LEGAL FRAMEWORK OF

BUSINESS -BY SARITA DEVI

UNIT-1 Law relating to Contract

Indian Contract Act, 1872

Meaning and essentials of a valid contract

Legality of Objects

Special contracts – Indemnity , Guarantee, Bailment, Pledge, Agency

Sale of Goods Act ,1930

Contract of sale

Conditions and warranties

Transfer of ownership of Goods including sale by non-owners

E-contracts

Law of Contract

CONTRACT – Sec.2(h)

“An agreement enforceable by law” Agreement + Enforceability by law = Contract “ Every contract is an agreement , but every agreement may not be a contract” AGREEMENT- Sec.2(e)

“Every promise and every set of promises forming the consideration for each other”

Promise +consideration = Agreement ENFORCEABILITY

“ Court shall recognize the commitments made under the

agreement as legal obligations and compel the parties to honor them as such or

face adverse consequences”

PROMISE: Sec.2(b) “A proposal when accepted becomes a promise”

Proposal/offer + Acceptance = Promise

VOID AGREEMENT : Sec2(g)

“An agreement not enforceable by law is void”

VOIDABLE CONTRACT: Sec 2(i):

“An agreement is a voidable contract if it is enforceable by Law at the option of one or more of the parties there to (i.e. the aggrieved party), and it is not enforceable by Law at the option of the other or others.

VOID CONTRACT :

“A contract which ceases to be enforceable by Law becomes void when it ceases to be enforceable.

Examples

P offers Q to sell his car For Rs. 2 lacs . Q

accepts it. This agreement creates an

obligation on both P and Q to deliver the

car and to make the payment respectively.

The agreement is a contract.

A invited B for lunch. B accepted. Its a

promise , not enforceable by law.

Related concepts

Promise – Sec 2(b)

When the person to whom the

proposal is made SIGNIFIES his

assent thereto + the proposal is

accepted + a proposal when

accepted becomes a promise

Consideration for Promise- sec 2(d)

When at the desire of the promisor +the promisee or any other person +has done or abstained from doing or does or abstains from doing , or + promises to do or to abstain from doing something + such act or abstinence is called consideration for promise.

Therefore Consideration can be in the form

of Cash , Kind or another promise.

Consensus- ad- idem - basic requirement

for a contract . Meeting of minds between the

parties where all understand and have

accepted the contractual commitments made

by each other.

Essentials of Valid Contracts

1. Agreement

2. Legal Obligation

3. Free & Genuine Consent

4. Parties Competent to Contract

5. Lawful Consideration

6. Lawful Object

7. Agreement not declared Void

8. Certainty of Meaning

9. Possibility of Performance

10. Necessary Legal formalities

1. Agreement or Offer and Acceptance

Has 2 elements viz.,

i) A proposal/offer, and

ii) Acceptance of that proposal/offer

Proposal or Offer – Sec 2(a)–

When one person SIGNIFIES to another his willingness + to

do or to abstain from doing anything +with a view to

obtain assent to such act or abstinence +he is said to make

a proposal.

Offeror and Offeree – 2 parties

Essentials of a valid

Offer/Proposal

1. Express/ Implied

-- by word of mouth, or by writing or even by conduct .

2. General or specific

Case law- Carlill v Carbolic Smoke Ball Co. (1813)

Carbolic smoke ball co. – a medicine co.- advertised to give award of 100 pounds to anyone who contacted influenza even after using smoke balls of the co. For a certain period acc. to printed directions- Mrs. Carlill contracted influenza – after using the smoke balls accordingly– she claimed reward- co. refused on the ground that the offer was not made to her and in any case she did not communicate her acceptance– she filed a suit – held – she could recover as she had accepted the offer by complying with the terms of the offer.

****** in a general offer , complying to the conditions of the offer means acceptance

3. Must be communicated

Case: Lalman Shukla v Gauri Datt (1913)- An announced reward for tracing a missing child could not be claimed by a person who had traced the child in ignorance of the announcement.

Ques- If the servant had come to know of the offer before finding the boy, would he have become entitled for the reward?

