour
and not one for the sale of goods.
Ø FORMATION AND
MODES OF A CONTRACT OF SALE
A contract of
sale is made by an offer to buy or sell by one person, and the acceptance of
such offer by another person. And it may be made in anyone of the following
modes [Section 5 (1)]:
1.
There may be
immediate delivery of goods, but the price to be paid at some future date.
2.
There may be
immediate payment of price, but the delivery to be made at some future date.
3.
There may be
immediate payment of price and the immediate delivery of goods.
4.
The price and
delivery of the goods may be postponed.
5.
The price and
delivery of the goods may be agreed to be made in instalments.
·
It may be noted
that no particular form is necessary for the making of a contract of sale.
·
It may be in any
form, e.g., a contract of sale may be made
(a)
In writing, or
(b)
By words of
mouth, or
(c)
Partly in
writing and partly by words of mouth, or
(d)
May be implied
from the conduct of the parties.
However, if any particular mode is prescribed by any
law, then the contract of sale must be made in that particular mode [Section 5
(2)].
EFFECT OF PERISHING OF GOODS
Goods perishing before making a
contract
-
Where in a
contract of sale of specific goods, the goods without the knowledge of the
seller have perished at the time of making the contract, the contract is void.
-
If the seller
was aware of the destruction and still entered into the contract, he is
estopped from disputing the contract. Moreover, perishing of goods not only
includes loss by theft but also where the goods have lost their commercial
value.
Ø
EFFECT OF DESTRUCTION OF GOODS
Goods perishing after agreement to sell
-
Where there is
an agreement to sell specific goods, and subsequently the goods without any
fault of any party perish before the risk passes to the buyer, the agreement is
thereby avoided. The provision applies only to sale of specific goods.
-
If the sale is
of unascertained goods, the perishing of the whole quantity of such goods in
the possession of the seller will not relieve him of his obligation to deliver.
PRICE & ITS FIXING
Ø PRICE AND MODES
OF FIXING THE PRICE
The price means
the money consideration for the sale of goods [Section 2 (10)]. Price may be
fixed in any of the following modes provided in Section 9:
1.
The fixation of price by the contract of sale
[Section 9 (1)]:
The price may be
expressly fixed the contract of sale. The parties may fix any price they like.
2.
The fixation of price in a manner provided in the
contract of sale [Section 9 (1)]:
The contract of
sale may provide for some manner in which ‘price is to, be fixed. In such
cases, the price may be fixed in a manner provided in the contract.
3.
The fixation of price by course of dealings [Section
9 (1)]:
Sometimes, the
customs or usage of trade provides certain principles for the determination of
the price. In such cases, the price may be determined from the course of
dealings between the parties.
4.
The fixation of a reasonable price [Section 9 (2)]:
Sometimes, none
of the above principles is applicable. In such cases, the buyer shall pay to
the seller a reasonable price. The term ‘reasonable’ price is a question of
fact which depends on the circumstances of each particular case.
5.
The fixation of price by third party [Section 10]:
ü The parties may agree to sell and buy goods on the
terms that the price shall be fixed by the valuation of a third party.
ü However, if such third party fails to make the
valuation, the contract becomes void. But if the buyer has received the goods
and has appropriated them, he becomes bound to pay reasonable price to the
seller.
ü Sometime, the third party is influenced or prevented
by the buyer or the seller from fixing the price. In such cases, the innocent
party may recover damages from the defaulting party.
Example:
A agreed to sell
his 100 bags of rice to B at a price to be fixed by C. But C failed to fix the
price. In this case, the agreement becomes void on C’s failure to fix the
price.
Example:
A agreed to sell
his 100 quintals of wheat to B at a price to be fixed by C. C is willing to
value wheat and fix the price. But, A by his wrongful acts, prevents C from
making the valuation of the goods. In this case, B can claim damages from A.
UNIT 2: CONDITIONS AND WARRANTIES
• INTRODUCTION:
In
every contract of sale of goods there are certain stipulations made with
reference to goods which are the subject-matter thereof. Such stipulations
differ in character and importance. The clause divides stipulations into
conditions and warranties.
CONDITIONS & WARRANTIES
Condition
-
If the
stipulation forms the very basis of
the contract or is essential to the main
purpose of the contract, it is a condition.
The breach of
the condition gives the suffering party a right to treat the contract as repudiated (cancelled). Thus, if the
seller fails to fulfil a condition, the buyer may treat the contract as
repudiated, refuse the goods and, if he has already paid for them, recover the
price. He can also claim damages for
the breach of contract.
Warranties
-
If the
stipulation is collateral to the main
purpose of the contract, i.e., is a subsidiary promise, it is a warranty.
-
The effect of a breach of a warranty is that the
suffering party cannot repudiate
(cancel) the contract but can only claim damages.
-
Thus, if the
seller does not fulfil a warranty, the buyer must accept the goods and claim
damages.
