FORMATION OF CONTRACT OF SALE:

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 price". ESSENTIALS OF CONTRACT OF SALE From the above definition, the following essentials of a contract of sale may by noted: 1. There must be at least two parties 2. Transfer or Agreement to transfer the ownership of goods. 3. The subject matter of the contract must necessarily be 'goods'. 4. The consideration is Price. 5. A Contract of sale may be absolute or conditional 6. All other essentials of a valid contract must be present. `SALE` AND 'AGREEMENT TO SELL' DISTINGUISHED Sale: It is a contract where the ownership in the goods is transferred by seller to the buyer immediately at the conclusion contract. Thus, strictly speaking, sale takes place when there is a transfer of property in goods from the seller to the buyer. A sale is an executed contract. It must be noted here that the payment of price is immaterial to the transfer of property in goods. Ex A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since the ownership of the motorcycle has been transferred from A to B. Agreement to sell: It is a contract of sale where the transfer of property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled. Ex(i) A agreed to buy from B a certain quantity of nitrate of soda. The ship carrying the nitrate of soda was yet to arrive. This is `an agreement to sale`. In this case, the ownership of nitrate of soda is to be to transferred to A on the arrival of the ship containing the specified goods (i.e. nitrate of soda) (ii) On 1st March 1998, A agreed to sell his car to B for Rs. 80,000. It was agreed between themselves that the ownership of the car will transfer to B on 3 1st March 1998 when the car is got registered in B`s name. It is an agreement to sell and it will become sale on 3 1st March when the car is registered in the name of B.

Other points of distinction between a sale and an agreement to sell are: Sale 1. A sale is an executed contract. 2. In a sale, since the property has passed to the buyer, the seller can sue the buyer for the price of the goods. 3. A sale creates a right in rem. 4. In case of loss of goods, the loss will fall on the buyer, even though the goods are in the possession of the seller. It is because 'Risk' is associated with ownership. 4. In case buyer pays the price and the seller thereafter becomes an insolvent, the buyer can claim the goods from the Official Receiver or Assignee. 6. If the buyer becomes an insolvent without paying the price, the ownership having passed to the buyer, the seller shall have to deliver the goods to the Official Assignee or Receiver except where he has a lien over the goods. Agreement to sell 1. An Agreement to sell is an executory contract. 2. In an agreement to sell, in case of breach, the seller can only sue for damages, unless the price was payable at a stated date. 3. An agreement to sell creates a right in personam. 4. The loss in this case shall be borne by the seller, even though the goods are in the possession of the buyer. 5. In these circumstances, the buyer cannot claim the goods but only a rateable dividend for the money paid. 6. In these circumstances, the seller can refuse to deliver the goods to the Official Assignee or Receiver.

The Nature Of Partnership

Definition of "partnership", "partner", "firm" and "firm name". '"Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm name". Proof of existence of Partnership'. Where appellant claimed to be a partner of a partnership firm and one of the alleged partners denied any such partnership, it was incumbent upon the

