CPT Section B Mercantile Laws Chapter 2 Unit 1 Dr. V.Seshadri

Act was originally a part of Indian Contract Act,1872.Subsequently it was separated and became a separate law in 1930

Act covers all commercial transactions relating to sale of goods

Contract of sale of goods are subject to the general principles of contract such as

• offer • acceptance • free consent • competent to contract • lawful consideration and • lawful object.

Therefore the provisions of Indian Contract Act continue to apply to the contracts for sale of goods so far they are not inconsistent with the express provisions of the Sale of Goods Act 1930.

Formation of the contract of sale

Conditions and warrantees

Transfer of ownership and delivery of goods

Unpaid seller

Contract of sale:Contract whereby seller, transfers or agrees to transfer the property in goods to the buyer for a price.

Section 4(1)

Contract of sale is a generic term which includes both sale as well as agreement to sell.

Sale: a contract whereby the seller transfers the property in goods to the buyer for a price. This is a concluded transaction i.e. executed contract.

Agreement to sell: a contract whereby the seller agrees to transfer the property in goods to the buyer for a price. This is a transaction to be concluded i.e. executory contract.

Where under a contract of sale the property in goods is transferred from the seller to the buyer,the contract is called sale.

Where under a contract of sale the transfer of property in goods is to take place at a future time or subject to some condition thereafter to be fulfilled ,the contract is called an agreement to sell.

SECTION 4(3)

There may be a contract of sale between one part owner and another.

Contract of sale may be absolute or conditional.

Contract of sale may be express (oral) or in writing. It may be implied from the conduct of the parties or from the course of dealing between the parties.

Two parties: presence of two distinct parties is essential for a germination of a contractual alliance. There must be a Buyer and a seller to make a sales contract. • Buyer: A person who buys or agrees to buy

goods. • Seller: A person who sells or agrees to sell

goods.

• The subject matter must necessarily be goods. Goods:

• every kind of movable property other than actionable claims and money and includes stocks.

Goods:

Goods includes: Stocks and shares

Growing crops

Grass

Things attached and forming part of the land, which are agreed to be severed before sale or under the contract of sale.

• A Disputed claim(like debt) which can be enforced through court of law and is excluded from the definition of good.

Actionable claim:

• though it is movable is not a good as per the Act since value of goods is always expressed in terms of money as price.

Money:

Goods

Existing Goods

Future Goods

Contingent Goods

Goods which are in existence at the time of contract of sale.

These goods are owned and possessed by the seller.

Existing goods

Specific goods Ascertained goods

Unascertained goods

• Those which are identified and agreed upon at the time of contract of sale.

Specific goods:

• Though similar to specific goods are those goods which become ascertained subsequent to the formation of a contract of sale.

Ascertained goods:

• Goods which are not identified and agreed upon at the time of contract of sale. These goods also called generic goods are defined by description only and may form part of big lot of goods.

Unascertained goods:

Goods not in existence at the time of contract of sale.

Goods are to be manufactured or produced or acquired by the seller after making the contract of sale.

Contract to sell future goods is not sale but an agreement to sell.

A contracts to sell laptop to B when the ship carrying electronic goods arrives shore. This contract can be performed only when the ship arrives

shore.

Contract to sell contingent goods is an agreement to sell similar to that of future goods.

Example:

Goods whose availability depends upon a contingency which may or may not happen.

Goods perishing before making of contract: (Section 7) A contract for sale of specific goods is void, if at the time the contract was made the goods have without the knowledge of the seller either perished or became so damaged as no longer to answer to the description in the contract.

• This is similar to the effect of mutual or bilateral mistake.

(B) Goods perishing after agreement to sell but before sale:

An agreement to sell specific goods becomes void if subsequently the goods, without any fault on the part of the seller or buyer perish or become so damaged as no longer to answer to the description in the agreement before the risk passes to the buyer.

This rule is based on impossibility of performance.

Value of goods expressed in terms of money is called price.

Consideration for a sales contract shall be money only.

Price in the contract of sale may be -fixed in the contract itself (or) -left to be fixed in an agreed manner (or) -determined in the course of dealing between the

parties In the absence of the above the buyer may pay a

reasonable price.

Sometimes the parties may agree that the price is to be fixed by the valuation of a third party.

If such third party cannot or does not make such valuation the agreement becomes void.

However if the goods have been delivered to and appropriated by the buyer, he shall pay a reasonable price to the seller.

There must be transfer of property in goods from the seller to the buyer.

A distinction may be made between general property and special property. If the seller owns certain goods, he has general ownership in goods. If he pledges the goods then he has special property in goods.

