bl session 14

8/7/2019 BL Session 14

1/29

Business Law

Session 14

Instructor : Malik Nizar AliSale of Goods


2/29

Business LawSale of Goods

Sale of Goods Act 1930

Sale of Goods is one of the special

types of Contract.

Originally, the law relating to sale ofgoods was contained in Chapter VII of

the Indian Contract Act, 1872.

The same was repealed and re-enacted

by the Sale of Goods Act, III of 1930.


3/29


Sale of Goods

Section 5. Contract of Sale how made

(1) A contract of sale is made by an offer to buy or sell goods for aprice and the acceptance of such offer. The contract may provide forthe immediate delivery of the goods or immediate payment of theprice or both, or for the delivery or payment by installments, or that

the delivery or payment or both shall be postponed.(2) Subject to the provisions of any law for the time being in force, acontract of sale may be made in writing or by word of mouth, orpartly in writing and partly by word of mouth or may be implied fromthe conduct of the parties.

Section 6. Existing or future goods.-

(1) The goods which form the subject of a contract of sale may beeither existing goods, owned or possessed by the seller, or futuregoods.


4/29


ESSENTIALS OF CONTRACT OF SALE

1. There must be at least two parties- Buyer &Seller

2. Transfer or Agreement to transfer the ownershipof goods. There must be right of ownership.

3. The subject matter of the contract mustnecessarily be movable 'goods'.

4. The consideration is Price which must be moneyor partly in money.

5. A Contract of sale may be absolute orconditional

6. All other essentials of a valid contract must bepresent such as capacity of parties etc.


5/29


Sale & Agreement to sellSale Agreement to Sell

1. A sale is an executed contract An Agreement to sell is an executory contract

2. Property passes from seller to buyer Property in goods passes at a future time

3. Risk of loss is on buyer even though goods

are in possession of seller

Risk of loss is on seller even though goods are

in possession of buyer.

4. In case of breach by buyer, the seller can sue

for price even though goods are in possession ofseller.

In case of breach by buyer, the seller can sue for

damages only and not for price even thoughgoods are in possession of buyer.

5. Seller cannot re-sell and if he does so then

subsequent buyer does not acquire title to the

goods.

In case of re-sell, the subsequent buyer gets a

good title whereas original buyer can only sue

the seller for damages.

6. Insolvency of buyer before payment, the seller

gets rateable dividend for the price from officialReceiver or Assignee

The seller is not bound to hand over possession

of goods to Official Receiver or Assignee

7. Insolvency of seller before handing over of

goods, buyer is entitled to recover the goods

from the Official Receiver or Assignee.

If buyer has paid the price, he can only claim a

rateable dividend and not the goods because

title has not passed to him.


6/29


Goods

Goods

Existing goods

(owned or possessedat time of sales

by seller)

Future goods(To be manufactured,produced or acquired-

agreement to sale)Default-seller not

discharged

Contingent goods

(acquisition depends

Upon contingency)

Default-Seller

discharged

Specific goods

(Identified/

individualized/agreed

upon at time of sale)

Ascertained goods(subsequent to

contract of sales)individuality of

the goods must in some

way be arrived at

Generic goods

(Not specifically

identified but defined

only by description)


7/29


Perishing of specific Goods (Sec. 7 & 8)

The rule is based on ground of mutual mistake orimpossibility of performance.

Sec.7 Goods perishing before making of contract.---Where there is a contract for the sale of specific goods,the contract is void if the goods without the knowledgeof the seller have, at the time when the contract was

made, perished or become so damaged as no longerto answer to their description in the contract.

Sec.8 Goods perishing before sale but afteragreement to sell.---Where there is an agreement tosell specific goods, and subsequently the goods withoutany fault on the part of the seller or buyer perishor become so damaged as no longer to answer to theirdescription in the agreement before the risk passes tothe buyer, the agreement is thereby avoided.


8/29


Conditions & Warranties {Sec. 12

(2) & (3)} Sec. 12. Condition and warranty.--- (1) A stipulation in a contract of sale with reference to goods which

are the subject thereof may be a condition or a warranty.

