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Mallar Law Consulting Ram Mallar

www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Welingkar Institute of Management,


Development & Research

PRIVATE & CONFIDENTIAL

HANDOUT

BUSINESS LAW

CONFIDENTIALITY NOTICE
This Hand-Out is intended solely for the management students of Professor Ram Mallar. Access to this
document by anyone else is unauthorized. If you are not the student, any disclosure, copying,
distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be
unlawful. Any opinions or advice contained in this document are subject to the standard terms and
conditions of confidentiality.

© 2008

Mallar Law Consulting

3, Silver Cascade, 110AA, Near Ruby Mills, Senapati Bapat Marg,


Dadar West. Mumbai 400 028. Tel. No.: 2432 2713 (4 lines)
Email: mallarlaw@vsnl.net - Website: www.mallarlaw.com

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

The Sale of Goods Act, 1930

• Contract of Sale

• Conditions and Warranties

• Transfer of Property to the Buyer

• Transfer of Title

• Rights of Unpaid Seller

Books recommended

1. Bare Act – The Sale of Goods Act, 1930

2. Mercantile Law by Dr. R. S. Davar & Dr. K. D. P. Madon


Pages 225 to 255

3. Om Prakash Aggarwala – 10th Edition Published by


Metropolitan Book Co., New Delhi

THE SALE OF GOODS ACT, 1930

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Nature of the Indian Contract Act, 1872, dealing with general principles of contract – two
or more parties, competent to contract, free consent and consideration.

Properties/ Assets – immoveable or movable properties

Immoveable properties means land, buildings and includes things attached to the
earth (trees/ shrubs – building embedded to earth) or permanently fastened to anything
attached to the earth (machinery/ doors/ windows embedded the building)

Movable properties - goods


means every kind of movable property including actionable claims and money, growing
crops, grass and things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale.

- ownership in the things/ assets can change by sale, transfer, exchange, gift,
operation of law/ transmission (testamentary disposition).

- Transfer of Property Act deals with sale/ transfer gift of immoveable properties.

Sale of Goods Act deals with all movable properties, except actionable claims and
money.

The Sale of Goods Act deals with the principles governing the contract of sale of goods
only as against other properties.

Object of the sale is to transfer the ownership/ properties from one person to another.

Actionable claim means a claim to any debt which can be enforced only by taking action
in Court.

The Sale of Goods Act deals with principles governing the contract for sale of goods only.

What is contract of Sale of Goods – P. 221 – S. 4]


A 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.
A agrees to sell a car to B for Rs. 10,000/- (after painting it blue)

Three elements

I) There must be seller, who transfers property or agrees to transfer property in the
goods (ownership in the goods).

II) To the Buyer/ Purchaser.


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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

III) For a price, monetary or money consideration.

What is ownership – property

Sale Agreement to Sell

i] Property in the goods passes to the Ownership/ property does not pass
buyer, so that he becomes the to the buyer at the time of the
owner. contract, but it passes only when it
becomes sale by the expiry of
certain time or the fulfillment of
some conditions.

ii] Executed contract Executory contract

iii] Risk/ loss falls on the buyer Risk/ loss falls/lies with the seller.
though
goods may be with the seller.

iv] In case of breach by the seller, In case of breach by the seller,


buyer buyer can claim only damages.
can claim damages plus other
remedies.

v] In case of breach by buyer, seller In case of breach by buyer, seller


can can claim only damages.
sue for price.

Sale vs. contract for labour and work

In contract for labour and work, no goods are sold but only some work is done.

An artist paints a portrait on his canvas and paints and sells the portrait- sale of
goods.

He merely paints the picture with material supplied by a customer – not sale of
goods, but, only rendered work and labour.

Sale vs. Hire Purchase Agreement

Hire Purchase Agreement – purchaser/ hirer has the option to pay a certain
number of rents / hire charges and only after he pays the stipulated number, does
he become the owner of the property – the property does not pass until the
payment of last rent.
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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Hirer cannot pass title even to an innocent and bona fide purchaser – protects the
seller from the insolvency of the hirer / purchaser.