- Stipulation
(condition) as to time of payment are not to be deemed conditions (and hence
not to be of the essence of a contract of sale) unless such an intention
appears from the contract.
- Whether
any other stipulation as to time (e.g., time of delivery) is of the essence of
the contract or not depends on the terms of the contract.
|
CONDITION |
WARRANTY |
|
1.A
condition is essential to the main purpose of the contract. |
1. It is
only collateral to the main purpose of the contract. |
|
2. In case
of breach of condition, aggrieved party can: i.
Rescind the contract, return the goods and claim refund. ii.
Claim damages |
2. In case
of breach of warranty, aggrieved party can only claim damages. |
|
3. A breach
of condition may be treated as a breach of warranty |
3. A breach of warranty
cannot be treated as a breach of condition. |
WHEN A CONDITION
MAY BE TREATED AS WARRANTY
In the following cases, a breach of a condition is
treated as a breach of a warranty:
|
Waiver by the buyer |
The buyer
may waive a condition. Once
the buyer waives
a condition, he cannot insist
on its fulfillment. |
|
Compulsory treatment by buyer |
Where the contract is indivisible and the buyer has accepted the goods or part thereof, the breach of condition
can only be treated as breach of warranty. Thus,
the buyer cannot
terminate the contract but can only claim damages from the seller. |
IMPLIED WARRANTIES
Implied warranties are those which the law
presumes to have been incorporated in the contract of sale inspite of
the fact that the parties have not
expressly included them in a contract of sale. The following are the
implied warranties in the contract of sale:
|
Warranty as to possession |
There is an implied warranty that the buyer shall
have and enjoy quiet possession of
the goods. If the buyer’s
possession is disturbed by anyone having superior
title than that of the seller, the buyer
may sue the
seller for the breach of warranty. |
|
Warranty as to freedom from encumbrances |
There is an implied warranty that the goods shall be
so free from any charge or encumbrances in
favor of any third party.
If the goods are found subject to some charge in favor of third party, the buyer may sue the seller for
damages. However, this warranty is
not applicable where the buyer has been informed of such charge or has notice of the
same. |
|
Warranty to disclose dangerous nature of goods |
If the goods are inherently dangerous or likely to be dangerous to the buyer, it is the duty of the seller to warn the buyer of the probable danger which may
arise out of its use. |
|
Warranty as to quality or fitness |
There is an implied
warranty as to quality
of fitness for
a particular purpose may be annexed
by the usage of trade. |
|
by usage of trade |
|
·
CONDITIONS :
EXPRESS CONDITIONS
IMPLIED CONDITIONS
Express
conditions: Express conditions are
those, which are agreed upon between the parties at the time of contract and
are expressly provided in the contract.
IMPLIED CONDITIONS
The implied conditions are those which are presumed
by law to present in the contract. However, an implied condition may be negated
or waived by an express agreement. The following conditions are implied in a
contract of sale of goods unless the circumstances of the contract show a different
intention:
|
Condition as to title |
In every contract of sale, there is an implied condition on part of the seller that: a.
In case of sale, he has ownership and right to sell the goods,
and b.
In an agreement to sell,
he will have a right to sell the
goods at the time when the property is to pass. |
|
Sale by description |
Where there is a contract of sale of goods by description, there is an implied condition that goods delivered by seller shall
correspond with
such description. If the goods
does not correspond with the description, the buyer is not bound to
accept and pay for the goods. |
|
Sale by sample |
In a contract
of sale by sample, there is an implied condition that: ·
The bulk should correspond with the sample in quality; ·
The buyer shall have reasonable opportunity of
comparing the bulk with the sample; and ·
The goods shall be free from any defect rendering
them un- merchantable, which would not be apparent on reasonable examination of
the sample. |
|
Sale by sample as well as by
description |
Where the
goods are sold by sample as well as by description the implied condition is that
the bulk of the goods supplied must correspond both with the sample and the
description. In case the goods correspond with the sample but do not tally with
the description or vice versa, the buyer can repudiate the contract. |
|
Condition
as to quality or fitness |
There is no implied condition as to the quality or fitness for any particular
purpose of goods supplied under a contract of sale. There is an implied condition
as to the reasonable quality or fitness of goods if: a) The
particular purpose for which goods are required must have been disclosed by the
buyer to the seller. b) The buyer
must have relied upon the seller’s skill or judgment of the seller to select the
best goods and c) The
seller has ordinarily been dealing in those goods. However, there is no implied
condition where: a) The buyer
has not disclosed to the seller any abnormal circumstances or b)
The buyer buys a specified article under its patent or other trade name and c) Buyer has not relied upon
the skill and judgment of seller. |
|
Condition
as to merchantable quality |
Merchantable quality means that the goods should be resalable in the market
under the particular description by which they are known. They are not
merchantable if they have defects which make them unfit for ordinary use, or
