Unit II

Contract Act of Bhutan 2013 and the Commercial Sale of Goods Act of the
Kingdom of Bhutan 2001
 2.1 Contract Act of Bhutan 2013
2.1.1. Meaning & essential features of a Contract
2.1.2. Types of contract
2.1.3. Discharge of contract
2.1.4. Remedies for breach of contract
2.1.5. Drafting of simple contract
OVER VIEW OF THE UNIT

2.2. Commercial Sale of Goods Act of Bhutan

2.2.1 Meaning of sale contract
2.2.2 Form and formation of sale contract
2.2.3 Passing the title and risk
2.2.4 Conditions and warranties
2.2.5 Performance and remedies for sale contract
2.2 The Commercial Sale of Goods
Act of the Kingdom of Bhutan 2001
2.2.1 Meaning of sale contract
2.2.2 Form and formation of sale contract
2.2.3 Passing the title and risk
2.2.4 Conditions and warranties
2.2.5 Performance and remedies for sale contract
Preamble/preface

It is expedient/convenient/practical to provide detailed rules of law for the regulation of

transactions for the sale of goods in commerce.

Effect from the 26th day of the 5th month of the Female Iron Snake Year corresponding to
17 July, 2001.

Territorial Extent
This Act shall extend to the whole of the Kingdom of Bhutan.
Scope

Sec.4
Unless the context otherwise requires, this Act applies only to transactions in
goods. It does not apply to other types of transactions, such as transactions in
services, securities, or immovable property.
 What is sale contract?

Understand the case and define the term

Mr. Dorji wanted to buy a brand new iPhone from online business, he orders the
seller(Ms. Sangay) and made an agreement that buyer need to pay half of the payment on
10th March, 2020 and seller must deliver the phone on 20th March, 2020 and the final
payment shall be made when buyer receives the phone.

The seller delivered the phone on 20th March,2020 and buyer made the rest of the
payment .

The term “Sale ” means the passing of title in goods from seller to the buyer for a price.

The seller transfers or agrees to transfer the title of goods to the buyer for a price- a
contract of sale of goods
An agreement to sale becomes a sale when the time elapse/pass or the conditions are
fulfilled subject to which the title of goods is to be transferred.

Sale of Goods

SOG

Contracts

Sale of Goods IS NOT Bartering

Contracts of sale Title of the goods

Seller transfers or agrees to transfer Goods to the

buyers for a money consideration (price)

Ownership (possession +title

A B

Money Consideration
 At least TWO Goods/transfer
parties of property
a bilateral contract – a Transfer or agree to transfer the
contract between seller and Essentials property/title in goods – from
buyer (features) seller to buyer
contract
sales

Money (not in kind- no Absolute or conditional

barter- paid or promised)

Other elements of valid

contract
Class Activity

Q. What is it ‘sale’ and ‘agreement to sale’. Distinguish between two.

Q. Distinguish between sale and:

a. Gifts
b. Barter or exchange
Sale Agreement to sale
When in a contract of sale, the exchange of When in a contract of sale the parties to
goods for money consideration takes place contract agree to exchange the goods for a
immediately, it is known as Sale price at a future specified date is known as
an Agreement to Sell.

Executed Contract Executory Contract

In sale, the title of goods transfers to the In an agreement to sell, the title of goods
buyer with the transfer of goods. remains with the seller as there is no
transfer of goods.

Right to sue for the price. Right to sue for damages.

Sale the ownership is transferred in exchange for a price i.e. the consideration is money.
Gift, the ownership of property is transferred without any kind of consideration

Sale and Barter

Sale - Transfer in the property of the goods takes place for a price.
Barter - Goods  exchanged for goods.
When we exchange money for money is it sale? 

It is not a sale. It is called exchange

Important words:
Commercial , Sale and Goods

1. Commercial
Contracts between business persons/partners. It does not apply if you sell your friend a
computer today. When you go into business, however, it will apply, so you need to learn it
now.
2. Sale
Passing of title from Seller to Buyer for a price. The law does not apply to loans, because
title does not pass. It also does not apply to gifts, because there is no price.

