Unit - III

Contract of Sale…….
 Arman contracts to give Manjari his washing machine in exchange for
her television.

 Arman contracts to give Manjari his washing machine for a payment of

Rs 10000.

 Arman contracts to give Manjari his washing machine for a payment of

Rs 2000 and the machine will have to be returned to Arman after a year.

 Arman contracts to give Manjari his washing machine for a payment of

Rs 5000. in this case, Manjari will be required to return the washing
machine whenever Arman repays Rs 5000 with interest.
 Contract Of Sale
 Thus sale is a contract where a buyer gets ownership
over goods for a price. The important concerns for the
buyer are undisturbed ownership and the right quality
of goods.

Definition:
“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”.
Contd….
 Buyer means a person who buys or agrees to buys the
goods.
 Seller means a person who sells or agrees to sell the
goods.
 Delivery means voluntary transfer of the possession of
goods from one person to another. Usually, the goods
are delivered from the seller to the buyer.
 Goods means the every kind of movable property.
 Price means money consideration for the sale of goods.
Sale and Agreement to sell
 Sale – Transfer of property in goods takes place at the
time of contract.

 Agreement of sale - Transfer of property in goods

takes place at a future date
 Distinction between Sell & Agreement to Sell
Agreement to Sell
 Executory Contract
 Ownership transferred after
fulfilled of Condition
 Generally future, contingent,
unascertained existing goods
is the subject matter.
 The seller is to bear the risk of
loss even when goods are with
the buyer.
 Buyer can sue for the
damages.
Sale
 Executed Contract
 Ownership is transferred
immediately.
 Only existing and specific goods
can be the subject matte
 The buyer is to bear the loss
even if the goods are with the
seller.
 Buyer can sue for damages, in
case of sale of goods to third
party, buyer can sue the third
party also for recovery of the
goods
SALES OF GOODS ACT
 In India, the contracts of sale of goods are regulated by the
Sales of Goods Act, 1930,

 The sale of goods act contains the basic principles as well

as the legal framework of transactions of sale and purchase

 Prior to passing of this Act, the law relating to contracts of

sale of goods was embodied in Sections 76 to 123 of the
Indian Contract Act, 1872.

 It came into force on 1st July 1930. it extends to the whole of

India except the state of Jammu and Kashmir.
 Sale of Goods Act, 1930
 Thus the law relating to sale of goods is contained in the
Sale of Goods Act, 1930.

 Section 4(1) of the Sale of Goods Act defines a contract of

sale of goods as, “a
contract whereby the seller
transfers or agrees to transfer the property in
goods to the buyer for a price”.
SALES OF GOODS ACT SHALL NOT APPLY TO
•Bailment of goods;
•Pledge of goods ;
•Any contract relating to:
Immovable property
Contract of work and skill
Importance of Contract of Sale Act

 A contract of sale of goods is essential for the smooth operations and

exchange of goods in the economy. It is always preferred to have written contract
as it serves as proof in legal proceedings. A written and attested contract ensures
quality of the subject matter. The Seller, thus is duty-bound to warrant that the
goods are merchantable, conforms to Industry Standards and specifications. It
prevents fraud and deception on behalf of the subject-matter of price by either of
the parties. It assigns specific responsibilities upon the buyer and seller which they
are bound to perform. The Buyer has a responsibility to reasonably examine goods
prior to acceptance and to notify the seller of any defect of the goods – hence it
make a buyer more aware of what s/he is buying, thus preventing flaw. A written
contract ensures transfer of ownership of the goods to the buyer. The seller
through the contract warrants that the goods are free from any security interest
liens, outstanding titles, claims or any other outstanding encumbrances. A
contract ensures authenticity of the two parties involved in the exchange. It also
serves as a proof of a legal transaction and prevents the selling party to make an
unlawful mark-up on any product sold. In a nutshell, a contract binds and well as
benefits both the parties in the contract.
Essentials of Valid Sales
 Two Parties
 Goods
 Transfer of Property
 Consideration
 Valid Contract
 Free consent
 Absolute or Conditional
 Includes both a sale and Agreement to Sale
Contd……
 Two parties: A contract of sale is made between two
parties. They are known as seller and buyer. A buyer
means a person who buys or agrees to buy the goods. A
Seller means a person who sells or agrees to sell goods.
Contd…..
 Goods: Goods means every kind of movable property
other than actionable claims and money in circulation.
Actionable claim or right can be enforced through the
Court. For instance, a lottery ticket is goods but a right
to claim prize, if successful is an actionable claim.
Goods include shares, patent rights, trademarks,
minerals, water, electricity etc.
Contd…..
 Price: U/s 2(10) of the sales of goods act price
means the money consideration for a sale of goods.
It is a consideration paid or agreed to be paid by a
buyer to the seller.

 Transfer of Property: In the contract of sale, the

seller must transfer or agree to transfer the
ownership as well as physical transfer of property
in goods to the buyer.
Contd…..
 Free consent: A contract of sale must have free
consent of the buyer and the seller. Consent is said to
be free when it is free from coercion, undue influence,
mistake, misrepresentation and fraud.
 Classification of Goods
 Existing goods: Goods owned or possessed by the
seller at the time of contract of sale are known as
existing goods. They are Classified as:

 Specific goods

 Ascertained and
 Unascertained goods
Contd…..
Specific goods - Specified goods means the goods identified and
agreed upon at the time a contract of sale is made.

Ascertained and unascertained goods: The term ascertained

goods are used to denote the goods, which are ascertained after
formation of contract. The goods, which are not identified and
agreed upon at the time of making of contract of sale, are known
as unascertained goods
Example……
 Mr. A goes to a showroom where various brands and
models of Honda motorcycles are displayed. All are
existing goods. Mr. A identifies and agrees to buy a
active model, now it becomes specific existing
goods. Further Mr. A decided to buy a white colored
activa model of motorcycle. Now it becomes Specific
and ascertained existing goods. Until he selects
white colored activa model all the motorcycles are
considered as existing unascertained goods.
Contd…..
 Contingent goods - Goods, the acquisition of which
depends upon an uncertain contingency are called
contingent goods. A contract for the sale of contingent
goods operates as `An agreement to sell’ and not `sale.’

 E.g. Mr. A agrees to sell to Mr. B a specific rare goods

provided he is able to purchase it from its present
owner. This is a contract for the sale of contingent
goods.
Contd……
 Future Goods - U/s 2 (6) Future goods means the
goods to be manufactured or produced or acquired
by the seller after making of the contract of sale.
Where a contract of sale of future goods is made, it
is an agreement to sell not a sale.
 Perishing of Goods

U/s 7 and 8 of the Sales of Goods Act 1930, `Perishing

includes the followings:

 Physical destruction of goods.

 Damage of merchantable character of goods e g. where

cement is spoiled by water and becomes almost stone or
where sugar becomes sharbat and thus are unsaleable.

 Loss of goods by theft or

 Where the goods have been lawfully demanded by the

government.
Effects of Perishing of Goods:
 In case of perishing of specific goods without
knowledge of seller the contract is void;
 In case of destruction of part of goods as a subject
matter
 If the contract is entire or divisible. If the subject
matter is one and is not divisible and part only of the
goods has perished or damaged, the contract would be
void.
 If the contract is divisible, it will not be void.
Cases…..
 A, a farmer, agrees to sell B, mangoes, provided there is
good rain during season. Is it sale or agreement to sell.

 A agrees to sell B, all crops to be grown in his farm during

2011 season. It is contract about which type of goods?

 A had 5 sofas. He agreed to sell one sofa to B. Is it contract

for sale of specific goods? If not, which type of goods?
Modes of Determination of Price
of the Goods
 The price in a contract of sale may be fixed by contract
itself.

 The price in the contract of sale may be left to be fixed in

the manner agreed between the parties. For instance, the
parties may agree that the price be fixed by a third party.