are such that a reasonable person knowing of their condition would not buy them. Where the goods are bought be description from a seller who deals in that
type of goods, there is an implied condition that the goods |
|
Condition as to quality or fitness |
There is no implied condition as
to the quality or fitness for any particular purpose
of goods supplied under a contract of sale. There
is an implied condition as to the reasonable quality or fitness of goods if: d) The
particular purpose for which goods
are required must have been
disclosed by the
buyer to the seller. e) The buyer
must have relied upon the seller’s skill or judgment of the seller to
select the best goods
and f) The
seller has ordinarily been dealing in those goods. However, there is no implied
condition where: d) The buyer
has not disclosed to
the seller any abnormal circumstances or e)
The buyer buys a specified article under its patent
or other trade name
and f) Buyer has
not relied upon the
skill and judgment of seller. |
|
Condition as to merchantable quality |
Merchantable quality means
that the goods
should be resalable in the market
under the particular description by which
they are known. They are not merchantable if they
have defects which make them unfit
for ordinary use, or are such that a reasonable person knowing of their
condition would not
buy them. Where the
goods are bought be description from a
seller who deals in that
type of goods,
there is an implied condition that the goods shall be merchantable quality. |
|
Condition as to wholesomeness |
In a contract of sale of provisions and eatables, there is an implied condition that the goods shall be
wholesome or sound, i.e. goods should be fit
for human consumption. |
CAVEAT EMPTOR
-
The term caveat
emptor is a Latin word which means “let the buyer beware”.
-
It implies that
while purchasing the goods, the buyer must be cautious. This principle states
that, at the time of buying goods, the buyer must make reasonable examination
of the goods to satisfy himself that the goods are suitable for his purpose.
-
Section 6
provides that there is no implied warranty or condition as to the quality or
fitness for any particular purpose for which the goods are supplied under a
contract of sale.
-
In simple words,
it is not the seller’s duty to give to the buyer the goods which are fit for a
suitable purpose of the buyer. It is up to the buyer to make proper selection
of goods according to his needs. If he makes a wrong selection, he cannot blame
the seller if the goods turn out to be defective or do not serve his purpose.
Exceptions to the Doctrine of Caveat Emptor
-
Where the seller
makes a false representation and the buyer relies on it.
-
When the seller
actively conceals a defect in the goods which is not visible on a reasonable
examination of the same.
-
When the buyer,
relying upon the skill and judgment of the seller, has expressly or impliedly
communicated to him the purpose for which the goods are required.
-
Where goods are
bought by description from a seller who deals in goods of that description.
PASSING OF PROPERTY OR TRANSFER OF
OWNERSHIP (SECTIONS 18-20)
1. Risk follows the ownership, whether the delivery has
been made or not. If the goods are lost or damaged by accident, then the loss
falls on the owner of the goods at the time they are lost or damaged.
2. When there is a danger of the goods being damaged by
the action of third parties, it is generally the owner who can take action.
3. In case of insolvency of either the seller or the
buyer, it is necessary to know whether the goods can be taken over by the
official assignee or the official receiver. It will depend upon whether the
property in the goods was with the party adjudged insolvent.
Passing of Property in Specific / Ascertained Goods
1. Where there is an unconditional contract for the
sale of specific goods in a deliverable state, the property in the goods passes
to the buyer when the contract is made.
2. Where there is a contract for the sale of specific
goods not in a deliverable state, i.e. the seller has to do something to the
goods to put them in a deliverable state, the property does not pass until that
thing is done by seller and buyer has notice of it. (Sec. 21)
3. When there is a sale of specific goods in a
deliverable state, but seller is bound to weigh, measure, test or do something
with reference to the goods for the purpose of ascertaining the price, the
property to the goods for the purpose of ascertaining the price does not pass
until such act or thing is done and the buyer has notice of it. (Sec. 22)
4. If goods are delivered to the buyer “on approval” or
“on sale of return” basis then the property passes to the buyer when he
signifies his approval or acceptance to the seller or he does not signify his
approval or acceptance to the seller but retains goods beyond a reasonable time
Passing of property in
Unascertained Goods
-
The property in
unascertained or future goods does not pass until the goods are ascertained.
-
The property in
unascertained or future goods sold by description passes to the buyer when
goods of that description and in a deliverable state are unconditionally
appropriated.
-
If there is a
sale of a quantity of goods out of a large quantity, for example, 50 quintals
of rice out of a heap in B’s godown, the property will pass on the
appropriation of the specified quantity by one party with the assent of the
other.
-
Delivery by the
seller of the goods to a carrier or other buyer is sufficient to pass the
property in the goods.
UNIT 3: TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS
·
TRANSFER OF PROPERTY (OWNERSHIP) :
A.
