Sale of Goods Act 1930

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Contd -

• Act Deals with goods• Sec 4(1) – contract of sale – 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.

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Essential elements

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Contract of sale

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Contract of sale and agreement to sell

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Condition and warranties

• Both seller and buyer make representations to each other at the time of entering into contract of sale.

• Some of these representations are mere opinions which do not form a part of the contract of the sale. Whereas some become part of the contract of sale

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Meaning of condition

• A condition is a stipulation –– (a) which is essential to the main purpose of the

contract– (b) the breach of which gives the aggrieved party a

right to terminate the contract.

• It goes to the root of the contract.• Its non-fulfillment upsets the very basis of

the contract.

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Contd -

• Representations which become part of the contract of sale are termed as stipulations which may rank as condition or warranty

• Stipulation – Sec 12(1) – A stipulation in a contract of sale of goods may be a condition or warranty.

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Example

• X asked a car dealer to suggest him a car suitable for touring purposes. The dealer suggested a particular car. Accordingly, X purchased it but found it unsuitable for touring purpose. In this case, suitability of car for touring purpose was a condition of contract. X, was, therefore, entitled to reject the car and have refund of the price paid.

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Warranty

• It is a stipulation collateral to the main purpose of the contract

• It is of secondary importance• If there is a breach of a warranty, the

aggrieved party can only claim damages and it has no right to treat the contract as repudiated.

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Example

• X asked a car dealer to suggest him a good car and while suggesting the car, the dealer said that it could run for 20 km per litre of petrol. But the car could run only 15km per litre of petrol. In this case the statement made by the seller was a warranty. X was therefore, not entitled to reject the car but he was entitled to claim damages.

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Condition and warranties

• There is no hard and fast rules as to which stipulation is a condition and which one is a warranty.

• Whether a stipulation is a condition or a warranty depends in each case on the construction of the contract as a whole.

• The court is not to be guided by the terminology used by the parties to the contract

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Basis of distinction

Condition • It is a stipulation which is

essential to the main purpose of the contract.

• The aggrieved party can terminate the contract

• A breach of condition can be treated as a breach of warranty . For example, a buyer may like to retain the goods and claim only damages.

Warranty• It is a stipulation which is

only collateral to the main purpose of the contract

• The aggrieved party can claim damages but cannot terminate the contract.

• A breach of warranty cannot be treated as a breach of condition.

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Conditions and warranties

• Two kinds – express and implied• Express conditions and warranties – Conditions and

warranties expressly provided in the contract• Implied conditions – They are implied by the law into

the contract – – Condition as to title– Sale by description– Sale by sample– Condition as to the quality of the items

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Conditions and warranties

• Implied warranties –• Warranty of quite possession• Warranty as to freedom from encumbrances• Warranty to disclose dangerous nature of

goods

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Doctrine of caveat emptor

• “Let the buyer beware”• It is the duty of the buyer to be careful while

purchasing goods of his requirement and in the absence of the enquiry from the buyer, the seller is not bound to disclose every defect in the goods of which he may be cognisant.

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Exceptions to the doctrine of caveat emptor

• In case of misrepresentation by the seller• In case of concealment of latent defect• In case of sale by description• In case of sale by sample• In case of sale by sample and description• Fitness for a particular purpose• Merchantable quality

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Passing of property• Transfer of property in goods from the seller to

the buyer is the main object of a contract of sale.• “property in goods” means the ownership of

goods• An article may belong to A although it may not

be in his possession. B may be in possession of that article although he is not its owner.

• It is important to know the precise moment of time at which the property in goods passes from the seller to the buyer for the following reasons

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Contd -

• Significance – Time of transfer of ownership of goods decides various rights and liabilities of the seller and buyer.

• Risk – Owner to bear the risk and not the person who merely has the possession

• Action against third party – Owner can take action and not the person who merely has possession.

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Types of goods

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Types of existing goods

• Specific goods• Ascertained goods• Unascertained goods• Goods sent “on approval” or “on sale on

return basis”

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Primary rules• Goods must be ascertained – Where there is a

contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.

• Intention of the parties –Where there is a contract for the sale of specific or ascertained goods the property in them passes to the buyer at the time when the parties intend it to pass

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Contd -• Where the intention of the parties cannot be

ascertained from the contract-– Specific goods –• Passing of the property at the time of the contract –

Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made.

