Contract of Sale

Contract of sale is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.
Property = Ownership (general property) Mere possession is not ownership.

General Property & Special Property

Buyer will have general property or ownership over the goods purchased. If he pledges them to R, while he has general property, R the pawnee will have special property to the extent of the advances made against the pledge. Similarly, in the case of bailment for repairs, the bailee will have special interest in the goods bailed, to the extent of the charges due to him.

Essential characteristics of Sale

1. Two parties 2. Transfer of Property (ownership) 3. Goods 4. Price 5. Both sale and agreement to sell 6. No formalities

Aspar & Co. Vs. Blundell

Blundell had agreed to buy a specific cargo of dates shipped by Aspar. During the course of the voyage on the high seas, the dates had become contaminated and unfit for human consumption. Can Aspar get the payment for the dates?

Judgment
It was held that the contract had become void since dates were unfit for human consumption and no more answered the description under which it was agreed to be purchased.

 Sale: Where under a contract of sale, the property in the goods is immediately transferred at the time of making the contract, from the seller to the buyer, the contract is called a sale.
An Agreement to Sell: Where under a contract, the transfer of property in the goods takes place at a future time, or subject to fulfilling some condition, the contract is called an agreement to sell.

Sale and Agreement to sell

1. In a sale, property(ownership)passes to buyer immediately. In agreement to sell, there is no transfer of property(ownership) to buyer. In case of sale, risk of loss falls on buyer, even if goods not in possession. In agreement to sell, loss has to be borne by seller, even if buyer possesses the goods. In sale, in case of breach of contract, seller can sue buyer for the price. In agreement to sell, the seller can only sue for damages. In a sale, the seller cannot resell the goods. The original buyer can sue and recover the goods. In an agreement to sell, the property remains with the seller and he can sell the goods. Original buyer can sue for breach of contract only. These goods, in an agreement of sale, can be attached in a decree from court against the seller.

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Sale and Agreement to sell

5. In a sale, if buyer becomes insolvent before payment, seller must deliver goods to the Receiver. The seller is only entitled to rateable dividend. In agreement to sell, the seller may refuse to deliver the goods to Official Receiver, as ownership has not passed to buyer. In a sale, if seller becomes insolvent, buyer is entitled to recover the goods from the Receiver. In agreement to sell, if buyer has already paid the price, and seller becomes insolvent, the buyer can only claim rateable dividend and not the goods because property is still with the seller.

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Problem
B bought from As Timber Depot rosewood worth Rs.50,000/-on credit. Since B did not have any vehicle to carry the logs of wood, he requested A to keep the timber with him for 2 days. The next day there was a fire in As depot and all the stock of wood was destroyed. A demands the payment of wood sold to B on the due date. B refuses to pay since the wood has been destroyed by fire. Is his refusal correct? Why?

Solution
No. Sale has already taken place. Goods were stored at As place at Bs risk. Since ownership has already passed B has to bear the loss. Thus, he should pay the price to A.

Problem
V a dentist agreed to make a good teeth set (denture) for an old lady A (80 years old), who agreed to pay the price of Rs.20,000/- She paid an advance of Rs.5000/-; the balance was to be paid at the time of taking delivery. She died without taking delivery. V claimed the balance of Rs.15,000/- from the legal heirs of A. Are they liable to pay?

Problem Instalment Sale Vs. Hire Purchase

Madan & Co. dealers in Toshiba TV, sold on TV set to J, payment to be made in 15 instalments. Just before making the 10th instalment, J became insolvent and the official assignee took over the entire belongings of J. Madan filed a suit against the Official assignee to give back the TV set? Will M&Co get the TV set?

Solution
No. Sale has already taken place. It is an instalment purchase. M&Co. cannot get the TV set back.

Sale
1, Property is transferred to buyer immediately. 2. Buyer is like owner 3. Buyer cannot terminate. Must pay for the goods. 4. Seller takes the risk of loss in case of insolvency of buyer. 5. Buyer can pass good title to bonafide purchaser. 6. Sales tax at the time of contract.

Hire Purchase
1. 2. 3. Property in goods goes to buyer only upon last instalment. Hirer is like a Bailee. Hirer may terminate the contract and return the goods. Owner takes no risk. If hirer fails to pay installment, owner takes back the goods. Hirer cannot pass any title even to bonafide purchaser. Salestax only when last instalment is paid.

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5. 6.

Goods
Goods means every kind of movable property other than actionable claims and money; 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.

Goodwill, Trademarks, copyrights, patents right, water, gas, electricity, decree of court of law, stocks and shares, growing crops, grass etc. Coal mine, Stone quarry are not goods as they form part of land itself.

Kinds of Goods
1. Existing Goods physically in existence a) Ascertained or Specific Goods identified and agreed at the time of contract. b) Unascertained Not earmarked. 2. Future Goods Goods to be produced may or may not be in existence. Present sale of future goods is not sale it is agreement to sell 3. Contingent Goods acquisition of the goods is subject to certain contingency or conditions This is also not a sale but agreement to sell

Perishing of Goods: Definition

Perishing means not only physical destruction but also 1.No commercial value after damage. 2. Loss of goods by theft. 3. Requisitioned by Government.

Effect of perishing of goods:

1. Perishing of goods at or before making of the contract: If goods perish without knowledge of the seller, contract is void due to mistake or impossibility of performance. If part of the goods perish, and contract is not divisible, contract is void. If contract is divisible, part in good condition must be accepted by buyer. Perishing of goods before sale but after agreement to sell: If contract is for specific goods, and goods perish for no fault of the parties, contract is void due to supervening impossibility. If only part of the goods perish, void if contract indivisible, but valid in part if contract is divisible. Effect of perishing of future goods: The future goods if sufficiently identified, are to be treated as specific goods and their destruction, makes the contract void.

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Price
Money consideration for sale of goods is known as price. Mode of Fixing the price: 1. 2. Expressly fixed by contract itself. In accordance with an agreed manner provided in the contract If the price is not capable of being fixed due to uncertainty, contract is void ab-initio. If no price is fixed, then contract is not void, market price is taken. It may be decided by course of dealings between the parties e.g. price at the time of despatch. If price is not capable of being fixed by any of the above methods, buyer will pay a reasonable price usually market price.

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Agreement to sell at valuation:

When there is an agreement to sell goods at the valuation of third party, and the third party fails to fix the price, the contract becomes void, except for the part of the goods already delivered and accepted. If seller or buyer prevents the valuation, the innocent party can claim damages from the party in fault. Here, even if contract is void, party at fault pays damages.

Stipulation as to time in a contract of sale: 1. time of delivery of goods: this is usually held to be the essence of the contract. If there is delay, contract is voidable at the option of the buyer. He can refuse to accept delivery and end the contract.

2. The general rule is that time fixed for payment is not deemed to be the essence of the contract. Even if price is not paid as agreed, the seller cannot avoid the contract. He has to deliver the goods if the buyer tenders the price within a reasonable time before resale of goods. The seller is entitled to compensation for the delay.

Document of title to goods are Quasi Negotiable Instruments

A document of title is a proof of the ownership of the goods. It authorises its holder to receive goods mentioned therein or to further transfer such right to another person by proper endorsement or delivery. A document of tilte to goods contains an undertaking on the part of the issuing authority to deliver the goods to the holder thereof unconditionally. Although such a document can be transferred by mere delivery or by endorsement, yet it is regarded as quasinegotiable instrument because the title of the transferee will not be superior to that of the transferor in the case of transfer of such document. E.g. Bill of Lading, Dock-warrant, Warehouse Receipt, Wharfingers Receipt, Railway Receipt, Delivery Order, etc.