Meaning:
o The term ‘property in the goods’ may be defined as
the legal ownership of the goods.
o Transfer of Ownership means transfer of Risk, Rights
and Returns pertaining to the goods.
o The term ‘property in the goods’ must be
distinguished from the term ‘possession of the goods’. The term ‘property in
the goods’ means the ownership’ of the goods, whereas the term ‘possession of
goods’ simply means the custody or physical control over the goods.
B.
Rules:
1.
The ownership is transferred at the time of making
the contract
if the following
conditions’ are fulfilled:
(a)
The sale must be of specific goods:
These are the
goods which are identified and agreed upon at the time of contract.
(b)
The goods must be in a deliverable state:
The goods are
said to be in a deliverable state when they are in such a state that the buyer
would, under the contract, be bound to take delivery of them.
(c)
The contract of sale must be unconditional:
A contract is
unconditional in which no condition is imposed regarding the transfer of
ownership of the goods.
2.
Transfer of ownership in case of sale of
unascertained goods.
The unascertained goods
are the goods which are not specifically identified at the time of making the
contract of sale.
In case of sale of unascertained goods, the
ownership is transferred to the buyer on the fulfilment of both the following
conditions:
(i)
Ascertainment of goods:
It is the
process by which the goods to be delivered under the contract are identified
and set apart. It is a unilateral act of the seller alone to identify and set
apart the goods.
(ii)
Appropriation of goods:
It is the
process by which the goods to be delivered under the contract are identified
and set apart with the mutual consent of the seller as well as buyer. It is a
bilateral act of the seller and the buyer to identify and set apart the goods.
1.
Where the specific goods are to be put in a deliverable
state by the seller: The ownership is
transferred as soon as the seller has put the goods in a deliverable state and
the buyer comes to know about the act of the seller.
2.
Where the specific goods in a deliverable state are
to be weighed or measured by the seller to
ascertain the price, the ownership is transferred to the buyer as soon as the
seller has done the act of ascertaining the price and the buyer comes to know
about this act of the seller.
3.
However, parties
may decide to pass the ownership as per
the contract.
4.
Transfer of ownership in case of sale on approval
v The ownership of goods is with seller and the
possession of goods is with buyer
v The buyer has an option to return the goods.
v The ownership is transferred to the buyer in any of
the following three ways:
(i)
When the buyer accepts the goods:
The acceptance
by the buyer may be express or implied.
(ii)
When the buyer adopts the transaction:
The buyer may
adopt the goods by doing some act which shows that he has accepted the goods
e.g., where he further sells or pledges the goods.
(iii)
Where the buyer fails to return the goods within
fixed or reasonable time
5.
Reservation of right of disposal
v The seller may like to retain the ownership of the
goods until some later date, e.g., until the price is paid or some conditions
are fulfilled. The seller may do so by reserving his right of disposal.
v Where the seller has reserved his right of disposal,
the ownership of the goods is not transferred to the buyer even if the goods
are delivered to the buyer or some carrier for the purpose of transmission to
the buyer. The ownership is
transferred to the
buyer only when the conditions imposed by the seller are
fulfilled
v In the following two circumstances the seller is
presumed to have reserved the right of disposal :
1.
By taking the
documents showing title in his own name or his agent’s name
2.
By sending the
bill of exchange for the price, to the buyer, along with the documents of title
6.
Transfer of risk
v The risk and the ownership of the goods go together.
v In other words, the goods are at the risk of the
party who has the ownership of the goods. This means that in case of loss of
the goods, the loss shall be borne by the party who has the ownership of the
goods at the time of loss.
v Exceptions:
In these exceptional
circumstances, the goods may be at the risk of one party and their ownership
may be with the other:
1.
Agreement between the parties:
The terms of agreement
between the parties may provide as to when the ownership shall be transferred
and who shall suffer the loss.
2.
Goods are at the risk of the party in default: Sometimes, the delivery of the goods is delayed due
to the fault of either seller or buyer. In such cases, the goods shall be at
the risk of the party in default though their ownership is with the other
party.
3.
Trade customs :
The risk and the
ownership may also be separated by the trade customs e.g., the trade custom may
provide that the goods shall be at the risk of the buyer whether or not the
ownership has been transferred to him.
7.
Transfer of title by non-owners
v “Nemo dat quod non-habet”: This means that ‘no one
can transfer a better title than he himself has’. Thus, the buyer cannot get a
better title than that of the seller. If the seller’s own title is defective,
the buyer’s title will also be defective.
v Exceptions:
In the following
exceptional circumstances a non-owner can transfer a valid title to a bonafide
buyer:
1)
Sale by a mercantile agent
A ‘mercantile
agent’ is an agent who deals in the buying and selling of the goods on behalf
of his principal, e.g., an auctioneer. Where a mercantile agent sells goods in
the ordinary course of his business, the buyer who buys in good faith, gets a
valid title to the goods even if he (the mercantile agent) is not the owner of
the goods.
