Sbaa1206 Business Law Unit 3 Notes
Sbaa1206 Business Law Unit 3 Notes
Sbaa1206 Business Law Unit 3 Notes
Contract of sale, meaning and difference between sale and agreement to sell- Conditions and
warranties - Transfer of ownership in goods including sale by a non-owner - Performance of
contract of sale - Unpaid seller - meaning, rights of an unpaid seller against the goods and
the buyer.
5. Right toresell:-
a. In a sale, the seller can’t resell thegoods (except certain cases, ex. unpaid
seller).
b. In an agreement to sell, without prior notice of the resell, he is not bound to do
so.
6. Insolvency of Buyer:-
a. In a sale, if the buyer becomes insolvent before he pays for the goods, must
return them to the official Receiver orAssignee.
b. In an agreement to sell, if the buyer becomes insolvent and has not yet paid
the price, the seller is not bound to part with the goods until he is paidfor.
7. Nature ofRights:-
a. The buyer acquires a right against the wholework
b. In agreement to sell, the sellersecures right against a particularindividual
8. Insolvency of seller:-
a. In sale, if the seller becomes insolvent, the buyer, being the owner, is entitled
to recover the goods from Official Receiver or Assignee.
b. In agreement to sell, if the seller becomes insolvent, the buyer, who has paid
the price, he can only claim a rateable interest and not the goods because
property in them has not yet passed to him.
SUBJECT-MATTER OF SALE
‘Goods’ form the subject of a contract of sale. They mean every kind of movable
property other than actionable claims and money, and include stock and shares, growing
crops, grass and things attached to or forming part of the land which are agreed to be served
before sale or under the contract of sale.
CLASSIFICATION OFGOODS
I. Existing goods: -Existing goods are owned and possessed by the seller at the
time of sale. These goods may be specific, ascertained orunascertained:
a) Specific goods which are identified and agreed upon at the time a contract of
sale is made.
b) Ascertained goods which are ascertained subsequent to the formation of a
contract of sale.
c) Unascertained or generic goods which are not identified and agreed upon at
the time of the contract of sale. They are defined only by description and
may from part of a lot.
II. Future goods:-Future goods is which the seller does not posses at the time of
contract and which will be acquired manufactured or produced by him at some
futuredate.
III. Contingent goods: - Contingent goods refer to the acquisition of which by the
seller depends upon a contingency which may or may nothappen.
PRICE- The price is a contract of sale means the money consideration for sale of goods
1. It may be fixed by the contract itselfor
2. It may be left to be fixed in an agreedmanner
3. It may be determined by the course of dealing between theparties
IMPLIED WARRANTIES
A condition becomes a warranty when --
a) the buyer waives the conditions or opts to treat the breach of the condition as a breach of
warranty; or
b) The buyer accepts the goods or a part thereof, or is not in a position to reject the goods.
i. Implied Warranty of Quiet Possession -- In every contract of sale, unless there is a
contrary intention, there is implied warranties that the buyer's shall have and enjoy quiet
possession of the goods. If the buyer's right to possession and enjoyment of the goods is
in any way disturbed as consequences of the seller's defective title, the buyer may sue the
seller for damages for breach of this warranty.
ii. Implied Warranty of Freedom from Encumbrances -- The buyer is entitled to a
further warranty that the goods shall be free from any charge or encumbrance in favor of
any third party not declared or known to buyer before or at the time when the contract is
made. If the buyer is required to discharge the amount of the encumbrance it shall be a
breach of this warranty and the buyer shall be entitled to damages for the same.
iii. Warranty as to quality or fitness by usage oftrade – An implied warranty as to quality
or fitness for a particular purpose may be annexed by the usage of trade.
iv. Warranty to disclosure dangerous nature ofgoods– Where a person sells goods,
knowing that the goods are inherently dangerous or they are likely to be dangerous to the
buyer and that the buyer is ignorant of the danger, he must warn the buyer of the probable
danger, otherwise he will be liable in damages.
