Module :-3

1. Module :-3 Sale Of Goods Act 1930

2. Contract of sales (Section 4) • 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 price".

3. ESSENTIALS OF CONTRACT OF SALE 1. There must be at least two parties 2. Transfer or Agreement to transfer the ownership of goods. 3. The subject matter of the contract must necessarily be 'goods'. 4. The consideration is Price. 5. A Contract of sale may be absolute or conditional 6. All other essentials of a valid contract must be present.

4. Difference between sales and bailment of goods

6. Difference Between Sale And Agreement To Sale Sale • 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. Agreement To Sale • 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 buyer’s remedy would be to file a suit for damages only.

7. Difference between a sale and a hire purchase

8. Goods:-Meaning • 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).

9. Kinds Of Goods: • Existing goods- Section 6(1) These are the goods which are in existence and are physically present in the seller’s 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. • 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):- contingent goods are those whose acquisition by the seller depends on a contingency ,which may or may not happen [section 6(2)]

10. EXAMPLES • Specific goods :- if a agrees to sell his car or watch to B,it shall be a sale of specific goods • Ascertained goods- A who deals in motor bikes , has 100 bikes in his showroom and agree to sell 40 bikes to Delhi police under an agreement to sell suppose the Delhi police, the buyer selects and sets aside 40 bikes out of the mass of 100 for the given contract , the contract I for ascertained goods because the quantity contracted has been indentified and appropriated towards the contract

11. Unascertained goods- Mohan, a timber merchant , agree to supply 50 chairs to a school out of the lot 200 chairs lying in his godown .it is sale of unascertained goods because which of the chairs shall be delivered to the buyer have not been identified at the time of the contract of sale

12. Future goods:- A enters into a contract with B to buy all the apples that would be produced in B ‘s orchard over next year .

13. Contingent goods- :- A agrees to sell the cargo loaded on the ship ‘victory’ which is coming from London to Bombay. The ship may or may not arrive .so, these goods will be called as contingent goods

14. 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.

15. Condition Example • X goes to Y , a horse dealer , and tell him that he wants a horse that can run 35km/hour. Y points to a particular horse and says that this will suit the purpose . X buys the horse relying on his representation . Subsequently , X finds that horse can run only at a speed of 25 km in an hour . There is a breach of conditions . X may reject the horse and get back the price paid by him

16. Warranty example • A buyer goes to a car dealer and asks for a good car . While selling the car , the dealer claims that the mileage of the car is 16 km per liter . But subsequently the buyer discovers that car gives a mileage of only 12 km per liter . Here the buyer cannot repudiate the contract but can only claim damages from the seller because the statement made by the seller amounts to a warranty

17. Difference Between Condition and Warranties Condition • A condition is essential to the main purpose of the contract. • The aggrieved party can repudiate the contract or claim damages or both in case of breach of condition. • A breach of condition may be treated as breach of warranty. Warranty • It is only collateral to main purpose of contract. • The aggrieved party can claim only the damages in case of breach of warranty. • A breach of warranty cannot be treated as breach of condition.

18. Types of conditions and warranties 1) Express – which are expressly provided in the contract. 2) Implied- which the law implies into the contract unless the parties stipulate to the contrary.

19. Implied Conditions • Condition as to title [sec.14(a)] -seller has the right to sell. • Sale by description (sec.15)- goods shall correspond with the description. • Condition as to quality or fitness[sec16(1)] • Condition as to merchantability [sec.16(2)] • Sale by sample (sec.17) • Condition as to wholesomeness

20. Condition as to title:- A bought a second hand car from B , a car dealer, and paid for it . After a few months, c the true owner, spotted the car and demanded it from A. A was deprived of the car because the seller had no title to it . It was held that A could recover the price from B and sue him for damages even though A had used the car for several months • Sale by description:- Ex:- A machine was sold .the buyer has not seen the machine but the seller described it as a new one. However ,it was found to be a very old one .held , the machine was not according to the description

21. Condition as to quality or fitness:- Ex :- A purchased a hot bottle from a chemist . While the bottle was being used by A’s wife ,it burst and injured A’s wife .held ,the seller was liable for damages as the bottle was not fit for the purpose for which it was meant Condition as to merchantability:- Ex:- A radio set was sold to a layman .the set was defective .it did not work in spite of repairs .held , the buyer could returns the set and claim refund Condition as to wholesomeness:- Ex:- A purchased milk from B a milk dealer. The milk contained typhoid germs .A’s wife on taking the milk got infected and died .held , A was entitled to get damages

22. 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.