appellant to have proved on record that there was an agreement between the alleged partners for carrying on business in partnership. Registration of firm disclosing that certain persons were its partners was not by itself the proof of execution of any such agreement between the said alleged partners to do business in partnership. (Muhammad Sharif Uppal V Akbar Hussain PLD 1990 Lah 229). Liability of Partners. The Defendant Establishment is a partnership Firm and other Defendants being Partners of that firm were, therefore, jointly and severally liable for the amount claimed in suit - (National Bank of Pakistan V M/s M.M. Agencies and 5 others-1991 CLC 1763) Essential Elements of Partnership. There are four important elements necessary to constitute partnership.(i) There must be an association of two or more persons to carry on a business. (ii) There must be an agreement entered into by all the persons concerned. (iii) The agreement must be to share the profits of a business. (iv) The business must be carried on by all or any of the persons concerned acting for all. All the above elements must be present before a group of persons can be held to be Partners. Each of these elements are discussed below in their necessary details. (i) There must be an association of two or more persons to carry on a business. A group of persons with no legal relations inter se, i.e. no mutual rights and liabilities between themselves would not be a partnership. (ii) There must be an agreement entered into by all the persons concerned. This requirement emphasizes the fact that partnership can only arise as a result of an agreement, express or implied, between two or more persons there must be an agreement entered into by all the partners. Partnership is thus created by a contract; it does not arise by the operation of law. Joint ownership may arise by the operation of law, but not partnership. Thus on the death of a person, his children may inherit the family properly jointly together with the family business and may share the profits of the business equally; but they are not, for that reasons, partners. Only lawful Agreement. The contract which is the foundation of partnership, must itself be founded on good faith, and must be for a lawful object and purpose and between competent persons. In short it is subject to the ordinary incidents and attributes of contracts. (iii) The Agreement must be to share the profits of a business.-The object of the agreement or contract is to carry on a business. And the business which the partners carry on must, of course, be legal. Where there is no partnership. the mere fact that several persons own something in common which produces returns and that such person divide those returns according to their respective interests, does not make them partners. For instance A and B are co-owners of a house let to a tenant and A and B divide the net rent between themselves. A and B are not partners, because receiving rent of a house let to a tenant is not a business. (a) Term "Business". defined.- The term business has been defined (in S. 2) to include every trade, occupation and profession. This definition, which has been adopted from the English Act, is very general and affords very little assistance when dealing with border line cases. Under-hill has also criticized this definition of the term as being rather vague. It is submitted that in arriving at a conclusion as to when persons can be said to cam/on business, each case must be decided on its own merits, and the only practical guide seems to be dictum of James L.J. When he observed

(in Smith V. Anderson) That this word is to be understood in any sense in which any man of business would use the word. Broadly speaking, it refers to any activity which, if successful, would result in profit. Business may be temporary or permanent (i.e. indefinite). But it must be in existence. An agreement to carry on business at a future time does no result in present partnership (R.R. Sama V Reuben, AIR 1946 Oudh. 68). (b) Sharing of profits. The sharing of profits is an essential element of a partnership agreement. The members of religious or charitable societies and clubs are not partners, as the idea of sharing, or even making of profits is not involved in these societies associations. An agreement to share profit is essential but it should be noted that an agreement to share the losses is not essential. Where nothing is said as to sharing of losses it is implied in a partnership deed. It may, however be agreed that as between the partners any one or more of them shall not be liable for losses. (c) Profits of business.- The term profits refers to net profits that is to say the excess of returns over advances, or in other words, the excess of what is obtained over the cost of obtaining it. The English Partnership Act expressly provides that sharing gross returns will not constitute a partnership. Thus, in one English case, the owner of a theatre allowed a travelling manager and his company to use the building, scenery, appliances, etc., in consideration of receiving half the money obtained from the spectators. The Court observed that this did not make the owner answerable as a partner of the travelling manager. (iv) Carrying of business.- The last element is that business must be carried on by all or by any of the persons concerned acting for all. This shows that the persons or the group who conduct the business do so as agents for all the persons in the group, and are, therefore, liable to account to all. In fact, the relation of principal and agent amongst the partners i.e. mutual agency, is the true test of partnership. A partner is both a principal and an agent. While the relation between partners inter se is that of principals, but in relation to third parties for the business of the firm, they are agents of the firm and also of one another. Thus each partner is regarded as an agent of the other partners, and as such, a partner acting in the course of the business of the firm, can bind his co-partners. But in order to bind his co-partners, it is necessary for the partner acting on behalf of the firm to contract in the firm name or in any other manner expressing or implying an intention to bind his co-partners. A partner contracting in his own name can create only a personal liability and not the collective liability of the firm. The mere fact that money borrowed by partner in his own name on security belonging to him personally, has been used for the purpose of the firm with the knowledge of his partners, does not render them liable. Illustrations: (1) A and B buy 100 bales of cotton, which they agree to sell on their joint account. A and B are partners in respect of such cotton. (2) A and B buy 100 bales of cotton, agreeing to share the cotton between them. A and B are not partners. (3) A and B agree to work together as carpenters. A is to receive all the profits and pay a salary to B,-A & B are not partners. (4) A and B enter into a "partnership agreement whereby A is to have no share in either the

