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Contract of Sale:
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. Sec.4(1) There may be a contract of sale between one part owner and another. A contract of sale may be absolute or conditional.
Applicable to
A Contract only if the ownership of goods is transferred from one person to another immediately at the time of formation of contract or subsequent to formation of contract;
There must be at least 2 parties. The subject matter of contract must necessarily be goods. A price in money (not in kind) should be paid or promised. A transfer of property in goods from seller to buyer must take place. A contract of sale must be absolute or conditional. Section 4(2). All other essential elements of a valid contract must be presented in contract of sale.
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Offer to buy or sell Goods Price Acceptance Delivery Payment of price Written, oral & implied
Agreement To Sale
1) 2) 3)
4) 5)
The Property in the goods passes to the buyer and along therewith the risk. It is an executed contract. The seller can sue the buyer for the price of the goods because of the passage of the property therein to buyer. A subsequent loss or destruction of goods is liability of buyer. Breach on the part of the sellers gives the buyer double remedy; a suit for damages against the seller and a proprietary remedy of recovering the goods from third parties who bought them.
4)
Since property in the goods does not pass to buyer, the risk also does not pass to him. It is an executory contract. The aggrieved party can sue for damages only and not for the price, unless the price was payable at a stated date. Such loss or destruction is the liability of the seller.
The seller, being still the owner of the goods, may dispose of them as he likes, and the buyers remedy would be to file a suit for damages only.
5)
Contract can be made in any of the following modes: There may be immediate delivery of goods. There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date. There may be immediate delivery of goods and immediate payment of price. It may be agreed that delivery or payment or both are to be made in installments. It may be agreed that delivery or payment or both are to be made at
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Goods
Goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached and forming part of lands which are agreed to be served before sale or under the contract of sale. Section 2(7).
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Kinds Of Goods
Existing goods- Section 6(1) These are the goods which are in existence and are physically present in the sellers possession. Specific goods- Section 2(14) These are the goods identified and agreed upon at the time the contract is made. Ascertained goods- These are identified after the formation of the contract. Unascertained goods- These are the goods which are not specifically identified or agreed upon at the time of the contract of sale.
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Kinds Of Goods
Future goods Section 2(6) Goods which are to be manufactured or produced or acquired by the seller after making contract of sale. Contingent goods- Section 6(2).
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Destruction of Goods
Goods perishing before making of contract Goods perishing after the agreement to sell but before the sale is effected
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Section 7 and 8 deal with the effect of perishing of goods on the rights and obligations of the parties to a contract of sale. Under these sections the word perishing means not only physical destruction of the goods but it also covers:
Damage to goods so that the goods have ceased to exist in the commercial sense, ie, their merchantable character as such has been lost, eg, where cement is spoiled by water and becomes almost stone or where sugar becomes sharbat and thus are unsaleable as cement or sugar Loss of goods by theft Where the goods have been lawfully requisitioned by the government
It may also be mentioned that it is only the perishing of specific and ascertained goods that affects a contract of sale Where unascertained goods form the subject matter of a contract of sale, their perishing does not affect the contract and the seller is bound to supply the goods from wherever he likes, otherwise be liable for breach of contract Example:
Where A agrees to sell to B ten bales of Egyptian cotton out of 100 bales lying in his godown and the bales in the godown are completely destroyed by fire, the contract does not become void. A must supply 10 bales of cotton after purchasing them from the market or pay damages for the breach
ILLUSTRATION. (a) A sold to B a specific cargo of goods supposed to be on its way from England to Bombay. It turned out, however , that before the day of the bargain, the ship conveying the cargo had been cast away and the goods were lost. Neither party was aware of the fact. The agreement was held to be void. (b) A agrees to sell to B a certain horse . It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void.
If it is entire contract for sale is indivisible and only part of the goods has perished, the contract is void. If the contract is divisible, it will not be void and the part available in good condition must be accepted by the buyer.
Example: There was a contract for the sale of a parcel containing700 bags of Chinese groundnuts of different qualities. Unknown to the seller 109 bags had been stolen at the time of the contract. The seller delivered the remaining 591 bags and, on the buyers refusal to take them, brought an action for the price. It was held that the contract being indivisible had become void by reason of the loss of the goods and the buyer was not bound to take delivery of 591 bags or pay for the goods.
Note: Had there been all bags of the same weight and quality for certain price per bag, the contract would have been divisible and the buyer could only have avoided the contract as to those goods which had actually perished.
Where there is an agreement to sell specific goods, and subsequently the goods , without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided, i.e., the contract of sale becomes void, and both parties are excused from performance of the contract.
This provision is based on the ground of supervening impossibility of performance which makes a contract void.
If only part the goods agreed to be sold perish, contract becomes void if it is indivisible. But if it is divisible then the parties are absolved from their obligations only to the extent of the perishing of the goods (i.e., the contract remains valid as regards the part available in goods condition ). It must further be noted that if fault of either party causes the destruction of the goods, then the party in default is liable for non-delivery or to pay for the goods, as the case may be (sec.26).Again, if the risk has passed to the buyer, he must pay for the goods, though undelivered [ unless otherwise agreed risk prima facie passes with the property (sec. 26)].
(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his purpose the bargain would become absolute. The horse died on the 3rd day without any fault of either party. Held, contract, which was in the from of an agreement to sell, becomes void and the seller should bear the loss ( Elphick vs Barnes).
(b) A, had contracted to erect machinery on Ms premises, the price to be paid on completion. During the course of the work, there was a fire which completely destroyed premises and the machinery. It was held that both parties were excused from further performance and A was not entitled to any payment as the price was payable on the completion of entire work (Appleby vs Myers.19).