The transfer of property under the contract of sale means transfer of general property (ownership) in goods.

Ownership = Title + Possession

DOCUMENT OF TITLE It authorizes the possessor of document to receive or transfer

goods mentioned therein. Eg: bill of lading, dock warrant, railway receipt,wharfinger’s

certificate and any other document used in the ordinary course of business as proof of possession of goods.

DOCUMENT SHOWING TITLE

It merely indicates the entitlement in favor of a person but doesn't allow him transfer the goods mentioned therein by mere endorsement and delivery.

Eg:share certificate

Since contract of sale is a special type of contract all essential elements of contract shall be fulfilled.

There is no prescribed form for making a contract of sale.

Contract of sale may be absolute or conditional.

There may be immediate delivery of goods or there may be an immediate payment of price but, delivery of goods may be agreed to be made at a future date.

There may be immediate delivery of goods as well as immediate payment of price.

Delivery of goods or payment of price may be postponed to a future date.

Delivery of goods or payment of price or both may be made in installments.

SALE AGREEMENT TO SELL

Transfer of property to buyer

Immediate transferof propertyat the time of contract of sale

Property transfer at a future date subject to fulfillment of certain conditions

Nature of contract

Executed executory

Nature of goods involved

Existing and specific goods

Existing goods,specific goods and also future and contingent goods

Sale Agreement to sell Loss or damage to goods

Risk falls on buyer since he is the owner

If the goods are destroyed loss falls on seller

Breach of contract by buyer

Seller can sue the buyer for price

Seller can sue the buyer for damages only and not for price.

Breach of contract by seller

Buyer can sue the seller for damages and can recover the goods

Buyer can sue for damages.

Sale Agreement to sell

right Sale creates right to the buyer to enjoy the goods against the whole world including the seller

Creates only a right in person am i.e. right to the buyer against seller only, to claim damages.

Insolvency of buyer before payment of price

Seller has to deliver the goods to the official receiver or assignee and claim rate able dividend for the price.

Seller is not bound to deliver the goods to the official receiver or assignee.

Insolvency of seller

Buyer is entitled to recover the goods from official receiver or assignee since he is the owner.

If the buyer has paid the price, buyer can claim only a rate able dividend because the ownership has not passed on to him.

Transfer of ownership to buyer

Immediate transfer Transfer only when certain agreed installments including the last installment are paid.

Title to goods Buyer becomes the owner of goods

Buyer becomes an hirer and not the owner of goods.

Termination of contract

Buyer shall pay the agreed price and he cannot terminate the contract

Hire purchaser has the option to unilaterally terminate the contract and return the goods. He cannot be compelled to pay the further installments of price.

Adjustment of installments

In case of payment of price in installments, each installment is adjusted towards price.

The installments paid is treated as hire charges till the option to purchase the goods is executed by the buyer.

Insolvency of buyer/hirer

The seller takes the risk of loss since he will get only prorata dividend.

Seller has no risk of loss since he can take back the goods.

Transfer of title on subsequent sale by buyer

Buyer being the owner can pass on a good title to a bona fide purchaser of goods from him.

Since hirer is not the owner he cannot pass on good title even to a bona fide purchaser of goods from him.

Point of taxation Levy of tax at the time of contract of sale

Tax not levied till hire purchase becomes the sale.

Governing laws and regulation

Governed by Sale of Goods Act 1930

Governed by Hire Purchase Act 1972.

Transfer of ownership to buyer

Immediate transfer

There is only transfer of possession of goods and not ownership from bailor to the bailee

Purpose of use of goods

Buyer can use the goods for any lawful purpose.

Bailee can use the goods only for the purpose as per the directions of the bailor.

Consideration Sale is always for money consideration

Bailment may or may not be gratuitous.

Return of goods back

Since the buyer is the owner of goods there is no question of return of goods back to the seller.

Bailee must return the goods back to the bailor as soon as the purpose is accomplished.

To Sum up Sale is an executed contract whereby property

in goods is immediately transferred to the buyer. Agreement to sell is the executor contract where

in the property in goods will be transferred to the buyer at a future date.

The price in the contract of sale may be fixed by the seller or by the seller and buyer or allowed to be fixed in the course of dealings by the parties or on the valuation of third party.

Since contract of sale is a special type of contract all the essential elements of valid contract of sale has laid down in the contract act shall be full filled.

MCQ’s

1 A contract of sale is a contract where by the seller

a)Transfers the property in goods to the buyer as a gift

b)Agrees to transfer the property in goods to the buyer in exchange for Buyer’s goods. c)Transfers the property in goods to the buyer for a

price d)Agrees to transfer the property in goods to

the buyer without any consideration.