2)
Sale by a joint owner: When the joint owner is in the sole possession of
the goods, and he sells them to a person who buys in a good faith, the buyer
gets a valid title to the goods.
3)
Sale by estoppel: When
the owner of goods, by his conduct or by statement, wilfully leads the buyer to
believe that the seller has the authority to sell, then he is estopped (i.e.,
prevented) from denying the seller’s authority to sell
4)
Sale by unpaid seller: To be done in Unit 4
5)
Sale by a seller in possession of goods after their
sale: If the seller continues
to have the possession of the goods even after their sale and if he resells the
same goods to a new buyer then in such cases, the second buyer gets a valid
title to the goods if he buys them in a good faith.
6)
Sale by a buyer in possession of goods after their
sale: If the buyer obtains
the possession of the goods which he has bought or agreed to buy from the
seller and the seller still has some lien or other rights over the goods. If
the buyer resells the same goods to a new person. In such cases, the second
buyer gets a valid title free.
7)
Sale
by a finder of goods:
If
the goods are perishable If the goods
are non-perishable
If the expenses on the goods ≥ 2/3rd of Market Value
8)
Sale by a person in possession under a voidable
contract: The buyer gets a valid
title only if the following conditions are satisfied:-
a.
A person must
obtain the possession of the goods by coercion, undue influence, fraud or
misrepresentation.
b.
The seller must
have obtained the possession of the goods under a voidable contract and not
under a void contract.
c.
The contract
must not have been rescinded (i.e., put to an end) at the time of sale
d.
The buyer must
act in a good faith.
9)
Sale Under the Provision of Other Acts :
a.
Sale by an
Official Receiver or Liquidator of the Company will give a valid title to the
purchaser.
b.
Sale by a
pawnee/pledgee under default of pawnor in repayment of debt will give valid
title to the purchaser.
v In case of
hire-purchase, hirer cannot pass a good title even to a bonafide buyer.
Ø DELIVERY OF
GOODS
A.
Meaning:
v “Delivery” means a voluntary transfer of possession
from one person to another”.
v Delivery of goods may be actual, symbolic or
constructive
B.
Rules:
1.
Buyer in position to access the goods:
The delivery of
the goods may be made in any of the modes, but it must have the effect of
putting the goods in the possession of the buyer or his agent.
2.
Demand for delivery of goods:
It is seller’s duty to put the goods in deliverable
state and inform the buyer regarding same. It is buyer’s duty to make a demand
for the delivery of the goods.
3.
Goods in the possession of a third person:
Sometimes, at the time of sale, the goods are in the
possession of a third person. In such cases, the effective delivery takes place
when such person acknowledges to (i.e., inform) the buyer, that he holds the
goods on his (buyer’s) behalf.
4.
Delivery to a carrier or wharfinger:
Where the sold goods
are delivered to a carrier/wharfinger for the purpose of transmission to the
buyer or safe custody, the delivery of goods to the carrier/wharfinger is
treated as a delivery to the buyer
5.
Place for the delivery of goods:
6.
Time for the delivery of goods:
7.
Time for demand or tender of delivery:
The demand of delivery by the buyer must be made
within reasonable time during business hours and on a working day.
8.
Expenses for the delivery of goods:
The expenses of putting the goods into a deliverable
state are borne by the seller. And the expenses of receiving the goods are
borne by the buyer. However, the seller and the buyer may also agree otherwise
9.
Deterioration of goods during transit:
The buyer shall bear the loss of deterioration of
goods which is incidental i.e. natural in transit unless otherwise agreed.
10.
Delivery of goods by installments:
As a rule, the delivery
of goods by installments is not considered as a good delivery and the buyer is not
bound to accept the goods delivered to him by installments, unless otherwise
agreed.
11.
Delivery of goods by installments:
12.
Delivery
of wrong quantity:
Short delivery
Excess delivery Mixed delivery
or or or or
·
ACCEPTANCE OF DELIVERY OF GOODS
Acceptance is deemed to
take place when the buyer-
(a)
Intimates to the seller that he
had accepted the goods; or
(b)
Does any act to
the goods, which is inconsistent with the ownership of the seller; or
(c)
Retains the
goods after the lapse of a reasonable time, without intimating to the seller
that he has rejected them.
Rules as to Delivery
(a)
Delivery should have the effect of putting the buyer in possession.
(b)
The seller must deliver the goods according to the contract.
(c) The seller is to deliver the goods when the buyer
applies for delivery; it is the duty of the buyer
to claim delivery.
(d) Where the goods at the time of the sale are in the
possession of a third person, there will
be delivery only when that person acknowledges to the buyer that he holds the goods on his behalf.
(e) It is no duty of the seller to send or carry the goods to the buyer unless the contract
so provides. But the goods must be in a deliverable state at the time of
delivery or tender of delivery.