3. Goods
anything that is movable at the time it is identified to the contract for sale.
………..Anything that is movable
Includes: animals, minerals, vegetables, manufactured
goods.
Excludes: Services, land and buildings, securities
……….…at the time it is identified to the contract.

Crops that can be identified when the contract is formed

and harvested are goods.
Minerals that can be identified and dug up (like gravel) or
pumped up (like oil) can also be goods.
 Form and Formation
Sec. 10.1 & 10.2
Except as otherwise provided in this Act, a contract for the sale of goods for a price
exceeding Nu.100/-, or the equivalent in merchandise or services, is not enforceable
unless there is some writing indicating that a contract for sale was made between the
parties.
Unless the contract is for less than Nu. 100
The Commercial Sale of Goods Act requires

1. something in writing (either the contract or evidence of the contract)

2. signed by the party against whom enforcement is sought
3. with a legal stamp
4. signed by a “disinterested witness”
Written, Signed, Stamped and Witnessed (WSSW)
“Open terms” in Commercial Contracts for the Sale of Goods
People think that they must agree on every terms when they make a contract.

Business persons make a contract for the sale of goods, they can leave terms “open”
or agree to decide them later. And if they can’t agree,

a court can supply the missing terms and order the parties to perform the
contract as the court has completed it.
Where there is a market for goods, there is a customary/habitual/expected way of
doing things. This custom is called “usage of trade.” Usage of trade allows the court to
supply the open terms of a contract. It is the “common law” of business persons.
Open terms for the Seller
1. Open “method of delivery”
Rule: Seller must deliver the goods in one lot (single delivery). (Sec. 19)
2. Open “place of delivery”
Rule: Seller must deliver the goods (Sec.20)
a. where both parties know the goods are located, or
b. at Seller’s place of business, or if none exists,
c. at Seller’s residence
3. Open “time of delivery”
Rule: Seller must deliver the goods within a reasonable time. (Sec. 21.1)
Open terms for the Buyer
1. Open “time for payment”
Rule: Buyer must pay as soon as all goods have been delivered,
but not until then. (Sec. 22)
2. Open “amount of payment”
Rule: Buyer must pay a “reasonable price at the time of delivery” (Sec. 18.1)
The court will determine the contract price, based on the evidence
the parties present to it under the adversarial system, and
any additional evidence the court finds under the inquisitorial
system.
Passing of Title

Title passes to the buyer when the seller completes physical delivery of the goods,
even though the seller may have reserved a security interest or a document of title is to
be delivered at a different time or place. In particular:

a. if the contract requires or authorizes the seller to send the goods to the buyer but
does not require him to deliver them at destination, title passes to the buyer at the
time and place of shipment; but
b. if the contract requires delivery at destination, title passes when the seller tenders
the goods at that destination. (S.30.2)
Sec. 30.3
Unless otherwise explicitly agreed, where delivery is to be made without moving the
goods
if the seller is to deliver a document of title, title passes when he delivers such documents;
or
if the goods are, at the time of contracting already identified and no documents are to be
delivered, title passes at the time and place of contracting.
Risk of loss
The contract for sale may provide an express agreement between parties
indicating which party will bear the risk of loss
Sec. 38.1
Where the contract authorizes the seller to ship the goods by carrier (Shipment Contract)
If it does not require him to deliver them at a particular destination, the risk of loss
passes to the buyer when the goods are delivered to the carrier; but

If it does require him to deliver them at a particular destination, the risk of loss passes to
the buyer when the goods are tendered/offered/presented so as to enable the buyer to
take delivery (destination contract).
 Warranties and Conditions
Do you have any warranty? For how long is warranty?
When we bring any new electronic items or similar devices, we ask
about the warranty periods.
In some cases warranty is sold separately as commodity.
But does the law say about it?