E.g. A gives refrigerator to B on hire that he should pay Rs. 200 p.m. Stipulation if
he pays rent regularly for 20 months, fridge becomes B’s after the 20th rent. Here
B can return any time he likes.

Hire Purchase Agreement vs Sale by installment


.

Risk of loss/ deterioration is Ownership passed to the purchaser –


with the seller – if only hirer only payment by instalment.
takes reasonable care as a
bailee.

Barter (Exchange) vs. Sale/ Gift/ Bailment

Goods

Goods may be (a) Existing or (b) Future

Existing goods may be: (i) specific goods,


(ii) ascertained or unascertained.
- Specific goods are identified and agreed upon at the time of contract of sale.

- Ascertained goods are those goods which are in deliverable state (condition) at the time
of the sale or put in a deliverable condition after the sale and unconditionally
appropriated to the contract and the purchaser assents or notice of such appropriation.

- In the case of sale of specific or ascertained goods, property in the goods is transferred
to the buyer at the time of the conclusion of contract or at such time as is intended –
regard to the terms of the contract – though payment of price or delivery may be
postponed.

- Unascertained goods/ generic goods are goods which are not specifically identified but
are indicated by description.

- Property passes only when the goods are ascertained.

e.g.: A agrees to sell a car to B after painting it blue – does not become ascertained
until the car is painted blue.

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

‘A’ to purchase 5 tons of coal out of a warehouse – the goods would not be ascertained
until the 5 tons bought were weighed out and laid aside as goods to be taken delivery
of by ‘A’.

Future Goods – to be manufactured or produced or procured – property passes as soon


as such goods are acquired, out in a deliverable state and unconditionally appropriated
to the contract with the assent of the buyer.

Four requirements for passing of property.

i) the goods correspond with the description in the contract (sale by


description) ; correspond to sample (sale by sample).

ii) they are put in a deliverable state.

iii) Unconditionally appropriated to the contract.

iv) both parties consent to the appropriation – implied or express.

Goods sent on approval basis

Property passes: i) purchaser signifies his acceptance or approval.

ii) retains the goods beyond reasonable time.

iii) does something to indicate acceptance/ by conduct.

Reservation of right of disposal – until certain condition is fulfilled - no transfer of


property, though goods delivered to the carrier, until the condition is satisfied.

In case, where shipping documents (bill of lading) specify that goods are deliverable to
the order of the seller prima evidence of reservation of right of disposal.

Passing of Risk

Risk generally passes with the property or ownership, subject to the agreement to
the contrary. Exceptions:

- delivery is delayed, at the risk of party responsible for the delay.

- duties of bailor/ bailee implied is not affected.

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Unless otherwise agreed, the payment of price and delivery of the goods are
concurrent conditions.

Delivery

Voluntary transfer of possession by any one person to another – delivery may be:
actual or

Constructive – means transfer of control over possession – by handing over the key
or endorsement of the warehouse receipt.

- mercantile practice, constructive/ symbolic deliveries are affected by


transfer of document of title to goods.

What is Document of Title to Goods?

Bill of lading, Dock-warrant, Warehouse Keeper’s Certificate, Wharfinger’s


Certificate, Railway Receipt, or any other document used in the ordinary course of
business as proof of the possession of control of goods.

Conditions and Warranties

Terms in contract of sale and legal effect of breach thereof.

A stipulation may be a condition or a warranty.

A condition is defined as a stipulation in a contract of sale which is essential to the main


purpose of the contract, breach of which entitles the other party to repudiate the
contract – one of the main pillars of the building.

Three kinds: 1. condition precedent – to be fulfilled before the main


purpose is to be performed – car to be painted blue –
Trustee to furnish security bond.

2. condition concurrent – to be performed at the same time as


the main contract - cash against delivery.