(f) The place of delivery is usually stated in the
contract. Where it is so stated, the goods must
be delivered at the specified place during working hours on a working day. Where no place is mentioned, the goods are
to be delivered at a place at which they happen to be
at the time of the
contract of sale.
(g) While the cost of obtaining delivery is said to be
of the buyer, the cost of the putting the goods
into deliverable state must be borne
by the seller.
(h) If the goods are to be delivered at a place other than where they are, the risk of deterioration in transit will be borne by
the buyer.
UNIT 4 : UNPAID SELLER
UNPAID SELLER (SEC 45 – 54)
·
MEANING OF UNPAID SELLER:
A seller will be called ‘unpaid’ if the following
conditions are fulfilled:
(1)
The whole or
part of the price has not been paid or tendered and that the seller has
immediate right of action for the price.
(2)
A bill of
exchange or other negotiable instrument has been received but the same has been
dishonoured.
·
RIGHTS OF UNPAID SELLER
Against Goods Against Buyer
1. Right of withholding delivery 2. Any
other right 1. Right of Lien 2. Right of stoppage in
transit 3. Right of resale
When property in When property in goods
goods is transferred is not transferred
(A)
Rights against the Goods:
1.
Where the ownership of the goods has transferred to
the buyer: In this case, the unpaid seller has the following rights:
(a)
Right of lien
v The right of lien is the right to retain possession of the goods.
v This right can be exercised only when the possession
of goods is with the seller.
v The unpaid seller of goods can retain his possession
of goods until payment of the price in following cases:
a)
Where the goods
are not sold on credit.
b)
Where the goods
have been sold on credit, but the term of credit has expired
c)
Where the buyer
becomes insolvent.
v The unpaid seller can retain the goods only for the
payment of the price of the goods: He cannot retain the goods for any other
charges, e.g., maintenance, charges for storage of goods during the exercise of
lien etc.
v The right of lien is indivisible in nature.
v Termination of Lien:
a)
By delivery of
goods to the carrier
b)
By delivery of
goods to the buyer
c)
By waiver of the
lien
d)
By payment of
price by the buyer
(b)
Right of stoppage in transit
v The right of stoppage in transit is the right to regain possession of the goods.
v This right can be exercised only when,
(i)
Seller should
have parted with the possession
(ii)
Possession
should be with a carrier, &
(iii)
Buyer has not
acquired the possession.
v The right of stoppage in transit can be exercised
only if the buyer has become insolvent.
v The unpaid seller can stop the goods in transit only
for the payment of the price of the goods.
v Distinction between Right of Lien and Right of
Stoppage in transit
|
Right of Lien |
Right of
stoppage in transit |
|
1. The essence of a right of lien is
to retain possession |
1. The essence of stoppage in transit
is to regain possession |
|
2. Seller should be in possession of
goods under lien |
2. In stoppage
in transit, (i)
seller should
have parted with the possession (ii) possession should be with a carrier,
& (iii) buyer has not acquired the possession. |
|
3. Right of
lien can be exercised even when the buyer is not insolvent. |
3. Right of
stoppage in transit can be exercised only when buyer becomes insolvent |
|
4. Right of lien precedes right of
stoppage in transit. |
4. Right of stoppage in transit begins
when the right of lien ends |
(c)
Right of Resale
2.
Where the ownership of the goods has not been
transferred to the buyer:
(a)
Right of Withholding Delivery
When the ownership of the goods sold is not transferred to the buyer, if the buyer fails to pay the price, the unpaid seller may refuse to deliver the goods to the buyer. Such right is known as right of withholding the delivery of the goods.
(b)
Any other right
Since ownership and possession of goods is with the seller, seller can use, gift, resell the goods, etc.
(B)
Rights against the Buyer
1.
Suit for recovery of price
Where the buyer takes the ownership as well as possession of goods and the buyer fails to pay the price of the goods, the seller can file a suit against the buyer for recovery of the price.
2.
Suit for damages
for repudiation of the contract
before the due date of delivery of goods :
Where the buyer repudiates (i.e., puts an end to) the contract before the due date of delivery of the goods, the seller has the following options:
(i) He may not immediately take any action against the buyer, and treat the contract as subsisting and wait till the date of delivery of goods.
(ii) He may immediately treat the contract as repudiated and bring a legal action against the buyer for the recovery of damages. Thus, the option of bringing the action lies with the seller. He may either wait till
the date of delivery of goods arrives, or bring an immediate action for damages.
3.
Suit for damages
Where the seller is ready and willing to deliver the goods to the buyer, but the buyer wrongfully neglects or refuses to accept the goods and pay for them, then the seller may bring a legal action against the buyer for the recovery of damages suffered due to non-acceptance of the goods.
4.
Suit for interest
The court may award the interest from the date of tender of the goods or from the date when the price is payable. The rate of interest to be awarded is at the discretion of the court.
