Sale Of Goods Act

• Introduction• Sale and Agreement to Sale • Conditions and Warranties • Hire Purchase Agreement• Pledge• Mortgage• Remedies for the Breach

Sale and Agreement to SaleContract of Sale of Goods :

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.

• Such a contract of goods may be absolute or conditional. There may be contract of Sale between one part –owner and the other

Sale of Goods (Defn)

• When under a contract of Sale the property in the goods is transferred from the Seller to the Buyer, the Contract is called as a Sale of Contract.

Essentials of Valid Sale

1. There must be two parties for eg Buyer and the Seller . The Parties must be competent to Contract : (Sec 11 of the Contract Act).

2. There must be mutual consent3. There must be a transfer of property ie

transfer of general property in goods4. The Buyer must pay or promise to pay a Price

in money

• 5. Form : No particular form is necessary to constitute a contract of sale. A contract of Sale may be in writing or by the word of mouth for eg may be express of may be implied from the conduct of parties or from the course of dealings between the parties

• In sale transfer of ownership must take place. • For eg:• A customer who picks up goods in Self service

shop is merely offering to buy them, and the sale is not complete until they are being paid for.

Agreement to Sell

• Where the transfer of property for eg transfer of ownership in the goods is to take place at a future date or subject to some condition thereafter to be fulfilled the Contract is called as an Agreement to Sell.

When agreement to sell becomes agreement of sale ?

• An agreement to sell does not involve any immediate transfer of property in the goods. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Examples of Sale and Agreement to Sell

• X agrees to buy 50 tons of oil from Y’s Cisterns. Y has several cisterns with more than 50 tons of oil in them. This is merely an agreement to sell the oil.

Eg 2

• X agrees to sell to Y 100 tons of Soda nitrate which is to arrive in England by a particular ship. This is merely an agreement to sell at a future date, subject to the condition that the specified ship arrives in England and the further condition that it carries the specified cargo on board.

Eg 3

• X agrees to lend an instrument to Y on the terms that if it is damaged whilst in Y’s possession, Y must pay an agreed sum as its value and keep the instrument. This is a conditional sale and if the instrument is so damaged X may recover the agreed sum as the price of the goods sold.

Sale and Agreement to Sale (Distn)

• 1. Nature of Contract :• Sale is an Executed Contract While an

agreement to Sale is an executory Contract. • In executed contract one of the parties has

already performed his part of Contract• On the other hand in executory Contract both

the parties are yet to perform their mutual promises

Sale and Agreement to Sale (Distn) Contd

• 2. Creation of Right• Sale affects a transfer of General property in

the goods to the Buyer in other words it creates “jus (right) in rem”. (Right in rem means right against the whole world)

• An Agreement to sell creates “Jus (right) in personam” For eg personal right only against the person for any default in fulfilling his part of the Agreement

Sale and Agreement to Sale (Distn) Contd

• 3. Passing of the Property : • In case of Sale , the property in goods passes

to the Buyer with the risk while in case of agreement to Sale, the risk and property does not pass to the Buyer immediately

• 4. Remedies in Case of Breach of Contract by the Buyer :

• In an agreement to sell, in case of breach of contract by the Buyer the Seller is entitled to damages since the ownership has not passed to the Buyer. In sale since the ownership has passed to the Buyer the Seller is entitled to sue for the price of the goods sold even though the goods may still remain in Seller’s possession and also has a right of lien , stoppage in transit and resale

• In other words if there has been a sale, and the buyer fails to pay for the goods, the seller may sue for the price. But where there is merely an agreement to Sell and the Buyer fails to accept and pay the goods the Seller can only sue for damages

Remedies in Case of breach of Contract by the Seller:

• If there is an agreement to Sell , and the Seller commits any breach the buyer has only one remedy a personal remedy against the Seller namely claim for the damages. The goods are still the property of the Seller and he can deal with them as he likes. But if there is a Sale and the Seller commits a breach the buyer has not only personal remedy against the seller , but also the remedies which an owner has in respect of goods such as sue the Seller etc.

Right to Re-Sell

• In an Agreement to Sell since the ownership has not passed to the Buyer the Seller is at liberty to Sell the goods to the Third Parties and the Buyer can claim damages from the Seller.

• In sale since the ownership has passed to the Buyer the Seller will be guilty of Conversion if he sells the goods to third parties and the Buyer can sue and recover those goods as owner even from the third person

Risk of Loss

• In an Agreement to Sell since the ownership does not pass to the Buyer , if the goods are destroyed by an accident, the loss will be the Seller’s even though the goods happen to be in the Buyer’s possession.