3. condition subsequent – fulfillment of a condition or


occurrence of an event will discharge the parties from
imposition of liabilities – sale of liquor

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Warranty: is a stipulation in the contract of sale which is collateral to the main purpose of
the contract, the breach of which will give rise to the other, an action for damages but
not right to reject the goods and treat the contract repudiated.

Warranty to be treated as condition:

• Whether a stipulation is condition or warranty depends on the terms of the


contract.
• In Mercantile contract- presumption time is essence of the contract except time
for payment of price.
• In immoveable property – time is a Warranty not a Condition

Condition to be treated as Warranty:

1. Buyer may waive condition and treat warranty general principal of contract that
a party may waive a beneficial stipulation.

2. After acceptance of goods or passing of property, condition to be treated as


warranty by the buyer unless express terms to the contrary.

Implied undertakings by the Seller:

Merchantable title to the goods – condition


Free from any charge or encumbrances – warranty stipulation.
Merchantable quality for a particular purpose as annexed by usage of trade
condition or warranty.

Implied conditions:

- Sale by description

1. Goods shall correspond to the description in the contract where samples and
description – correspond both sample for quality, description for nature
2. Personal examination does not absolve from falling to confirm description. A new
fiat car through sun turned out to be second hand.
3. Implied condition for quality and fitness:
Goods shall be reasonably fir for the purpose for which it is supplied if made known
to the seller, relies on the skills of the seller, sellers deals in that goods.

E.g., A has 100 ton caliber boat, B deals in canvas supplied for sale for this boat it
shall be fit for boat of 100 ton caliber.

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Exceptions:

If he selects canvas on his own without letting known he does so on his own
responsibility- Caveat Emptor.
Seller is not bound to disclose his defects to buyer however if the buyer bought
after proper inspection.

E.g.: Bun from bakery contained a stone, lost tooth- held liable.

Sale by Sample

3 implied conditions:

a) Goods shall correspond with sample in quality.

b) Reasonable opportunity of comparing.

c) Merchantable quality free from latent defects not apparent or reasonable


examination also liable for hidden defects which render goods
unmerchantable.

Rights of Unpaid Seller

Who is unpaid Seller?

1. Whole of the price is not paid.


2. Bill of exchange / instruments dishonoured

Remedies of the unpaid seller – notwithstanding passing property in the goods.

1. Lien
2. Stoppage in transit
3. Resale

Lien

1. Particular lien if he has possession of goods until payment provided -


possession precondition
2. goods sold without stipulation of credit or
3. on credit but credit expired or
4. Buyer insolvent

Good enough as if the seller is holding as agent or bailer of the Buyer - even part deliver.
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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

When Lien is lost?

i) Seller waives his liens


ii) Goods delivered to the carrier and other bailee for transmission to Buyer,
without reserving the right of disposal of the goods.
iii) Possession of goods is obtained by Buyer or agent legally.

Stoppage in Transit - right to stop the goods in transit,

- after parting of possession, to resume possession when the goods are in


transit until the price is paid to the seller.

Four Conditions to be fulfilled :

1. the seller is unpaid and parted possession.


2. buyer has become insolvent, of ceased to pay his debts in the ordinary course of
business and can not pay his debts as and when they become due; he not
necessarily be declared as insolvent by the court.
3. goods are in the course of transit
4. property passed to buyer- other seller can only withdraw his goods.
- when the goods are in the course of transit
When they have delivered to the carrier or other bailer for the purpose of
transmission to the buyer until it is delivered to him or his agent and they take
delivery of them.