Warranty means a promise that certain facts are as they are

represented to be and that they will remain so, subject to any
specified limitations [section 9(xxiv)].
A warranty is a stipulation collateral/security to the main purpose of
the said contract. The breach of warranty gives rise to a claim for
damages.
Example: A man buys a car, seller warranted to be quite to drive and very comfortable.
After some days the car starts to make an unpleasant noise every time it is operated, and
sitting inside it is not very comfortable.
Thus the buyer’s only remedy is to claim damages. This is not a breach of the condition
but rather a breach of warranty, because the stipulation made by the seller was only a
collateral.
Conditions
A condition is a stipulation essential to the main purpose of the contract, the breach of
which gives the right to repudiate/reject the contract and to claim damages.
Example: ‘X’ wants to purchase a car from ‘Y’, having a mileage of 20 km/lt. ‘Y’ says “This
car suit you.” ‘X’ buys the car and finds that the car only has a top mileage of 15 km/ liter.

This amounts to a breach of condition because the seller made the stipulation which forms
the essence of the contract. Thus, the mileage was a stipulation that was essential to the
main purpose of the contract and hence its breach of condition.
Q: What is the main difference between a Condition and a Warranty?

Types of Warranties
Under the Commercial Sale of Goods Act of the Kingdom of Bhutan 2000, warranties
can be of three types:
 Warranty of tile;
 Express warranty; and
 Implied warranty.
Warranty of tile
Sec.24:
the title conveyed shall be good, and its transfer rightful; and
the goods shall be delivered free from any lien or encumbrance/hindrance of which the
buyer at the time of contracting has no knowledge.
Express warranty
Sec.25
Warranties that are inserted into the contract at the will and knowledge of the parties are
said to be expressed warranties or the Express Warranties.
Seven Clauses for the Sale of Goods
Here are 7 more you should know when you negotiate a business
contract for
The sale of goods
2 implied warranties
2 express warranties
2 clauses for shipping and insurance
___
TOTAL: 6
Two Implied Warranties
“implied” = part of the contract, even if it is not expressed
“warranty” = a promise about the goods that are being sold
1. Implied warranty of “title”
In every contract for the sale of goods, the seller automatically promises that they
has “title” to the goods – i.e., that the seller owns the goods and therefore has the
right to sell them.
2. Implied warranty of “merchantability”
In every contract for the sale of goods, the seller automatically promises that the
goods are suitable for their usual and customary use.

Example: When you buy a broom, the seller automatically promises that it will work
like a broom by sweeping up the dirt and other things on the floor.

Example: When you buy a car, the seller automatically promises that it will take you
down the road if you press the accelerator and stop if you press the brake.
Two Express Warranties
“express” = stated out loud, expressed in words
1. Express warranty of “fitness for a particular purpose”
Sometimes the buyers want to use the goods for an unusual purpose. The buyer may want the seller
to warrant that the goods are suitable for this particular purpose.
Example: “Seller warrants that this car will tow/drag/pull a wagon carrying 2 metric tones of rocks.”
2. Express warranty of repair
To persuade a buyer to buy goods, the seller may promise that they will work for a period of time,
and if they don’t then seller will repair the goods at seller’s expense. This warranty is very common in
the sale of new cars.
Example: “Seller warrants that this vehicle will not need repairs for 1 year or 10,000 kilometers,
whichever first occurs.”
Two Clauses for Shipping and Insurance
Who pays for shipping? What if the goods are damaged or lost during shipping?
Two clauses answer these questions.
1. Shipping on water
Sec. 28.1
Unless otherwise agreed, the term F.O.B. (which means "free on board") at a named place
is a delivery term under which:
a. when the term is F.O.B. the place of shipment, the seller must, at his own expense and
risk, transport the goods to that place… or
b. The seller clears the goods for place export, takes charge of the costs and risks involved
and delivers the goods on board. Once shipped the buyer bears the risk and expense of the
goods.
Example
Assume that you're a dealer iPhone (Sangay iPhone dealer) and you purchase 5000 iPhone from
company XYZ .
The XYZ Company manufactures the iPhone in US and you sell them in your store in Bhutan.
If your purchase contract says “FOB, Bhutan, Sangay iPhone dealer,” it means company XYZ will pay
the loading and shipping costs to get 5000 iPhone from US to Sangay iPhone dealer in Bhutan.
The iPhone becomes your property in Bhutan, meaning that if the iPhones are lost, destroyed or
stolen on the way to Bhutan ,
Company xyz is liable because it still owns the goods while they are in transit.
Likewise, if they are lost, destroyed, or stolen after they reach the Sangay iPhone dealer, you are liable.
Sec. 28.2