profits or the loss of the business - A and B are not partners. (5) A and B are joint owners of a ship. This, by itself does not make them partners. Mutual rights and liabilities: Subject to contract between the partners (a) a partner is not entitled to receive remuneration for taking part in the conduct of the business; (b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm; (c) where a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits; (d) a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum; (e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him(i) in the ordinary and proper conduct of the business, and (ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and (f) a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. Types of Partners The partners of a firm are broadly divided into three main categories. (1) General Partners. (2) Special Partners. (3) Other Partners. (1) General Partners Basically all the partners of a firm are general partners. General partners we those whose liability is unlimited in the f General partners are of two types (a) Active partner, and (b) Sleeping partner. (a) Active Partner A partner who takes active part in the day to day management of the business is cared an active partner. An active partner (also called working partner) may work in different capacities such as manager, organizer, adviser, controller of all the affairs of the firm. The active partner is rewarded as per agreement between the partners. (b) Sleeping Partner A sleeping partner is one who contributes capital, shares profits and losses of the firm but takes no part in the day to day management of the affairs of the firm. A person, who has money to invest but cannot spare time for the business, may become sleeping partner. A sleeping partner is liable for the liabilities of the business like other partners. (2) Special Partners Special partners are partners whose liability is limited to the extent of their capital contributed in the firm. They are only found in limited partnership. The special partners cannot take part in the

management of the business of the firm. In Pakistan limited partnership is not recognized. (3) Other Partners The other types of partners sometimes found in a firm are as follows. (a) Secret Partner A partner who takes active part in the affairs of a business but is not known to the public as a partner is called Secret partner. He, like other partners, is liable to the creditors of the firm to an unlimited extent He shares profits according to the agreement signed. (b) Nominal Partner nominal partner lends his name for the goodwill and credit worthiness to the firm. He neither contributes capital nor takes active part in the management of business. Such partners are called nominal partners. Nominal partners are liable for the debts of the firm. (c) Minor Partner Partnership is a contract and a contract with minor is void. Under Section 30 of Partnership Act, a minor is not able to enter into a contract and so he cannot become a partner of a firm. He can, however be admitted to the benefits of a firm with the consent of other members and that too n a business which is already operating. His liability remains limited to the extent of his share in the capital. On attaining majority, he has to choose whether he has to continue as a partner or not. (d) Partner at Will type of partner will continue so long the partners have mutual faith, trust and confidence among them. (e) Partners In Profit Only If a partner is entitled to receive certain share of profit and is not held liable for the losses, he is known as partner in profit only. He is not allowed to take part in the management of the business. (f) Partner by Estoppel There is another minor type of partner which is called partner by estoppel. If person styles the character of a partner in a business before a third party (outsiders) by words or in writing or by his act, he is called a partner by estoppel. The third party mistaking him as a partner in the business advances loans on his creditability, that person would be personally responsible for the liability attaching to the position of a partner The partner by estoppel would, however, not be entitled to any right like other partners in the business. For example Mr. Hamid is a rich man and is not a partner in a firm named Three Star Carpets. Mr. Hamid makes a false statement to Mr. Rauf, that he is a partner of the firm Three Star Carpets. On this impression Mr. Rauf sells carpets worth Rs. one million to Three Star Carpets on credit. The firm is not able to pay the amount of Rs, one million. Mr. Rauf can recover the amount of Rs. one million from Mr. Hamid, Mr. Hamid here is a partner by Estoppel.

Conditions
A condition is a major term of the contract which goes to the root of the contract. If a condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages:

Warranties
Warranties are minor terms of a contract which are not central to the existence of the contract. If a warranty is breached the innocent party may claim damages but can not end the contract:

DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY' Condition Warranty

1. A condition is a stipulation (in a contract), 1. A warranty is a stipulation, which is only which is essential to the main purpose of the collateral or subsidiary to the main purpose contract. of the contract. 2. A breach of condition gives the aggrieved 2. A breach of warranty gives only the right to party a right to sue for damages as well as sue for damages. The contract cannot be the right to repudiate the contract. repudiated. 3. A breach of condition may be treated as a breach of warranty in certain 3. A breach of warranty cannot be treated as circumstances. a breach of condition. Example: A man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns out to be vicious, the buyer's only remedy is to claim damages. But if instead of buying a particular horse, a man asks a dealer to supply him with a quiet horse and the horse turns out to be vicious, the stipulation is a condition and the buyer can reject the horse, or keep the horse and claim damages. WHEN CONDITION TO BE TREATED AS WARRANTY Under the following circumstances a breach of condition is to be treated as a breach of warranty, i.e., the right to repudiate the contract is deemed to have been lost: 1. Waiver of Condition 2. Compulsory treatment of breach of condition as breach of Warranty. EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES Conditions and Warranties may be either express or implied. They are said to be "express" when the terms of the contract expressly provide for them. They are said to be 'implied' when the law deems their existence in the contract even without their actually having been put in the contract. (A) IMPLIED CONDITIONS The following are the implied conditions (1) Condition as to Title (2) Sale by Description (3) Condition as to Quality or Fitness (4) Merchantable Quality Sale by sample - A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. In a sale by sample, the following are the implied conditions: 1. The bulk shall correspond with the sample in quality;

