Note on Contract Of Sale Of Goods Act

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Meaning:

"A contract relating to the sale of goods shall be deemed to have been concluded in case any seller agrees to transfer the ownership of goods to the buyer immediately or in the future by receiving a price."

The definition implies that the sale of goods is a contract between the seller and buyer whereby the seller transfer or agrees to transfer the ownership of goods to the buyer for a price. A contract of sale of goods may be conditional or unconditional and it may be concluded with a provision to sell goods owned or possessed by the seller or those to be produced or acquired by him in the future. That is to say, the term sale of goods includes both a sale and an agreement to sale.

A contract of sale of goods involves two parties, namely, seller and buyer. The seller is the person who transfers or agrees to transfer the property in goods to another. And the buyer is the person to whom property in goods transfers. Therefore, a contract of sale of goods is a contract between the seller and buyer whereby the seller transfer or agrees to transfer the property in goods for a price.

Essential Elements of a Contract of Sale of Goods

The following elements are necessary for a contract of sale of goods:

  1. Two parties: There are two parties, i.e., a seller and a buyer. A seller is a person who transfers or agrees to transfer the ownership in goods. A buyer, on the other hand, is a person who buys or agrees to buy the goods. It is not necessary that seller or buyer always to be an offeror or offeree. The seller, therefore, in one case can be an offeror or in another case, he may be an offeree. The same is applied to the buyer.
  2. Goods:The subject matter of a contract of sale must be goods.Goods include all the movable properties other than security, currency in circulation or actionable claim. Therefore, the sale of other immovable properties do not come within the contract of sale of goods and the principles do not apply here in the contracts of sale of immovable property or service.
  3. Transfer of property or ownership: There must be the transfer of ownership of the goods, called property, from seller to buyer. It is not the transfer of a right of possession in goods which takes place in bailment or in pledge. To be a contract of sale of goods the buyer must necessarily be the owner of goods. It is not essential that any immediate right to possession should be passed by the contract. What is essential is that the title passed thereunder is absolute and not merely possessory. A sale is a translative fact and involves the transfer of the entire interest of the person in whatever is sold.
  4. Price: A transaction will be sale only where for monetary consideration, property is transferred under a contract for sale. Therefore, when goods are exchanged for goods, it is not a sale but a barter.
  5. Fulfillment of essential elements of a valid contract: Sale of goods being a contract, for its validity, it must comply with all the essential elements of a valid contract, i.e., offer and acceptance, intention to create legal obligation, consent, consideration, capacity to contract, legality of object or possibility of performance, etc. In the absence of one or all these element, the sale cannot be enforceable by law.

Difference between Sale and Agreement to Sale

Basis of Difference

Sale

Agreement to Sale

1. Nature of contract

It is an executed contract.

It is an executory contract.

2. Transfer of property

Property in goods does transfer to buyer at the time of the agreement.

Property does not transfer to buyer at the time of contract.

3. Tax

Tax is imposed at the time of sale.

Not at the time of agreement to sell.

4. Nature of goods

Goods must be ascertained.

Goods may be unascertained.

5. Buyer's right

Buyer can claim for goods.

Buyer can claim for compensation.

6. Sellers' right

Seller can claim for price of the goods sold.

Seller can only claim for compensation.

7. Nature of loss

If there is loss or destruction of goods,it is the liability of the buyer.

But if we talk about an agreement to sell, it is the liability of seller.

8. In case of insolvency of seller

Buyer can recover the goods.

Official receiver or liquidator can recover the goods but not by the buyer.

9. Insolvency of buyer

Seller cannot recover back the goods or retain.

Seller can recover back or retain the goods.

10. Right of resale

Seller cannot resale.

Seller can sell to any other person.

Condition and Warranty

While entering into a contract of sale of goods, a seller may say something about the facts of the goods which may influence the buyer to enter into the contract. Such statements or representations differ in character and importance and are called either as conditions or warranties. These are, in fact, two types of contractual promises.

Condition

A condition is a stipulation or representation or promises regarded as so essential that on breach of it, it would be open to the buyer to reject the goods, and treat the contract as discharged. It goes to the root of the contract and its non-fulfillment upsets the very basis of the contract. It has been observed that the condition is an obligation which goes directly to the substance of the contract or in other words, is so essential to its very nature, that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all. Hence, a condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as terminated or discharged.

Warranty

A warranty is a stipulation collateral or secondary to the main part and purpose of the contract. The breach of which gives rise a claim for damages but not to a right to reject the goods and treat the contract as terminated. It is not of such vital importance as a condition is.

Whether a statement in a contract of sale 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. A stipulation may be a condition though called a warranty in the contract.

Difference between Condition and Warranty

Basis of Difference

Condition

Warranty

1. Importance

It is essential and concerned with the main purpose of the contract.

It is collateral to the purpose of the contract

2. Consequence of breach

In case of breach of it the injured party can terminate the contract and reject the goods.

In case of breach of it, the injured party only can sue for damages, i.e. cannot terminate the contract.

3. Effect of breach

A breach of condition may be treated as a breach of warranty.

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

4. Relation between them

Condition may become warranty.

Warranty may not become condition.

Caveat Emptor

The English translation of the term 'caveat emptor' is 'let the buyer beware'. The doctrine of caveat emptor makes the buyer careful while selecting the goods whether the goods shall be fit for his particular purpose or not. Therefore, in a contract of sale of goods, it is the duty of buyer that he should examine the goods thoroughly and be sure that whether or not the goods he is selecting is fit for his particular purpose. If he selects goods which turn to be unfit for his particular purpose he cannot reject the goods and cannot sue the seller for his loss. This is formulated by the doctrine of caveat emptor. If the buyer depends upon his own skill or judgment and makes a bad selection, he cannot blame the seller.

Ward V. Hobbs:

H sent to market 32 pigs to be sold by auction. The pigs were sold to W "With all faults and errors of description." He knew that the pigs were suffering from swine-fever, but he never disclosed this to W. After two days, some of the pigs were died and the casewas filed to recover compensation for loss. It was held that there was no implied warranty by H and the sale was good and H was not liable in damages.

While selling goods, the seller has right to sell his goods in the best term and, further, he is not bound to disclose the defects in the goods. In that situation, the buyer may feel that he has been cheated. Even in such case, the buyer cannot sue the seller. Under the rule of caveat emptor, in case the buyer cannot sue the seller if the goods purchased turns to be unfit for his practical purpose but he is under obligation to examine the goods with care and skill and be sure that the goods are fit for his purpose.

Exceptions:

The doctrine caveat emptor has a certain exception. The exception can be stated as under:

  1. Where the buyer makes known, expressly or impliedly, to the seller the specific purpose for which he needs the goods and depends upon the skill and judgment of the seller.
  2. Where the consent of buyer has obtained by fraud or coercion or the seller knowingly conceals a defect which could not be discovered on a reasonable examination, i.e., latent defect in the goods.
  3. Where the implied conditions are applied then the rule of caveat emptor does not apply.
  4. Where goods are sold by description there is an implied condition that the goods shall be of merchantable quality.
  5. Where the quality or fitness of goods is annexed by custom or usage of trade.
  6. Where the defects in the goods cannot be easily discovered even examined with care and skill.

    References:

    Business Law, Ram Prasad Shrestha;M.K Books, Bhotahity, Kathmandu,2013

    Merchantile law, ICAI, 2013

A seller of goods is called as an unpaid seller in the following conditions:

  1. When the whole of the price has not been paid or tendered.
  2. When the price was paid through a negotiable instrument which was dishonored by the concerned person therein.
  3. When the goods are sold on credit, the buyer fails to pay on the due date of payment.
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