formation of contract of sale and definitions
Chapter 2 sale of goods
Included in chapter vii ofntract act Indian co 1872.
Came into force 01.07.1930.
Sale of goods silent, contract act will be applicable – capacity of contract etc.
It applies to goods only.
Mortgage, pledge, actionable claim and immovable property – transfer of property act apply.
Chapter 1 formation of contract of sale
Buyer and seller – express conditions in Sale -hence it is typical bargaining controlled by law.
Buyer and seller: it includes a person who buys or agrees to buy or who sells or agrees to sale. Both are complementary.
Goods: it means movable property which includes stock, shares, ship, fixed deposit, old coin or old money, intangible assets, growing crops, grass and things attached with land which is severable before sale.
It excludes actionable claim, current money, debt and immovable property.
In english law, it excludes share, stock but includes ship.
Existing goods: owned and possessed by seller at the time of contract,.
Future goods: produce or acquired after contract. Potatoes to be grown in field. It will be agreement to sell.
Specific goods: identified at the time of contract.
Generic or unascertained goods: not identified at the time of contract.
Goods in deliverable state: buyer bound to take delivery. Ready and communicate – timber
Delivery meaning and types
Voluntary transfer from one person to another (agent).
Actual – physically A supplies goods to B
Constructive – without change in custody delivery through acknowledgement – ware house
Symbolic – thing in token – key, bill of lading and railway receipt.
Document of title: it can transfer like bearer or order instrument which is itself proof of possession and control.
Holder can transfer.
E.g. Bill of lading, dock warrant, warehouse keeper’s certificate, wharfinger’s certificate, railway receipt, multimodal transport document, warrant.
Mate receipt is not document of title.
Document showing title: it cannot transfer like negotiable instrument. Name shown in share certificate is considered.
Mercantile agent: it has an authority to sell, consign, buy the goods or borrow money on goods. Auctioneers, factors or brokers.
Property – ownership. In sale, general property is transferred special property may or may not.
A transfer his truck to B for which loan is outstanding. Special property continues with bank. But general property is transferred from A to B. Bank has a right up to payment of last installment.
Insolvent – unable to pay his debt. Whether he applied for insolvency or not.
Contract of sale
Section 4(1) –
Seller transfers or agrees to transfer
Property in goods
To the buyer
Existing or future goods
Price in money –partly in kind allowed
e.g. Exchange of vehicle.
Transfer of property
Absolute or conditional –credit term, warranty period
Essential elements of valid contract.
Difference between sale and agreement to sale
Sale-agreement of sale
property and risk transfer immediately – property and risk both not transferred
It is executed contract – executory
Seller can sue price – only damages if price not paid
Liability of buyer – liability of seller
Suit for damages – only damages because goods are still
and recover the goods lying with seller.
Sale and hire purchase
It is considered both are similar but in legal incidents both are quite different.
Property immediately-last installment
Buyer is owner- bailee.
Not terminate bound to pay price-can terminate without paying remaining instalments.
Insolvency risk on seller-vendor can take back the goods.
Buyer can transfer title –hirer can not
Tax at the time of contract-at last installment.
Sale and bailment
Property transferred –possession transferred for safe custody, carriage, repair etc.
Goods not returned – returned when purpose accomplished.
Consideration exists in money-may or may not (gratuitous or not gratuitous)
Sale and contract of work or labour both are different. Gold supplied to goldsmith or all colour given to painter are contract of labour or work not sale.
Formalities of contract of sale (section 5)
No specific form in act. But it can be made any of following modes:
immediate payment of price and delivery at some future date.
both are immediate
Both in future
Both are in installment.
Subject matter of contract of sale:
Section – 6 existing or future goods.
Contingent contract – e.g. Cloth to be manufactured –may or may not happen
Future goods only agreement to sale is possible.
Destruction of subject matter: (section 7 and 8)
Not exist at the time of contract – specific goods without knowledge of the seller or buyer destroyed. Mistake of fact. Void ab initio
Perishing after contract: without fault of buyer or seller – void. Generally risk is transferred at the time of contract hence buyer will suffer, but however risk is not transferred seller is responsible.
Ascertainment of price
Price means monetary consideration for goods.