Unless otherwise agreed the term F.A.S. vessel (which means "free alongside")
at named port is a delivery term under which the seller must –

at his own expense and risk deliver the goods alongside the vessel in the
manner usual in that port or on a dock designated and provided by the buyer.

( The seller clears the goods for export then places them alongside the vessel at
the “named port of shipment”. The buyer will be responsible for the loading fee,
the main carriage, the cargo insurance and other costs.)
2. Shipping on land
C.I.F (Cost, Insurance and Freight)
Sec. 29.1
The term C.I.F. means that the price includes in a lump sum the cost of the goods
and the insurance and freight to the named destination.
Example: “C.I.F. Thimphu” Seller will pay the cost of the goods and insurance
against loss or damage and all shipping expenses until the goods are in Thimphu
C.&.F (Cost and Freight)
Sec. 29.3
Unless otherwise agreed, the term C. & F. or its equivalent imposes upon the seller
the same obligations and risks as a C.I.F. term except the obligation as to
insurance.
Class Activity

Q. What are the duties of a seller under C.I.F contract?

Q. Sale of goods for a price up to Nu.100 should also be in writing. TRUE or False

Q. C.I.F contract is a shipment .TRUE or FALSE

Q. The buyer has title and bear risk of loss from the point of shipment in C.I.F
contract. TRUE or FALSE

Q. What will happen if there is a conflict of express and implied warranties in a sale
contract? (Hint: Section 27)- Home work
Performance and remedies for sale of contract

Parties to a lawful contract are bound to perform their part of obligations.

In case of the breach, the Act provides appropriate remedies to the injured
party.

Sections 54 – 70. Where the party breaches the contract, the aggrieved party
is entitled to damages sufficient to place him/her in as good a position as if
other party had fully performed.
 On the discovery
of buyer’s
insolvency
Against the Goods
Seller’s remedies
in general

Seller’s Remedies
Suit for the price
of the goods

Suit for damages

Against the buyers for non –
acceptance

Suit for incidental

damages
Buyer’s Remedies
Where the seller breaches the contract, the buyer is entitled to damages sufficient to
place him in as good a position as if the seller had fully performed his obligations on
the contract.
Where the seller fails to make delivery or repudiates/rejects, or where the buyer
rightfully rejects or justifiably revokes acceptance, the buyer may cancel the
contract (section 60.2).
In addition to the above, buyer has the following remedies:
 recover so much of the price as has been paid; or
 “cover”32 pursuant to section 61; or
 if the goods have been identified, recover them as provided in this Act; or
 in a proper case, obtain specific performance (refer section 65); or
 in a proper case, recover incidental and consequential damages (refer
section 64).
 hold goods and resell them in like manner as an aggrieved seller (section
60.3).
claim damages for non-delivery or repudiation or breach in regard to accepted goods
under section 62 and 63.1.

Suit for the breach of warranty (section 63.2)

Where the seller justifiably withholds delivery of goods because of the buyer’s breach,
the buyer is entitled to restitution of any amount by which the sum of his payments
exceeds the liquidated damages to which the seller is entitled (section 67.2).
 Any questions

End of the Chapter