4. May contain any no. Of conditions

Standard form contracts- Standard package of terms

5. Must be distinguished from Invitation

to offer OFFER-

“ Leading the offeree to the

performance of the conditions specified

in the offer which would amount to

acceptance of the offer”

INVITATION TO OFFER-

“ Aims at taking the customer to

the advertiser to start negotiations”

CASE- Harvey vs Facie (Machine)

6. Should not contain a term which forces an

action on offeree

Case- Felthouse vs Bindley

(Mental acceptance is no acceptance)

Acceptance – Sec 2(b)–

When a person to whom proposal is made SIGNIFIES his assent thereto, the proposal is said to be accepted.

Essentials of a valid Acceptance-

1. By a proper person

2. Within proper time

3. Must be absolute and unqualified

4. Must be communicated (Felhouse vs Bindley) (Powel vs Lee)

5. In proper mode

6. Acceptance must succeed the offer

7. Once rejected cannot be accepted

2. Intention to create Legal relations

Intention to create legal relationship

Balfour Vs Balfour Case (1919) – Parties

didn’t intend to create legal relations. A husband agreed to pay 30 pounds to his wife while he was abroad – he failed – wife sued for recovery– held she could not recover– it was a social agreement—cannot make a contract binding

3. Parties Competent to Contract Who is a competent party?

Of majority age i.e., not a minor Of sound mind – not lunatic, idiot,

drunkenness status Not disqualified by any law to which he is

subject

4. Free & Genuine Consent

Contract should not be obtained by

- misrepresentation

- Fraud

- Undue influence

- Coercion

- mistake

If any of above flaw exists in a contract it will be held as void

A) Coercion – (Sec 15) Consent is said to be caused by coercion

when it is obtained by pressure exerted by either of the following

techniques :-

(a) Committing or threatening to commit any act forbidden by

Indian penal code

(b) Unlawfully detaining or threatening to detain any property

1. Chikham Amiraju v. Chikham Seshamma By threat

of suicide , a Hindu induced his wife and son to execute a deed

in favour of his brother in respect of certain properties which

they claimed as their own. It was held that the threat of suicide

amounted to coercion within sec 15 and the deed was therefore

voidable.

Consequence:

1. Voidable

2. Restitution available

B) Undue Influence- (Sec 16) A contract is said to be induced by ‘ undue

influence’ where relations subsisting between

the parties + are such that one of the parties is in

a position to dominate the will of the other + and

uses that position to obtain an unfair advantage

over the other.

Case: Bhimbat vs Yeshwantrao (1900)

Consequence:

• Voidable

•No clause of restitution

COERCION vs UNDUE INFLUENCE

1. Pressure Exerted

2. Criminality Involved

3. Restitution Available

4. Party To The Contract

5. Pre-existing Relationship

C) Misrepresentation (Sec 18)

Misstatement of a fact material to the contract .

1. Unwarranted Statement- A person may believe in a

fact sincerely without having any firm basis to believe it.

2. Breach of Duty

3. Inducing mistake about subject matter by a true

statement

Case- Johnson vs Crowe (1874)

Consequence:

1. Voidable

2. Restitution available

3. Loss for damages not available

D) Fraud (Sec 17)

Intentional misrepresentation of fact

Making certain misstatements deliberately.

Deliberate false statement

Active concealment of fact

Making a promise without intention to fulfil it

Any other act fitted to deceive

Any act or omission declared fraudulent by any other law. (Transfer of property act, 1882)

Consequence:

1. Voidable

2. Restitution available

3. Damages available for the loss suffered

Fraud vs Misrepresentation

Intention

Damages available

Defense

ASSIGNMENT

Is Silence as to facts a fraud? When does

Silence amount to fraud?

― A deceit which does not deceive is no

deceit‖. Explain the statement with

appropriate examples and cases.

E) Mistake

Error in understanding the facts relevant for formation of a contract

Two types – Mistake of Law and Mistake of Fact

Mistake of Law Mistake of Law of Land and Mistake of

foreign law

Mistake of fact bilateral mistake (void) and unilateral

mistake (valid/voidable/void)

Mistake of Law of Land– does not effect the validity of contract

ignorance of law is no excuse

Mistake of foreign law- taken as mistake of fact the contract

will be void

Mistake of fact

Bilateral Mistake – when both the parties are under the mistake

of fact essential to the agreement the agreement is void .

example – A agrees to buy a horse from B . It turns out that the

horse was dead at the time of bargain, though neither party was

aware of the fact. The agreement is void.