DIFFERENCE BETWEEN CONDITION AND WARRANTY
CONDITION WARRANTY
The injured party can refuse to accept the goods as The Injured party can only claim damages
well as claim damages in case of breach of condition. in case of breach of warranty.
The injured party can refuse to accept goods not The Injured party cannot refuse to accept
fulfilling the condition of the contract. the goods not fulfilling the warranty.
Defined in Section 12(2) of the Sale of Goods Act, Defined in Section 12(3) of the Sale of
1930. Goods Act, 1930.
CAVEAT EMPTOR
It is originated from the Latin Word. It means “let the buyer beware”, i.e., a contract
of sale of goods, the seller is under no duty to reveal unflattering truths about the goods
sold. Therefore, when a person buys some goods, he must examine themthoroughly.
Exceptions
• Fitness for buyer’spurpose- When the buyer informs the seller of his purpose of
buying the goods, it is implied that he is relying on the seller’s judgment. It is the duty
of the seller then to ensure the goods match their desired usage. Ex. A goes to B to buy
a bicycle. He informs B he wants to use the cycle for mountain trekking. If B sells him
an ordinary bicycle that is incapable of fulfilling A’s purpose the seller will be
responsible.
• Sale under a brand or tradename- When the buyer buys a product under a trade
name or a branded product the seller cannot be held responsible for the usefulness or
quality of the product. So there is no implied condition that the goods will be fit for the
purpose the buyer intended.
• Merchantable quality - the seller who is selling goods by description has a duty of
providing goods of merchantable quality, i.e. capable of passing the market standards.
So if the goods are not of marketable quality then the buyer will not be the one who is
responsible. It will be the seller’s responsibility. However if the buyer has had a
reasonable chance to examine the product, then this exception will not apply.
• Usage oftrade- There is an implied condition or warranty about the quality or the fitness of
goods/products. But if a seller deviated from this then the rules of caveat emptor cease to
apply. Ex.A bought goods from B in an auction of the contents of a ship. But B did not inform
A, the contents were sea damaged, and so the rules of the doctrine will not apply here.
• Consent byfraud- If the seller obtains the consent of the buyer by fraud then caveat emptor
will not apply. Also if the seller conceals any material defects of the goods which are later
discovered on closer examination then again the buyer will not be responsible. In both cases,
the seller will be the guilty party.
a) Specific goods in a deliverable state - Where there is an unconditional contract for the
sale of specific goods in a deliverable state, the property in the goods passes to the buyer
when the contract is made, and it is immaterial whether the time of payment of the price
or the time of delivery of the goods, or both, is postponed.
b) Specific goods to be put into a deliverable state - Where there is a contract for the sale
of specific goods and the seller is bound to do something to the goods for the purpose of
puttingthem into a deliverable state, the property does not pass until such thing is done
and the buyer has notice thereof.
c) Specific goods in a deliverable state, when the seller has to do anything thereto in
order to ascertain price - Where there is a contract for the sale of specific goods in a
deliverable state, but the seller is bound to weigh, measure, test or do some other act or
thing with reference to the goods for the purpose of ascertaining the price, the property
does not pass until such act or thing is done and the buyer has notice thereof.
II. Unascertained Goods (Sec 23)
Where there is a contract for the sale of unascertained or future goods by description and
goods of that description and in a deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer or by the buyer with the assent
of the seller, the property in the goods thereupon passes to the buyer. Such assent may be
express or implied, and may be given either before or after the appropriation is made.
Delivery to carrier - Where, in pursuance of the contract, the seller delivers the goods to
the buyer or to a carrier or other bailee (whether named by the buyer or not) for the
purpose of transmission to the buyer, and does not reserve the right of disposal, he is
deemed to have unconditionally appropriated the goods to the contract.
III. Goods sent on approval or “on sale or return”
When goods are delivered to the buyer on approval or “on sale or return” orother similar
terms, the property therein passes to the buyer—(a) when he signifies his approval or
acceptance to the seller or does any other act adopting the transaction;(b) if he does not
signify his approval or acceptance to the seller but retains the goods without giving notice
of rejection, then, if a time has been fixed for the return of the goods, on the expiration of
such time, and, if no time has been fixed, on the expiration of a reasonable time.
PERFORMANCE OF CONTRACT
Performance of a contract of sale means as regards the seller delivery of the goods to the
buyer, and as regards the buyer, acceptance of the delivery of the goods and payment for them,
in accordance with the terms of the contract of sale.
DELIVERY OF GOODS
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 effect of putting the goods in the possession of the buyer or
his agent.
Delivery of goods may be actual, symbolic or constructive.
1. Actual delivery, where the goods are handed over by the seller to the buyer or his duly
authorized agent.
2. Symbolic delivery, where goods are ponderous or bulky and incapable of actual
delivery ex. handing over the key of the house to the buyer
3. Constructive delivery or delivery by attornment, where a third person who is in
possession of the goods of the seller at the time of sale acknowledges to the buyer that
he holds the goods on his behalf.
Rules as to delivery of goods:-
1. Mode ofdelivery: Delivery should have the effect of putting the goods in the
possession of the buyer or his duly authorized agent.
2. Delivery and payment concurrentconditions: Delivery of the goods and payment of
the price must be according to the terms of the contract.
3. Effect of partdelivery: A delivery of part of the goods in progress of the delivery of
the whole, has the same effect, for the purpose of passing the property in such goods,
as a delivery of the whole.
4. Buyer to apply fordelivery: Apart from any express contract, the seller of the goods is
not bound to deliver them until the buyer applies for delivery.
5. Place ofdelivery: Where the place at which delivery of the goods is to take place is
specified in the contract, the goods must be delivered at that place during business
hours on a working day.
6. Time of delivery: Where the seller is bound to send the goods to the buyer, but no
time for sending them is fixed, the seller is bound to send them within a reasonable
time.
7. Goods in possession of a thirdparty: When at the time of sale, the goods are with a
third party, there is no delivery by the seller to the buyer until such third party
acknowledges to the buyer that he holds them on his behalf.
8. Cost ofdelivery: Unless otherwise agreed, all expenses of and incidental to making of
delivery are borne by the seller, but all expenses of and incidental to obtaining of
delivery are borne by the buyer. waive
9. Delivery of wrongquantity:-
a. Delivery of goods less than contractedfor – the buyer may reject the goods. If
he accepts them, he shall pay for them at the contract rate.
b. Delivery of goods in excess of thequantity – the buyer may accept the whole or
reject the whole or accept the quantity he ordered and reject the rest. If he
accepts the whole, he must pay for them at the contract rate.
c. Delivery of goods contracted for mixed (different description) with othergoods-
the buyer may accept the goods which are in accordance with the contract and
reject the rest, or may reject the whole.
10. Installmentdeliveries – Unless otherwise agreed, the seller is not entitled to deliver the
goods by instalments and if he does so, the buyer is not bound to accept the goods.
11. Delivery to carrier orwharfinger- Where, in pursuance of a contract of sale, the
goods are delivered to a carrier for the purpose of transmission to the buyer, or to a
wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the
buyer.
RIGHTS OF THE BUYER:-
1. Right to have delivery as percontract – the first right of the buyer is to have delivery
of the goods as per contract.
2. Right to reject thegoods– If the seller sends to the buyer a larger or smaller quantity
of goods than he ordered, the buyer may (i) reject the whole, (ii) accept the whole or
(iii) accept the quantity ordered and reject the rest.
3. Right torepudiate– Unless otherwise agreed, the buyer of the goods has a right not to
accept delivery thereof by instalments.
4. Right to notice ofinsurance - Unless otherwise agreed, where goods are sent by the
seller to the buyer by a sea route, the buyer has a right to be informed by the seller so
that he may get the goods insured.