 The previous dealing or custom of trade may be the basis of

determination of price.
Documents of Title of Goods
 According to section 2(4) of the Sale of goods act 1930,
Documents of title to goods include a bill of lading,
dock warrant, Warehouse – Keeper Certificate,
railway receipt, delivery warrants or order for
delivery of goods used in the ordinary course of
business as proof of the possession or control of goods
or purporting to authorize, either by endorsement or
by delivery.
Contd….
The document of title to goods must qualify the
following essentials:
 It should authorize its possessors to receive or to
transfer the goods represented by it
 It should represent the existing goods.
 The possessors of the document of title to the goods
can effect actual sale as well as make an agreement to
sale.
 It operates as transfer of the property in the goods to
the transferee.
 CONDITIONS AND WARRANTIES
 Under Section 12(1) of the Sales of Goods Act 1930 `A
stipulation in a contract of sale with reference to goods
which are the subject thereof may be a condition or a
warranty.
Stipulation
 Generally a sales person while dealing with a
prospective buyer makes a number of statements and
representation with reference to his goods. Out of
various statements and representation some are
important and become part of contract. These
statements and representation are also called as
Stipulation.
Condition

 Under section 12 (2) of the Indian Contract Act

1872, A condition is a stipulation essential to the
main purpose of the contract, the breach of which
gives rise to a right to treat the contract as
repudiated.
Essentials of a Condition
 Condition is stipulation in a contract of sale.

 It is essential to the main purpose of the contract, and

 The non fulfillment of condition gives right to the

aggrieved party to cancel the contract and recover the
damages for breach of condition.
Remedies or Consequences for Breach of Condition:
The buyer has following remedies against the seller.

 In case of breach of contract by seller the buyer can cancel

the contract

 Under section 59 of the Act, The buyer can waive the

condition. However according to section 13 (3) of the Act,
Once the condition is waived by the buyer, he has no right
to claim damages.

 The buyer can reject the goods

Warranty

Under Section 12(3) a warranty is a stipulation

collateral to the main purpose of the contract,
the breach of which gives rise to a claim for
damages but not to a right to reject the goods
and treat the contract as repudiated.

Thus warranty is stipulation or of lesser

importance to the purpose of the contract.
Essentials of a warranty
 It is stipulation in a contract of sale.

 It is collateral to the main purpose of the contract.

 The non fulfillment of warranty gives right to the

aggrieved party to recover the damages for breach of
warranty.
Remedies or Consequences for Breach of Warranty
 Under section 12(3) and 59(1)Buyer can claim for
damage but cannot cancel the contract.

 Under section 59 of the Act, Buyer can reduce the price

of goods by the amount of damages.

 In case when amount of loss is equal or more than the

amount of price, the buyer may refuse to pay price.
Contd…..
 Under section 59 of the Act, the buyer may also sue for
the amount of damages which exceeds the price of the
goods.

 Under section 13(3) of the Sale of Goods Act,1930, no

remedy is available if the fulfillment of warranty
becomes impossible due to provisions of any law of the
country
When condition to be considered As Warranties
 Section 13 of the act deals with cases in which a
condition may be treated as a warranty. These are as
follow:

 Voluntary waiver of condition

 Acceptance of goods by buyer

 Transfer of goods by buyer to third party.

Distinction between condition and warranty
Condition Warranty
 The condition is a stipulation  The warranty is collateral to
essential to the main purpose the main purpose of the
of the contract. contract.
 The buyer has the right to  The buyer has no right to
cancel a contract on the cancel the contract on the
breach the breach of breach of warranty . The
conditions. buyer can claim the damages.
 The breach of condition may  The breach of warranty
be treated as the breach of cannot be treated as the
warranty. breach of condition.
Warranty
 In business and legal transactions, a warranty is an
assurance by one party to the other party that specific
facts or conditions are true or will happen; the other
party is permitted to rely on that assurance and seek
some type of remedy if it is not true or followed.
Guarantee
 Something that assures a particular outcome or condition:
Lack of interest is a guarantee of failure.
 a. A promise or an assurance, especially one given in
writing, that attests to the quality or durability of a product
or service.
 b. A pledge that something will be performed in a specified
manner.
 a. A guaranty by which one person assumes responsibility
for paying another's debts or fulfilling another's
responsibilities.
 b. A guaranty for the execution, completion, or existence of
something.
 Difference
Guarantee
 A guarantee is always free.
 A guarantee is a legal contract
without any payment.
 A guarantee is an addition to
the legal consumer rights.
 A guarantee is applicable
irrespective of the provision
of the warranty.
Warranty
 A warranty attracts charges as
the insurance policy.
 A warranty received on
payment is also a legal
instrument.
 A warranty does not affect the
rights under the consumer
act.
 A warranty is free to go
together with a guarantee
issued on the same article.
Types of Conditions and Warranties

 Express Conditions and Warranties: Express

conditions and warranties are those, which are
expressly agreed upon by the parties and provided in
the contract of sale.

 Implied Conditions and Warranties: Means

conditions and warranties, which are implied by law
in every contract of sale. Followings are implied
condition and warranties:
Implies Conditions:
 Condition as to Title
 Condition as to description
 Condition as to sample
 Condition as to merchantable quality
 Sale by Sample
 If the condition in a sale by sample as well as by
description
 Condition as to quality or fitness
 Condition as to Wholesome
Contd…..
Condition as to Title
 If the title of a seller turns out to be defective, the buyer
must return the goods to the true owner & recover the
price from the seller.

Condition as to description
 Where the goods are sold by description, there is implied
condition that the goods shall correspond to the
description

 Ex – A machine was sold. The buyer has not seen the machine but
the seller described it as a new one. However it was found to be old
one. Held the machine was not according to the description.
Contd…..
Condition as to Merchantable Quality
 Merchantability means that there is no defect in the goods , which
renders them unfit for sale.

Sale by Sample
 Where the goods are sold by the sample, the goods must correspond to
the sample in quality.

If the condition in a sale by sample as well as by description

 If the sale is by sample as well as description, both the condition shall
be satisfied.

 Ex - A agreed to sell to C some oil described as ‘Foreign Refined Oil’ and

warranted only equal to sample. The goods supplied were equal to sample
but contained a mixture of hemp oil. Held, C could reject the goods.
Contd….
 Condition as to quality or fitness
The goods shall be reasonably fit for a purpose and
confirms the quality as per the described purpose.

 Exception to the implied Condition as to quality or

Fitness –
If the buyer is suffering from abnormality.

Ex – A purchased a coat. He had abnormally sensitive

skin. By wearing the coat, he got a skin complaint.
Held there was no breach of condition as he had not
disclosed the abnormality of his skin
Contd…..
 Condition as to Wholesome
In the case of eatables & food stuff, there is implied
condition that the goods shall be wholesome, it means
free from any defects which renders them unfit for
human consumption.
Ex – A purchased milk form B, a milk dealer. The
milk contained typhoid germs. A’s Wife on taking
the milk got infected and died, A was entitled to
get5 damages.
Implied Warranties
 Warranty as quiet possession of goods
 Warranty as to freedom from all charges
 Warranty as to disclose dangerous nature of goods
 Warranty as to quality or fitness by usage of trade
Doctrine of Caveat Emptor
 Latin Ward means ‘ let the buyer beware.’

 It is the duty of the buyer to be careful while

purchasing goods of his requirement; the seller is not
bound to disclose every defect of his goods. If the
buyer distrusts his own skill or judgment, he may ask
the seller to give a guarantee or warranty.
 Jewelry


 Doctrine of Caveat Emptor
It suggest that the buyer , while purchasing the goods,
must act with a ‘third eye and ear’. i e:
 He should be careful to see that the goods purchased
will serve his purpose well.
 If the buyer is not careful and he finds later on that the
goods do not serve his purpose, he cannot hold the
seller liable for it.
 The seller is under no obligation to tell the defects of
his articles.
Case…….
 A goes to B’s shop and purchased a silk saree, thinking
that it is made of Banarsi Silk. The shopkeeper knows
that A’s thinking is wrong. He, however, does not
correct A’s impression. Later on, when a discovers that
the saree is not made of Banarsi – Silk he wants to
avoid the contract. Would A succeed? Give Reason.
EXCEPTIONS OF THE DOCTRINE OF CAVEAT EMPTOR:
 When the goods are bought by sample or by
descriptions
 When the seller makes a mis-representation or fraud
against buyer
 Where seller deals in the class of goods which is not
having merchantable quality
 Where the buyer makes known to the seller the
purpose for which he requires the goods and relies
upon the seller’s skill and judgment, the doctrine of
caveat emptor does not apply and the seller is liable in
case of damages.
Transfer of Property in Goods
 A contract of sale is performed in the following
interrelated stages with respect to the good which
form the subject matter of a contract of sale:

 Transfer of ownership of the goods

 Transfer of possession or delivery of goods, and
 Transfer of risk related to the goods.
Contd……
 Transfer of goods and transfer of ownership of goods
are different in meaning.