A contract was entered into for the purchase of certain bails of

cotton to arrive by a ship called Peerless from Bombay. Two ships of

the same name (Peerless) were to sail from Bombay. The buyer

intended to buy the cargo of one ship but the seller was selling the

cargo of the other. The contract was held to be void.

Unilateral mistake – where only one party to the

agreement is under a mistake.

Questions 1. Which of the following elements does not affect the free consent of the

parties?

a) Coercion

b) Fraud

c) Unsoundness of mind

d) Undue influence

2. When the consent of a party is obtained by fraud, the contract is;

a) Void

b) Voidable

c) Valid

d) Illegal

3. Damages are available in case consent is caused by:

a) Coercion

b) Fraud

c) Misrepresentation

d) Undue influence

5. Consideration

Is price for the promise of the other – need not be in terms of money

Must be real & lawful

Each party must promise something and receive something– cash , kind or a reciprocal promise.

(Quid-pro-quo)

6. Certainty of Meaning

Specific (say cloth, oil type)

Shouldn’t be vague

7. Lawful Object and consideration OBJECT

Not disapproved by law

Does not defeat any provision of law

Where it is not fraudulent

Not injurious to another person or property

Not immoral

Not opposed to public policy

8. Expressly declared void agreements

Agreement in restraint of marriage (Sec.26)

Agreement in restraint of trade (Sec.27)

Agreement in restraint of legal proceedings

(Sec.28)

Agreement whose meaning is uncertain (Sec.29)

Agreement by way of wager (Sec.30)

Agreement contingent to an impossible act

(Sec.36)

Agreement to do an impossible act (Sec.56)

9. Certain Legal formalities

Contract may oral or in writing

However, certain cases documented, comply with formalities of writing, registering, attestation, stamp duty

Made in presence of a witness

Agreements which must be in writing

- time barred debt

- lease agreement for more than 3 yrs.

- contract of insurance

- negotiable instruments

- memorandum & article of association

- transfer of immovable property & so on

SPECIAL CONTRACTS

1. INDEMNITY

Indemnity:

― A contract by which one party promises to save the other

from loss caused to him by the conduct of the promisor

himself or by the conduct of any other person.‖ (Sec-124)

The promisor is known as INDEMNIFIER and the promisee is

known as INDEMNIFIED (INDEMNITY HOLDER)

The Indian Contract Act has not included certain contracts

like Contract of insurance. Still they are contracts of

INDEMNITY;

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INDEMNITY (Contd…)

Rights of Indemnity holder:

a) All damages which he may be compelled to pay in any suit in

respect of any matter to which the promise to indemnify

applies.

b) All costs which he may be compelled to pay in bringing or

defending any such suit (provided he acted prudent);

c) All sums which he would have paid under the terms of

compromise of any such suit (compromise shall not be

against the orders of the indemnifier and prudent).

d) Indemnifier will be liable to indemnify the indemnity holder

for any loss suffered.

??When does the liability of indemnifier‘s commences??

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2. GUARANTEE

Guarantee:

― A contract to perform the promise or discharge the liability

of a third person in case of his default.‖ (Sec.126)

Person giving the guarantee is known as ‗GUARANTOR‖ OR

―SURETY‖

The person on whose behalf the guarantee is given is known

as ‗PRINCIPAL DEBTOR‖ or simply ―DEBTOR‖

Person to whom the guarantee is given is known as

―CREDITOR‖

Guarantee may be express or implied or by the course of the

conduct of the parties.

GUARANTEE (Contd…)

ESSENTIAL FEATURES:

• Three parties and three contracts

• Essentials of a valid contract must be present–all parties to

the contract of guarantee shall have the capacity to contract,

free consent is there,

• Guarantor‘s primary liability ( in case of minor)

• Contract in Writing not necessary

• A guarantee can be given for only an enforceable obligation.

Distinction between Indemnity and Guarantee

INDEMNITY

• TWO PARTIES

• Indemnifier‘s liability is primary

• Only one contract

• Not necessary to act at the request

of the indemnified

• Liability arises only in contingencies.

(probable liability)

• Indemnity is promised generally as a

compensation for a loss.

GUARANTEE

• THREE PARTIES

• Guarantor‘s or Surety‘s liability is

secondary or collateral, primary

liability being that of the principal

debtor

• Three contracts: a) Guarantor and

guarantee; b) Creditor and debtor

and c) guarantor and the debtor

• It is essential that the surety shall

give the guarantee at the request of

the principal debtor

• Liability can be existing or future

debts. (real liability)

• Guarantee is given to secure a loan,

acquire a job.