23. CAVEAT EMPTOR 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.

24. Unpaid Seller The seller of goods is deemed to be unpaid (Sec. 45-1) I. When whole of the price has not been paid of 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.

25. Rights of an Unpaid Seller The unpaid seller has following rights: 1) Rights against the goods. i. Rights of lien ii. Right of stoppage of goods in transit iii. Right of rescale 2) Rights against buyer personally i. Suit for price ii. Suit for damages for non-acceptance iii. Suit for special damages and interest

26. 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. Other rules to satisfy the conditions for this right are I. The unpaid seller must be in actual possession of the goods sold. II. It can be exercised even If the documents of title have been delivered to the buyer. III. It can be exercised for the price and not for other expenses IV. If the seller delivers some goods, it can be exercised on the remaining.

27. Termination of right of lien Seller’s right of lien is terminated in following cases. I. When he delivers the goods to the carrier or other bailey for transmission to the buyer II. When the buyer or his agent lawfully obtains the possession of the goods III. When seller waives his right of lien on the goods IV. The right of lien once lost will not be restored V. When the buyer further sells the goods and the seller agrees Example: A seller “S” sells a TV set to “B” and delivers it to “B” and since the TV set was not functioning properly, “B” delivered it back to “S” for the repairs. It was held that “S” can not exercise his right of lien over TV set.

28. Right of stoppage of goods in Transit: It means stoppage of goods while they are in transit to take possession until the price is paid (sec. 50-52). Unpaid seller can stop the goods in transit in the following cases. I. While the buyer becomes insolvent. II. While the goods are out of actual possession of seller, but have not reached buyer’s possession i.e. goods are in transit with career. III. The unpaid seller can stop the goods in transit only for payment of the price of the goods and not for any other charges.

29. 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. Carrier’s 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.

30. 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 intension of 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 intension 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

31. 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 intension of 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 intension 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

32. Breach of the Contract

33. Suit for price • Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. • Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract.

34. Damages for non-acceptance Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance

35. Damages for non-delivery • 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.

36. Specific performance • Subject to the provisions of Chapter II of the Specific Relief Act, 1877, in any suit for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, one the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and conditions as to damages, payment of the price or otherwise, as the Court may deem just, and the application of the plaintiff may be made at any time before the decree.

37. Remedy for breach of warranty 1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a 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- (a) Set up against the seller the Brach of warranty in diminution or extinction of the price; or (b) Sue the seller for damages for breach of warranty. (2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage.

38. Repudiation of contract before due date • Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either treat the contracts as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and use for damages for the breach.

39. Interest by way of damages and special damages (1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case whereby law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed. (2) In the absence of a contract to the contrary, the Court may award interest at such rate a it think fit one the amount of the price- (a) to the seller in a suit by him for the amount of the price.- from the date of the tender of the goods or from the date on which the price was payable. (b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller- from the date on which the payment was made

40. Performance of contractact

41. Duties of seller and buyer • It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale.

42. Payment and delivery are concurrent conditions • Unless otherwise agreed, delivery of the gods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods. Delivery.- Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf.

43. Effect of part delivery • A delivery of part of 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, but a delivery of part of the gods, with an intention of severing it from the whole, does not operate as a delivery of the remainder.

44. Buyer to apply for delivery • Apart from any express contract, the seller of goods in not bound to deliver them until the buyer applies for delivery.

45. Rules as to delivery (1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, if not then in existence, at the place at which they are manufactured or produced. (2) Where under the contract of sale 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.

46. (3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods.  (4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact.  (5) Unless otherwise agreed, the expense of and incidental to putting the goods into a deliverable state shall be borne by the seller.

47. Delivery of wrong quantity (1) Where the seller delivers to the buyer a quantity of good less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate. (2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell the buyer may accept the goods included in the contact and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate. (3) Where the seller delivers to the buyer the gods he contract to sell mixed with goods of a different description not included in the contract., the buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole. (4) The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties.

48. Installment deliveries (1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments. (2) Where there is a contract for the sale of goods to be delivered by stated installments which are to be separately paid for, and the seller makes no delivery or defective delivery in respect of one or more installments, or the buyer neglects or refuses to take delivery of or pay for one or more installments, it is a question in each cased depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract, or whether it is a sever able breach giving rise to a claim for compensation, but not a right to treat the whole contract as repudiated.

49. Delivery to carrier or wharfinger (1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to he buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer. (2) Unless otherwise authorised by the buyer, the seller shall makes such contract with the carrier or wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger, the buyer made decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit.

50. Risk where goods are delivered at distant place • Where the seller of goods agrees to deliver them at his own risk at place other than that where they are when sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit.