Business Regulatory Framework

Mod 3
 Sale of goods act 1930
• The law relating to sale of goods is contained
in the Sale of Goods Act, which came into
force on 1st July 1930.
• Sect 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”.
 Formation of a Contract of Sale
• Contract of sale is made by a buyer offering to
buy or a seller offering to sell goods for a price
and the other party accepting such offer.
• The parties may agree about whether to do
immediate delivery of goods, or immediate
payment or payment by installment or future
delivery of goods etc.
• Contract of sale may be in writing or by word of
mouth, or sometimes implied from the conduct
of parties.
 Characteristics/Elements of Contract
of Sale
• 1. Two parties – buyer & Seller
• 2. Transfer of property – seller must either transfer or
agree to transfer the property in goods to the buyer.
• 3. Subject matter of the contract of sale must be ‘goods’-
goods means every kind of movable property other than
actionable claims and money, includes stock, crops, metals,
goodwill etc. Actionable claim includes bill of exchange,
promissory notes etc. which can’t be sold.
• Sale of immovable property is governed by the Transfer of
Property Act 1882.
• 4. Price- The consideration for a contract of sale must be
money consideration called ‘price’.
• 5. Includes both a ‘sale’ and an ‘agreement to sell’.
• ‘sale’- when goods are transferred at the time of making
the contract from the seller to the buyer, the contract is
called ‘sale’
• agreement to sell - When the transfer of goods is to take
place at a future time or subject to some condition, , the
contract is called an ‘agreement to sell’
• 6. No formalities to be observed – A contract of sale of
goods can be made by mere offer and acceptance.
• The offer may be made either by the seller or the buyer
and same must be accepted by the other.
• Neither payment or delivery is necessary at the time of
making the contract of sale.
 Distinction between sale and
agreement to sell
• 1. Transfer of property (ownership) passes to buyer immediately
after sale, but not in agreement to sell
• 2. In sale, risk of loss/damage to the good passes to the buyer.
• 3. Breach by the buyer- In sales, seller can sue for the price when
buyer refuses to pay, but in agreement to sell, seller can sue only
for the damages for breach.
• 4. Breach by the seller – In sales, buyer can sue for delivery of
goods by specific performance
• 5. Right of resale – In sale, ownership is with buyer, and thus seller
can not resell the goods.
• But in agreement to sale, ownership is with seller, and seller can sell
it to another buyer for which original buyer can sue him for the
breach of contract.
Subject matter of contract - Goods
• Three types of goods
• 1. Existing Good – Goods which are physically in existence,
owned and possessed by the seller at the time of making of
contract of sale.
• It is of two types – Specific goods and Unascertained goods
• 2. Future Good – Future goods means goods to be
manufactured or produced or acquired by the seller after
making contract of sale.
• 3. Contingent Good – a type of future goods, the
acquisition of which by the seller depends upon a
contingency which may or may not happen.
• Example- A agrees to sell to B specific rare painting
provided he is able to purchase it from its present owner.
 Condition and Warranties
• The representations or statements about the
good a seller is going to sell, which are
incorporated in the contract of sale are called
‘terms’ or ‘stipulations’.
• Eg : A wants to sell his cow to B. A may represent
several statements regarding the price, age, color,
height etc. of the cow. Some of them may be
incorporated in the contract of sale.
• Thus every contract of sale is likely to contain a
number of terms or stipulations in which some of
them are so vital.
 Cont….
• “ 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.”
• “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 good and treat the
contract as repudiated.”
 Cont..
• Example
• John asked a car dealer to suggest him a good
car and while suggesting the car, the dealer
said that it could run for 20km per litre of
petrol. But the car could run only 15Km per
litre . In this case, the statement made by the
seller was a warranty. Thus John is not
entitled to reject the car but was entitled to
claim the damages.
Condition & warranty distinguished
 As to value: A condition is a stipulation which is
essential to the main purpose of contract whereas
warranty is a stipulation which is collateral to main
purpose of contract
 As to breach: The breach of condition gives the
aggrieved party the right to repudiate the contract &
also to claim damages, whereas the breach of warranty
gives the aggrieved party a right to claim damages only.