Section – 9 fixed by contract
Fixed in a manner like valuer.
Dealing between party.
If not fixed in above manner. Pay reasonable price which is a question of fact.
Section 10 price has to be fixed by the third party. He does not make, agreement is void. If third party is prevented by either of party, party at fault is liable for the party who is not at fault.
Condition of time (section 11)
If not mention in contract delivery without delay and payment of price, time is not essence.
Conditions and warranteis:
Essential to main purpose – collateral
Repudiate the contract or claim of damages – only damages.
Condition can treat a warranty – but warranty can not treat as a condition
When condition will be treated as warranty:
Buyer for own benefit waive the performance of condition
Buyer elects condition as warranty
Non severable – accepted part treat as a whole.
Excused by law by impossibility or other reason.
Express and implied condition
Express means terms mention in contract
Implied – presumed by law to be presented In the contract
Implied conditions :
seller has right to sell at the time, When property is transferred to Buyer
Return goods to true owner and recover the price from seller.
A purchases c’s tractor from B by assuming that it is of B only. When C claims from A. A must return to C and sue on B for his price.
Description: buyer is not bound to accept if goods are not as per description. If contract of peas can not compel for beans.
E.g. Ship was described as copper fastener but actual it is not.
Contract of English sainfoin seeds but actually it is giant saifoin.
Bulk shall be as per sample in quality.
Buyer should be given a reasonable opportunity.
Free from latent defect not discovered by ordinary examination. Latent defect makes it unmerchantable.
Shoes of special sole for French army contain in paper not as per sample.
Sample as well as description: oil described as refined but sample was shown mixture with hemp oil. Goods provided also as per sample. But it can be rejected.
Quality as fitness.
If buyer informs to seller the particular purpose of purchase and relies on seller’s skill and judgment of seller.
A purchased hot water bottle. Bottle burst, his wife is injured, and chemist is liable for price and damages.
If above conditions not satisfied, in General buyer must examine the
goods before purchase.
Caveat emptor – buyer be aware.
Above rule is not applied in case of trademark or patent name.
Wholesomeness – eatables and provisions should be merchantable and wholesome (good, pure) a supplies milk to B having typhoid germs. B’s wife died. A is liable.
Presumed by law to be present in contract.
Undisturbed possession: enjoy quite possession of goods. Otherwise buyer can sue on seller.
Nonexistence of encumbrances – free from any charge which is not known to the buyer.
A pledges his car with C and sold to C without knowing fact. B may sue money with interest.
Disclose dangerous nature – inherently dangerous – seller warns probable danger.
Put it in cool place otherwise it will be blasted.
Quality or fitness by usage of trade: particular purpose annexed or attached.- disclose in advance if damage in quality. Caveat emptor may apply.
Caveat emptor : seller not responsible.
Display goods in open market hence buyers to make a proper selection. Seller should not reveal unflattering truths.
Section -16 no implied warranty or condition
To the quality or fitness For particular purpose.
A sold infected pigs which affected to healthy pigs. Seller not responsible.
Exception of caveat emptor – seller is responsible.
If buyer informs to seller the particular purpose of purchase and relies on seller’s skill and judgment of seller.
Buyer orders the trucks for hilly country, fact was disclosed to seller. But truck supplied was unfit for above purpose.
Patent or brand name – owner of brand will be responsible. Dealer or buyer not.
Refrigerator should fit for cooling.
Description – copper fastner vessel.
Description black velvet cloth damaged by white ants it is not merchantable .
Seller is not responsible if buyer has not examined apparent mistake. Leakage pipe
Seller is responsible for latent defect.
Sample – bulk should correspondence with sample.
Sample and description – refined oil but actual it is mixed with hemp oil.
Quality or fitness annexed by usage or trade, seller deviates , he is responsible.
Conceals some latent defect by misrepresentation or fraud he is liable.
Apparent defect not examined buyer seller not liable
Unit – 3 transfer of ownership & delivery of goods
Three stages of property:
property of goods
Possession of goods
Passing of risk
Specific or ascertained goods transfer when
Parties intend to pass – terms of contract, conduct of parties and circumstances of case.
If no contrary intention then following rule apply.
Goods in deliverable state: at the time of contract – TV- although price not paid
To be put into deliverable state: to weigh, measure or do something and notice of it to buyer.