·
EFFECTS OF SUB-SALE OR PLEDGE BY BUYER
v The right of lien or stoppage in transit is not affected by the buyer selling or pledging the goods unless the seller has assented to it.
v Exceptions:
(a) When the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer.
(b) When a document showing title to goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value.
·
RIGHTS
OF PARTIES IN BREACH OF CONTRACT
Rights
of Unpaid Seller against Goods
•
Right of lien or
retention.
•
Right of
stoppage in transit.
•
Right of resale.
•
Right to
withhold delivery.
Right of Lien or Retention (Sec. 47 - 49 & 54)
It can be exercised on the goods for the price while
he is in possession until the payment of price of such goods. It can be exercised
in following cases:
(i) Where goods have been sold without any stipulation
as to credit.
(ii)
Where goods have
been sold on credit but the term of credit has expired.
(iii)
Where buyer
becomes insolvent.
This right depends upon physical possession. It can
only be exercised for the non- payment of price.
This right is terminated under following
circumstances:
a.
Where he
delivers goods to carrier or bailee for the purpose of transmission to buyer
without reserving the disposal right.
b.
Where buyer or
his agent lawfully obtains possession of goods.
c.
Where seller has
waived the right of lien.
d.
By estoppel.
·
Right of Stoppage in Transit (Sec. 50 - 52)
It means right to stop the further transit of goods,
to resume possession and to hold the same till the price is paid.
It can be exercised in following cases:
(i)
Seller must be
unpaid.
(ii)
He must have
parted with the possession of goods.
(iii)
Goods are in
transit.
(iv)
Buyer has become
insolvent.
(v)
Right is subject
to provisions of the Act.
Goods are deemed to be in transit from the time they
are delivered to carrier or other bailee- for transmission, until buyer or his
agent takes delivery of them.
This right is lost under following cases:
(i)
Buyer taking
delivery
(ii)
Acknowledgment
by carrier
(iii)
Delivery to ship
(iv)
Wrong denial to
deliver by carrier
(v)
Sub sale
(vi)
Goods in
possession of ship’s master acting as buyer’s agent.
·
Right of Resale
(Sec. 54)
It can be exercised in following cases:
a.
Where the goods
are of perishable nature, buyer need not be informed of the intention of
resale.
b.
Where he gives
notice to the buyer of his intention to resell the goods, the buyer does not
within a reasonable time pay or tender the price.
c.
Where the right
is expressly reserved in the contract.
If no notice has been given to the buyer of
intention to re-sell, unpaid seller cannot claim any damages and buyer will be
entitled for all profits.
Unpaid seller can recover from buyer the balance
amount (if any) on resale.
If notice has been given to buyer, then profits
origin out of sale of goods won’t be shared with buyer. Only seller will hold
the samples.
·
Rights to
Withhold Delivery
-
It is exercised
if the property in goods has not passed to the buyer.
-
It is in
additions to above 3 rights.
-
However if the
property has not been passed the unpaid seller has a right of with holding
delivery similar to and co-extensive with his rights of lien and stoppage in
transit.
·
Rights of Unpaid Seller against Buyer Suit for Price
(Sec. 55)
Seller may sue —
Where the property has passed to the buyer and he
wrongfully neglects or refuses to pay for goods.
Where the property has not passed and price is
payable on a certain day
irrespective of delivery and buyer wrongfully
neglects or refuses to pay such price.
·
Suit for Damages for Non-Acceptance (Sec. 56)
The seller may sue the buyer for non-acceptance,
where he wrongfully neglects or refuses to accept and pay for the goods.
AUCTION SALES
(SEC. 64)
-
It is a mode of
selling property by inviting bids publically and the property is sold to the
highest bidder.
-
It is a public
sale where goods are offered to be taken by bidders.
-
Auctioneer is
only an agent of seller.
·
AUCTION SALES
v An auction sale is a sale at which the auctioneer,
as agent for the seller, invites persons present to bid for goods sold.
v
Auctioneer acts in a dual capacity
Meaning: Auction
·
Auction sale: is
a public sale, where goods are offered to be taken by the highest bidder from
among the public.
·
Bids: to offer a
particular amount of money for something that is for sale and compete against
other people to buy it, especially at a public sale of goods or property.
·
The process
comes to an end when the auctioneer accepts the bid of the highest bidder.
-
Following rules apply —
a.
When goods are
put up for sale in lots, each lot is treated to be the subject of a separate
contract of sale.
b.
Sale is complete
when the auctioneer announces its completion by fall of hammer or in another
customary manner.
c.
Right to bid may
be reserved expressly by or on behalf of seller.
d.
Bidder may retract his bid anytime before
auction sale is complete.
e.
If such right is
not reserved, it is not lawful for the auctioneer knowingly to take any bid
from seller.
f. Sale may be notified to be subject to a reserve or upset price.
g.