Meaning of acceptance:
Taking possession is not acceptance. To constitute acceptance, a) Buyer must intimate to seller that he has accepted the goods or b) He does any act amounting to acceptance e.g. consumes, uses, pledges, resells or marks the goods. c) After lapse of reasonable time, retains the goods without intimating the seller of rejection.

Condition:
A condition is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the contract itself. He may also maintain an action for damages for loss suffered.

Warranty:
A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives the aggrieved party a right to sue for damages only, and not to avoid the contract itself.

Condition 1.A condition is a stipulation 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. 3.A breach of condition may be treated as a breach of warranty.

Warranty 1. A warranty is a stipulation which is only collateral or subsidiary to the main purpose 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.

Express and Implied Conditions and Warranties:

Express: When they are inserted at the will of the parties.
Implied: When law presumes it.
An implied condition or warranty is negatived ` by an express term to the contrary Expressum facit cessare tacitum . What is expressed makes what is implied to cease Modus et conventio vincunt legem Custom and agreement overrule law.

Implied conditions:
1. Condition as to title presumption that the seller is having a clear title. Condition in a sale by description goods shall correspond with the description. Condition in a sale by sample: - goods shall correpond with the sample. Sale by sample as well as by description: shall correspond with both not just one. Condition as to fitness or quality: if buyer uses sellers skill and judgment and asks for the goods for specific use. Condition as to merchantability: Condition as to wholesomeness; free from defects, fit for human consumption.

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Implied Warranties
1. Warranty of quiet possession. 2. Warranty of freedom from encumbrances 3. Warranty of disclosing the dangerous nature of goods to ignorant buyer.

Caveat Emptor Caution Buyer

Buyer beware: It is the duty of the buyer to be careful while purchasing the goods of his requirement. In the absence of any enquiry from the buyer, the seller need not disclose every defect in the goods, of which he may be aware. If buyer depends on his own skill and makes a bad choice, he should curse himself only for his folly, if there is no misrepresentation, fraud or guarantee involved by the seller.

Exceptions to the rule of Caveat Emptor:

1. 2. 3. 4. 5. 6. Misrepresentation by the seller. False representation amounting to fraud. Goods by description do not tally. Goods are not of merchantable quality. Goods by sample do not tally. Goods by both sample and description do not tally either or both. 7. Sellers skill and judgment sought and goods turn out to be unfit for use. 8. Quality or fitness not as per trade usage.

Rules re: transfer of property, possession and risk

1. Risk prima-facie passes with property. 2. Owner to take action against third parties 3. Sellers right to sue for price 4. Insolvency of seller or buyer

1. Risk prima-facie passes with property

As a general rule, the risk of loss of the goods is prima-facie in the person who owns the goods. Unless otherwise agreed, the goods remain at the sellers risk until the property therein is transferred to the buyer. When the property therein is transferred to the buyer, the goods are at buyers risk, whether delivery has been made or not.

2. Owner to take action against third parties:

When the goods are damaged or destroyed by third parties, it is only the owner of the goods, who can take action against them. 3. Sellers right to sue for price:

The seller can only sue for the price, if the property in it has passed on to the buyer.

4. Insolvency of seller or buyer:

Whether the official receiver can take over the goods or not, will depend upon, whether the property in the goods, has passed to the person who has become insolvent. e.g. If the seller becomes insolvent before giving delivery of the goods, but the property in goods has already passed to the buyer having paid the price, the Official Receiver can have no claim.

Meaning of deliverable state :

The goods are said to be in a deliverable state when they are in such a state that the buyer would under the contract be bound to take delivery of them.

Transfer of property in specific or ascertained goods : In the case of specific or ascertained goods, The parties may intend to pass the property at once at the time of making of the contract, Or when the goods are delivered Or when the payment is made.

When the intention of the parties cannot be judged, the rules are:
1. When there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer, as soon as the contract is made.
2. When the goods have to be put in a deliverable state, and the seller has to do something before giving delivery, the property does not pass until such thing is done and the buyer has notice thereof.