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GUARANTEE (Contd…)

EXTENT OF SURETY‘S LIABILITY:

It is co-extensive with that of the principal debtor which means that the quantum of obligation of a surety is the same as that of the principal debtor. Example, in case of dishonor of a Bill of exchange, the surety is also responsible for all the interest and expenses.

Surety’s liability is secondary not primary.

Sometimes the surety‘s liability may be fixed less than the responsibility of the principal debtor. That means liability of the principal debtor may be higher than the guarantor‘s promise. This can be done by specific clauses in the contract.

Surety is liable only in case of a valid contract.

Surety‘s obligation towards the creditor is independent of the debtor‘s obligation.

Guarantee may be for a single debt or a series of debts or for a time period: (specific guarantee or continuing guarantee)

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SPECIAL CONTRACTS

3. Bailment

‗Bailment‘ is the delivery of goods by one person to another for

some purpose, upon a contract that they shall, when the

purpose is accomplished, be returned or otherwise disposed of

according to the directions of the person delivering them. (Sec.

148)

Bailor- Person delivering the goods

Bailee- Person to whom goods are delivered

A promise to deliver the goods does not amount to bailment.

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Bailment (Contd…) Requisites of Bailment:

Delivery with a Contract—express or implied

Delivery of possession-actual or constructive—

ONLY POSSESSION and not TRANSFER OF

(property)OWNERSHIP

For some temporary purpose

Of movable goods only

Gratuitous vs Non-Gratuitous Bailment

Bailment (Contd…) Duties of the Bailee:

a)To take reasonable care of the goods;

b) Not to make any unauthorized use of the goods;

c) Not to mix the goods with other goods;

d) Not to set up an adverse title;

e) To return any accretion;

f) To return the goods

Duties of the Bailor:

a)To disclose known facts (fault in goods);

b) To repay necessary expenses and the extraordinary expenses;

c) To indemnify the bailee for loss;

d) To receive back the goods;

e) To indemnify the bailee for defective title.

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Bailment (Contd…)

Rights of the Bailor:

a) To enforce bailee‘s duties;

b) To terminate bailment (if the bailor is convinced that the

bailee has done something inconsistent with the contract);

c) Premature demand of goods

Rights of the Bailee:

a) To enforce bailor‘s duties;

b) Delivery of goods to one of the several joint bailors is

sufficient delivery;

c) Delivery of the goods to the bailor without title ( in good

faith) not responsible for the true owner;

d) Right of lien.

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Lien

Right of a person to retain the possession of

goods of another person so long as some

claim upon the person is not satisfied by him.

Particular vs General Lien

4. Pledge or Pawn

PLEDGE:

--Bailment of goods as a security for payment of debt is known

as PLEDGE. (Sec. 172)

--Delivery may be actual or constructive.

--Person delivering the goods as security is known as PAWNOR

(Pledgor) and the financier is known as the PAWNEE

(Pledgee)

PLEDGE BY WAY OF HYPOTHECATION:

Example: Gold Loan, Loans against approved share certificates

or National Savings Certificates or against any movables

where the possession passes on to the lender. Where the

possession continues with the borrower, it is

HYPOTHECATION.

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Distinction Between Bailment and Pledge

Bailment

Delivery of goods for some

specified purpose

Wider in scope.

May enable the bailee to

make use of the bailed

goods.

Bailees do not have the

right to sell bailor‘s goods.

Pledge

Delivery of goods as

security for loan

Narrower in scope. Special

kind of bailment.

Personal use of goods is

denied to a pledgee.

Pledgee would always have

the right to sell.

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QUESTIONS

Q1. A contract to compensate for loss is known

as??

Q2. The party who gives promise of indemnity is

known as ??

Q3. In case of Insurance, liability of indemnifier

to compensate the indemnity holder

commences when??

5. Contract of Agency

‗AGENCY‘ denotes a relationship between two persons wherein one is called a ‗principal‘ and the other an ‗agent‘.

An AGENT is a person employed to do any act for another or to represent another in dealings with third persons. (Section-182)

The person on whose behalf the acts are done is known as the PRINCIPAL. The person who represents another is known as the AGENT.

ESSENTIALS FOR AGENCY

A person who has capacity to contract with another person either by himself or through another person. When contracts are entered through another person/s, the contracts are said to have been entered through agents.