 A person may be in possession of goods but may not

be the owner of the goods. Ex – hire – buyer, Bailor,
servant or agent etc.

 A person may be the owner of the goods but he may

not be in possession of these goods, however, the
property in goods vests in him.
 Significance of Transfer of ownership
 Risk prima facie passes with ownership – Under section
26 (Paragraph–1 & 2)of the sale of Goods Act 1930, unless or
otherwise agreed, the risk follows ownership and it is
important that whether delivery has been made or not and
whether price has been paid or not. Thus ‘risk’ and
‘ownership’ go together.

 Example – Mr. Mohan contracts to purchase 30 tons of apple juice from

Mr. Sohan, who crushes the apple, puts juice in casks and keeps them
ready for delivery. Mr. Mohan however, delays to take the delivery and
the juice goes putrid and has to thrown away. Mr. Mohan is liable to pay
the price.
Exceptions (situations)……
 In case of Express contract
 In case of Delay Delivery
 Seller’s right of Price
 Action against the third Party
 Insolvency of the buyer or seller.
Situations……
 In case of express agreement the risk will pass some time before or after
the ownership has passed. In such cases risk will pass accordingly.

 In case of delay of delivery due to the fault of either of seller or the

buyer., the defaulting party will bear the risk of loss.

 The seller becomes entitled to recover the price of the goods from the
buyer only after the property in the goods has been transferred to the
buyer.

 The Buyer can exercise proprietary rights over the goods. In case of
damage of goods due to negligence of third party , only true owner of
the goods is entitled to take action against such third party.
Contd…...
 If the property in the goods sold has passed to the
buyer before the date of order of his insolvency, the
official receiver or assignee will be entitled to claim the
possession of goods from the Buyer. If the seller has
become insolvent after passing of property in the
goods sold to the buyer the official receiver or Assignee
cannot take over the possession of the goods
Time for Passing of Property in Goods

 Time for Passing of Property in Goods depends

upon the agreement between the parties of the
contract. The legal provision in this regard
depends upon the nature of goods.
Transfer of ownership of specific Goods – (Section 20 – 22)
 Ownership is transferred immediately at the time of
making the contract if all the following Condition are
satisfied-

 The contract is for the specific goods.

 The goods are in deliverable state.
 The goods are not required to be weight or measured for
determining price.
Case…..
 A sold to B, 100 bales of cotton lying in his godown.
Before the bales could be identified and separated, all
the bales were destroyed in fire. Here, the seller is
liable for damage because the ownership is not
transferred.
Ownership is transferred when Goods are Put in deliverable State
 If the goods are not ready in the deliverable state at the
time of making the contract of sale, the ownership of goods
is transferred after the formation of the contract of sale
when the following conditions are satisfied:

 The contract is for specific Goods.

 The goods are put in deliverable State by the Seller.
 The fact that the goods are put into a deliverable state, has come to the
knowledge of the buyer.
Case…..
 A certain quantity of oil was purchased by A. The oil
was to be filled in tins. B filled up some of the tins and
informed A to take delivery . In the meantime, a fire
destroyed the entire quantity of oil. Held, A will bear
the loss of the oil which was filled in the tins and the
seller must bear the loss of the balance.
Ownership is transferred when Goods are Put in deliverable State
Put to weighed or measured to Ascertained Price
 It the goods are not weighed or measured at the time
of making a contract of sale, the ownership of the
goods is transferred after the formation of a contract of
sale when the following conditions are satisfied:

 The contract is for specific Goods.

 The price is determined later by the weight or measurement.
 The goods are put into a deliverable state by the seller.
 The fact that goods have been weighed or measured in order to determine the price
has come to the knowledge of the buyer.
Case…..
 A sold 10 kg of wheat. The wheat was to be weighed.
Before the wheat was weighed, it was carried away by
the flood. Held, the ownership of the wheat was left
with the seller and it did not pass to the buyer.
Transfer of Ownership in the case of unascertained Goods – (Section 18 & 23)

 When both the parties come to know which particular

goods shall be delivered, the ownership is transferred.
Following condition must be satisfied to transfer the
ownership:

 Process of identification setting aside of the goods from a huge mass of goods.
 Made by the seller.
 Not complete sell . It is agreement to sell.
Transfer of Ownership in the case of Goods Sale on approval or
Return Basis ( Section 24)

 It means the sale in which the buyer may return the

goods within a reasonable time and the buyer has the
option either to return or retain the goods. Here, the
property in goods does not pass from the seller to the
buyer:
Cases….
Cases When Ownership Transferred
 When the buyer gives his  The approval or acceptance is
approval or Acceptance. communicated to the seller.