5. Right toexamine – The buyer has a right to examine the goods which he has not
previously examined before he accepts them.
6. Rights against the seller for breach ofcontract:-
a. Suit fordamages - Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue the seller for damages for non-delivery
b. Suit forprice – If the buyer has paid the price and the goods are not delivered, he
can recover the amount paid.
c. Suit for specificperformance – The buyer may sue the seller for specific
performance of the contract to sell. The court may, if it thinks fit, order for the
specific performance of the contract.
d. Suit for breach ofwarranty– Where there is a breach of warranty by the seller, or
where the buyer elects or is compelled to treat any breach of condition on the part
of the seller as a breach of warranty, the buyer is not by reason only of such breach
of warranty entitled to reject the goods. But he may (i) set up against the seller the
breach of warranty in diminution or extinction of the price or (ii) sue the seller for
damages for breach of warranty.
e. Suit for contract before duedate– When the seller repudiates the contract before
the date of delivery, the buyer may either treat the contract as subsisting and wait
till the date of delivery, or he may treat the contract as rescinded and sue for
damages for the breach. This rule is known as “rule of anticipatory breach of
contract”
f. Suit forinterest–Where there is a breach of contract on the part of the seller and as
a result the price has to be refunded to the buyer, the buyer has a right to claim
interest on the amount of the price refunded to him from the date on which the
payment was made. The court may award the interest at such rate as it thinks fit.
DUTIES OF BUYER:-
1. Duty to accept the goods and pay for them in exchange forpossession – It is the
duty of the buyer to accept the goods and pay for them, in accordance with the terms of
the contract of sale.
2. Duty to apply fordelivery – Apart from any express contract, it is the duty of the
buyer to apply for delivery.
3. Duty to demand delivery at a reasonablehour– It is the duty of the buyer to demand
delivery at a reasonable hour.
4. Duty not to accept instalment delivery and pay forit– Unless otherwise agreed, the
seller is not entitled to deliver the goods by instalments and if he does so, the buyer is
not bound to accept the goods. If he accepts, then pay for it.
5. Duty to take risk of deterioration in the course oftransit – Where the seller of the
goods agrees to deliver them at his own risk at a place other than where they are sold,
the buyer shall take any risk of deterioration in the goods necessarily incident to the
course of transit.
6. Duty to intimate the seller where he rejects thegoods – Unless otherwise agreed, it is
the duty of the buyer to inform the seller in case he refuses to accept the goods.
7. Duty to takedelivery – It is the duty of the buyer to take delivery of the goods within a
reasonable time after the tender of the delivery. He becomes liable to the seller for any
loss caused by his neglect or refusal to take delivery.
8. Duty to payprice – Where property in the goods has passed to buyer, it is his duty to
pay the price according to the terms of the contract.
9. Duty to pay damage for non-acceptance–Where the buyer wrongfully neglects or
refuses to accept and pay for the goods, he will have to compensate the seller, in a suit
by him, for damages for non-acceptance.
References
1. Goel, P.K., Business Law for Managers, Wiley, 2006.
2. Jyoti Rattan, Sale of Goods Act, Bharat Law House, 4th Edition, 2017.
3. Kapoor, N.D., Elements of Mercantile Law, Sultan Chand & Co. Ltd, 37th Edition, 2015.
4. Kuchhal, M.C., Vivek Kuchhal, Business law, Vikas Publication, 7th Edition, 2018.
5. Tulsian, Business Law, McGraw-Hill Education, 3nd Edition, 2018.
Question Bank
PART – A
Blooms
Sno. Questions CO
Level
Illustrate the conditions upon which the seller can stop the goods CO3 L3
8.
in transit.
Blooms
Sno. Questions CO
Level
Describe the rules as to the passing of property from the seller to CO3 L2
3.
the buyer in a contract of the sale of goods.
Evaluate the points in which the rule of caveat emptor does not CO3 L5
10.
apply.