Weight of wheat was not done and lost due to flood, seller is liable.
Specific not in deliverable state: carpets not laid hence property not passed.
Unascertained goods: not passed until ascertained .
By description: future goods unconditionally appropriated as per contract seller with consent of buyer and vice versa.
Seller kept separately and informed to buyer. Before delivery it was lost. Buyer is liable.
Delivery to carrier: is treated as like delivery to buyer.
Not reserve right of disposal. Carrier is a bailee.
Appropriation of goods:
Selection of goods
Intention of using
Performance of contract
Mutual consent of seller and buyer
Description and quality as per contract
In deliverable state
Unconditionally delivery to the buyer or his agent.
It must be made by seller with consent of buyer
Or by buyer with consent of seller.
Assent may be express, implied, either before or after appropriation.
Goods sent on sale or return basis.
Goods are sold when buyer accepts, does the act for adoption or retain goods beyond reasonable time
Musical instrument or water motor.
Sale for cash only or return.
Property will not be transferred until cash is paid.
Does the act for adoption like pledge is a sale.
But retain goods beyond the reasonable time is not sale.
Reservation of right to disposal:
Although goods are deliver to buyer, his agent or carrier.
Right to dispose in the hands of seller until conditions are satisfied.
Bill of lading with bill of exchange.
Passing of risk (section 26)
Property means ownership. Risk is transferred from seller to buyer when ownership is transferred. Whether delivery is made or not. By agreement sometimes before or after the property is passed.
Antique is damaged with the struck of hammer for acceptance of bid. Loss will borne by seller.
Party at fault will be liable for damages after property is transferred. Although loss is arise due to such fault or not. But party at not fault must act as a bailee of goods. A sell 100 bales to b. B delayed to take delivery. Goods lost in ware house of a without fault of B. Loss will be suffered by B
Transfer of title : (section 27 to 30)
Owner only can sell the goods. General rule – no one can transfer better title which he has not got. “nemo dat quod no habet”
A sells some stolen good to B, who buys in good faith. True owner will get back from B and B will claim from A for his price paid.
P hires a vehicle and sold to Q. Q will not acquire any ownership.
To protect interest of innocent buyer, following exception are given
Lawful possession of goods or documents,
Acting in ordinary course of business,
Buyer acted in good faith.
Motorcar agent sold the car at lower price and misappropriated the proceeds. Buyer got the good title.
Joint owner: one of them has possession with the consent of others sold the goods. Buyer purchased in good faith got the title. T.V. VCR etc.
Voidable contract: buyer purchases the goods from seller who obtained goods under voidable contract is valid if yet contract was not rescinded. X obtains a diamond ring from y by using fraud. It was sold to z before contract is cancelled. Z will receive good title.
Sold goods with continue possession :
Pledge, other disposition of goods or documents of title are valid
P agrees for the sale of TV to VCR. But due to higher price sold to s. It is valid.
A buyer obtains possession before property vested to him with the consent of seller.
In good faith third person receives the goods as sell, pledge or otherwise from buyer who did not receive property.
Hire purchase agreement, there is only option to buy hence it is not sale.
Bill of lading and bill of exchange are provided to buyer, but buyer without accepting bill of exchange sold the goods with bill of lading to sub buyer who purchase in good faith.
It is valid sale.
Above rule not applicable to hire purchase. If hirer sold the goods, vendor can repossess in case of default. Sale by hirer is not valid.
Effect of estoppel: goods are sold during the presence of true owner but he has not denying the seller’s authority to sell at the time of sale. Hence sale is valid E. g. Auction sale.
Sale by unpaid seller: when he has utilized right of lien or stoppage in transit, he resells the goods, it is valid.
Sale under other act:
Official receiver or liquidator
Finder of goods
Sale by Pawnee
Delivery of goods: voluntary transfer of possession
Doing anything as putting the goods in possession of buyer.
Rule of delivery
Effect of part delivery: intention to severe pay for part only.
Otherwise continue as a whole remaining will be received.
Goods lying in ware house, instruction was given for delivery to buyer. But he took away part.
If no agreement seller is not responsible for delivery until not applied by buyer.
