UNIT I

COMMERCIAL LAWTHE INDIAN CONTRACT ACT 1872THE SALE OF GOODS ACT 1930

LAW

Law is a system of rules, usually enforced through a set of institutions.

It shapes politics, economics and society in numerous ways and serves as the foremost social mediator in relations between people.

Law governs a wide variety of social activities.

Contract law regulates everything from buying a bus ticket to trading on derivatives markets.

Property law defines rights and obligations related to the transfer and title of personal and real property.

Criminal law offers means by which the state can prosecute the perpetrator

LAWSystem of rules

Criminal law – Deals with crime – harmful acts against the public/

society.

Civil law – Deals with disputes between individuals &

organisations

CONTRACT ACT

Before 1872, English common law was applied in India.Disputes between a Hindu and another Hindu – Hindu

lawDisputes between a Muslim and another Muslim –

Muslim lawDisputes between a Hindu and a Muslim – Law of

the defendant.Only in disputes where both the Hindu and Muslim laws

were silent, English common law, was applied.

CONTRACT

An agreement enforceable by law.

CONTRACT

Proposal and acceptance :

Proposal = Willingness to do or abstain

from doing + Willingness to obtain assent from

the other party to such act/ abstinence.

Acceptance = Assent to proposal.

Promise = Proposal + Acceptance.

CONTRACT

Consideration :The promise for a promise in return.Competent parties :A person should be a major. He should be of

sound mind. He should not possess any other disqualification from something by any law.

Free consent :Parties to a contract must given their free

consent. Mere consent is not enough. Consent of parties must be free.

CONTRACTNo expressly void agreement :The contract should not be declared invalid, in

writing.Writing and registration :Oral contracts accepted. However, certain

contracts like Gift contracts etc. must be in writing and registered.

Legal relationship :The contract should promote/ be capable of

promoting a legal relationship between the parties.

CONTRACTCertainty :The contract should be clear, not vague or

unambiguous.Performance :The performance of the contract must be

possible, not impossible.Enforceable by law :It should be in line with the laws of the country

and must be enforceable by law.

PROPOSAL / OFFERParties to the proposal – Offeror / Promisor,

Offeree/ Promisee.Requirements of a valid proposal

Willingness plus requestProposer cannot dictate conditionsIntended / capable of creating a legal

relationshipNot mere intention, but, binding promise, also.Definite person

PROPOSAL / OFFERRequirements of a valid proposal

Clear and unambiguousExpress or impliedMust be communicatedCan be conditional, but, conditions must be

communicated.Intent to be bound by the offer.

Test of a valid proposalIntention, to be legal bound Actual communication.

ACCEPTANCEMust be absolute and unqualifiedExpressed in a usual, reasonable mannerMental acceptance not sufficient – complete

acceptance which must be communicated.Acceptance of the proposalNot always expressedBy a definite personReasonable time frameNot done in ignorance of the proposalMade before lapse/ revocation/ withdrawal.

CONSIDERATION A right, interest, profit or benefit accruing

to one party. Loss, detriment or responsibility assumed

by the other party to the contract. Requirement of a valid contract. Basic reason for a contract – a person gives

up something of value in exchange for something of value, through a contract.

Types of Contracts

In connection with contracts, there are four types of classifications.

Types of contracts in contract law are as follows;On the basis of Formation,On the basis of Nature of Consideration,On the basis of Execution andOn the basis of Validity.

Types of Contracts on the basis of FormationOn this base Contracts can be classified into three groups, namely

ExpressImplied Quasi Contracts

Express Contracts: 

The Contracts where there is expression or conversation are called Express Contracts.

For example: A has offered to sell his house and B has given acceptance. It is Express Contract.

Implied Contract: 

The Contracts where there is no expression are called implied contracts.

Sitting in a Bus can be taken as example to implied contract between passenger and owner of the bus.

Quasi Contract: 

In case of Quasi Contract there will be no offer and acceptance so, Actually there will be no Contractual relations between the partners. Such a Contract which is created by Virtue of law is called Quasi Contract.

Sections 68 to 72 of Contract Act read about the situations where court can create Quasi Contract.

Sec. 68: When necessaries are supplied

Sec. 69: When expenses of one person are paid by another person.

Sec. 70: When one party is benefited by the activity of another party.

Sec. 71: In case of finder of lost tools.

Sec. 72: When payment is made by mistake or goods are delivered by mistake.

Example: 

A case on this occasion is Chowal Vs Cooper.

In this case A`s husband becomes no more. She is very poor and therefore not capable of meeting even cost of cremation.

B, one of her relatives, understands her position and spends his own money for cremation.

It is done so without A`s request. Afterwards B claims his amount from A where A refuses to pay.

Here court applies Sec. 68 and creates a Quasi Contract between them

Types of Contracts on the basis of Nature of Consideration :

On this base, Contracts are of two types. Namely Bilateral Contracts and Unilateral Contracts

Bilateral ContractsUnilateral Contracts

Bilateral Contracts: If considerations in both directions are to be moved after the contract, it is called Bilateral Contract.