A minor can be an agent (not personally liable). But the principal must be a person competent to contract.

No consideration necessary. 48

Creation of Agency

1. Agency by express agreement

Express terms: Where there the agency is through a power of attorney (though oral agreements are welcome, written form is more popular).

2. Agency implied from circumstances

Implied Agency: By conduct of the principal or by a pressing situation or by the prevailing relationship between parties.

Implied agency may be created under following circumstances:

a) Implied agency: Agency by estoppel: Once you make the third party believe that you are stating that Mr X is your agent by your words or conduct, you cannot later deny stating that Mr X was not your agent. This is known as Agency by Estoppel. You are stopped from denying the fact and your position is reversed to the original position. The same is applicable where the agent acts without authority and the principal is in the knowledge of things and makes the third parties to believe then the agency is agency by estoppel.

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Creation of Agency

• Implied Agency: Agency by Necessity or Emergency: Accident

• Implied Agency: Husband and Wife: Husband is supposed to maintain (supposed to supply necessities of life according to his status). If the wife purchases some necessities, the husband is responsible. Even where the husband deserts the wife, the wife can bind the husband. This has to be properly interpreted where the wife has independent income.

3. Agency by ratification: A subsequent acceptance of an existing contract entered into by an agent without authority of the principal is known as Agency by Ratification.

Contract of Agency

DUTIES OF AN AGENT:

Execute principal‘s mandate. (Pannalal Jankidas vs Mohanlal, 1951)

Follow the principal‘s directions and customs

Reasonable care, skill and diligence (Ex.-Insolvency)

Maintain business secrets of the principal

Render proper accounts to the principal

Communicate with principal in case of difficulty

Not to deal on his own account (Ex- Sale of house)

Not to make secret profits

Remit principal‘s money

Protect and preserve the interests of the Principal in case of his death or insolvency or becoming of unsound mind

Not to delegate authority

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Contract of Agency

RIGHTS OF AN AGENT:

a) Right of receiving remuneration;

b) Right of retention; (money)

c) Right of lien; (property)

d) Right of indemnification; (loss suffered)

e) Right of compensation; (physical harm)

f) Right of stoppage of goods in transit

DUTIES OF THE PRINCIPAL:

To honor agent‘s rights.

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Contract of Agency

RIGHTS OF THE PRINCIPAL:

a) To enforce agent‘s duties.

b) To himself do what he has entrusted to the agent unless

otherwise agreed between the parties.

c) Can dismiss the agent instantly (for misconduct and neglect or

breach of duty) without notice.

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Personal Liability of Agent:

a) When agent himself agrees to that effect;

b) trade usage provides for it;

c) When agent exceeds his authority;

d) agent acting on behalf of the foreign principal;

e) agent acting on behalf of an unnamed principal;

f) agent acting on behalf of an undisclosed principal;

g) agent acting on behalf of a principal who cannot be sued (incapacity to enter into contracts);

h) agent signing contracts in his own name;

i) Agent receives money by mistake or fraud;

Termination of Agency

1. By the Act of parties:

a)Agreement;

b) Principal‘s revocation;

c) Agent‘s revocation

2. By Operation of Law:

a) Completion of business;

b) Expiry of Time;

c) Death or Insanity of either party;

d) Insolvency of principal

e) Supervening impossibility

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QUESTIONS A authorises B to buy 500 sheep for him. B

buys 500 sheep and 200 lambs for one sum of Rs. 6000. Is A bound to accept sheep? Explain.

X, without N‘s authority, lends N‘s money to Z. Later, N accepts interest on money from Z. Discuss the rights of N.

M, agrees to work as agent of P without remuneration. Later, M refuses to work. Can P hold him guilty of breach of contract?

SALE OF GOODS ACT 1930

-By Sarita Devi

Definition

(Section 4(1)) 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 OF GOODS

Two parties

Transfer of property

Goods

Price

Sale or Agreement to sell

`

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-

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) [Johnson V Mcdonald (1842) 9 M & W 600, 60 RR 838]

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 31st March 1998 when the car is got registered in B`s name. It is an agreement to sell and it will become sale on 31st March when the car is registered in the name of B.

SALE VS AGREEMENT TO SELL Property has passed to the buyer.

Buyer will bear the risk of loss.

If seller become insolvent, official assignee will not be able to take over the goods but will recover the price from buyer.