 As to treatment: A breach of condition may be treated
as a breach of warranty. But a breach warranty cannot
be treated as a breach of condition
 Express and Implied Conditions and
Warranty
• In a contract of sale of goods, the conditions and warranties may be
expressed or implied.
• Express conditions or warranty are those which have been
expressly agreed upon by the parties at the time of contract of sale.
They are stated in definite words as the basis of the contract.`
• Example – (1)A buyer desires to buy a Sony TV model no.5875. Here
model number is an express condition
• (2) In an advertisement for Khaitan fans, guarantee for 5 years is an
express warranty
• When the conditions and warranties are not written in the contract,
but applied to the contract either by operation of law or by trade or
custom, they are called implied conditions and warranties.
 Implied Conditions
• Condition as to title [Sec 14 (a)]
• In a every contract of sale, there is an implied condition
that the seller has got a right to sell the good and
ownership should be transferred.
• Example- X purchased a car from Y. After 6 months, Z the
true owner of the car demanded it from X. Here X must
return the car to Z and X is entitled to recover the full price
from Y even though he used the car for 6 months.
• Condition in a sale by description [Sec 15] b- When there
is a contract of sale of goods by description(example- brand
name, trademark etc) , there is an implied condition that
the goods shall correspond with that description.
• Condition in a sale by sample(Sec 17) – when goods are
purchased after seeing the sample, there is an implied
condition that the bulk shall correspond with the sample.
(without any defect, same quality etc.)
• Condition as to fitness/ quality [Sec 16(1)]- There is an
implied condition as to quality or fitness of good for any
particular purpose, if the goods are needed for the
particular purpose for the buyer.
• Example- X purchased a hot water bottle from Y after
enquiring whether the bottle would stand boiling water.
Later, the bottle burst when X poured hot water into it and
injured him. Here Y is liable to refund the price and pay
damages because the bottle was unfit for the purpose.
• Condition as to merchantability[Sec 16(2)]-
When goods are bought by description from a
seller who deals in goods of that description,
there is an implied condition that the goods
shall be mercantile quality.
• Condition as to wholesomeness – means
promoting physical health. This condition
applies only in the case of provisions and food
stuff.
 Implied warranty
• Warranty for quiet possession – This is an extension of the implied
condition as to title. The buyer shall have and enjoy quiet
possession of the goods. If the quiet possession of the buyer is in
any way disturbed by a person having a superior right than that of
the seller, the buyer can claim damages from the seller.
• Implied warranty of freedom from encumbrance(means burden)-
the goods are not subject to any charge or encumbrance in favour
of third parties which is not disclosed to the buyer while making the
contract. It means the goods are not subject to any concealed
charge in the form of hypothecation against loan etc.
• X borrowed Rs.500 from Y and hypothecated his radio with Y as
security. Later X sold this radio to Z. Here Z can claim damages from
X because his possession is disturbed by Y having a charge.
• Warranty of disclosing the dangerous nature of goods
to the ignorant buyer.
• There is an implied warranty on the part of the seller
that in case the goods are of dangerous nature, he will
warn the ignorant buyer of the probable danger.
• Example- C purchased a particular chemical from A. A
knows that when the bottle of the chemical opens
without care, it may be dangerous. A didn’t
communicate this to C. C opens the bottle and causes
injury to C. Here A is liable for the damages to C as he
should have warned C of the probable danger.
 Doctrine of Caveat Emptor
• It means ‘’let the buyer beware’’.
• This doctrine implies that it is the duty of the
buyer to be careful while purchasing goods of
his requirement and in the absence of any
enquiry from the buyer, the seller is not bound
to disclose every defect in goods.
• The buyer must examine the goods
thoroughly.
 Doctrine of Caveat Emptor
• In the following cases, Doctrine of Caveat Emptor does
not apply.
• 1. When the seller makes a sale by fraud or concealing
the defect, seller is liable.
• 2. When goods are ordered for specific purpose and
the buyer relies on the skill or judgment of the seller,
there is an implied condition that the goods shall be
reasonably fit for the purpose.