Effect of perishing of future goods. As observed earlier, a present sale of future goods always operates as an agreement to sell [sec. 6(3)]. As such there arises a question as to whether section 8 applies to a contract of sale of future goods. (amounting to an agreement to sell) as well? The answer is found in the leading case of Howell vs Coupland, where it has been held that future goods, the destruction of which makes the contract void . The facts of the case are as follows: Example: C agreed to sell to H 200 tons of potatoes to be grown on Cs land. C sowed sufficient land to grow the required quantity of potatoes, but without any fault on his part, a disease attacked the crop and he could deliver only about ten tons. The contract was held to have become void.
Price
Sec.2(10) defines the price as the money consideration for the sale of goods. Price has to be in terms of money.
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Document of title to goods includes a bill of lading, dock-warrant, warehouse-keeper's certificate, wharfingers' certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.
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Condition Or Warranties
Condition: It is a stipulation essential to main purpose of the contract, the breach of which gives right to the repudiate the contract and to claim damages. Warranty: It is a stipulation collateral to main purpose of the contract, the breach of which gives rise to claim for damages but not the right to reject the goods and treat contract as repudiated.
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Warranty
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2.
2.
3.
3.
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Implied Conditions
1. 2. 3. 4. 5.
Sale by description (sec.15)- goods shall Condition as to quality or fitness [sec16(1)] Condition as to merchantability [sec.16(2)] Condition implied by custom- fitness for a
particular purpose may be annexed by the usage of trade [sec.16(3)]
6. 7.
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Implied Warranties
1. Warranty of quiet possession [sec.14(b)]. 2. Warranty of freedom from encumbrances [sec.14(c)]. 3. Warranty as to quality or fitness by usage of trade [sec16(4)]. 4. Warranty to disclose dangerous nature of goods.
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CAVEAT EMPTOR
Let the buyer beware In 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 them thoroughly. If the goods turn out to be defective or do not suit his purpose, he cannot blame anybody excepting himself.
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Exceptions
Fitness for buyers purpose Sale under a patent or trade name Merchantable quality Usage of trade Consent by Fraud
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Transfer of Property
Time at which property in goods passes from seller to buyer is very important as: Risk follows ownership Action against third party can be taken only by the owner Suit for price Insolvency of seller/buyer
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Nemo dat quad non habet - no one can give that which one has not got Sale by person not the owner effect of estoppel Sale by mercantile agent Sale by one of joint owners Sale by person in possession under voidable contract Seller in possession after sale Buyer in possession after sale Sale by an unpaid seller Sale by Pawnee Sale by official receiver/assignee/liquidator
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Unpaid Seller
The seller of goods is deemed to be unpaid (Sec. 45-1) I. When whole of the price has not been paid or tendered. II. When the bill of exchange or negotiable instrument has been received as a condition of payment and the condition on which it was received has not been fulfilled by the reason on dishonor of the instrument or otherwise.
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Example:
I. Party A sells a car on cash basis to party B and the price has not been received yet. II. A sells good to B on 5 months credit period and B turns insolvent after 2 months. III. A sells TV set to B on the same day on cheque basis, the cheque is dishonored due to insufficient funds. A is an unpaid seller.
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Rights of lien
The right of lien means lawfully right to retain the goods possession until the full price is received. An unpaid seller can exercise his right of lien in following cases. Sec 47-49 : I. Where the goods have been sold on the cash basis. II. Where the goods have been sold on credit basis and the term of credit has expired. III. Where the buyer has become insolvent even if the period of credit has not been expired.
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The unpaid seller can not stop goods in transit in following cases:
I. When the goods reaches the destination. II. While the buyer or his agent takes possession of delivery even if it is not reached destination. III. In case the carrier is agent of the buyer, the transit comes to an end the instance carrier receives the goods and seller can not stop the transition IV. Carriers wrongful refusal to deliver goods to the buyer. Example: A sells TV set to B. A delivers the TV to the carrier to carry it to B. Later on gets news that B has become insolvent; A can stop delivery.
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Right of Resale:
If a buyer fails to pay or offer the price within a reasonable time, the unpaid seller has the right to resell the goods in the following circumstances. a) Where the goods are of perishable nature. b) Where the unpaid seller has exercised his right of lien or stoppage in transit and gives a notice to buyer of his intention to resell the goods. c) Where the unpaid seller has expressly reserved his right of resale. d) Where seller gives notice to the buyer of his intention to resell and the buyer does not pay within a reasonable time, he can a. Recover loss on resale of the goods, if any b. Retain any surplus on resale of goods, if any
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However if the seller sells without the notice to the buyer, he can not:
a. Recover any loss of the goods, if any b. Retain any surplus on the resale of the goods, if any Example: a) X sells vegetable to Y on credit, Y does not pay, X can resell to any other person. b) M sells 100 blankets to N and gives him one week for payment. N does not pay. M can resell those to any other person.
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Suit for damages for non-delivery Suit for specific performance Suit for damages for breach of warranty Suit for cancellation and damages for breach of contract Suit for recovery of price with interest.
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Place of delivery Time of delivery Goods in the possession of a third person Expenses of delivery Delivery of wrong quantity Installment deliveries Delivery to carrier or wharfinger Risk where goods are delivered at a distant place Buyers right of examining the goods Acceptance Buyer not bound to return rejected goods Liability of buyer for neglecting or refusing delivery of goods
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Thank You
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