Example: A Contract has got formed between X and Y on 1st Jan, According to which X has to deliver goods to Y on 3rd Jan and Y has to pay amount on 3rd Jan. It is bilateral contract.

Unilateral Contract: If considerations is to be moved in one direction only after the Contract, it is called Unilateral Contract.

Example: A has lost his purse and B is its finder. There after B searches for A and hands it over to A. Then A offers to pay Rs. 1000/- to B to which B gives his acceptance. Here, after the Contract consideration moves from A to B only. It is Unilateral Contract.

Types of Contracts on the basis of Execution

On this base Contracts can be classified into two groups. namely,

Executed Contracts and Executor Contracts.

If performance is completed, it is called Executed Contract. In case where contractual obligations are to be performed in future, it is called Executor Contract.

Types of Contracts On the basis of Validity

On this base Contracts can be classified into 5 groups.

namely Valid, Void, Voidable, Illegal and Unenforceable Contracts.

Valid: The Contracts which are enforceable in a court of law are called Valid Contracts. To attain Validity the Contract should have certain features like consensus ad idem, Certainty, free consent, two directional consideration, fulfillment of legal formalities, legal obligations, lawful object, capacity of parties, possibility of performance, etc.

Example: there is a Contract between X and Y and let us assume that their contract has all those above said features. It is Valid Contract.

Void: A Contract which is not enforceable in a court of law is called Void Contract. If a Contract is deficient in any one or more of the above features (Except free consent and legal formalities). It is called Void Contract.

Example: there is a Contract between X and Y where Y is a minor who has no capacity to contract. It is Void Contract.

Voidable: A Contract which is deficient in only free consent, is called Voidable Contract. That means it is a Contract which is made under certain pressure either physical or mental. At the option of suffering party, a voidable contract may become either Valid or Void in future.

For example: there is a Contract between A and B where B has forcibly made A involved in the Contract. It is voidable at the option of A.

Illegal: If the contract has unlawful object it is called Illegal Contract.

Example: There is a contract between X and Z according to which Z has to murder Y for a consideration of Rs. 10000/- from X. It is illegal contract.

Unenforceable: A contract which has not properly fulfilled legal formalities is called unenforceable contract. That means unenforceable contract suffers from some technical defect like insufficient stamp etc. After rectification of that technical defect, it becomes enforceable or valid contract.

Example: A and B have drafted their agreement on Rs. 10/- stamp where it is to be written actually on Rs. 100/- stamp. It is unenforceable contract.

Void Contracts and Illegal Contracts

All illegal Contracts are void, but all void contracts are not illegal: 

An illegal Contract will not be implemented by court. So, illegal contract is Void. A void contract may not be illegal because its object may be lawful.

The Contracts which are collateral to illegal contract are void, But the contracts which are collateral to Void contract may be Valid: 

An illegal makes not only itself Void but also the contracts connected to it. But a contract collateral to void contract may attain Validity because object of main contract is lawful.

Void Contracts and Voidable Contracts

Becoming Valid: A Voidable Contract may become Valid at the option of suffering party. But a Void Contract can never and never become Valid.

Third Party Rights: In case of Voidable Contracts third party may attain rights on concerned property, If the third party gets the property before the Voidable Contracts gets declared as Void. But in case of Void Contract third party cannot get any right.

KINDS OF CONTRACTSContingent contract : A contract which is conditional. Contracts of record :A contract taken to the records of a court.Specialty contract :A contract which is written, signed, sealed and

delivered to the parties. Also, contract under seal.Simple contract :A contract not under seal.

KINDS OF CONTRACTS

Statutory contract : A contract required by law or the statues of a

country.

Formation of Contract

performance of contracts

To ExploreHow to make an effective contract?

Relation between offer and “declaration of intention”

Distinction between an offer and an “invitation to make

an offer”

Binding effect of an offer

What is the binding effect of an offer?

What is the differences between an binding effect of an

offer and the effect of a contract made by this offer?

Can offeror withdraw or revoke an offer made by him?

When does the binding effect start and extinguish?

The manner to make a contract

A contract is mutual assent resulting from an

exchange of reciprocal declarations of

intention by two or more persons for the purpose

of creating certain legal effects.

When the parties have reciprocally declared

their concordant intent, either expressly or

impliedly, a contract shall be constituted.(RCC153I)

A contract is concluded by the exchange of an

offer and an acceptance.(PCL13)

Exchange of reciprocal declarations of intentionAn offer and an acceptance

Offer: Express or implied declarations of

intentionReal offer: declarations of intention

accompanied with a “thing”. Acceptance:

Express or implied declarations of intention

Accomplishment of intention: performance, acceptance of the other party’s tender

Exchange of offers

Invitation to make an offer An invitation to offer is a party's manifestation of intention to

invite the other party to make an offer thereto. (PCL art.15I)

A delivered price list (PCL15I); the sending of pricelists is not

deemed to be an offer.(RCC154II)

Exposing goods for sale with their selling price shall be

deemed to be an offer. (RCC154II)

Announcement of auction

Call for tender

Prospectus

Commercial advertisement

A commercial advertisement is deemed an offer if its

contents meet the requirements of an offer. (PCL

art.15II) 

Definition of OfferAn offer is a party's manifestation of intention

to enter into a contract with the other party,

which shall comply with the following:

(i) Its terms are specific and definite;

(ii) It indicates that upon acceptance by the

offeree, the offeror will be bound thereby.