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Contd-• Passing of property delayed beyond the date

of the contract– (1) Goods not in a deliverable state –Where there

is a contract for the sale of specific goods not in a deliverable state,ie, the seller has to do something to the goods to put them into a deliverable state, the property does not pass until such thing is done and the buyer has notice of it.

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Contd - – (2) When the price of goods is to be ascertained

by weighing, etc. – Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh measure test or to do some other act or thing with reference to the goods for the purpose of ascertaining the price the property does not pass until such act or thing is done and the buyer has notice thereof

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Contd -• Unascertained goods – – Where there is a contract for the sale of

unascertained goods, the property in the goods does not pass to the buyer until the goods are ascertained. Until the goods are ascertained there is merely an agreement to sell.

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Contd -• Where there is a contract for sale of unascertained

or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, the property in the goods thereupon passes to the buyer.

• “ascertainment of goods’, “unconditional appropriation to the contract”

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Delivery to carrier • A seller is deemed to have unconditionally

appropriated the goods to the contract where he delivers them to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the right of disposal.

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Goods sent on approval or “on sale or return’

• When goods are delivered to the buyer on approval or ‘on sale or return’ or other similar terms the property therein passes to the buyer –– (1) When he signifies his approval or acceptance

to the seller:– (2)When he does any other act adopting the

transaction

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Reservation of right of disposal

• The property in goods whether specific or subsequently appropriated to the contract does not pass to he buyer if the seller reserves the right of disposal of goods until certain conditions are fulfilled.

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Rights of an unpaid seller

• Meaning of an unpaid seller – Sec 45(1)(2)– The seller of the goods is deemed to be an ‘unpaid

seller’ -• (a) When whole of the price has not been paid or

tendered• (b) When a bill of exchange or other negotiable

instrument (such as cheque) has been received as conditional payment and it has been dishonoured [sec 45(1)]

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Contd -

• The seller shall be called an unpaid seller even when only a small portion of the price remains to be paid.

• It is for the non-payment of the price and not for other expenses that a seller is termed as an unpaid seller.

• Where the goods have been sold on credit, the seller cannot be called as an unpaid seller during the credit period unless the buyer becomes insolvent. On the expiry of credit period if the price remains unpaid, then only the seller will become an unpaid seller

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Contd -

• Where the full price has been tendered by the buyer and the seller refused to accept it, the seller cannot be called as an unpaid seller.

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Rights of an unpaid seller– Against goods– Against buyer personally

• AGAINST GOODS

Where the property in goods has passed to the buyer

Where the property in goods has not passed to the buyer

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Contd -

• Where the property in goods has passed to the buyer

Right of lien

Right of stoppage in transit

Right of resale

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Right of lien

• The right of lien means the right to retain the possession of the goods until the full price is received.

• Circumstances under the right of lien can be exercised– Where the goods have been sold without any

stipulation to credit– Where the goods have been sold on credit, but the

term of credit has expired– Where the buyer becomes insolvent

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Right of stoppage of goods in transit

• Right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retain them till the full price is paid.

• Conditions under which Right of stoppage in transit can be exercised– (i)Seller must have parted with the possession of

goods,ie, the goods must not be in the possession of the seller

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Contd -

– (ii) the goods must be in course of transit– (iii) buyer must have become insolvent

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Right of resale

• An unpaid seller can resell the goods under the following circumstances:– (i) Where the goods are of a perishable nature– (ii) Where the seller expressly reserves the right of resale if

the buyer commits a default in making payment– (iii)Where the unpaid seller who has exercised his right of

lien or stoppage in transit gives a notice to the buyer about his intention to resell and buyer does not pay or tender within a reasonable time.

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Contd -

• Where the property in goods has not passed to the buyer

Withholding delivery Lien Stoppage in

transitResale

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Contd -

• Against the buyer personally

Suit for price

Suit for damages

Suit for interest

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• Buyer’s suits– (a) Suit for damages for non-delivery of the goods– (b) suit for specific performance– © Suit for breach of warranty– (d)Suit for interest– (e)Suit for damages for repudiation of contract by

the seller before the due date.

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Remedies for breach of contract of sale

• (1) seller’s suits– (a) Suit for price– (b) Suit for damages for non acceptance of the

goods– (c) Suit for damages for repudiation of contract by

the buyer before the due date– (d) Suit for interest.

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