3. When the goods have to be measured etc. to ascertain the price: The property does not pass until such act of weighing, measuring, testing or do some other act or thing for the purpose of ascertaining the price, is done and the buyer has notice thereof.

4. When goods are delivered on approval or on sale or return terms, the property passes to the buyer, a)When he signifies his acceptance to the seller. b) When he retains the goods without giving notice of rejection, beyond the time fixed or beyond a reasonable time.

Passing of property of unascertained goods :

In the case of unascertained goods, the property does not pass until the goods are ascertained or unconditionally appropriated to the contract, to bring them to a deliverable state. The process of ascertainment consists in earmarking Or setting apart the goods as the subject-matter of the contract. It involves, separating, weighing, measuring, counting, marking or similar acts done with an intention of identifying and determining the specific goods to be delivered under the contract. The process involves mutual consent of buyer and seller.

Essentials of a valid appropriation:

1. 2. 3. 4. 5. Appropriation must be of goods answering the contract description, both as to quality and quantity. The appropriation must be intentional and must not be due to mere accident or mistake. Appropriation must be made either by the buyer or seller with the ascent of the other. The appropriation must be unconditional. Delivery to carrier: Where the seller delivers the goods to the carrier or other bailee for the purpose of transmission to the buyer, the property passes at once at the time of delivery to the carrier provided he does not reserve the right of disposal.

Rule of Transfer of Title on sale: nemo det quod non habet No one can give what he has not got

The seller cannot transfer to the buyer a better title than what he himself has. Where goods are sold by a person who is not the owner and who does not sell them under owners authority or consent, the buyer acquires no better title to the goods than the seller had

Transfer of title by non-owners:

Exception to the maxim : nemo det quod non habet

1. An unauthorised sale by a mercantile agent. 2. Transfer of title by estoppel. 3. Sale by joint owner. 4. Sale by person in possession under voidable contract. 5. Sale by seller in possession after sale. 6. Sale by buyer in possession after agreement to buy

Meaning of Estoppel: Lord Halsbury:

Estoppel arises when you are precluded from denying the truth of anything, which you have represented as a fact, although it is not a fact.

Transfer of title by non-owners: (contd.)

7. Resale by an unpaid seller. 8. Exceptions under other Acts: a) sale by finder of lost goods. b) sale by pawnee c) sale by official receiver of Assignee d) holder in due course(Negotiable Instruments Act)

Delivery
Delivery means voluntary transfer of possession of goods from one person to another. Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or any person authorised to hold them on his behalf.

Modes of Delivery :
1. Actual delivery goods are physically handed over by the seller or his agent to the buyer or his agent. 2. Symbolic Delivery when goods are bulky or cumbersome handing over the car key, godown key where goods are kept. Transfer a bill of lading or railway receipt and hand it over. 3. Constructive delivery or attornment: Delivery Order is given asking the warehouseman to deliver the goods. Here the buyer and seller as well as the warehouseman (third party) must all concur in completing the delivery. The warehouseman must acknowledge that he is holding the goods for the buyer.

Documents of Title :
Any document used as proof of possession or control of goods, authorising the possessor, to transfer or receive goods, by endorsement or by delivery It is regarded as Quasi-negotiable document because the title of the transferee (even if bona-fide) will not be superior to that of the transferor.

Bill of Lading:

A Bill of Lading is a receipt given by the ship owner acknowledging the receipt of goods for carriage. It is a receipt for goods shipped on board the ship, signed by the person who contracts to carry them, or his agent, and stating the terms on which the goods were delivered to and received by the ship.

Dock Warrant:
A dock warrant is a document which is issued by the dock owner. It contains the details of the goods, certifying that the goods are held on behalf of the person whose name is appearing in it or his assignee by endorsement. It authorises the person holding it to receive the possession of the goods.

