Sale of Goods Law (Contract II)

Dr.
Tabrez Ahmad
Associate Professor of Law
www.site.technolexindia.com
tabrezahmad7@gmail.com
http://technolexindia.blogspot.com
Dr. Tabrez Ahmad,

Monday, April 05, 2010 Blog: http://technolexindia.blogspot.com, 1
Dr. Tabrez Ahmad,
Agenda
1. What is contract of sale?
2. What is agreement to sell?
3. What is the subject matter of sale?
4. Implied and Expressed Conditions and Warranties
5. Fitness and Merchantable quality
6. Sale by description
7. Sale by sample
8. Law of Caveat Emptor and Caveat Vendittor
9. Passing of property and risk
10. Nemo dat quod non habet
11. Remedies of unpaid seller
12. Case Studies
Dr. Tabrez Ahmad,
Monday, April 05, 2010 Blog: http://technolexindia.blogspot.com,
3
Contract of sale
 Most common of all the commercial contracts
 Came into force on 1st JULY,1930.
 Are subject to the general legal principles
applicable to all the contracts such as, offer &
its acceptance, consideration.
 Some special features
Dr. Tabrez Ahmad,

ESSENTIALS OF VALID SALE CONTRACT
 Two parties:
There must be 2 distinct parties i.e., a buyer and a
seller
 Goods:
Goods which form the subject matter of the contract
of sale must be movable.
 Price:
The consideration for the contract of sale, called price,
must be money
 Essential elements of a valid contract:
A contract is made by an offer to buy or sell goods for
a price and the acceptance of such offer.
Dr. Tabrez Ahmad,
SALE AND AGREEMENT TO SELL
 Property in the goods is transferred from the seller to
the buyer- Sale
 Transfer of the property in the goods is to take place

at some future date or after fulfillment of some
condition- Agreement to sell
Dr. Tabrez Ahmad,

SALE AND AGREEMENT TO SELL
Sale Agreement to sell
1. Ownership is with the 1. Ownership is with the

buyer seller
2. Executed contract 2. Executory contract
3. Sue for price, in case of 3. Sue for damages only, in
breach case of breach
4. Goods lost by accident 4. Goods lost by accident
then loss falls on the then loss falls on the
buyer. Seller.
Dr. Tabrez Ahmad,

CONDITION AND WARRANTY
Condition Warranty
1. Its is a term in contract 1. Its a term in contract

which is essential. which is collateral.
2. When condition 2. When warranty

breaches? breaches?
3. Breach of condition can 3. Breach of warranty

be breach of warranty cannot be breach of
condition.
Dr. Tabrez Ahmad,

EXPRESS AND IMPLIED CONDITIONS
AND WARRANTIES
 Condition or warranty may be expressed
 Express condition and warranty are expressly provided

in the contract.
 Implied Condition or warranty are provided by the law.
Dr. Tabrez Ahmad,

Condition as to title:
In a contract of sale, unless the situation of the

contract are such as to show a different intention,
there is an implied condition on part of the seller
that—
 In sale, he has right to sell goods.
 In agreement to sell, he will have a right to sell at

the time when property is to pass.
Dr. Tabrez Ahmad,

SALE BY DESCRIPTION
 In sale by description there is an implied condition
that the goods shall correspond with description.
 This means “if you contract to sell peas, you cannot

oblige the party to take beans.”
 Hence if the description of the article tendered is

different then the buyer may not buy the goods.
Dr. Tabrez Ahmad,

SALE BY DESCRIPTION AND SAMPLE
 If the sale is by sample as well as by description, it is not

sufficient that the bulk of goods corresponds with the
sample, if the goods do not also correspond with the
description.
 This means goods must match with the description and

sample.
Dr. Tabrez Ahmad,

CONDITION AS TO QUALITY OR FITNESS
 Normally, in a contract of sale there is no implied

condition as to quality or fitness for particular purpose.
 The buyer must test the goods before he buys them in

order to satisfy him self that the goods shall be suitable
for him.
Dr. Tabrez Ahmad,

CONDITION OF MERCHANTABILITY
 Where goods are bought by description from a seller who
deals in goods of that description there is an implied
condition that the goods are of merchantable quality.
 This means goods should be such that they are

commercially saleable, as per the description by which
they are known in the market at their full value.
Dr. Tabrez Ahmad,

CONDITION IMPLIED BY CUSTOM
 An implied condition as to quality or fitness for a

particular purpose may be annexed by the usage of trade.
 This means that the goods which are required may be

ascertained from the acts and from the nature of
description of that article.
Dr. Tabrez Ahmad,