(2) A condition is a stipulation essential to the main purpose of thecontract, the breach of which gives rise to a right to treat the contact

as repudiated. These obligations goes to the root/ substance of thecontract.

(3) A warranty is a stipulation collateral (secondary) to the mainpurpose of the contract, the breach of which gives rise to claim fordamages but not to a right to reject the goods and treat the contractas repudiated.

(4) Whether a stipulation in contract of sale is a condition or awarranty depends in each case on the construction of the contract.A stipulation may be a condition, though called a warranty inthe contract.


9/29


Condition to be treated as warranty

(Sec. 13) Breach of condition can be breach of warranty but breach ofwarranty cannot be breach of condition.

Sec. 13. When condition to be treated as warranty,---(1) Where acontract of sale is subject to any condition to be fulfilled by the seller,the buyer may waive the condition or elect to treat the breach of the

condition as a breach of warranty and not as a ground for treatingthe contract as repudiated.

(2) Where a contract of sale is not severable and the buyer hasaccepted the goods or part thereof, the breach of any condition to befulfilled by the seller can only be treated as a breach of warranty andnot as a ground for rejecting the goods and treating the contract asrepudiated, unless there is a term of the contract, express or

implied, to that effect. (3) Nothing in this section shall affect the case of any condition or

warranty fulfillment of which is excused by law by reason ofimpossibility or otherwise.


10/29


Expressed & Implied conditions &

warranties Express: Expressly provided in the

contract

Implied: Law implies into the contractunless the parties stipulate to the contrary


11/29


Implied Conditions1. Title (Sec. 14 a)

2. Sales by description (Sec.15) if you contract to sell

peas, you cannot oblige the party to take beans.

3. Quality or fitness where purpose is told [Sec. 16(1)]

4. Merchantability [Sec. 16 (2)] Gods free fromhidden defects.

5. Custom [Sec. 16 (3)]

6. Sale by sample (Sec.17)

7. Wholesomeness (In case of eatable it shall be fit

for human consumption)


12/29


Sections relating to conditions Title: Sec.14(a) an implied condition on the part of the seller that, in the case of sale, he has a right to sell

the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the timewhen the property is to pass.

Sec.15. Sale by description.---Where there is a contract for the sale of goods by description there is animplied condition that the goods shall correspond with the description; and, if the sale is by sample as wellas by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods donot also correspond with the description.

Sec. 16. Implied conditions as to quality or fitness.--- Subject to the provisions of this Act and of anyother law for the time being in force, there is no implied warranty or condition as to the quality or fitness forany particular purpose of goods supplied under a contract of sale, except as follows:-

(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose forwhich the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and thegoods are of a description which it is in the course of the seller's business to supply (whether he is themanufacturer or products or not), there is an implied condition that the goods shall be reasonably fit for

such purposes:Provided that, in the case of a contract for the sale of a specified article under its patent or other tradename, there is no implied condition as to its fitness for any particular purpose

(2) Where goods are bought by description from a seller who deals in goods of that description (whetherhe is the manufacturer or producer or not), there is an implied condition that the goods shall be ofmerchantable quality:

Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defectswhich such examination ought to have revealed.

(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the

usage of trade. Sale by Sample: Sec. 17 (2) In the case of a contract for sale by sample there is an implied condition

(a) That the bulk shall correspond with the sample in quality;

(b) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;

(c) that the goods shall be free from any defect, rendering them unmerchantable, which would not beapparent on reasonable examination of the sample.


13/29


Implied Warranties

1. Buyer shall enjoy quite possession (Sec.14 b)

2. Freedom from encumbrances. goodsshall be free from any charge orencumbrance in favour of any third party(Sec. 14 c)

3. Quality or fitness by usage of trade {Sec.16 (3)}

4. To disclose dangerous nature of goods


14/29


Doctrine of Caveat Emptor

Section 16

Lets the buyer beware

In a contract of sale of goods, the seller is under

no duty to reveal unflattering truths about thegoods sold. Therefore, when a person buyssome goods, he must examine them thoroughly.If the goods turn out to be defective or do notsuit his purpose, he cannot blame anybody

excepting himself.