Place of delivery:
Existing where it is lying at the time of contract
Future goods – where it will be manufactured.
Time of delivery:
If not mentioned in contract, it will be delivered within reasonable time
Goods in possession of third party: either constructive or symbolic delivery
Time for delivery: reasonable hours- question of fact.
Expenses for delivery: – up to deliverable state seller.
Delivery of wrong quantity: excess, lesser or with mixed with different goods – accept or reject but whatever accepted pay accordingly.
Mixed with Inferior quality is not different description.
A orders to B for 1,000 quintals but B delivers 1,100 quintals
A has option to accept 1,000 quintals or 1,100 quintals.
Installment delivery: buyer is not bound to accept. Terms and conditions may be determined in contract. Order of 100kgs delivered in two parts 90kgs and 10kgs.
Delivery to carrier means delivery to buyer.
Deterioration during transit: falls on buyer unless seller agrees to deliver at own risk.
Buyers right to examine the goods: reasonable opportunity for confirming as per contract.
Acceptance of delivery of goods:
Intimate – does any act – or retain
Notice to seller is sufficient for return of goods.
In case of delay in delivery by buyer, he must pay charges for care and custody of goods.
Section 45 (a) –
Whole of the price not paid and immediate right of action.
B/E or other negotiable instrument dishonored which is absolute payment not conditional.
Seller or his agent may utilize the rights of unpaid seller.
X sold good to y of Rs. 5,000 but y paid only 4,000 hence x is unpaid seller.
P sold goods to Q Rs. 6,000 against cheque which was dishonored hence p is unpaid seller.
Rights of unpaid seller:
Against the goods: Right in Rem
Right of lien: can use up to possession in the hands of seller and if price is not paid.
Goods sold on credit
Credit period is expired.
Buyer may becomes insolvent.
Right of lien lost:
Delivers the goods to carrier, agent or other bailee without reservation of right of disposal
Waived right of lien
A sold and delivered car to railway. Lien lost.
Stoppage in transit:
When goods are in transit, buyer becomes insolvent, unpaid seller asks the carrier to return goods back.
A forward goods to B, B declared insolvent, A can use stoppage in transit.
Right of resale:
Perishable nature or expressly reserve the right no notice is required
In other cases, after notice – price is not paid within reasonable time, this right can be used.
Rights of unpaid seller against buyer: (right In personam)
Suit for price:
Property has passed, buyer refuse to pay.
Property has not been passed but price becomes due irrespective of delivery, it is not paid, it can be sued.
Suit for damages for non – acceptance: buyer refused to take delivery, section 73 of contract act – measure of damages apply.
Repudiation of contract before due date: Anticipatory breach of contract.
Suit for interest : if agreement exist, from due date to date of payment at agreed rate.
But if no agreement, from the date of notice to payment at notifying rate. Court may notify from the delivery date or from price becomes payable.
Difference between right of lien or stoppage in transit
Retain the possession – regain the possession
Possession in the hands of seller- in transit
Buyer may or may not insolvent- buyer must becomes insolvent.
Right of lien ends stoppage in transit commenced.
Subsale or pledge by buyer
A sold goods to B who has not paid price up-to due date. A uses right of lien and resale it.
Conditions for resale:
Seller has assented.
Document of title is given to buyer. And buyer has transferred to sub purchaser in good faith for value.
Rights of parties in case of breach of contract.
Buyer’s right against seller
Suit for non delivery: damages- ready market – difference between contract price and market price.
Similar goods – rate at which contract is settled
Irreplaceable – profit forgone.
Suit for specific performance – certain contracts court grant a decree for performance.
Breach of warranty:
In diminution of the price,
Sue the seller for breach of warranty
Damages will be naturally arise due to breach
Recovery of price: true owner will receive goods from buyer, buyer may sue on seller for price paid.
Seller’s right against buyer
Suit for price and damages for non acceptance
Inviting bids publicly
Sold to highest bidder
Apply law of agency but it may not disclose the fact of auction.
Each lot will be separate contract
It can complete through fall of hammer or other customs,
before completion bid can be retracted.
Seller or any one person may bid at auction if this right is expressly reserved otherwise it is fraudulent.
Minimum/upset price can be declared
If pretended bidding, sale is voidable.