SALE BY SAMPLE
 A contract of sale is a contract for sale by sample
where there is a term in the contract, express or
implied, to that effect.
1. That bulk shall correspond with the sample in quality,
2. That the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
3. That the goods shall be free from any defects,
rendering them unmerchantable.
Dr. Tabrez Ahmad,

CONDITION AS TO WHOLESOMENESS
 In the case of eatables and provisions, in addition

to the implied condition as to merchantability,
there is another implied condition that the goods
shall be wholesome.
Dr. Tabrez Ahmad,

WARRANTY OF QUIET POSSESSION
 In a contract of sale, unless there is a contrary intention,

there is an implied warranty that the buyer shall have
and enjoy quite possession of the goods.
 If the buyer is in any way disturbed in the enjoyment of

the goods in consequence of the seller’s defective title to
sell, he can claim damages from the seller.
Dr. Tabrez Ahmad,

WARRANTY OF FREEDOM FROM
ENCUMBRANCES
 In addition to the previous warranty, the buyer is entitled
to a further warranty that the goods are not subject to
any charge or right in favor of a third party.
 If the possession is in any way disturbed by reason of the

existence of any charge or encumbrances on the goods in
favor of any third party, he shall have a right to claim
damages for breach of this warranty.
Dr. Tabrez Ahmad,

WARRANTY AS TO QUALITY OR
FITNESS BY USAGE OF TRADE
 An implied warranty as to quality or fitness for a

particular purpose may be annexed by the usage
of trade.
Dr. Tabrez Ahmad,

WARRANTY TO DISCLOSE
DANGEROUS NATURE OF GOODS.
 When 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, other wise he will be liable in
damages.
Dr. Tabrez Ahmad,

CAVEAT EMPTOR and Its
exceptions
 This means “LET THE BUYER BEWARE” i.e., the
seller is under no duty to reveal unflattering
truths about the goods sold.
Fitness for Buyers purpose
 Therefore, when a person buys some goods, be
must examine them thoroughly.
 If the goods turn out to be defective or do not

suit his purpose or he depends upon his own
skills and makes a bad decision, he cannot blame
the seller.
Dr. Tabrez Ahmad,
Sale under Patent or Trade name
Merchantable quality
Usage of trade
Consent by fraud
Dr. Tabrez Ahmad,

WHO IS AN UNPAID SELLER
 A seller of goods is deemed to be an unpaid seller:-
 When the whole of the price has not been paid or

tendered
 When any negotiable instrument is dishonoured
Dr. Tabrez Ahmad,

Rights of unpaid seller
Against the
goods Against
the seller
Where the Where the personally
property in
property in the goods has
the goods not passed
has passed
Stoppage
With
in transit Stoppage holding
Lien in transit delivery
Re sale
Suit for Repudiation Suit for

Suit for price
damages of contract interest 25
RULES OF DELIVERY
 Mode of delivery  Time of delivery
 Delivery and payment  Goods in possession of
con current condition a third party
 Effects of part delivery  Cost of delivery
 Buyer to apply for  Delivery of wrong
delivery quantity
 Place of delivery  Installment deliveries
Dr. Tabrez Ahmad,

FREE ON BOARD
Seller’s duties: Buyer’s Duties:
 To deliver the goods on  Arrange for the contract
board the ship named by of affreightment
the buyer
 Name the ship on which

 Once goods are put on
board the ship, they are at goods are to be delivered.
the risk of the buyer.
 It becomes the duty of the
 The duty of the seller ends buyer once the goods are
when he delivers the on the ship.
goods to the ship at the
port of shipment.
Dr. Tabrez Ahmad,

COST, INSURANCE, FREIGHT
 Seller’s duty:  Buyer’s duty

 Make out an invoice of
the goods sold.
 To pay unloading
 Procure a contract of charges, wharf age
affreightment. charges, etc.
 To arrange for an  To pay custom and

insurance. import duties.
Dr. Tabrez Ahmad,
AUCTION SALE
 A sale by auction is a public sale where different
intending buyers try to outbid each other.
 The goods are ultimately sold to the highest bidder.
 The auctioneer who sells the goods by the auction is an

agent of the seller, i.e. the owner.
Dr. Tabrez Ahmad,

RULES OF AUCTION SALE
 Completion of sale:-
The sale is complete when the auctioneer

announces its completion by the fall of the
hammer or in some other customary manner like
“one two three” or “going going, gone”
Dr. Tabrez Ahmad,

RIGHT OF SELLER TO BID
 A right to bid may be reserved expressly by or on

behalf of the seller. Where such right is expressly
reserved, the seller or any one person on his behalf
may bid at the auction.
Dr. Tabrez Ahmad,

SALE NOT NOTIFIED SUBJECT TO A
RIGHT TO BID
 It is not lawful
1. For the seller to bid himself or to employ any person
to bid at such sale.
2. For the auctioneer knowingly to take any bid from
the seller or any such person.
3. Any sale against this rule may be treated as
fraudulent.
Dr. Tabrez Ahmad,

RESERVE PRICE
 It is the price below which the auctioneer will not sell.