Warehouse-keepers Certificate:
Warehousekeepers certificate is a document which is issued by the warehouse keeper stating that the goods specified in the document are in the warehouse or wharf.

Railway receipt:
A railway receipt is a document issued by the railway as the acknowledgement of the receipt of the goods. It provides that on surrender of the receipt at the destination of the goods by the consignee, the goods mentioned therein will be delivered to him.

Delivery Order:
A delivery order is an order given by the owner of the goods directing the person who holds the goods on his behalf, to deliver them to a person named therein.

Charter Party
This is not a document of title. Charter Party is an agreement by which a shipowner agrees to place an entire ship or part of it, at the disposal of a merchant for the conveyance of the goods to the agreed port of destination for a sum of money which the merchant undertakes to pay for the carriage.

Rules for Delivery of Goods:

1. Delivery and Payment are concurrent. 2. Delivery may be Actual or Symbolic. 3. Effect of Part Delivery. 4. Buyer to apply for Delivery. 5. Time of Delivery 6. Place of Delivery

Rules for Delivery (Contd.)

7. Delivery of goods which are in possession of third party. 8. Expenses of Delivery 9. Delivery of wrong quality or quantity. 10.Instalment Deliveries. 11.Delivery to Carrier or Wharfinger. 12.Buyer for refusing to take delivery. - Liabilities.

Who is an Unpaid Seller :

The seller of goods is deemed to be an unpaid seller if : (a) the whole of the price has not been paid or tendered; (b) where a bill of exchange or other negotiable instrument has been received as a conditional payment i.e. subject to realization and the same has been dishonoured.

Rights of an Unpaid Seller:

1. Rights against the Goods. 2. Right against the buyer personally.

Right of unpaid seller against the goods:

1. Right of lien 2. Right of stoppage of goods in transit

3. Right of resale.

Right of lien a possessory lien.

The unpaid seller can excercise his right of lien when 1. Where the goods have been sold without any stipulation of credit. 2. Sold on credit but credit term has expired 3. Buyer becomes insolvent though credit period has not expired. -Insolvency puts an end to credit.

When is lien lost :

1. When the seller delivers the goods to a carrier 2. When buyer or his agent takes lawful possession, 3. When the seller expressly or impliedly waives the lien. implied waiver accepting bill of exchange payable at a future date, extending the term of credit, agrees to a pledge by the buyer.

Right of stoppage of goods in transit when excercised: (a) when the buyer becomes insolvent (he is termed insolvent when he ceases to pay his debts in the ordinary course of business) and (b) the property has passed to the buyer and (c) the goods are in the course of transit.

Effect of sub-sale or pledge by the buyer upon right of lien & right of stoppage of goods in transit:

Sellers right is defeated when:

1. When the seller has assented to the subsale or pledge by the buyer. 2. When document of title to goods (BLading or RR) have been transferred to a new buyer who takes it in good faith for value

Right of Resale
Unpaid seller has a right of re-sale in the following cases: 1. the goods are perishable; no notice required 2. such right of re-sale is reserved in the contract; 3. Seller has given notice and buyer does not pay within reasonable time. (giving notice is mandatory).

Rights of unpaid seller against buyer personally:

1. Suit for price

2. Suit for damages

3. Suit for special damages and interest

Buyers Right against the Seller:

1. Suit for damages for non-delivery 2. Suit for specific performance 3. Suit for damages for breach of warranty 4. Suit for rescission of contract and for damages for breach of condition 5. Suit for recovery of the price together with interest.

AUCTION SALE
1. When goods are put up for sale, each lot is a separate contract. 2. Sale is complete on the fall of the hammer, or customary announcement three times.(until then bidder can withdraw the bid). 3. If right to bid is reserved, seller or his agent can bid at the auction. If not notified as such it will be improper for seller to bid. 4. The sale may be subject to reserve or upset price. 5. If seller uses pretended bidding to raise price, sale is voidable at the option of the buyer.