If buyer become insolvent, official assignee will have control over the goods.

Buyer exercises all the proprietary rights over the goods (right to possess, sell, use)

Consequences of breach-

If buyer refuses to pay- Seller can only sue for price and damages.

If seller breaks the contract- buyer is entitled to recover goods and damages.

Property pass to the buyer in future.

Seller will bear the risk of loss until the property has passed to the buyer.

If seller become insolvent, official assignee will have control over the goods but price will not be recoverable.

If buyer become insolvent, official assignee will have no control over the goods.

Buyer cannot exercise all the proprietary rights over the goods.

Consequences of breach-

If buyer refuses to pay- Seller can demand his goods and damages.

If seller breaks the contract- buyer is entitled to recover damages only.

Hire Purchase Agreement

It is an agreement for hire, with an option to purchase.

The hirer, under this agreement, is required to pay every month a particular sum of money, and if he pays in that way for a fixed number of months, the hirer will become the owner of the goods on the payment of the last instalment.

But, if the hirer fails to pay any particular instalment, the owner can terminate the contract and take away the goods, because the ownership continues to remain in the owner. A "Hire-purchase agreement" is distinct from "Sale" in which price is payable by instalments

A 'Hire-purchase agreement,' does not result in passing of the property unless the option to purchase is exercised, usually by payment of all the instalments. Till such time, it constitutes bailment.

Agreement to Sell vs Hire purchase agreement

Firm commitment from both the parties that the goods shall be sold.

Buyer can transfer a good title to anyone who buys it.

Delivery of goods is not necessary.

Buyer can pledge the goods.

Hirer has the option to decide whether to buy the goods or return to the owner.

Hirer cannot transfer a good title to anyone who buys it.

Delivery of goods is must.

Hirer cannot pledge the goods.

SUBJECT MATTER OF THE

CONTRACT OF SALE

Definition of `GOODS` under the Act

'Goods' means every kind of movable property and includes stock and shares, growing crops, grass, and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale.

Example - goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the subject matter of a contract of sale.

Types of goods

Existing goods- Specific, Unascertained

Future goods

Contingent goods

Existing Goods – owned and possessed by the seller at

the time of contract of sale.

•Specific goods - identified and agreed upon by the

parties at the time of contract. Eg. A specified car

•Unascertained goods - not identified and agreed

upon at the time of contract.

Example - A goes to an Onida TV dealer to

purchase a TV. Dealer has 50 TV sets in his shop.

These 50 TV sets are unascertained goods. Now A

selects a particular piece of a specific model and the

dealer agrees to deliver the same. The TV set selected

and approved by A shall be ascertained goods.

Future Goods : Goods to be manufactured , produced or

acquired by the seller after making of the contract of sale.

This is an agreement for the sale of future goods. (Sec2(6))

Contingent goods Sec6(2) : Where there is a contract

for the sale of goods , the acquisition of which by the seller

depends upon the contingency which may or may not

happen.

If the contingency does not happen , the seller will not be

liable for any damages

Contingent Goods fall in the class of future goods.

Questions 1) In return for a new car, A agrees to give his old car valued at Rs.75000 and an

amount of cash Rs 1 lakh to B. This is a:

a) Exchange

b) Barter

c) Contract of sale of goods

d) None of these

2) B agrees to purchase goods from C if 50% of his present stock is sold within a week. State, which is false:

a) This is a contingent contract

b) This is an agreement to sell

c) This is an uncertain agreement

d) This is a valid contract

3) The term ‗goods‘ under sale of goods act does not include:

a) Goodwill

b) Actionable claims

c) Stocks and shares

d) Harvested crops

CONDITIONS AND WARRANTIES

[Sections 11-17]

Sec 12(2) of Sales Of Goods Act, 1930 has defined Condition as:

―A condition is a stipulation(CONDITION, DEMAND OR PROMISE) essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated (REJECT AS HAVING NO AUTHORITY OR BINDING FORCE)‖.

Stipulation- something that is clearly laid down to be followed.

Every contract of sale is likely to contain a number of

terms and stipulations about the nature and quality of

goods and their fitness for the buyer‘s purpose. Every

such term is not likely to be of equal importance.

Some of them can constitute the hard core of the

contract and their non-fulfilment may seem to

upset the very basis of the contract.