(PCL art14)

Binding effect of contract, not binding

effect offer.

Binding Effect - This Agreement shall be

binding upon and inure to the benefit of the

parties and their respective heirs,

successors and permitted assigns.

Can an offer be withdrawn?

An offer may be withdrawn. (PCL17)

The notice of withdrawal shall reach the offeree before

or at the same time as the offer. (PCL17)

If a notice of withdrawing an offer arrives after the

arrival of the offer itself, though it should usually

arrive before or simultaneously with the arrival of the

offer within a reasonable time by its transmitting

manner, and this might be known to the other party,

the other party so notified should notify the offeror

immediately of such delay. (RCC162I)

If such other party delays the notice specified in the

preceding paragraph, the notice of withdrawing

the offer shall be deemed to have arrived

without delay.(RCC162II)

withdrawal

Notice of Delay

Ineffective offer

Effective offerOffer on the way to the offeree

Offer on the way to the offeree

Offer on the way to the offeree

withdrawal

Ineffective offer

withdrawal

Effective offer

Offer dispatched Offer arrived

Withdrawal arrived after offer effected

Delayed withdrawal arrived after itshould have arrived

Withdrawal arrived before offer effected

DISCHARGE OF A CONTRACT

DISCHARGE OF A CONTRACT

DISCHARGE BY PERFORMANCE

DISCHARGE BY AGREEMENT OR CONSENT

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

DISCHARGE BY LAPSE OF TIME

DISCHARGE BY OPERATION OF LAW

DISHARGE BY BREACH OF CONTRACT

DISCHARGE BY PERFORMANCE

ACTUAL PERFORMANCE When both parties perform their promises & there is

nothing remaining to perform

ATTEMPTED PERFORMANCE

When the promisor offers to perform his obligation ,but promisee refuses to accept the performance. It is also known as tender

DISCHARGE BY AGREEMENT OR CONSENT

NOVATION (Sec 62): New contract substituted for old contract with the

same or different parties

RESCISSION (Sec 62) : When some or all terms of a contract are

cancelled

ALTERATION (Sec 62): When one or more terms of a contract is/are

altered by the mutual consent of the parties to the contract

REMISSION (Sec 63) : Acceptance of a lesser fulfilment of the promise

made.

WAIVER : Mutual abandonment of the right by the parties to contract

MERGER : When an inferior right accruing to a party to contract

merges into a superior right accruing to the same party

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

KNOWN TO PARTIES UNKNOWN TO PARTIESSUBSEQUENT IMPOSSIBILITYSUPERVENNING IMPOSSIBILITY (Sec 56) Destruction of subject matter Non-existance of state of things

Death or incapacity of personal services Change of law Outbreak of war

DISCHARGE BY LAPSE OF TIME

THE LIMITATION ACT 1963, CLEARLY STATES THAT A CONTRACT SHOULD BE PERFORMED WITHIN A SPECIFIED TIME CALLED PERIOD OF LIMITATION

IF IT IS NOT PERFORMED AND IF THE PROMISEE TAKES NO ACTION WITHIN THE LIMITATION TIME, THEN HE IS DEPRIVED OF HIS REMEDY AT LAW

DISCHARGE BY OPERATION OF LAW

DeathMergerInsolvencyUnauthorised alteration of the terms

of a written agreementRights & liabilities vesting in the same

person

DISCHARGE BY BREACH OF CONTRACT

ACTUAL BREACH : At the time of performance During the performance

ANTICIPATORY BREACH By the act of promisor (implied repudation) By renunciation of obligation (express repudation)

REMEDIES FOR BREACH OF CONTRACT

REMEDIES OF INJURED PARTY

A remedy is a means given by law for the

enforcement of a right

Following are the remedies

[1] Rescission of damages.

[2] Suit upon quantum meruit.

[3] Suit for specific performance.

[4] Suit for injunction.

RESCISSIONWhen a contract is broken by one party, the other party may sue to treat

the contract as rescinded and refuse further performance. In such a

case, he is absolved of all his obligations under the contract.

The court may give rescission due to

1)contract is voidable.

2)contract is unlawful

The court may refuse to rescind if

1)Plaintiff has ratified the contract.

2)Parties cannot be restored to the original position.

3)The third party has acquired for value.

4)When only a part is sought to be rescinded.(sec 27 of specific

relief act 1937)

DAMAGES Damages are a monetary compensation allowed to

the injured party by the court for the loss or injury

suffered by him by the breech of the contract.

The objective of awarding damages for the breech of

contract is to put the injured party in the same position

as if he had not been injured.

This is called the doctrine of restitution. The

fundamental basis is awarding damages for the

pecuniary loss.

QUANTUM MERUIT

The phrase quantum meruit literally means

‘as much as earned’.

A right to sue on a quantum meruit arises

when a contract, partly performed by one

party, has been discharged by breach of

contract by the other party.