 When the Act of adoption is

 When the buyer does some
act adopting the transaction.
 When the buyer fails to
return the goods.
a) If the time fixed for the  The ownership of the goods
return of goods.
b) If no time is fixed.
done.
transferred on the expiry of the
fixed time.
 The ownership of the goods
transferred on the expiry of a
reasonable time.
Transfer of Title by NON - OWNERS

 The general rule of law regarding the transfer of title of

goods is that ‘no one can give that which one has
not got’(Nemo Dat Quad Non Haber).

 Under Section 27 of the Act, ‘where goods are sold

by a person who is not the owner there of and does
not sell them under the authority or with the
consent of the owner, the buyer acquires no better
title to the goods than the seller had.’
Performance of Contract of Sale
 Both the parties of contract are bound to perform their
obligations under the contract.

 U/s 31 of the Sales of Goods Act, It is the duty of the

seller to deliver the goods and of the buyer to
accept and pay for them, in accordance with the
terms of the contract of sale.
Modes of Delivery
 Delivery means voluntary transfer of possession of
goods from one person to another [sec. 2(2)]

Modes of Delivery can be :

Actual Delivery
Symbolic Delivery
Constructive Delivery
Contd….
 Actual Delivery: Where goods are handed over by the
seller to the buyer, or to his authorized agent, it is said
to be actual delivery of the goods.
E.g. Mr. `A` sells a computer to Mr. `B`. Mr. A gives physical delivery
of the computer to B. It is an actual delivery.

 Symbolic Delivery: When goods are not physically

handed over by the seller to the buyer but the seller
does something which has the effect of putting the
goods in possession of the buyer. e.g. delivery of keys
of a car etc.
Contd…..
 Constructive Delivery: When at the time of sale of
goods, the seller agrees to hold goods on behalf of the
buyer it is called as constructive delivery of the goods.

 Example: Mr. Das sold 100 bags of potatoes to Mr. Prem. The bags
are in a warehouse. The seller orders to the warehouse – keeper for
transfer of bags to the buyer. On the same time warehouse – Keeper
agreed to keep bags with n behalf of Mr. Das.
Rules Regarding Valid Delivery
 A delivery of goods should be in accordance with the
terms of contract of sale.
 The seller must be ready and willing for giving the
possession of the goods to the buyer.
 The seller can choose any mode of delivery
 Normally buyer should apply for delivery of goods.
Contd…..
 Delivery should be at the decided Place and time.
 Unless otherwise agreed, all expenses related to put
the goods into a deliverable state shall be borne by the
seller.
 It is a duty of seller to deliver the agreed quantity and
quality of goods
 Unless or otherwise agreed the buyer is not bound to
accept delivery of goods in installments.
Types of Delivery…..
Delivery can be made in any of the following ways:

 There may be immediate delivery of goods.

 There may be immediate payment of price, but it may be
agreed that the delivery is to be made at some future date.
 There may be immediate delivery of goods and immediate
payment of price.
 It may be agreed that delivery or payment or both are to be
made in installments.
 It may be agreed that delivery or payment or both are to be
made at some future date.
Rights of Buyer
 Right to receive delivery of the goods in accordance
with the terms of the contract.

 Right to return the goods sent on approval

 Right to exercise ownership on the goods.

 Right to reject the goods if it is not matched with

quality or quantity as ordered by him.
Contd……
 Right to reject the goods if delivered in installments

 Right to treat the breach of conditions as a breach of

warranty

 Right to examine the goods before accepting delivery.

 In case of breach of contract by seller, the buyer has

right to suit for Damages for non-delivery, Specific
performance, Breach of warranty
Duties of Buyer
 To apply for delivery of goods
 To accept goods and take delivery
 To intimate the seller when he rejects the goods
 To make payment on due date
 In case of breach of contract by buyer, it is his duty to
pay price, damages for non-acceptance of goods or
cancellation of contract before date.