They may be so vital to the contract that their

breach may seem to breach the contract as a whole.

such terms are known as CONDITIONS.

A term which is not of such vital importance is

known as warranty.

Its breach does not lead to repudiation , but only

to damages for breach.

Example Case Laws : (Condition)

Baldry v Marshall – The Plaintiff consulted the

defendents (the motor car dealers ), for a car suitable

for touring purposes. Defendents suggested ―Buggati‖

car to be appropriate . He accordingly bought one. The car

turned out to be unfit for touring purposes and the

plaintiff sought to reject it. The defendants relied upon a

term in the contract which guaranteed the car for 12

months and excluded any other warranty or guarantee.

But it was held that the suitability of the car for

touring purposes was not the warranty or

guarantee but a condition of the contract. The term

was so important that its non-fulfilment defeated the very

purpose for which the plaintiff bought the car. He was,

therefore , entitled to reject and have refund of the price.

Sec 12(3) of Sale Of Goods Act, 1930 has

defined Warranty as :

―A warranty is a stipulation collateral(a

subordinate or accessory part) to the main

purpose of the contract, the breach of which

gives rise to only claim for damages but not to

a right to reject the goods and treat the

contract as repudiated‖.

Condition Warranty

1. A condition is a stipulation (in

a contract), which is essential

to the main purpose of the

contract.

2. A breach of condition gives

the aggrieved party a right to

sue for damages as well as

the right to repudiate the

contract.

3. A breach of condition may be

treated as a breach of

warranty in certain

circumstances.

1. A warranty is a stipulation,

which is only collateral or

subsidiary to the main

purpose of the contract.

2. A breach of warranty gives

only the right to sue for

damages. The contract

cannot be repudiated.

3. A breach of warranty cannot

be treated as a breach of

condition.

DISTINCTION BETWEEN 'CONDITION' AND

'WARRANTY'

EXPRESS AND IMPLIED

CONDITIONS AND

WARRANTIES

Conditions and Warranties may be either express or implied.

They are said to be "express" when they are expressly provided by the parties.

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.

IMPLIED CONDITIONS

(1) Condition as to Title

(2) Condition as to Sale by Description

(3) Condition as to Sale by Sample

(4) Condition as to Sale by sample as well as

description

(5) Condition as to fitness for a particular purpose

(6) Condition as to merchantability

(7) Condition as to wholesomeness

Implied warranties

1. Warranty of Quiet Possession

In a contract of sale, unless the circumstances of the contract are such as to show different intention, there is a implied warranty that the buyer shall have and enjoy quiet possession of the goods.

2. Warranty of Freedom from Encumbrances (free from any burden)

The buyer is entitled to another warranty viz. the goods are free from any charge or encumbrance in favor of a third person, not declared to be known to the buyer.

3. Warranty as to disclosure of dangerous nature of goods

DOCTRINE OF caveat emptor

Caveat Emptor is a fundamental

principle of the law of sale of goods

It means "Caution Buyer", i.e. "Let the

buyer beware“- it is for the buyer to

satisfy himself that the goods which

he is buying are of quality which he

requires.

Case : Ward vs Hobbs (1978) – case

of ill pigs

Exceptions to the doctrine of

Caveat Emptor (Sec.16)

In case of any misrepresentation by the seller

In case of concealment of latent defects by the

sellers

In case of sale by descriptions and sample(Sec 15)

Conditions as to merchantability

Conditions of wholesomeness

Legal consequences of Transfer of property

Risk passes with property

Buyer‘s proprietary rights

Consequences of seller‘s breach

Consequences of buyer‘s breach

Consequences in case insolvency of parties

Risk Prima Facie Passes with Property

(SEC.26) Goods are at the risk of the person in whom

resides the property even if he does not possess

them at the time of loss.

EXCEPTIONS

1) Delay in delivery by a party

2) Trade custom

3) Express contract

4) Loss caused by a party

Transfer of Title by Non-owners ‗nemo dat quod non habet‘

None can give what one does not have.

‗ Sale by a non- owner is invalid and the buyer

acquires no title over the goods through such a

sale. A sale can be made by a person, who is

either the owner of goods or is the authorized

agent of the owner.

Exceptions

By estoppel

By mercantile agent

By joint-owner

By a person possessing under a voidable contract

By seller in possession after sale

By buyer in violation of seller‘s rights

Resale by an unpaid seller

Exceptions under other acts.