This right is performed not on original

contract but on implied promise by other

party for what has been done.

SPECIFIC PERFORMANCEIn certain cases of breach of contract damages are not

an adequate remedy. The court may, in such cases,

direct the party in breach to carry out his promise

according to terms of the contract. This is a direction

by the court for specific performance of the contract at

the suit of the party not in breach

Cases for specific performance to be enforced

1)when the act agreed to be done is such that

compensation is not adequate relief.

2)when there is no standard for ascertaining the actual

damage

3)when it is probable that compensation cannot be

agreed to be done.

INJUNCTION

When a party is in breech of a negative term

of contract the court may, by issuing an

order, restrain him by doing what he

promised him not to do. Such an order of

the court is called injunction.

Court refuses grant of injunction

[1] whereby a promisor undertakes not to do

something

[2] which is negative in substance though not

in form

Contract Of Agency

Definition of Agent & Principal

An agent is a person employed to do any act for

another or to represent another in dealings with

third persons.

The person for whom such acts are done or who

is represented is called the principal.

The contract which creates relationship of

principal & agent is called an agency.

Essentials and legal rules

1. There should be an agreement between the principal

and the agent :Agreement may be: Express or implied.

2. The agent must act in the representative capacity.

3. The principal must be knowledgeable to contract.

4. The agent need not be knowledgeable to contract. Why?

But in the interest of the principal.

5. The consideration is not necessary.

General rules of agency

1. Whatever a person can lawfully do himself, he may also do the same through an agent

2. He who acts through another, does by himself

Conti…

Who may employ an agent?Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.

Who may be an agent?As between the principal and third persons any person may become an agent

Agent Servant

He has the authority to create commercial relationship between the principal & the third party

He ordinarily has no such authority.

He may work for several principal at a time.

He ordinarily work for only one master at a time.

He usually get commission

He usually get salary or wages.

TEST OF AGENCY

The question as to whether a particular persons is an agent can be verified by finding out if his acts bind the principal or not.

Creation of agency

1. Agency by express agreement2. Agency by implied agreement3. Agency by ratification

A. Agency by express agreementAppointment in writing or by words of mouthUsual form of a written agreement : Power of attorney –

General power of attorney

B. Agency by implied agreement

Due to the conduct of the parties or the course of

dealing between the parties or the situation of

a particular case.

Agencies by an implied agreement includes:

1. Agency by estoppel

2. Agency by holding out

3. Agency by necessity

Conti…

Agency by estoppels :

Where a person by his words or

conduct has willfully led another to believe that

certain set of circumstances or facts exist, and the

other person has acted on that belief, he is

estopped from denying the truth of such

statements although such a state of things did not

in fact exist.

Conti…

Agency by holding out:More than estoppel – positive or affirmative conduct of the principal is required.

Agency by necessity:Due to extraordinary circumstances, person may be compelled to act without requiring the consent or authority.

Conti…

Conditions:

• There must be real emergency to act on behalf of

the Principal.

• Agent not in a position to obtain instructions

• Acting honestly and in the interest of the Principal

• Adopting reasonable and practicable course of

action

Conti…

Cases:1.Where the agent exceeds his authority bonafide in

an emergency2.Where the carrier of goods acting as a bailee,

does anything to protect or preserve the goods.3.Where husband improperly leaves his wife without

providing proper means for her sustenance.

C. Agency by ratification

A person does some acts on behalf of another person

without his knowledge or authority

Another person subsequently accepts the acts Then:

Agency by ratification

Also known as ex-post facto agency (agency arising

after the event)

Conditions for valid ratification

1. The agent must act on behalf of the principal

2. The principal must be competent to contract

and in existence at the time of contract by the

agent

3. There should be an act capable of ratification

4. The principal must have full knowledge of the

material facts.

5. Whole transaction must be ratified

6. Within a reasonable time.

7. Ratification must not injure a third party.

Kinds of agents

I. From the point of view of the extent of their authority :

1.General Agent- Is one employed to do all the acts connected with a particular business or employment

Eg: manager of a firm.

2. Special Agent – employed to do some particular act or represent his principal in some particular transaction.

Eg: agent employed to sell a motor car.

3.Universal Agent – Whose authority is unlimited. He enjoys extensive powers to transact every kind of business on behalf of principal.

Conti…

II. From the point of view of the nature of work performed by them:

I. Mercantile agent -

An agent dealing in the buying and selling of the goods

An agent who has the authority either to sell the goods, or

to consign the goods for the purpose of sale, or to buy the

goods or to raise the money on the security of the goods on

behalf of his principal

Types of Mercantile Agents

Factor: Possession of the goods is given for the purpose of selling

the same – sells in his own name

Broker: Appointed to negotiate and make contracts for the sale

and purchase on behalf of the principal – not given possession –

not in his own name

Commission agent: Buys and sells and receives commission

Del credere agent: One who in consideration of an extra

commission, guarantees his principal that the third persons with

whom he enters into contracts on behalf of the principal shall

perform their financial obligations i.e. if the buyer does not pay ,

he will pay.