15/29


Exceptions to the Doctrine of

Caveat Emptor Misrepresentation by seller Concealment of latent defect- defect which

cannot be discovered by reasonable

examination Sale by description or sale by description &

sample where actual does not match orcorrespond with description/ sample

Fitness issue where purpose is disclosed bybuyer

Merchantable quality


16/29


Stages in the performance of a

contract of sale of goods by a seller1. Transfer of property (Ownership)2. Transfer of possession of the goods i.e. delivery

(custody or control of goods)

3. Passing of the risk

Sec. 26: Unless otherwise agreed, the goods remainat the seller's risk until the property therein istransferred to the buyer, but when the property thereinis transferred to the buyer, the goods are at the buyer'srisk whether delivery has been made or not:

Provided that, where delivery has been delayedthrough the fault of either buyer or seller, the goodsare at the risk of the party in fault as regards any losswhich might not have occurred but for such fault:


17/29


Passing of property

1. Goods must be ascertained.

Sec. 18 : Where there is a contract for the sale of unascertainedgoods, no property in the goods is transferred to the buyer unlessand until the goods are ascertained.

2. Property passes when Intended to pass.Sec. 19:(1) Where there is a contract for the sale of specific orascertained goods the property in them is transferred to the buyer atsuch time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the partiesregard shall be had to the terms of the contract, the conduct of the

parties and the circumstances of the case.(3) Unless a different intention appears, -the rules contained in

sections 20 to 24 are rules for ascertaining the intention of theparties as to the time at which the property in the goods is to pass tothe buyer.


18/29


.i. Specific goods to be put into a deliverable state.Sec. 21: When there is a contract for the sale of specific goods and the seller is bound to dosomething to the goods for the purpose of putting them into a deliverable state, the property doesnot pass until such thing is done and the buyer has notice thereof.

ii. Specific goods In a deliverable state, when the seller has to do anything thereto In order to

ascertain price.Sec. 22: Where there is a contract for the sale of specific goods in a deliverable state, but theseller is bound to weigh, measure, test or do some other act or thing with reference to the goodsfor the purpose of ascertaining the price, the property does not pass until such act or thing is doneand the buyer has notice thereof.

iii. Sale of unascertained goods and appropriation.

Sec. 23.(1) Where there is a contract for the sale of unascertained or future goods by descriptionand goods of that description and in a deliverable state are unconditionally appropriated to thecontract, 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 thereupon passes to the buyer. Such assent may be express orimplied, and may be given either before or after the appropriation is made.

Delivery to carrier. (2) Where, in pursuance of the contract, the seller delivers the goods to thebuyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose oftransmission to the buyer, and does not reserve the right of disposal, he is deemed to haveunconditionally appropriated the goods to the contract.

iv. Goods sent on approval or "on sale or return".

Sec. 24. When goods are delivered to the buyer on approval or "on sale or return" or other similarterms, the property therein passes to the buyer-

(a) when he signifies his approval or acceptance to the seller or does any other act adoptingthe transaction;

(b) if he does not signify his approval or acceptance to the seller but retains the goods withoutgiving notice of rejection, then, if a time has been fixed for the return of the goods, on theexpiration of such time, and, if not time has been fixed, on the expiration of a reasonable time.


19/29


.3. Reservation of right of disposal.

Sec. 25. (1) Where there is a contract for the sale of specific goods orwhere goods are subsequently appropriated to the contract, the seller may,by the terms of the contract or appropriation, reserve the right of disposal ofthe goods until certain conditions are fulfilled. In such case, notwithstandingthe delivery of the goods to a buyer, or to a carrier or other bailee for thepurpose of transmission to the buyer, the property in the goods does notpass to the buyer until the conditions imposed by the seller are fulfilled.

(2) Where goods are shipped or delivered to a railway administration forcarriage by railway and by the bill of lading or railway receipt, as the casemay be, the goods are deliverable to the order of the seller or his agent, theseller is prima facie deemed to reserve the right of disposal.