- Important question is at what point of time goods were taken delivery by


the buyer or his agent
- Transit ends on arrival at destination
- Continues so long it is in the possession of carrier
- Ceases the moment carrier holds as agent of the buyer
- Carrier carrying goods beyond original destination at the specific request of
the Buyer transit came to an end.
- Appointment of carrier by the Buyer, by itself will not be the end of transit.
E.g. assignee of bankrupt buyer touching goods on board, captain refusing,
possession was not deemed to have given to the Buyer.
- Buyer’s ship engaging does not put the transit to end if the B/L are made
out in the name of the seller

- Transit comes to an end

1) when the buyer takes actual or constructive possession of goods


2) When at the instance of the Buyer, they are ordered to a new destination.
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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Modes of Stoppage

1) taking actual possession or


2) giving notice to the carrier / other bailer in whose possession goods are
lying.
- Unpaid seller stops the goods in transit at his peril – so no need to justify the
grounds to the carrier.

Transfer by Buyer and Seller


Buyer resold the goods –

Seller’s right of stoppage in transit and lien is not affected as if he has not
consented to such transfer.

But the seller already transferred the documents of title to goods to the
Buyer, such sale of good if it is in good faith and for consideration.
- In case of pledge or other disposition for value, unpaid sellers right is
subject to lien or other charge.

- But if the pledge has other remedies, he must exhaust that – known as
Marshalling Securities.

Resale – 3rd remedy.

i) Perishable nature – sell immediately.

ii) Expressly reserved on the contract.


iii) After the exercise of right of lien – and stoppage in transit.

1. Give notice to the Buyer of the intention of sale.

a) Can sell in reasonable time.


b) Recover damages for any loss occasioned by breach.
c) If profit, no need to account it to the Buyer.

2. without notice
a) Can not recover damages for the loss.
b) Buyer entitled to profit made
- Buyer from the unpaid seller gets good title.

- Special re-sale clause

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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

Ordinary remedy for breach of contract for the sale of goods is the damages
based on the difference between contract price and market price on the
date of breach.

- retaining of power of sale on default –

- difference between contract price and actual price realized on sale


taking place.
- can sell even without appropriations to the contract or without even
passing of property.

Suits for Price/ Damages

1. For the price mentioned in the contract:

a) Buyer wrongfully refuses to pay for the goods when the goods already
passed.
b) Though the property not passed, goods not appropriated to the contract,
but the sale price is payable on a fixed day – irrespective of delivery.

2. Sue for damages for non-acceptance of the goods.

3. When seller wrongfully refuses to deliver, Buyer sue for damages.

4. Specific performance in appropriate cases.

Various terms used in the Contract

FOB : Free on Board. Risks pass to Buyer on shipment.

FOR : Put on Board at Seller’s expense – boarding charge even on CAD


terms, risk passes to Buyer. Give notice to the Buyer.

F.A.S. : Free on alongside the ship – alongside free of expense. Boarding


charges on Buyer.
CIF/
CFI : Seller ships at port of shipment, procures contract of affreightment,
arranges for insurers, tender documents to the Buyer – Buyer must be ready
and willing to pay the price.

CIF contract is sale of documents. The date of contract/ performance is the date of
receipt of document. Also Export licence.

In case of non-delivery, the contract is broken at the time when the documents
should have been tendered and not when the goods arrive.
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Mallar Law Consulting Ram Mallar
www.mallarlaw.com Updated – August 2008 Prof. of Law & Corporate Governance

- bound to pay on tender of Seller’s documents.

F.O.R.
Ex-ship: bound to arrange shipment to the port of destination or to inland
destination. Seller is responsible until is unloaded.

Transfer of Title

Rule is that only the owner can transfer the title to the goods or one who has the
authority of the owner.

A person can not transfer better title than what he himself has.

Exceptions:

1. Mercantile Agent – a) possession of goods/ document of title to goods.


b) with consent of the owner.
c) bona fide Sale.

Mercantile agent is one who in the ordinary course of business has authority to
sell, buy and pledge goods.

2. Joint owners.

3. Possession obtained under contract voidable at the option of the other Party –
coercion, fraud, misrepresentation, undue influence.

4. Seller in possession of goods after sale.

5. Buyer in possession of goods after sale.

6. Buyer purchasing goods under Caveat Emptor – let the buyer beware.

7. Estoppel: Seller conniving with non-owner to sell to an innocent Buyer.

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