LAW OF SALE OF GOODS

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 a price.

Where there is a transfer it is a contract call a ‘Sale’.

A contract of sale may be absolute or conditional. The former is without any conditions.

Conditions may have to be fulfilled by the seller or by the buyer.

Essentials of a Valid Sale

Property: Transfer of ownership in goods.

Movable goods: Goods that are not fixed

Price: Price or consideration of goods must be money.

Parties: Two parties only. Buyer & Seller.

Form: May be made in writing or by word of mouth.

Agreement to Sell

Where the transfer of property, for example, ownership in the goods is to take place at a future date or subject to some condition to be fulfilled, the contract is called an agreement to sell.

When agreement to sell becomes a sale? It is when the time lapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Sale & Agreement to Sell: Distinguished

Nature of contract: Sale – executed contract; ATS – executory contract.

Creation of right: Sale creates jus-in-rem, that is right on the goods against the whole world. ATS creates jus-in-personam, that is right on the goods against the person who defaults.

Passing of property: Sale – property & risk of the goods pass on to the buyer. ATS – does not pass on to buyer immediately.

Remedies: Sale – seller is entitled to sue for the price of goods. ATS – seller has only right to sue for damages for non-performance of contract.

Risk of loss: Sale – loss will be borne by the buyer even if the possession is with seller. ATS – seller will have to pay for loss.

Insolvency: Insolvency of buyer: Sale – seller must deliver goods to official assignee and claim dividend for the price of goods. ATS – seller may refuse to deliver goods unless paid for. Insolvency of seller: Sale – buyer is entitled to receive the goods from official assignee. ATS – buyer has to prove the amount he has paid and claim a ratable dividend.

Conditions & Warranties

A Stipulation refers to demand, requirement, provision, or specification of a bargain, exchange , etc.

A contract contains some stipulations or terms.

A stipulation essential or core to the contract is called a Condition.

A stipulation which is not essential to the contract is called a Warranty.

What is a Condition? [Section 12 (2)]A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat it as repudiated or broken.

What is Warranty? [Section 12 (3)]A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated or broken.

X, a seller of electronic goods, was supposed to sell a TV of a particular brand & model to Y. The outer surface of the TV came in two colours, silver and black. Y had asked for silver colour. X is unable to deliver a set in silver colour. He, thus, delivers a TV set of black colour. Has Y got what he had contracted for? There is no difference in the quality of the TV, even if the outer cover is black or silver. Thus, he has got what he basically asked for. Yet he is justified in feeling aggrieved as he has not got exactly what he had asked for.

A contract for sale would contain a number of terms specifying the nature, quality, & feature of the good being sold.

Some of the terms may form the core of the contract, while others may be surrounding and peripheral.

The term that the TV must be of a particular brand and model is the core part of contract, while its colour is not of central importance.

Core part is called the ‘condition’ and the terms which are not essential are called ‘warranties’.

Any breach of a ‘condition’ would be a breach of a contract. Thus, for violation of a condition, the contract can be repudiated.

Even if there is breach of ‘warranty’, the contract has been mostly fulfilled.

That is, the contract cannot be repudiated, but the suffering party can claim damages.

In a given situation, stipulation (condition or warranty) would depend on the construction of the contract.

Implied Warranties & Conditions

Warranty as to title (Section 14): There are 3 implied situations on the part of seller w.r.t. title to the goods.(i) Sale – seller has a right to sell the goods. ATS – seller will have the right to sell at the time when property is to pass.(ii) Buyer shall have and enjoy possession of goods.(iii) Goods shall be free from any charge or encumbrance.

Sale by description (Section 15): It means that there is a implied condition that the goods shall correspond with the description. Breach of this warranty entitles the buyer to reject the goods.A description can be physical appearance, brand name, trade mark, packing particulars, or particulars of the ship where the goods are to be landed.

Sale by sample (Section 17): There are 3 implied conditions when the goods are supplied according to the sample:(i) Bulk shall correspond with the sample in quality.(ii) Buyer shall have a reasonable opportunity of comparing the bulk with the sample.(iii) Goods shall be free from any defect. The defect shall not be apparent on reasonable examination. Should be latent one.

Warranty as to quality or fitness (Section 16):There is an implied warranty as to the quality or fitness under the following circumstances.(i) Where goods are ordered for specific purpose and the same is made known to seller.(ii) Where the buyer relies on the seller’s skill of judgment. However, if the buyer selects himself then there is no implied condition as to fitness.(iii) Where goods are bought by description from seller there is an implied condition that the goods shall be reasonably fit for such purpose.(iv) By custom or usage of trade, implied condition of fitness is annexed to a contract of sale. For e.g., sale of eatables shall be fit for food.

Warranty as to quiet possession free from encumbrances.The buyer shall have and enjoy quiet possession of the goods [Section 14 (b)].The buyer shall have a right to sell the goods [Section 14 (a)].The goods shall be free from any charge in favor of any 3rd party not declared or known to the buyer before or at the time when the contract is made [Section 14 (c)].

CAVEAT EMPTOR

It means “let the buyer beware”. That is, the buyer must take care.

In a contract for sale of goods there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods.