(3) Where the seller of goods draws on the buyer for the price andtransmits to the buyer the bill of exchange together with the bill of lading or,as the case may be, the railway receipt, to secure acceptance or paymentof the bill of exchange, the buyer is bound to return the bill of lading or the

railway receipt if he does not honour the bill of exchange; and, if hewrongfully retains the bill of lading or the railway receipt, the property in thegoods does not pass to him.


20/29


DeliverySec. 33.Delivery of goods sold may be made by doing anything which the parties agree

shall be treated as delivery or which has the effect of putting the goods in thepossession of the buyer or of any person authorized to hold them on his behalf.

Rules as to delivery of goods:1. Mode of delivery- Actual, constructive (3rd party having possession gives

confirmation to buyer) or symbolic (in case of bulky deliveries) (Sec. 33)

2. Delivery & Payment- unless otherwise agreed, concurrent conditions (Sec. 32)

3. Effect of part delivery- considers as whole unless there is intention of severing itfrom the whole. (Sec. 34)

4. Buyer to apply for the delivery (Sec. 35), unless other wise agreed

5. Place of delivery {Sec. 36 (1)} where the goods were at time of agreement to sell,unless otherwise agreed.

6. Time of delivery {Sec. 36 (4)} within reasonable time, unless otherwise agreed

7. Goods in possession of third party {Sec. 36 (3)} no delivery unless 3rd partyacknowledge to the buyer that he holds goods on his behalf.

8. Cost of delivery {Sec. 36 (5)} unless otherwise agreed, cost incidental to makingdelivery by seller and cost relating to obtaining delivery by buyer.

9. Delivery of wrong quantity (Sec. 37)-Qty strictly according to the contract. Theright to reject goods by buyer is not equivalent to right to cancel the contract.

10. Installment deliveries (Sec. 38) Unless otherwise agreed, it should not bedelivered in installments.

11. Delivery to a carrier or wharfinger (Sec. 39) Primefacie deemed to be a delivery.


21/29


Delivery of wrong quantitySec.37. (1) Where the seller delivers to the buyer a quantity of

goods less than he contracted to sell, the buyer may reject them, but

if the buyer accepts the goods so delivered he shall pay for them atthe contract rate.

(2) Where the seller delivers to the buyer a quantity of goodslarger than he contracted to sell, the buyer may accept the goodsincluded in the contract and reject the rest, or he may reject thewhole. If the buyer accepts the whole of the goods so delivered, he

shall pay for them at the contract rate.(3) Where the seller delivers to the buyer the goods he contractedto sell mixed with goods of a different description not included in thecontract, the buyer may accept the goods which are in accordancewith the contract and reject the rest, or may reject the whole.

(4) The provisions of this section are subject to any usage of trade,special agreement or course of dealing between the parties.


22/29


Rights of the Buyer1. Right to have delivery as per contract

2. Right to reject the goods3. Right to repudiate

4. Right to examine

5. Right to notice of insurance- if supply is by sea route

6. Right against the seller for breach of contract Suit for damages (Difference in contract & Market price)

Suit for price

Suit for specific performance

Suit for breach of warranty

Repudiation of contract by seller before due date Suit for interest in case of refund from date of payment was

made


23/29


Duties of the Buyer

1. Accept the goods (inform seller if he refuse to accept)

2. Apply for delivery

3. Demand delivery at a reasonable hour

4. Accept installment delivery and pay for it5. Take risk of deterioration in the course of transit

6. Intimate the seller where he rejects the goods

7. Take delivery

8. Pay price

9. Pay damages for non-acceptance


24/29


Unpaid seller

sec45. "Unpaid seller" defined.-(1) The seller of goods is deemed to be an"unpaid seller" within the meaning of this Act-(a) When the whole of the price has not beenpaid or tendered.(b) When a bill of exchange or other negotiableinstrument has been received as conditionalpayment, and the conditions on which it wasreceived has not been fulfilled by reason of thedishonour of the instrument or otherwise.