Conti…

II. Non- mercantile agents :Does not usually deal in the buying or selling of the goods. They include Insurance agents ,Counsels or advocates, wife,etc.

Duties of an agent

1. Duty to follow the instructions of the principal – if not..

2. Duty to carry out the work with care and skill

3. Duty to render accounts to the principal

4. Duty to communicate with principal – if no time

5. Duty not to deal on his own account

6. Duty not to make secret profits from agency

7. Duty to pay the amount received for the principal

8. Duty not to use the information, received in the course of agency,

against the principal

9. Duty to protect the interest of the principal in case of his death or

insanity

10. Duty not to delegate authority

Rights of an agent

1. Rights to retain money due from the principal2. Right to receive remuneration3. Right of lien – The agent has the right to retain

goods, papers and other property- only particular lien

4. Right to be indemnified against consequences of lawful acts.

5. Right to compensation6. Right to be indemnified against consequences

of acts done in good faith7. Right of stoppage of goods in transit.(a) Principal becomes insolvent

(b) Agent has bought goods out of his own money

Rights of principalRecover damages from agent if he disregards

directions of PrincipalObtain accounts from AgentRecover moneys collected by Agent on behalf

of PrincipalObtain details of secret profit made by agent

and recover it from himForfeit remuneration of Agent if he

misconducts the business

Duties of principal

Pay remuneration to agent as agreed

Indemnify agent for lawful acts done by him

as agent 

Indemnify Agent for all acts done by him in

good faith

Indemnify agent if he suffers loss due to

neglect or lack of skill of Principal.

Delegation of authority by an agent

General rule:“ Delegatus non-protest delegare” i.e. a delegate

cannot further delegate But in exceptional cases sub-agent can be

appointedCases:1. Express authority from the principal2. Where the principal has impliedly, by his

conduct allowed such delegation of authority.3. Ordinary Custom of a particular trade4. Nature of the work5. Acts which do not require personal or

professional skill6. Due to unforeseen emergencies

Relations of principal with third parties

Scope and extent of agent’s authority Principal and the third party Personal liability of the agent

Agent’s authority Power or capacity to bind the principal with the

third partyTwo types of authority

1. Actual or real authority2. Ostensible or apparent authority

1.Actual or real authorityAuthority conferred upon the agent by his principal

Two kinds:1. Express authority2. Implied authority: conferred upon the agent by

the conduct of the principal

2.Ostensible or apparent authority The act is in excess of the actual authorityAuthority due to the appearance created by the

principal

Authority in necessity

Relationship between principal and sub-agent

Discussed under two heads:1. Where the sub-agent is properly appointed2. Where the sub-agent is improperly appointed1.Where the sub-agent is properly appointed(a)The principal is bound and is liable to third

parties for the acts of the sub-agent(b) Where the agent is responsible to the principal

for the acts of sub-agent.(c )The Sub-agent is responsible for his acts to

original agent not to principal except in fraud or willful wrong

2. Where the sub-agent is improperly appointed

(a) The principal is not represented by sub-agent

and hence he is not liable for acts of the sub-

agent

(b) The agent is responsible for the acts of the sub-

agent to the principal as well as to the third

parties

(c) The sub-agent is not responsible to principal at

all.

Personal Liability of agent

1. When contract expressly provides2. Agent acts for foreign principal3. Agent acts for undisclosed principal4. When principal can not be sued5. Where agent signs contract in his name6. Principal is not in existence7. Liable for breach of warranty of authority8. When he pays or receives money by mistake

9. Authority is coupled with interest10. Trade makes agent personally liable

Termination of agency

End of the relationship of a principal and his agentStudied under:1. Termination of agency by act of the parties2. Termination of agency by operation of law1.Termination of agency by act of the parties3. Agreement -between the principal and agent4. Revocation by the principal : Revocation may be

express or implied – There are conditions(i) In case of continuous agency(ii) Where an agency has been created for a fixed

period of time.3. Revocation of agency by the agent

II.Termination of agency by operation of law

1. Completion of agency business2. Expiry of time3. Death of the principal or the agent4. Insanity of the principal or the agent 5. Insolvency of the principal6. Destruction of the subject-matter of the agency7. Dissolution of a company8. Principal or agent becomes alien enemy

Effectiveness of termination:As between the principal and agent, termination of

agency is effective only when it becomes known to the agent.

- Third parties- when it is known to them.

Irrevocable agency 1. Where the agency is coupled with interest-

where the agent has some interest over the subject matter

2. When revocation would cause the agent personal loss

3. When the authority has been partly exercised by the agent.

SALE OF GOODS ACT 1930

INTRODUCTIONESSENTIALS OF CONTRACT OF SALEDISTINGUISH BETWEEN SALE AND

AGREEMENT TO SELLDOCUMENTS OF TITLE TO GOODS`CONDITIONS AND WARRANTIESDOCTRINE OF CAVEAT EMPTORRIGHTS OF UNPAID SELLERDELIVERY – RULES REGARDING DELIVERY SALE BY AUCTION

Contents

Originally, the law relating to sale of goods was contained in Chapter VII of the Indian Contract Act, 1872. The same was repealed and re-enacted by the Sale of Goods Act, III of 1930.