• 3. When a buyer purchased a product from a seller
who deals in goods of a particular description, there is
an implied condition that the goods shall be of
mercantile quality.
 Transfer of Property in Goods
• Transfer of Property in Goods means transfer
of ownership of goods, not its possession.
• Example, A sells a car to B on hire purchase
agreement. Here, B has only the possession.
When B pays the entire hire purchase amount
to A, then B becomes the owner.
 Significance of Transfer of Goods
• The owner has to bear the risk of loss or
destruction
• Only the owner can sue against a third person for
the loss of goods due to him
• The seller can sue for the price only if the
ownership has been transferred to the buyer.
• In every contract of sale, it becomes necessary to
determine the time at which the buyer acquires
ownership and seller ceases to be the owner.
 Rules regarding transfer of goods
• 1. For specific or ascertained goods
• Specific goods means goods identified and agreed upon at
the time when a contract of sale is made. The ownership of
such goods is transferred to the buyer at such time as the
parties intend it to be transferred.
• 2. For unascertained or future goods.
• Unascertained goods means the goods which have not
been identified and agreed upon at the time when contract
of sale is made. The ownership of such goods is transferred
to the buyer when,
• (a) the goods have been ascertained
• (b) the goods must have been unconditionally appropriated
by the seller or the buyer with the consent of the other.
 Rights & Duties of Buyer
• Rights
• 1. Right to receive delivery of the goods
• 2. Right to repudiate the contract if the seller commits breach of
contract
• 3. Right to have reasonable opportunity to examine the goods.
• 4. Right to sue the seller for damages for non-delivery of the goods.
• 5. Right to recover the amount paid if the seller fails to deliver the
goods.
• 6. Right to sue the seller for specific performance of the contract.
• Duties
• 1.To pay for the goods and take delivery thereof.
• 2. To take delivery of the goods
• 3. To compensate the seller for any loss by buyer’s neglect or
refusal to take delivery of the goods.
 Rights & Duties of Seller
• Rights
• 1. Right to receive the price of the goods.
• 2. Right to receive compensation for damages caused by
neglect of the buyer to take delivery of the goods.
• 3. Right to receive reasonable charge for care and custody
of the goods.
• 4. Right to sue for damages when buyer repudiates the
contract
• 5. Right to recover interest from the buyer if there is
specific to charge interest on the price when it becomes
due.
• 6. If he is unpaid seller, then right to exercise his right of
lien, right of stoppage in transit, and right of resale.
 Rights & Duties of Seller
• Duties
• 1. To deliver the goods when the buyer demands
the delivery.
• 2. To give reasonable opportunity to the buyer to
examine the goods
• 3. To refund the amount paid by the buyer in case
he fails to take delivery of goods
• 4. To compensate the buyer in case of delivery
wrong quantity.
 Unpaid Seller
• The seller of goods is deemed to be an ‘unpaid
seller, when
• 1. the seller has not been paid
• 2. who has a Bill of Exchange or any other
negotiable like cheque, which is subsequently
dishorored.
 Rights of an unpaid seller
• Four rights,
• 1. Right of Lien.
• 2. Right of stoppage of goods in transit
• 3. Right of resale
• 4. Right to sue for price, damage and interest.
 Rights of an unpaid seller
• 1. Right of Lien – If the buyer does not pay the
price of the goods, the seller has a right to retain
goods until the whole price due to him is paid.
This right is known as Right of Lien.
• 2. Right of stoppage of goods in transit – When
the goods are in sellers possession, he can retain
the goods. When the goods are in transit, the
seller has a right to stop the goods in transit. It is
known as right of stoppage of goods in transit.
• 3. Right of resale
• The unpaid seller who retained the possession of
goods in exercise of his right of lien, can resell the
goods,
• (a), if the goods are of a perishable nature, without any
notice to the buyer
• (b), after the failure of the buyer to pay the reasonable
amount and time
• 4. Right to sue for price, damage and interest.
• This is applicable when the property in the goods has
not passed to the buyer.