If seller makes
use of pretended bidding to raise the price, sale is voidable at the buyer's
option.
h.
A right to bid
may be ‘reserved’ expressly by or on behalf of the seller and, where such right
is expressly so reserved, but not otherwise, the seller or any other person on
his behalf, may bid at the auction.
i.
Implied
warranties in auction sale: In an auction sale, the auctioneer warrants the
following :
·
that he has an
authority to sell;
·
that he is not
aware of any defect in the title of the principal;
·
that he
undertakes to handover the quite possession of the goods as soon as the price
is paid to him.
Process of
Auction sale
·
In the Auction
sale an auctioneer is appointed by the seller.
Usually proposed auction is advertised.
The advertisement contains the brief description of
the subject matter of sale.
·
Process of
Auction sale
1.
It also contains
date, time, place of auction.
2.
Auctioneer
prepares catalogue of the goods, T&C which are displayed at the place of
auction.
3.
On the day of
auction auctioneer puts up the lots of goods to be sold.
4.
Further he
invites bids for every lot.
5.
He announces
every bid made by the people.
6.
When he found
the bid reasonable & according to the seller then he may accept it.
7.
He accepts the
highest bid by striking the hammer.
·
Rules of Auction
sale
1) Each lot is the subject matter: each lot is the
subject- matter of a separate contract of sale.
2) Completion of sale: when auctioneer accepts the
highest bid by the fall of hammer/clap.
3) Revoke the bid: a bidder may withdraw his bid at
any time before the completion of sale.
4) Security: sometimes the condition of sale by
auction requires the deposit of security amount by the bidders.
·
5)
Conditional/unconditional sale: if the auction sale is conditional, the sale is
not complete until the condition is satisfied. Whereas, in case of
unconditional auction sale, the sale is complete with the fall of hammer.
·
6) Passing of
the property: in an unconditional sale by auction of specific goods in a
deliverable state, the goods passes to the bidder by the fall of hammer.
·
7) Seller’s right to bid: a right to bid may be
reserved expressly by/on the behalf of seller 8) Bid by seller without
reserving the right to bid is unlawful: it may be treated as fraudulent by the
buyer.
·
9) Reserve
price: it is also called as ‘base price’ or ‘upset price’. The bottom price of
the goods/lot, below the amount of it the auctioneer can’t accept the bid.
·
10) Sale to the
highest bidder where no notified reserve price: where reserve price is not
notified, the goods are sold to the highest bidder.
·
11) Damping is
unlawful: some of the damping acts are:- i. Pointing out defects in the goods
put up for auction sale. ii. To take intending bidder away iii. To create
confusion in the minds of intending bidders. Business
SUMMARY
UNIT 1: Formation of contract of sale
·
INTRODUCTION
ü
It came into force on the 1st of July, 1930.
ü
It is applicable to whole of India except
Jammu & Kashmir.
ü
The Law relating to this statute was contained in Indian Contract
Act, 1872.
ü
Where the Sale of Goods Act is silent
on any point, the general
principles of the law of contract apply.
·
CONTRACT OF SALE
Sale Agreement
to sell
(Executed) (Executory)
·
DEFINITIONS
1.
Buyer
2.
Seller
3.
Goods
4.
Price
5.
Property
6.
Documents showing
Title to Goods/ Documents of Title to Goods
7.
Mercantile Agent
8.
Delivery
·
ESSENTIAL ELEMENTS
OF A VALID CONTRACT OF SALE
·
DISTINGUISH BETWEEN
1.
Sale and agreement to sell
2.
Sale and hire- purchase
3.
Sale and bailment
4.
Sale and contract
for work and labour
·
FORMATION AND MODES OF A CONTRACT
OF SALE
·
EFFECT OF DESTRUCTION OF GOODS
·
PRICE AND MODES OF FIXING THE PRICE
UNIT
2: CONDITIONS AND WARRANTIES
·
CONDITION : “A condition is a stipulation essential to the main purpose
of the contract
·
WARRANTY : “A warranty is a stipulation collateral to the main purpose
of the contract
·
WHEN A CONDITION CAN BE TREATED AS A WARRANTY
·
CONDITIONS
EXPRESS CONDITIONS IMPLIED CONDITIONS
·
WARRANTIES :
EXPRESS WARRANTIES IMPLIED WARRANTIES
·
THE DOCTRINE
OF CAVEAT EMPTOR
(BUYER BEWARE)
UNIT 3: TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS
UNIT
4 : UNPAID SELLER
·
MEANING OF UNPAID SELLER
·
RIGHTS OF UNPAID SELLER
Against Goods Against
Buyer
When property in is not
transferred When property in goods is transferred
·
EFFECTS OF SUB-SALE OR PLEDGE BY BUYER
·
RIGHTS OF PARTIES IN BREACH OF CONTRACT
·
AUCTION SALES
No comments:
Post a Comment