Introduction

(Section 4)A contract of sale of goods is a

contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for price".

Definition

From the above definition, the following essentials of a contract of sale may by noted:

1. There must be at least two parties 2. Transfer or Agreement to transfer the

ownership of goods. 3. The subject matter of the contract must

necessarily be 'goods'. 4. The consideration is Price. 5.A Contract of sale may be in writing or by

words 6. All other essentials of a valid contract must

be present

ESSENTIALS OF CONTRACT OF SALE

Sale: It is a contract where the ownership in the goods is

transferred by seller to the buyer immediately at the conclusion contract. Thus, strictly speaking, sale takes place when there is a transfer of property in goods from the seller to the buyer. A sale is an executed contract.

It must be noted here that the payment of price is immaterial to the transfer of property in goods.

Ex -A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It

is a sale since the ownership of the motorcycle has been transferred from A to B.

`

SALE` AND 'AGREEMENT TO SELL' DISTINGUISHED

It is a contract of sale where the transfer of property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled.

Ex-A agreed to buy from B a certain quantity of nitrate

of soda. The ship carrying the nitrate of soda was yet to arrive. This is `an agreement to sale`. In this case, the ownership of nitrate of soda is to be to transferred to A on the arrival of the ship containing the specified goods (i.e. nitrate of soda) [Johnson V Mcdonald (1842) 9 M & W 600, 60 RR 838]

Other points of distinction between a sale and an agreement to sell are:

Agreement to sell

Sale Agreement to sell

1. A sale is an executed

contract.

2. In a sale, since the property

has passed to the buyer, the

seller can sue the buyer for the

price of the goods.

3. A sale creates a right in rem.

4. In case of loss of goods, the

loss will fall on the buyer, even

though the goods are in the

pos session of the seller. It is

because 'Risk' is as sociated

with ownership.

1. An Agreement to sell is an

executory contract.

2. In an agreement to sell, in

case of breach, the seller can

only sue for damages, unless

the price was payable at a

stated date.

3. An agreement to sell creates

a right in personam.

4. The loss in this case shall be

borne by the seller, even

though the goods are in the

pos session of the buyer.

Sale Agreement to sell

5. In case buyer pays the price and the

seller thereafter becomes an insolvent,

the buyer can claim the goods from the

Official Receiver or Assignee.

6. If the buyer becomes an insolvent

without paying the price, the ownership

having passed to the buyer, the seller

shall have to deliver the goods to the

Official Assignee or Receiver ex cept

where he has a lien over the goods.

5. In these circumstances, the buyer

cannot claim the goods but only a

rateable dividend for the money paid.

6. In these circumstances, the seller can

refuse to deliver the goods to the

Official Assignee or Re ceiver.

Hire Purchase Agreement

It is an agreement for hire, with an option to purchase.

The hirer, under this agreement, is required to pay every month a

particular sum of money, and if he pays in that way for a fixed number of

months, the hirer will become the owner of the goods on the payment of

the last instalment.

But, if the hirer fails to pay any particular instalment, the owner can

terminate the contract and take away the goods, because the ownership

continues to remain in the owner. A "Hire-purchase agreement" is

distinct from "Sale" in which price is payable by instalments

A 'Hire-purchase agreement,' does not result in passing of the property

unless the option to purchase is exercised, usually by payment of all the

instalments. Till such time, it constitutes bailment.

Sale and Hire Purchase Agreement

Sale:ln case of sale, the property passes as soon

as sale is made though price has not been fully paid.

 In determining as to whether a particular contract belongs to one type or the other, regard shall have to be paid to the fact whether the hirer has merely an option to purchase, or whether he has bought or agreed to buy the goods.

Definition of `GOODS` under the Act'Goods' means every kind of moveable property 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.

Actionable claims and money are not included in the definition of goods.

Thus, goods include every kind of moveable property other than actionable claim or money. Example - goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the sub ject matter of a contract of sale.

The test is if the property on shifting its situation, does not lose its character, the said property shall be movable and fall within the definition of `Goods`.

GOODS

Existing goods Future goods Contingent goods

Types of goods

A document of title to goods may be described as any document used as proof of the possession or con trol of goods, authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.

The following are documents of title to goods: Bill of Lading; Dock Warrant; Warehouse keeper's Certificate; Warfinger's Certificate; Railway Receipt; Warrant or order for the delivery of goods; and

Any other document used in the ordinary course of business as a document of title

Which documents are considered as `DOCUMENTS OF TITLE TO GOODS`

Sec 12(2) of Sales Of Goods Act, 1930 has defined Condition as:

“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 repudiated”.

CONDITIONS AND WARRANTIES[Sections 11-17]

Sec 12(3) of Sale Of Goods Act, 1930 has defined Warranty as :

“A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to only claim for damages but not to a right to reject the goods and treat the contract as repudiated”.

Condition Warranty1. A condition is a stipulation (in

a contract), 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 the contract.

3. A breach of condition may be treated as a breach of warranty in certain circumstances.

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

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.

DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY'

CASES OF TREATING THE BREACH OF CONDITION AS BREACH OF WARRANTY

[SECTION 13]

1. Voluntary Waiver .

2. Compulsory treatment of breach of condition as breach of Warranty.

Conditions and Warranties may be either express or implied.

They are said to be "express" when they are expressly provided by the parties.

They are said to be 'implied' when the law deems their existence in the contract even without their actually having been put in the contract.

EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

(1) Condition as to Title (2) Sale by Description (3) Condition as to Quality or Fitness (4) Merchantable Quality 1)They are reasonably saleable under the

description by which they are known in market.

2)They are purchased for the personal use they must be reasonably fit for the purpose for which they are generally held.

IMPLIED CONDITIONS

(5)Sale by sample-

In a sale by sample, the following are the implied conditions:

1. The bulk shall correspond with the sample in quality;

2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and

3. That the goods shall be free from any defects rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

Implied warranties

1. Warranty of Quiet Possession In a contract of sale, unless the circumstances

of the contract are such as to show different intention, there is a implied warranty that the buyer shall have and enjoy quiet possession of the goods.

2. Warranty of Freedom from Encumbrances

DOCTRINE OF caveat emptor

Caveat Emptor is a fundamental principle of the law of sale of goods

It means "Caution Buyer", i.e. "Let the buyer beware".

Exceptions to the doctrine of Caveat Emptor (Sec.16)In case of any misrepresentation by the sellerIn case of concealment of latent defects by the

sellersIn case of sale by descriptions and sample(Sec 15)Conditions as to merchantabilityConditions as to quality of fitness for buyers

purpose Conditions of wholesomeness

TRANSFER OF PROPERTY BY NON-OWNERS(Sec. 27-30)

The general rule is that only the owners of the property can transfer a goods title.

“Nemo dat quod non habet” which means “no one can give which he himself has not”

EXCEPTIONSUNDER THE SALE OF GOODS ACT

Estoppels (Sec . 27)

Sale by a mercantile agent

Sale by one of several joint owners (Sec 28)

Sale by an unpaid seller

IN OTHER LAWSSale by a finder of lost

goods

Sale by a Pawnee

Sale by Official Receiver

Purchase in market overt

Under Negotiable Instrument Act 1881

UNPAID SELLERA seller deemed to be an unpaid seller (a). When the whole of the price has not

been paid or rendered(b). When the bill of exchange or other negotiable instrument has been received as conditional payment and condition has not been fulfilled by the reason of the dishonor of the instrument or otherwise (Sec. 45)

RIGHTS OF UNPAID SELLER

AGAINST THE GOODS

Unpaid sellers lien

Stoppage in transit

Right of resale

AGAINST THE BUYER PERSONALLY

Right to sue for price

Right to sue for damage

Repudiation of contract before due date

DELIVERY

It has been defined as a voluntary transfer of possession from one person to another..

Delivery of the goods may, be:I. Physical or Actual Delivery 2. Symbolic Delivery - e.g., delivery of a

railway receipt properly endorsed, or deliv ery of the key of a warehouse;

3. Constructive Delivery or Attornment - only an acknowledgement by the person in possession that he holds them on behalf of another.

Rules regarding delivery

1. The seller is not bound to deliver goods till the buyer applies for delivery in terms of the contract.

2. Place of Delivery - goods sold are to be delivered at the place agreed for delivery in the contract.

3. Time of Delivery – as per contract otherwise within reasonable time.

4. The expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller, as per the terms of the contact.

5 Demand and tender must be at a reasonable hour - What is a reasonable hour is a question of fact.

6 Delivery of Wrong Quantity -.

7 Instalment Deliveries - The buyer is not bound to accept delivery by instalment, unless otherwise agreed.

8 Delivery to the Carrier or Wharfinger –

9 Buyer not bound to return rejected goods -. 10 Liability of the Buyer -

SALE BY AUCTION (Section 64)

In the case of sale by auction the following rules apply:

1. At an auction, the sale is complete when the auctioneer announces its completion by the fall of the hammer

2. A bidder is at liberty to withdraw his bid at any time before it is accepted by auctioneer

3. Advertisement to auction is not an offer but mere invitation .

4. Auctioneer has right to make any condition he likes .

5. Biddings can be withdrawn before acceptance

Sale by Auction …..6 In case of goods put up for sale in lots – 7 no seller or any person who has advertised

can bid at an auction sale – unless right is notified

8Knockout agreements are unlawful 9Pretended bidding by seller to raise price is

voidable at option of buyer

INTRODUCTION TO NEGOTIABLE INSTRUMENTS ACT, 1881

The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the provision of the English Negotiable Instrument Act were applicable in India, and the present Act is also based on the English Act with certain modifications. It extends to the whole of India except the State of Jammu and Kashmir. The Act operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of India Act, 1934.

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MEANING OF NEGOTIABLE INSTRUMENT

The word negotiable means ‘transferable by delivery’, and word instrument means ‘a written document’ by which a right is created in favour of some person. Thus, the term “negotiable instrument” means “a written document transferable by delivery”.