Therefore, the buyer purchases the goods at his risk relying on his own skill and judgment (Section 16).

There are certain cases where the Doctrine of Caveat Emptor does not apply.

Caveat Emptor: Exceptions

Custom or Usage of Trade: Implied warranty/condition as to quality or fitness for particular purpose may be annexed by the custom or usage of trade.

Fraud: Where the seller is guilty of fraud or conceals a defect, he is liable.

For specific purpose: Where the goods are ordered for a specific purpose and seller is made aware of it and the buyer relies on the skill or judgment of the seller, there is an implied condition that the goods shall be reasonably fit.

Merchantable Quality: Where (i) sale is by description and (ii) purchased from the seller who deals in goods of that description, there is an implied condition that the goods are of merchantable quality.

Performance of Contract: Buyer’s Rights & Duties

To receive delivery of goods. To repudiate contract on seller’s breach. Reasonable opportunity to examine

goods. To sue for damages for non-delivery of

goods. To recover amount paid if seller fails to

deliver. To sue for damages for breach of

warranty.

Duties: To pay for the goods and take delivery

thereof; To apply for the delivery of goods as the

seller is not bound to deliver until the buyer applies for delivery;

To compensate the seller for any loss occasioned by his neglect or refusal to take delivery of the goods and also for reasonable charge for care and custody of the goods.

Performance of Contract: Seller’s Rights & Duties

To receive the price of the goods. To receive compensation or sue buyer

for not taking delivery of the goods. To receive reasonable charge for care

& custody of the goods. If he is unpaid seller then – to

exercise his right of lien; to exercise his right of stoppage in transit; to exercise his right of resale.

To recover interest from the buyer for price due. To sue for damages on buyer repudiating the

contract. Duties: To deliver the goods when buyer demands. To compensate the buyer in case he repudiates the

contract. To give reasonable opportunity to the buyer to

examine the goods. To refund the amount paid by the buyer in case he

fails to deliver the goods. To compensate the buyer in case of delivery of

wrong quantity.

Unpaid Seller

Who is an unpaid seller? (Section 45)One who has not been paid or tendered the whole of the price or one who receives a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument.

Unpaid Seller: Rights Where property in goods has passed

Right of lien (Section 47): Entitled to retain possession until payment under the following cases:

(1) Where goods have been sold w/o any stipulation w.r.t. credit sales.

(2) Where goods have been sold on credit and the term has expired.

(3) Where the buyer becomes insolvent and the seller is in possession of the goods.

(4) When u.s. has made part delivery of goods, he may exercise right of lien on the remainder.

Right of stoppage in transit (Section 50): When the buyer of goods becomes insolvent, the u.s. who has parted with the possession of the goods has the right of stopping them in transit.That is, he may resume possession of the goods as long as they are in the course of transit and may retain them until payment.

What is Transit? If it is with a middle man who is required to deliver the goods to the buyer, but has not reached it to the buyer, then goods are said to be in transit.

Essentials: (i) Seller must be unpaid wholly or partly. (ii) Buyer must have become insolvent. (iii) The goods must be in transit.

When does transit of goods come to an end?When buyer acquires possession or is deemed to acquire possession of the goods.

How is stoppage in transit effected?(i) By taking actual possession of the goods; or (ii) By giving notice of his claim to the carrier in whose possession the goods are, to re-deliver to the seller or according to his directions.

When is right of stoppage in transit lost?Upon delivery of the goods; Carrier acknowledges to buyer that he holds goods on his behalf; Carrier wrongfully refuses to deliver; or Where part delivery has been made.

Right of Re-Sale (Section 54): He can resell the goods under the following circumstances:Where goods are of perishable nature;Where the seller gives notice to the buyer of his intention to resell and the buyer does not pay within a reasonable time after notice;Where the seller has expressly reserved his right of re-sale in case the buyer makes default.Where upon re-sale profit is made, the u.s. is entitled to retain profits.

Unpaid SellerWhere property in goods has not

passed Right of withholding delivery. Seller reserves the right of disposal over

the goods (Section 25). Right to sue buyer personally for the price

of the goods (Section 55). Right to sue for damages for wrongfully

neglecting or refusing to accept the goods (Section 56).

To recover interest from buyer where there is specific agreement to that effect.

Breach of ContractRemedies Available to the Seller

Suit for Price (Section 55)If the buyer neglects or refuses to pay as per terms of contract, seller may sue him for the price of the goods.

Suit for Damages (i) For non-acceptance: (Sec. 56) Where buyer wrongfully neglects or refuses to accept and pay, the seller may sue for damages for non-acceptance.

(ii) For repudiation of contract – Anticipatory breach: (Sec.60) If buyer repudiates contract before date of delivery, seller may either treat it as: Subsisting and wait till delivery date, or he may treat the contract as rescinded and sue for damages for the breach.This remedy is in anticipation of the breach of contract popularly known as ‘anticipatory breach of contract’.

Remedies Available to the Buyer

Suit for damages for non-delivery of the goods (Section 57).

Suit for specific performance (Section 58).

Suit for breach of warranty (Section 59). Suit for repudiation of the contract –

Anticipatory breach (Section 60).This is similar to seller claiming damages for repudiation or anticipatory breach of contract.