2.

That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and

That the goods shall be free from any defects rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. Example: (i) Certain shoes were sold by sample for the French Army. The shoes were found to contain paper not discoverable by ordinary inspection. Held, the buyer was entitled to the refund of price plus damages. (ii) In a contract for the sale of brandy by sample, the brandy that was supplied had been coloured with a dye. Held, the buyer was not bound by the contract, though the bulk corresponded with sample, since the defect could not have been located on reasonable examination of the sample (B) IMPLIED WARRANTIES There are two implied warranties. These are: 1. Warranty of Quiet Possession 2. Warranty of Freedom from Encumbrances Example: A purchased a second hand typewriter from B. A used it for sometime and also spend some money on its repairs. The typewriter turned out to be stolen one and as such A had to return it to the true owner. It was held that A could recover damages from B amounting to the price paid and the cost of repair Doctrine of Caveat Emptor

3.

Caveat Emptor is a fundamental principle of the law of sale of goods. It means "Caution Buyer", i.e. "Let the buyer beware". In other words, it is not the duty of the seller's duty to point out defects of his own goods. The buyer must inspect the goods to find out if they will suit his purpose. Example: Pigs were sold "subject to all faults", and these pigs, being infected, caused typhoid to other healthy pigs of the buyer, it was held that the seller was not bound to disclose that the pigs were unhealthy. The rule of the law being 'Caveat Emptor'. Exceptions 1. Where the seller makes a false representation and buyer relies on that representation. The rule of "Caveat Emptor" will not apply and the buyer will be entitled to the goods according to that representation; 2. Where the seller actively conceals a defect in the goods, so that on a reasonable examination the same could not be discovered; 3. Where the buyer makes known to the seller the purpose for which he is buying the goods, and

the seller happens to be a person whose business is to sell goods of that description, then there is an implied condition that the goods shall be reasonably fit for such purpose. The rule of Caveat Emptor will not apply; 4. In case of sale by description, there is implied condition as to their being of merchantable quality. However, if the buyer has examined the goods, this condition of "merchantability" extends only to hidden or latent defects. The defects, which such examination ought to have revealed, are not covered, i.e., the rule of Caveat Emptor will be applicable. When does property pass from the seller to the buyer

(a) Specific or Ascertained goods - the property in the good is transferred to the buyer at such times the parties to the contract intend to be transferred or when something has to be done by the seller to put them in a deliverable state, property passes only when such thing is done, and the buyer has notice thereof. Example: The whole of the contents of a cistern of oil were sold, and the seller had to put the oil in casks to be then delivered to the buyer. Held, the property did not pass until the oil was actually put into casks ready for delivery and the buyer was notified accordingly. (b) Unascertained or Future Goods - property in the goods is not transferred to the buyer unless and until the goods are ascertained. Example: X agrees to sell Y 200 quintals of wheat out or a larger quantity lying in X's store. The agreed price is to be paid on the day appointed under the contract. Unless and until the required quantity of 200 quintals is separated from the larger quantity and the goods have thus been ascertained, -property cannot pass from the seller to the buyer. The general rule is that only the owner of goods can transfer a good title. No one can give a better title than he himself has. This rule is expressed by the maxim "Nemo dat quod non habet" which means "that no one can give what he himself has not" If the seller, therefore, has no title, or a defective title, the buyer's title will be equally wanting or defective as the case may be, though he may be a purchaser - bonafide and for value. Example: A finds a ring of B and sells it to a third person who purchases it for value and in good faith. The true owner, i.e., B can recover from that person, for A having no title could pass none the better. Exceptions to the Rule 1. Sale by Mercantile Agent 2. Sale by a Joint-owner 3. Sale by a Person in Possession under a Voidable Contract 4. Sale by the Seller in Possession of Goods after Sale - Where a seller having sold goods, continues in possession thereof or of documents or title to the goods, such seller will pass a good title to the (second) buyer, if that buyer has acted in good faith and without notice of

the previous sale. 5. Sale by an unpaid seller - a seller who has exercised his right of lien or stoppage in transit can, resell the goods and convey a valid title to another buyer, though no notice of re-sale has been given to the original buyer.

DELIVERY OF GOODS:
Delivery is the process of transporting goods. Most goods are delivered through a transportation network. Delivery of the goods may, be: I. Physical or Actual Delivery 2. Symbolic Delivery - e.g., delivery of a railway receipt properly endorsed, or delivery of the key of a warehouse; 3. Constructive Delivery or Atonement - only an acknowledgement by the person in possession that he holds them on behalf of another.

RULES REGARDING DELIVERY: 1. Delivery Ways: When goods are sold then delivery can be made by symbolic, actual or constructive way. It depends upon the parties that which way they adopt. 2. Time of Delivery :The seller should deliver the goods on a specified date. If the time is not fixed then delivery should be within a reasonable time. 3. Payment And Delivery :Both the actions should be at the same time. The buyer should make the payment and seller should deliver the goods in exchange of payment at the same time, just like the cash sale on the customer of a super stores. 4. Place of Delivery :A delivery of goods should be at a specified place mentioned in the contract. Example :- "X" agrees with "Y" to supply furniture on 38-Tipu Road Ahmadabad. "X" is bound to supply the goods on the same place, where parties made contract. 5. Delivery Expenses :The expenses of putting the goods into deliverable state must be born by the seller, otherwise as the parties agree.

Example :- "X" sells the T.V to "Y". The expenses of packing the T.V will be born by the seller. 6. Delivery to Carrier :When seller is required to send the goods to the buyer, the delivery to carrier is considered delivery to the buyer. Example :- "X" sells computer to "Y". "X" handed over the computer to the carrier to be delivered to "Y". it means delivery has been made. 7. Defective Delivery :A buyer can reject or accept the defective and wrong delivery. In case of rejection buyer is not bound to return it to the seller. Example :- Mr. Imik buys 1000 books of Economics from Khan publishers. Publishers sends 500 books. Mr. Imik may reject the whole or accept 500 and ask for the rest. 8. Good In the Custody of Third Party :If the sellers goods are in the custody of the third party, the delivery is not possible until the third party agrees to handed over the sold goods to the buyer on behalf of the seller. Example :- "M" has his cycle in the store of "Y". "M" sells the cycle to "B" and gives him letter to take from "Y". "Y" agrees to deliver the cycle to "B". 9. Delivery in Installments :The buyer is not bound to receive the goods in installments but if the buyer and seller are agree then the delivery of goods may be made in installments. 10. Buyer Should Apply for Delivery :It is the duty of the buyer that he should apply for the delivery of goods. The seller is not bound to supply the goods without the demand of the buyer. If seller fails to supply the goods on demand then he will be held responsible. 11. Partial Delivery Effect :If some portion of the goods has been made with the intention of delivering the rest of goods then the ownership of the whole goods is deemed to pass to the buyer as some portion is delivered. Example :- "X" sold 10 bikes to "Y". "Y" received 5 and paid their price. "Y" refused to accept the rest 5 bikes. It was a partial delivery. 12. Refusal of Buyers Liability : When seller is ready to sell the goods. While buyer is not ready to accept the delivery, then buyer will be liable to the seller for the loss arising due to his refusal. Example : "X" agrees to sell out ten bags of apples to "B". "B" refuses to take delivery. Apples destroy and "X" suffers a loss. "X" is entitled to claim damages from "B".

13. Acceptance Of Buyer : The buyers acceptance can be judged by the following facts : 1. Buyer himself can intimate the seller that he has accepted the goods. 2. By his any action related to the goods like resale or by pledge. 3. When he retains for a reasonable time, it means he has accepted the goods.