According to Section 13 (1) of the Negotiable Instruments Act, “A negotiable instrument means a promissory note, bill of exchange, or cheque payable either to order or to bearer”.

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127

CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS

• Free transferability or easy negotiability Negotiable instrument is freely transferable.

• Title of holder is free from all defects A person who takes negotiable instrument bona-fide and for value gets the instrument free from all defects in the title. The holder in due course is not affected by defective title of the transferor or of any other party.

TYPES OF NEGOTIABLE INSTRUMENTS

There are two types of Negotiable Instruments:1. Instruments Negotiable by Statute:

The Negotiable Instruments Act mentions only three kinds of negotiable instruments (Section 13). These are:1. Promissory Notes2. Bills of Exchange, and3. Cheques

2. Instruments Negotiable by Custom or Usage:

There are certain other instruments which have acquired the character of negotiability by the usage or custom of trade. For example: Exchequer bills, Bank notes, Share warrants, Circular notes, Bearer debentures, Dividend warrants, Share certificates with blank transfer deeds, etc.

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PROMISSORY NOTES

Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”

The person who makes the promissory note and promises to pay is called the maker. The person to whom the payment is to be made is called the payee.

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CHARACTERISTICS OF A PROMISSORY NOTE

It is an Instrument in WritingIt is a Promise to PaySigned by the MakerOther FormalitiesDefinite and Unconditional PromisePromise to Pay Money OnlyMaker must be a Certain PersonPayee must be CertainSum Payable must be CertainIt may be Payable on Demand or After a

Definite Period of TimeIt cannot be Made Payable to Bearer on

Demand

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PARTIES TO A PROMISSORY NOTE

Maker:Maker is the person who promises to pay the amount stated in the note.

Payee:Payee is the person to whom the amount of the note is payable.

Holder:He is either the payee or the person to whom the note may have been endorsed.

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SPECIMEN OF PROMISSORY NOTE

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BILL OF EXCHANGE

According to Section 5 of the act, A bill of exchange is “an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument”. It is also called a Draft.

Special Benefits of Bill of Exchange:A bill of exchange is a double secured instrument.In case of immediate requirement, a Bill may be

discounted with a bank.

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ESSENTIAL ELEMENTS OF BILL OF EXCHANGEIt must be in Writing.Order to payDraweeSignature of the DrawerUnconditional OrderPartiesCertainty of AmountPayment in Kind is not ValidStampingCannot be made Payable to Bearer on Demand

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PARTIES TO A BILL OF EXCHANGE

Drawer:The maker of a bill of exchange is called the drawer.

Drawee:The person directed to pay the money by the drawer is called the drawee.

Payee:The person named in the instrument, to whom or to whose order the money are directed to be paid by the instruments are called the payee.

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SPECIMEN OF BILL OF EXCHANGE

CLASSIFICATION OF BILL OF EXCHANGE

Inland and Foreign Bills [Section 11 and 12]Inland Bill:

It is drawn in India on a person residing in India whether payable in or outside India; or

It is drawn in India on a person residing outside India but payable in India.

Foreign Bill:A bill drawn in India on a person residing

outside India and made payable outside India.

Drawn upon a person who is the resident of a foreign country.

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CLASSIFICATION OF BILL OF EXCHANGE (Cont.…)

Time and Demand Bills:Time Bill: A bill payable after a fixed time is

termed as a time bill. A bill payable “after date” is a time bill.

Demand Bill: A bill payable at sight or on demand is termed as a demand bill.

Trade and Accommodation Bills:Trade Bill: A bill drawn and accepted for a

genuine trade transaction is termed as “trade bill”.

Accommodation Bill: A bill drawn and accepted not for a genuine trade transaction but only to provide financial help to some party is termed as an “accommodation bill”.

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CHEQUE

According to Section 6 of the act, A cheque is “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. A cheque is also, therefore, a bill of exchange with two additional qualification:It is always drawn on a specified banker.It is always payable on demand.

Special Benefits of Bill of Exchange:A bill of exchange is a double secured

instrument.In case of immediate requirement, a Bill may be

discounted with a bank.

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ESSENTIAL ELEMENTS OF A CHEQUE

In writingExpress Order to PayDefinite and Unconditional OrderSigned by the DrawerOrder to Pay Certain SumOrder to Pay Money OnlyCertain Three PartiesDrawn upon a Specified BankerPayable on Demand

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PARTIES TO A CHEQUE

Drawer:Drawer is the person who draws the cheque.

Drawee:Drawee is the drawer’s banker on whom the cheque has been drawn.

Payee:Payee is the person who is entitled to receive the payment of a cheque.

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SPECIMEN OF CHEQUE

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TYPES OF A CHEQUE

Bearer Cheque Cross Cheque

Cheque Crossed Specially

Restrictive Crossing (A/c Payee Only)

and Com

pany

& C

o

Not Negotia

ble

and Co.

Not Negotia

ble

A/C SBI

Bank of India

Bank of India

Not Negotiable

A/C PAYEE ONLY

Bank of India

A/C PAYEE

Not Negotiable

A/C PAYEE

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