 Where the sale is subject to a reserve price, every bid is
accepted conditionally on the reserve price being
reached.
 But where the sale is without reserve, the goods will be
sold to the highest bidder.
Dr. Tabrez Ahmad,

USE OF PRETENDED BIDDING
 If the seller makes use of pretended bidding to

raise the price, the sale is void able at the option of
the buyer.
Dr. Tabrez Ahmad,

KNOCK OUT OR AGREEMENT NOT TO
BID AGAINST EACH OTHER
 Where a group of persons form a combination to

prevent competition between themselves at an auction
and arrange that only one of them will bid and share
anything so obtained among themselves.
 This is called knock out which is legal.
Dr. Tabrez Ahmad,

Sale Under Compulsion
 Board of Trade
 Tea Board
 Steel Controller
 OPEC
 etc
Dr. Tabrez Ahmad,

Case Studies
Indian Steel and Wire Products Ltd.
(Appellant)
v.
State of Madras ( Respondent)
AIR 1968 SC 478
Dr. Tabrez Ahmad,

Orissa Textile Mills Ltd. and Another (
Petitioners)
V.
Ganesh Das Ramkishun ( Opposite Party)
AIR 1961 PAT 107
Dr. Tabrez Ahmad,

P.S.N.S Ambalavana Chettiar & Co.
Ltd. and another ( In both the
Appeals), Appellants
V.
Express Nespapers Ltd. Bombay (
In both the Appeals), Respondent.
AIR 1968 SC 741
Dr. Tabrez Ahmad,
Union of India, (Appellant)
V.
A.L Ralliaram (Respondent)
AIR 1963 SC 1685
Dr. Tabrez Ahmad,

Dr. Tabrez Ahmad,
Dr. Tabrez Ahmad,

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Dr.

Dr. Tabrez Ahmad,

Dr. Tabrez Ahmad,

 Transfer of the property in the goods is to take place

Dr. Tabrez Ahmad,

1. Ownership is with the 1. Ownership is with the

Dr. Tabrez Ahmad,

1. Its is a term in contract 1. Its a term in contract

2. When condition 2. When warranty

3. Breach of condition can 3. Breach of warranty

Dr. Tabrez Ahmad,

 Express condition and warranty are expressly provided

 Implied Condition or warranty are provided by the law.

Dr. Tabrez Ahmad,

In a contract of sale, unless the situation of the

 In sale, he has right to sell goods.

 In agreement to sell, he will have a right to sell at

Dr. Tabrez Ahmad,

 This means “if you contract to sell peas, you cannot

 Hence if the description of the article tendered is

Dr. Tabrez Ahmad,

 If the sale is by sample as well as by description, it is not

 This means goods must match with the description and

Dr. Tabrez Ahmad,

 Normally, in a contract of sale there is no implied

 The buyer must test the goods before he buys them in

Dr. Tabrez Ahmad,

 This means goods should be such that they are

Dr. Tabrez Ahmad,

 An implied condition as to quality or fitness for a

 This means that the goods which are required may be

Dr. Tabrez Ahmad,

Dr. Tabrez Ahmad,

 In the case of eatables and provisions, in addition

Dr. Tabrez Ahmad,

 In a contract of sale, unless there is a contrary intention,

 If the buyer is in any way disturbed in the enjoyment of

Dr. Tabrez Ahmad,

 If the possession is in any way disturbed by reason of the

Dr. Tabrez Ahmad,

 An implied warranty as to quality or fitness for a

Dr. Tabrez Ahmad,

 When a person sells goods knowing that the goods

Dr. Tabrez Ahmad,

 If the goods turn out to be defective or do not

Dr. Tabrez Ahmad,

 When the whole of the price has not been paid or

 When any negotiable instrument is dishonoured

Dr. Tabrez Ahmad,

Suit for Repudiation Suit for

Dr. Tabrez Ahmad,

 Name the ship on which

Dr. Tabrez Ahmad,

 Seller’s duty:  Buyer’s duty

 To arrange for an  To pay custom and

 The goods are ultimately sold to the highest bidder.

 The auctioneer who sells the goods by the auction is an

Dr. Tabrez Ahmad,

The sale is complete when the auctioneer

Dr. Tabrez Ahmad,

 A right to bid may be reserved expressly by or on

Dr. Tabrez Ahmad,

Dr. Tabrez Ahmad,

 It is the price below which the auctioneer will not sell.