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Contract of sales of goods:

The law relating to sales of goods is contained in the sale of goods act 1930. The act
contains 66 sections; it is implemented on 1st July 1930.
A contract whereby the seller transfer or agrees to transfer the property in goods
(ownership) from the seller to the buyer is known as contract of sale.
Essentials of a contract of sale
a) Buyers and sellers: there should be two parties to a contract of sale i.e. the buyer
and seller; similarly a partner may buy the goods from the firm in which he is a
partner and vice versa.
b) Transfer of property: property here means the ownership. A mare transfer of
permission of the goods cannot be termed as agree to transfer the property
(ownership) in goods to the buyer.
c) Goods: the subject matter of the contract of sale must be moveable property. Thus
every kind of moveable property except actionable claim (a debt due from one
person to another) and money comes under contract of sale.
d) Price: the consideration in contract of sale must be the price when goods are sold
or exchanged to other goods; the transaction is barter, and not a contract of sale of
Note: also called as agreed price, consensus price or equilibrium price.
e) Sale and agreement to sell: contract of sales includes both sale and agreement to
sell where the property in the goods is transferred from the seller to the buyer, at
the time of making the contract (on the spot), is called contract of sale while
where the transfer of ownership in goods is to take place in future time or subject
to some condition, therefore to be fulfilled (future contract), is called an
Other formalities: all other essentials of a valid contract like capacity of the
parties, free consent, and legality of the object that should be there in a contract of
sale. If may be oral or in writing.
Distinction between sale and agreement to sell
1. the ownership in goods passes to the buyer immediately at the time of Contract.
2. A sale can only be in case of existing and specific goods.
3. The buyer becomes the owner of the goods and to get the rights against the goods.
If the seller refuses to deliver the goods, the buyer may sue for recovery of goods.
4. If the goods destroyed, the loss falls on the buyer even though the goods are in the
possession of seller because the ownership has already passed to the buyer.
5. If the buyer refuses to price, the seller can sue for the price, even though the
goods are still in his possession.
6. The ownership is with the buyer and so the seller cannot resell the goods.

7. If the buyer becomes insolvent before he pays for the goods, the seller, in the absence
of lien over the goods must deliver the goods to the buyer; the seller is entitled to
ratable dividend (some portion of price) for the price of goods.
8. If the seller becomes insolvent, the buyer is entitled to recover the goods from the
seller, because the buyer has the ownership.
9. It is an executed contract (on the spot).
11. Agreement to sell
1. The ownership transfer at certain future date or subject to the fulfillment of some
2. An agreement to sell is mostly in case of future and contingent goods.
3. The buyer can not set the right against the seller, so he can sue for damages for
breach of agreement and not for recovery of goods.
4. Here, such loss has to be borne by the seller even though the goods are in the
possession of the buyer because the ownership of the goods is yet to pass.
5. If the buyer fails to accept and pay for the goods, the seller can only sue for damages
and not for the price.
6. As the ownership remains with the seller and he can resell those goods to the new
buyer, the original buyer can sue for the breach of contract only.
7. If the buyer becomes insolvent and has not yet paid the price, the seller may refuse
the goods to the buyer unless he is paid for.
8. If the buyer has paid the price already, and the seller becomes insolvent the buyer can
claim only a ratable dividend as a creditor and not the goods because the ownership
is with the seller.
9. It is an executory contract (future contract/ transaction).
13. Kinds of goods
Existing goods: the goods which are physically in existence and in seller ownership
or possession, at the time of entering a contract of sale is known as existing goods. It
can be divided into following kinds.
a. Specific goods: the goods which are identified and agreed upon at the time of
contract of sale are called specific goods.
b. Ascertained goods: those goods which are identified only after the formation
of contract of sale, called as ascertained goods.
c. Unascertained goods: those goods which are identified and agreed upon by the
parties, the goods are called as unascertained goods.
Future goods: the goods which a seller does not possess at the time of contract but
which will be manufactured produced or acquired by the seller after making the
contract of sale.
Contingent goods: these are like future goods in this case; the acquisition by the
seller depends upon an uncertain contingency (may or may not). The ownership does
not pass to buyer at the time of contract, like future goods.

17. A condition is a stipulation essential to the main purpose of the contract, the breach of
which gives the aggrieved party a right to repudiate (cancel) the contract itself.


20. A warranty is a stipulation collateral (minor) to the main purpose of the contract, the
breach of which gives the aggrieved party a right to sue for damages only and not to
avoid the contract itself. It is of secondary importance.
22. Difference between condition and warranty
23. Condition
24. 1. Essential to the main purpose of the contract.
25. 2. It forms the basis of a contract.
26. 3. The breach of a condition gives the aggrieved party the right to reject the contract.
27. 4. A breach of contract may be treated as a breach of warranty.
28. 5. In breach of condition the aggrieved party has the option to claim damages, instead
of rejecting the contract.
30. Warranty
31. 1. Not essential to the main purpose.
33. 2. It does not form the basis of a contract.
34. 3. Does not give the aggrieved party the right to reject the contract.
35. 4. Cannot be treated as a breach of condition.
36. 5. Here, the aggrieved party has no option to reject the contract, he can only claim
39. Transfer of property in specific and ascertained goods.
40. In case of contract of specific goods, the transfer of property takes place when the
parties intend to pass it. The parties may intend to pass the ownership at once at the
time of making of the contract or when the goods are delivered or when the payment
is made.
42. Transfer of property in unascertained and future goods.
43. In case of a contract of unascertained or future goods by description (terms and
conditions) and goods of that description and in a deliverable state are unconditionally
appropriated to the contract, either by the seller with the assent of the buyer or by the
buyer with the assent of the seller, the property in the goods there upon passes to the
buyer. Appropriation means setting apart goods as subject matter of the contract. It
includes separating, weighting, and measuring, counting or similar acts in relation to
goods, with an intention to identify and determine the specific goods to be delivered
under the contract.
44. Note: here both unconditional (ascertained goods) and conditional (future and
contingent goods) appropriation of goods occur.
46. Unpaid seller
47. The seller of goods is deemed (consider) to be an unpaid seller if we have the
following two condition i.e.
48. When the whole of the price is not been paid or tendered (payable in future)
49. When a bill of exchange or other negotiable instrument (transferable instruments) has
been received as a conditional payment and the same has been dishonored.
51. Feather of unpaid seller:
a. He must sell goods either on cash basis or on credit basis, and he must be unpaid.