2 The term ‘goods’ under Sale of Goods Act, means a)Any movable property b)Any movable property or immovable property c)Any property d)Any movable property other than actionable claim

or money 3 The term ‘property in goods’ refers to a)Possession b)only title c)Possession and Ownership d)Goods

4 Contract of sale includes a)Sale b)Agreement to sell c)Exchange d)(a) and (b) 5 In the case of agreement to sell the ownership in

goods is transferred to the buyer a) Immediately b)At some future date c)When the delivery of good is made d)When the price in paid

6 Ascertained goods means A)Goods specially identified at the time of contract B)Goods which are in existence and apportioned C)Goods not specially identified at the time of contract

of sale D)None of these. 7 Contingent goods means a)Goods which are not in existence b)Goods which are yet to be manufactured c)Existing or future goods the availability of which

depends upon happing of an event d)Specific goods identified and agreed upon at the

time of contract of sale

8 The term ‘sale’ indicates a)Executed contract b)Executory contract c)Contingent contract d)None of these 9 In the case of sale the responsibility for loss of

goods a)Lies on the buyer b)Lies on the seller c)Needs to be shared by buyer and seller d)None of these

10 A contract of sale without consideration is a)Void b)Voidable c)Valid d)Illegal 11 In a cotract of sale consideration Shall be a)money only b)Goods c)Anything positive d)Any abstinence 12 A by a contract agrees to sell a TV to B in

consideration of B’s watch plus Rs. 1000/-.The contract is a)Sale b)Exchange c)Transfer d)None of these

13. Which of the following is not an essential element of a contract of sale?

a)Transfer of title in goods b)Consideration in the form of price c)Three parties viz seller, buyer and guarantor d)Transfer of possession goods 14. A contract of sale many provide for a)Immediate payment of price b)Immediate delivery of goods c)Postponement of either delivery of goods or payment of price

or both to a future date d)All of these 15 Which of the following is not a ‘good’? a)Money b)Stock in trade c)Actionable claim d)Both (a) and (c).

16 Which of the type of goods can form the subject matter of contract?

a)Existing goods b)Contingent goods c)Future goods d)All of these 17. A contract of sale of future good is a) Sale b) Voidable c)Void d)Agreement to sell 18 A agreed to sell a LCD TV to B on Arrival of A’s ship. It

is a contract of sale of a)Future good b)Contingent good c)Unascertained good d)None of these

19. A agreed to sell 10 bags of cement to B at certain price. But unknown to A the cement bags were already damaged due to rain water before making the contract of sale. The agreement is

a)Valid b)Void c)Voidable d)Contingent 20 In the case of contract of sale of specific goods, the goods perished

without the fault of the buyer before the agreement to sell becomes sale, the contract of sale is

a)Valid b)Voidable c)Void d)Illegal 21 A delivered a horse to B for trial for 8 days on an agreement that B

shall buy the horse if found suitable. The house died on the third day without any fault on the part of B. The agreement became

a)Void and A cannot recover price from B b)Valid and enforceable and A can recover price c)A quasi contract d)None of these

22 Price in a contract of sale can be fixed a)Entirely by parties themselves by mutual consent b)In a manner provided in the contract of sale c)By a course of dealings based an custom or trade practice d)By any of these methods 23 In a contract of sale price may be allowed to be fixed a)By the third party b)By the valuation of a third party c)Both (a) and (b) d)None of these 24 In a contract of sale if the price is to be fixed by the valuation of

a third party and the third party fails to make valuation a)The contract becomes void b)The contract is voidable c)The contract is valid and enforceable d)None of them

25 . A agreed to sell certain furniture to B at a price to be fixed by the valuation of C. But C failed to fix the price. The contract is

a)Valid b)Void c)Void able d)None of these 26 When the price is to be fixed by the valuation of the third party

who has failed to do so, but the buyer has received and appropriated the goods, the buyer is liable

a)To pay penalty b)Damages c)A reasonable price d)Special damages and interest 27 In the installment purchase the buyer becomes the owner a)When the goods are delivered to him b)When the last installment is paid c)Both (a) and (b) d)None of these

28 In the hire purchase agreement the buyer a)Must buy the good b)has an option to buy the goods c)Is not given the possession of goods d)Is the owner of goods 29 Hire Purchase includes a)sale b) agreement to sell c)agreement to sell and bailment d) none of these 30 The main object of contract of sale is a) Transfer of possession b) Payment of price c) Passing of property in goods d) Both a) & b)