25/29

Business Law

Sale of Goods

Unpaid sellers rightsI (A) . Right against goods (where property in goods have passed to buyer)

These rights can be practiced by the seller till he has the possession of the goods or till buyer has`nt receivedthe goods

Subject to the provisions of this Act and of any law for the for the time being in force,

(i) a lien on the goods for the period while he is in possession of them,

The unpaid seller of goods who is in possession of them is entitled to retain possession of them untilpayment or tender of the price in the following cases, namely :-where the goods have been sold without any stipulations as to credit.

where the goods have been sold on credit, but the term of credit has expired.

where the buyer becomes insolvent.

Part delivery.- Where an unpaid seller has made part delivery of the goods, he may exercise his right oflien on the remainder, unless such part delivery has been made under such circumstances as to show anagreement to waive the lien.

Termination of lien.-The unpaid seller of goods losses his lien thereon -

when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyerwithout reserving the right of disposal of the goods.

when the buyer or his agent lawfully obtains possession of the goods,

by waiver thereof.


26/29

Business Law

Sale of Goods

(ii) Right of stopping the goods in transit after he has parted with thepossession of them

The unpaid seller who has parted with the possession of the goods has theright of stopping them in transit, that is to say, he may resume possession ofthe goods as long as they are in the course of transit, and may retain themuntil payment or tender of the price

conditions

seller has parted with the possession of the goods

the buyer of goods becomes insolvent

(iii) a right of re-sale as limited by this Act.

The seller can practice this right under following conditions

where goods are of perishable nature

where the seller has reserved the right of re-sale in the contract

where the seller gives notice to the buyer via court order

Loss on resale-Claim damages from buyer

Surplus on resale retain by seller

(I B) right to withhold delivery where the property in goods have notpassed to the buyer

This right is co-extensive of right of lien and right of stopping the goods intransit


27/29

Business Law

Sale of Goods

II . Right against the buyer

These rights can be practiced by the seller if he has parted with thepossession of the goods or buyer has received the goods

(a)-suit for price(1) Where under a contract of sale, the property in the goods haspassed to the buyer and the buyer wrongfully neglects or refuses topay for the goods according to the terms of the contract, the sellermay sue him for the price of the goods.(2) Where under a contract of sale the price is payable on a certainday irrespective of delivery and the buyer wrongfully neglects or

refuses to pay such price, the seller may sue him for the pricealthough the property in the goods has not passed and the goodshave not been appropriated to the contract.

(b)-suit for damages

The right of the seller is to recover interest or special damages if

any, or to recover the money paid where the consideration for thepayment of it has failed with the help of law.


28/29

Business Law

Sale of Goods

Difference between Lien & Stoppage Rights

Right of lien Right to stoppage

Exercise Whether buyer is solvent

or becomes insolvent

Buyer becomes insolvent

Possession With seller With middle man (carrier)

Terminate When possession is

surrendered by seller

Starts when goods left

possession of seller and

continue until buyer has

acquired possession

Action Retain possession Regain or resumepossession.


29/29

Business Law

Sale of Goods

Auction saleAuction sale is special mode of sale. The sale is made in open after making publicannouncement. Buyers assemble and make offers on the spot. Person offering to pay highestprice gets the goods. Usually, auctioneer is appointed to conduct auction. Higher and higherbids are offered and sale is complete when auctioneer accepts a bid.

In the case of a sale by auction

(1) where goods are put up for sale in lots, each lot isprima facie deemed to be the subject of aseparate contract of sale;

(2) the sale is complete when the auctioneer announces its completion by the fall of thehammer or in other customary manner; and, until such announcement is made, any bidder mayretract his bid; (Any condition such as bids once made cannot be withdrawn is inoperativebecause it is against the provision of law)

(3) a right to bid may be reserved expressly by or on behalf of the seller and, where such rightis expressly so re-served, but not otherwise, the seller or any one person on his behalf may,subject to the provisions hereinafter contained, bid at the auction; (Seller can appoint only onepuffer)

(4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall notbe lawful for the seller to bid himself or to employ any person to bid at such sale, or for theauctioneer knowingly to take any bid from the seller or any such person; and any salecontravening this rule may be treated as fraudulent by the buyer;

(5) the sale may be notified to be subject to a reserved or upset price;(6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at theoption of the buyer.

bl session 14

Documents