b. He is unpaid seller if the term of the credit has expired and price has not been paid.
c. He must be unpaid either wholly or partly, if only a part of price remains unpaid, he is
deemed to be an unpaid seller.
d. Where the price is paid through a bill of exchange or other negotiable instruments, and if
dishonored, the seller is deemed to be an unpaid seller.
e. The seller must not refuse to accept payment when tendered, if the price has been
tendered by the buyer but the seller refuses, he ceases to be an unpaid seller.
53. Right of an unpaid seller against the goods:
f. Right of lien: A lien is the right to retain possession of goods and refuse to deliver them to
the buyer until the price due in respect of them is paid or tendered. A right of lien can be
exercised by an unpaid seller if; where the goods have been sold on credit, but the term of
credit has expired or where the buyer becomes insolvent even though the period of credit
may not have yet expired.
g. Right of stoppage of goods in transit: it means that the goods must be neither with the
seller, nor with the buyer, nor with their agent. They should be in the custody of carrier
so; the seller can retain them until payment or tender of price.
h. Right of resale: an unpaid seller can resell the goods in the following cases:
i. Where the goods are of perishable nature.
j. Where there is express provision regarding such right in the contract.
k. Where the seller gives a notice to the buyer of his intention to resell and the buyer does
not pay or tender the price with in a reasonable time.
55. Note: tendering also based on some condition.
56. Express provision: mutually agreed to resell.
58. Right of unpaid seller against the buyer:
Sue for price: where the buyer has the ownership in goods and he refuses to pay the price
according to the terms of the contract, the seller can sue the buyer for price.
Sue for damages for non-acceptance: where the buyer refuses to accept and pay for
goods, the seller may sue him for damages for non-acceptance; the seller can recover
damages only.
Sue for specific damages and interest: where the parties are aware of such loss at the time
of contract the unpaid seller can recover interest at a reasonable rate on the total unpaid
price of goods sold, from the time it was due until it is actually paid.

Negotiable instruments:
62. Negotiable instruments mean a written document transferable by delivery to other
person. A negotiable instrument is a promissory note, bill of exchange OR check
payable either to order or bearer.
63. Negotiable instruments Act of 1881 comes into force on 1st of March 1882.
65. Characteristics of negotiable instruments:
67. Easy transferable: the right of ownership in those instruments can be transferred from
one person to another easily.
68. Right of the holder: these instruments give the right to the creditor to recover
something from debtor. The creditor can recover this amount by him (bearer) or can
transfer this right to another person (order). a negotiable instrument can be
transferred any number of times before its maturity.
69. Unconditional promise or order: a negotiable instrument contains an unconditional
promise or order to pay. In case of promissory note the debtor promises to pay a
certain amount of money to the holder of the instrument.
70. Certain amount: in these instruments, the promise or order is made for a payment of
certain amount of money and not anything else like goods, shares etc.
71. Prescriptions: the prescriptions are regarding consideration, date, time of acceptance,
stamp, holder etc.
73. Note: bearer: transact on his own account,
Order: sent other to collect his cheque.
75. Presumptions: before signing a contract you must be agreed on certain assumption.
76. Promissory note:
77. A promissory note is an instrument in writing (not being a bank note or a currency
note) containing an unconditional undertaking, signed by the maker (debtor), to pay
on demand or at a fixed or determinable future time a certain sum of money only to
the order of a certain person or to the bearer of the investment.
78. The person who makes the promissory note and promises to pay is called maker
(debtor), while the person to whom the payment is to be made is called payee
80. Essentials of a promissory note:
It must be in writing: a verbal promise to pay does not become a promissory note. It
must be in writing with pen or may be printed or typed.
It must contain a promise to pay: there must be a promise or undertaking to pay a mere
acknowledgment of debt without a clear promise to pay is not a promissory note.
The promise to pay must be unconditional and absolute: the promise to pay must mot
depends upon the happening of some uncertain event or fulfillment of a condition.
It must be signed by the maker: the maker must sign the promissory note in any part of
the instrument and not necessarily at the bottom. When the maker is illiterates is thumb
impression is sufficient.
The maker must be certain person: the instrument must indicate who is the person
taking the responsibility where there are two or more makers, they may be liable jointly
and individually but alternate promisors are not allowed.
The payee must be certain: the payees name can be indicated by his official designation
only. It may be made payable to two or more payee jointly.

The sum payable must be certain and must be in Pakistani currency: if the amount is
to be paid is uncertain, the instrument will not be a valid promissory note.
Other formalities: it includes the place in a note where it is made, the date, properly
stamped under stamp Act etc.
82. Bill of exchange
83. It is an instrument in writings containing an unconditional order, signed by the maker
(creditor), directing a certain person to pay on deemed or at a fixed