Legal Environment for Business in Nepal

26 December 2016

Saroj Shrestha 1

“Sale of Goods” refers to ‘transfer of ownership of goods” against a price from seller to the buyer.

The business of selling and buying of ‘movable goods’ is regulated by the Contract of Sale of goods. It does not deal with ‘mortgage’ and ‘pledge’ of immovable properties and all the movable properties (actionable claim and money).

The Contract of Sale of goods is provided in Chapter 7 of Contract Act, 2056 which is influenced by the Indian Contract Act, 1930 and English Sale of Goods Act, 1893

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Sec. 40 of Contract Act, 2056 states “A contract of Sales of goods shall be deemed to have been concluded, in case a seller agrees to handover may goods to the buyer immediately of in future by receiving the price of that goods.” The section further explain that, the term ‘goods’ refers to any types of movable properties which can be sold and bought.

The contract of Sale of goods may be either conditional or unconditional and the contract may be concluded with the provision to sale goods owned or possessed by the Seller or those to be produced or acquired by him in future.

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The Indian Sale of Goods Act, 1930 defines it as ‘A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for price.’

Contract of Sale of Goods1.Sale: A sale is an executed contract. ‘Sale’

means ‘a transfer of property in goods (the ownership) from the setter to the buyers.

2.Agreement to sell: Agreement to sell is an executor contract. It is a contract of sale, under which the transfer of property is to take place in the future or is subject to some condition to be fulfilled.

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It is only an agreement to transfer the goods later, not an actual transfer of goods.

In this regard, the SC has established a principle that ‘the agreement concluded with the condition that ‘the land and building will be sold according to the deed after certain time’, and the deed itself is not a contract of sale (sale deed), it is an agreement to sale’. (Titha Kumari Rana Vs. Ram Shanker Shrestha NLJ 2049 pg. 1)

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Differs in Sale Agreement to Sale1. Nature of Contract This is current selling

contract (executed)This is the agreement to sell the goods in future (executory)

2. Transfer of ownership

Ownership of the goods is transferred at the time of contract

Ownership of the goods will be transferred in future in certain circumstances.

3. Transfer of risk When goods are sold the risk of the goods shifts with ownership to buyer

Ownership lies with the seller, risk remains on the seller not to the buyer.

4. Right against each other

The seller may file a suit against the buyer for price

The buyer may file a suit against the seller for indemnity.

5. Right of seller to re-sale

After payment the goods in possession of the seller can not be sold

The seller can sell the same goods again to another buyer.

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6. In case of insolvency of seller

The buyer has a right to acquire the goods

The buyer has a right to refund the price

7. In case of insolvency of buyer

In case of insolvency of buyer, the seller can have the price only

An unpaid seller may have the goods, In case of insolvency of buyer

8. Responsibility of loss

The buyer will be responsible for the loss of the goods after the sale

The Seller will be responsible in case of loss of the goods

9. Types of goods The Seller can sell specific and existing goods

The seller can sell future, contingent and unascertained goods.

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1. Goods/ Movable property:2. Price3. Two Parties4. Transfer of ownership5. Terms of a contractz6. Essential of valid contract7. Includes ‘sale’ and ‘agreement to sale’

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Contractual terms are the provisions forming part of the contract. There are contained various types of terms and stipulations regarding the quality, quantity, price, goods, modes of its payment, time, place of delivery of goods etc. But all of them are not equal importance. Some of the terms and stipulations are major terms, called ‘conditions’ and some of them may be minor terms, called ‘warranties’.

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1. Conditions: The conditions are the factors or stipulations of the contract of sale, which are essential for the main purpose of the contract. In case of breach of the conditions, the aggrieved party has the right to repudiate the contract.

2. Warranties: Warranty is the stipulation which is collateral or auxiliary or a relating factor for the main purpose of the contract. But it is not such a vital factor as a condition is. In case of the breach of warranty, the aggrieved party can only claim damage and can not be treated as a repudiated contract.

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11Saroj Shrestha

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