• In a sale since the ownership has passed to the Buyer, even though the goods are lost by an accident while is the Seller’s possession the loss will be the Buyer’s.

Effect of Insolvency of the Seller

In an Agreement to Sell, if the Buyer who has paid for the goods finds that the Seller has become insolvent the buyer’s right would be to prove the amount he has paid , in the Seller’s insolvency.

In Sale since the ownership has passed to the Buyer if the Seller becomes insolvent the Buyer is entitled to recover the goods from the Official Assignee or the Receiver

Effect of Insolvency of the Buyer

• In an Agreement to Sell if the Buyer becomes insolvent without paying for the goods since the ownership has not passed to the Buyer the Seller may refuse to deliver the goods.

• In a Sale since the Ownership has passed to the Buyer if the Buyer becomes insolvent without having paid for the goods , the Seller must deliver the goods to the Official Assignee or Receiver and can claim a rateable dividend for the price of the goods

Hire Purchase Agreement

• The possession of the goods passes to the buyer who promises to pay the price of the goods in certain instalments. Unless full price is paid the ownership of the goods remains with the Seller .

Contd : HPA

• Here the purchaser has an option to buy the goods by the way of payment in Stipulated instalments. After he pays all the installments with the hire charges he becomes the owner of the goods.

Important Feature

• Hirer Becomes the possessor of the goods and has the right to terminate the Agreement at his pleasure for eg he has the right to return the goods.

Example 1

• B hires a piano from A under an Agreement that B should pay Rs 1000/- a month as hire Charges . The further stipulation is if he regularly pays such hire charges for twenty months the piano becomes his property at the end of twenty months, but if B Likes he can return the piano any time within 3 months and he need not pay more. This is hire purchase Agreement

Difference betw’n Agreement to Sell and Hire Purchase Agreement

• 1. Contract of Sale includes Sale and Agreement to Sale

• Hire Purchase Agreement is Bailment + Agreement to Sell .

Difference betw’n Agreement to Sell and Hire Purchase Agreement

• 2. An Agreement to Sell is a step to Contract of Sale , but Hire Purchase Agreement becomes Contract of Sale only on the fulfilment of the Stipulated conditions .

• 3. In Agreement to Sell the Conveyance of Goods is to take place subsequently.

• In case of Hire Purchase Agreement though the possession is with the hirer , the ownership always remains with the Seller

• 4. Under an Agreement to Sell , the Buyer can enter into a Contract of Re-sale.

• But the hirer cannot enter into any such contract of re-sale , similarly cannot pledge the Goods

Pledge

• A pledge is quite different from the Contract of Sale. When the goods are delivered to the Pledgee , the General property in the goods is retained by the pledgor and the pledgee merely has the right to sell the goods , if the agreed expires and after giving notice to the pledgor.

• A pledge lies outside the Scope of Sale of Goods Act

Mortgage

• Mortgage is governed by Transfer of Property Act

• Essence of Mortgage is transfer of the General property from one person,called mortgagor to another called Mortgagee in order to Secure a Debt.

Conditions and Warranties

• What is a Condition ?? • A condition is a Stipulation essential to the

main purpose of the Contract , breach of which gives rise to treat the Contract as repudiated or Broken

• Warranty :• Warranty is a Stipulation collateral to the main

purpose of the Contract the breach of which gives rise to claim for damages but not a right to reject the goods and treat the contract as broken or Repudiated.

Eg 1

• If ‘A’ sells food Stuff to ‘Y’ there is an essential term of the Contract that the food will be fit for human consumption . And if it is found to contain any poisonous substance , y will be entitled to reject the food and to repudiate the Contract

Condition and Warranty Difference

• Condition is an Warranty is a essential ingredient auxillary or of the Contract subsidiary or Collateral term of the Contract

Contd

• Remedy :• Breach of Condition Breach of Warrantygives right to repudiate gives the right to or treat the Contract as claim damages only.broken and also to claim Buyer cannot rejectfor the damages. And treat the

contract as repudiated

When can the Breach of Condition be treated a breach of Warranty?

• Where the Buyer elects to treat the Breach of Condition as Breach of Warranty for eg he claims damages and does not elect to repudiate the Contract

Buyer Waives the Condition

• Once the Buyer waives his right he cannot afterwards insist on the fulfillement. Waiver may be express or implied

Remedies available to the Buyer on Breach of Condition and Breach of Warranty

• Buyer may repudiate the Contract and reject the goods

• Elect to treat the Breach of Condition as Breach of Warranty and claim for the damages

• Waive the Condition

Remedies available to the Seller on Breach of Condition and Breach of Warranty

• Seller may file a Suit in diminution or extinction of the prices OR

• Claim for the Damages