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Contract of Sale of Goods

Introduction
• Buying and selling of goods is the basis of commerce.
• Sales of Goods Act, 1930 is one of the fundamental laws regarding
business and covers all transactions related to the sale of goods
• Earlier it was covered under the Contract Act
• In 1930 a new law was enacted for special contracts covering buying
and selling of goods
• Transactions related to land and building are not covered under this
Act; they are covered under the Transfer of Property Act, 1882
Sale
• ‘Sale’ is a contract between the buyer and the seller, wherein seller agrees to transfer
the ownership of the goods to the buyer for a price

• This transfer can be immediate or sometime in the future

• In case the transfer of ownership is to be made in the future, it amounts to an


‘agreement to sell’.

• In sale, if there is a default in payment, the seller can sue the buyer for the price of goods

• However, in an agreement to sell, the seller can sue for damages


Goods
• Every kind of movable property can be understood as goods.

• However, there are exceptions. It depends on the definition made by the


legislature and interpreted by the courts.

• Certain things may not appear prima facie to be goods, but have been
declared as goods by the courts.

• For instance, electricity and software are goods, whereas electromagnetic


waves are not goods, as has been interpreted by Supreme Court of India
Property and Ownership
• Anything which can be owned is property

• It can be tangible or intangible, movable or immovable

• Patents, copyright etc. are intangible property

• Land and buildings are immovable property


Primary Attributes of Ownership
• Right to possess
• Right to use
• Right to dispose off

=> Right to exclusively enjoy something which includes the right of


using, altering, disposing of or destroying the thing owned.
Ownership and possession
• Whenever property in goods passes, the risk passes to the buyer.

• Ownership is the transfer of property in goods, whereas possession


might be actual or constructive with or without owning goods.
Risk Follows Ownership
• E.g.:
A hired a van from B. as a result of an accidental fire, the van was toally
damaged while it was in the custody of A. The loss would be borne by B
because at the time of loss he was the owner of the van.
Passing of Risk Can Be Different from
Passing of Property
• In Multanmal Chempalal vs Shah & Co, certain goods were delivered
by the seller from Bombay to Bellary through a public carrier. One of
the terms of the contract was that the goods were to remain the
property of the seller until the price was paid, although the risk was
to pass to the buyer immediately after they were conveyed to the
public carrier for dispatch. However, the goods were subsequently
lost before the payment of the price. It was held that since the goods
were lost consequent to the passing of property therein to the buyer,
the loss was to be borne by the buyer.
Price
• Money price - cash, cheque, credit card, debit card or any other
electronic transaction etc., is the consideration of the contract of sale.

• Consideration can neither be any other goods, which shall be amount


to barter, nor be any form of services

• Barter is valid contract but not valid as a contract of sale under the
Sale of Goods Act.
Important Differences
• Contract of work and labour Vs. Contract of the sale of goods

• Eg.- Barber shop

• Conditions Vs. Warranties:


• Conditions are primary and fundamental stipulations in a contract of the sale
of goods
• Warranties are the secondary and subsidiary stipulations
Condition: Example
X goes to Y, a horse dealer, and tells him that he wants a horse that can
run 35 km/hour. Y points to a particular horse and says that this will suit
the purpose. X buys the horse relying on his representation.
Subsequently, X finds that the horse can run only at a speed of 25 km in
an hour. There is a breach of condition. X may reject the horse and get
back the price paid by him.
Kinds of Conditions
• Express conditions:
• When the buyer and seller communicate about it in any manner

• Implied conditions:
• When there has been no communication of these during the transaction
• Even implied conditions give protection to the buyer
Types of Implied Conditions
• Condition as to title: Seller must have the title in goods - either own them or
have the authority to sell them
• Nemo dat quod non-habet, i.e., ‘one cannot give what one does not have’

• Condition as to description: Goods supplied by the seller must be the same


as described by him

• Condition as to sample

• Condition as to quality or fitness


Types of Implied Conditions
The following requirements must be satisfied to avail condition as to quality or fitness:

• The buyer requires the goods for a particular purpose

• The buyer expressly or impliedly makes known to the seller the intended purpose

• The buyer relies upon the seller’s skill and judgement with respect to the fitness of the
goods for the intended purpose

• The seller’s business is to supply such goods whether or not he/she is the manufacturer
or producer thereof
Types of Implied Conditions
Case: In Evens vs Stelle Benjamin, the plaintiff purchased a refrigerator from a seller
dealing in electrical appliances without asking the dealer whether it is fit to make
ice. The refrigerator failed to make ice. It was held that the buyer was entitled to
reject the refrigerator and get the refund of the price paid as the very purpose of
buying the article could not be fulfilled.

• Condition as to merchantable quality, i.e., fit for the purpose for


which they are being sold.
• E.g. – A bought black yarn from D and when delivered, found it damaged by
white ants. The condition as to merchantability was breached.
Warranties
• Eg.: A buyer goes to a car dealer and asks for a good car. While selling
the car, the dealer claims that the mileage of the car is 16 km per litre.
But subsequently the buyer discovers that the car gives a mileage of
only 12 km per litre. Here, the buyer cannot repudiate the contract
but can only claim damages from the seller because the statement
made by the seller amounts to warranty
Kinds of Warranties
• Express warranties: Warranty provided explicitly by the term of the
contract of sale.
• Implied warranties: Which law incorporates into a contract of sale.

• Quiet possession – buyer should be able to enjoy the goods peacefully


without any disturbance

• Free from any encumbrance


Example
• Quiet Possession:
• A purchased a second hand typewriter from B. A thereafter spent some money
on its repair and service and used it for sometime. Unknown to both the parties
the typewriter subsequently turned out to be a stolen one and as such A was
compelled to restore it to the true owner. A was held entitled to recover
damages from B amounting to not merely the price paid but also the cost of
repair for the breach of this warranty.
• Free from encumbrances:
• A sold his scooter to B for Rs. 5000. The scooter was already hypothecated as
security against a loan of Rs. 3000. B was not aware about this charge on the
goods. Consequently B had to pay Rs. 3000 to X in order to enjoy the goods.
Now B is entitled to claim this amount from the seller, A.
Condition and Warranty

Condition Warranty
• Stipulation essential to the main • Only collateral or subsidiary to
purpose of the contract the main purpose of the contract
• If there is breach, aggrieved party • Aggrieved party can claim only
can repudiate the contract itself damages
and sue the seller for damage
• Main contract can be fulfilled
• It is of vital importance for
completion of contract even if warranty is not fulfilled
• Breach of condition can be treated • Breach of warranty cannot be
as breach of warranties treated as breach of condition

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