Contract Law-II

SALE OF GOODS ACT, 1930

1 Sale: Meaning and Essential Ingredients
2 Distinction between: Sale and Agreement to Sell, Sale and Bailment
and Sale and Hire Purchase Agreements
3 Goods: Meaning and Classification
4 Conditions and Warranties: Meaning and Differences
5 Implied Conditions
6 Rules regarding Transfer of Property
7 Rule regarding Transfer of Title on Sale: Nemo Dat Quod Non Habet
and Exceptions
8 Unpaid Seller: Concepts, Rights of an Unpaid Seller
CONTRACT OF BAILMENT
9 Bailment: Meaning, Essential Ingredients and Kinds

10 Rights and Duties of Bailor and Bailee

11 Termination of Bailment
Finder of Lost Goods as a Bailee
AGENCY
12 Meaning and Rules of Agency
13 Various modes of creation of agency
14 Kind of Agents
15 Modes of Termination of Agency

PARTNERSHIP ACT, 1932

16 Partnership: Meaning and Essential Elements
17 Partnership distinguished from Co-ownership, Hindu Undivided
Family and Company
18 Real Test of Partnership
19 Relationship of Partners inter se and with the third parties
 20 Dissolution of Partnership
21 Registration of Partnership and Consequences of Non-Registration

CONTRACT OF INDEMNITY AND GUARANTEE

22 Indemnity and Guarantee: Meaning and Elements
23 Distinction between Indemnity and Guarantee
NEGOTIABLE INSTRUMENTS ACT, 1881
24 Negotiable Instruments: Meaning, Features and kinds- Promissory
Note, Bills of Exchange and Cheque: Features
25 Dishonor of Cheque for insufficiency etc. of funds in account

SALE: MEANING AND ESSENTIAL ELEMENTS

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. There may be a contract of
sale between one part-owner and another. (Section 4 of Sale of Goods Act, 1930)

Essentials of Contract of Sale:

 Two Parties
 Goods
 Transfer of Ownership
 Price
 All Essential elements of a valid contract
 Includes Both Sale and Agreement to Sell

Two Parties

Bilateral- Buyer and Seller, Passing of property from one person to another,

One can’t buy one’s own goods

Can be between one part owner and another.

Exception: Pawnor can buy in execution of a decree

Goods

“Goods means and includes kind of movable property other than actionable
claims and money; and includes stock and shares, growing crops, grass, and
things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale.” (Section 2(7) of Sale of Goods Act,
1930)

Immovable Property- Transfer of Property Act, 1882

Transfer of Ownership

Property in goods means ownership in goods

“Property means the general property and not special property- Sec 2(11)

A sale constitutes the transfer of ownership of goods by the seller to the buyer
or an agreement of the same.

Special Property: Pledge of Goods

Sale: Absolute transfer of Property

All Essential elements of a valid contract

All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and
are not hereby expressly declared to be void. (Sec 10 Indian Contract Act, 1872)

Includes Both Sale and Agreement to Sell

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from
the seller to the buyer, the contract is called a sale, but where the transfer of the
property in the goods is to take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement to sell becomes a sale when the time elapses or the conditions
are fulfilled subject to which the property in the goods is to be transferred.

SALE AND AGREEMENT TO SELL DISTINCTION

Basis of Distinction SALE AGREEMENT TO SELL

Transfer of Ownership Passing of property At a future time subject
immediately at the time to fulfillment of
of contract. conditions.
Nature of Contract Executed Contract Executory Contract

Nature of Rights of Jus in Rem Jus in Personam

Buyer

Consequences of Breach If buyer wrongfully Only damages can be

by Buyer refuses to accept claimed. Can’t sue for
delivery and pay the price.
price, the seller may sue
him for price even the
though goods are still
with him.
Risk of Loss Loss falls on buyer, even The loss falls on the
if goods are still with seller, as ownership still
seller. Risk follows with him.
ownership.
Insolvency of the seller If seller becomes If the seller goes
 insolvent while goods insolvent, the buyer
are with him, the buyer cannot claim the goods
is entitled to recover the even if price has been
goods from the official paid. Can only claim
assignee as property in ratable dividend.
goods has passed. (estimated)
Insolvency of Buyer If the buyer turns The seller may refuse to
insolvent before paying deliver the goods to
the price, the seller must official assignee unless
deliver the goods to he is paid the full price
official assignee as of goods.
ownership has passed.
Seller can only claim
ratable dividend as an
unsecured creditor.
Consequences in case of The seller, in The seller can dispose of
Resale possession, after sale, the goods as he likes.
cannot resell the goods. And the buyer only
If that’s done, the buyer remedy is damages.
has a double remedy-
suit for damages and
right to recover the
goods. Exception: Sec 30

SALE AND BAILMENT

A ‘bailment’ is the delivery of goods by one person to another for some purpose,
upon a contract that they shall, when the purpose is accomplished, be returned
or otherwise disposed of according to the directions of the person delivering
them. The person delivering the goods is called the ‘bailor’. The person to whom
they are delivered is called the ‘bailee’ (Section 148 of Indian Contract Act, 1872)

BASIS SALE BAILMENT

Title and Title in goods passes from buyer to Ownership of goods is
Possession seller with or without possession. not transferred, only
possession. Particular
purpose.
Return of No obligation to return the goods. Bailee under the
Goods obligation to return or
dispose according to the
instructions of the
bailor.
Relevance of Consideration is integral part of sale. May be with or without
Consideratio consideration.
n
Right of Buyer is an absolute owner. Bailee can use the
goods goods subject to terms
of bailment.
Applicable Sale of Goods Act, 1930 Indian Contract Act,
Act 1872

SALE AND HIRE PURCHASE

Contract of hiring under which the hirer has an option to purchase the goods at
the end of the hiring period. Although the possession is with the hirer, the
ownership of the goods remain with the original owner until the full price is
discharged by the hirer.

BASIS SALE HIRE PURCHASE

Transfer of Executed contract Upon payment of all the
Ownership installments only
 property is transferred.
Position of Buyer is the absolute owner Position of Hirer is that
Buyer of a Bailee
Right to Buyer is bound to pay the price. Can’t Hirer can return the
Terminate terminate the contract. goods.
the contract
Mode of Oral or written Always in writing
Contract
Act Sale of Goods Act, 1930 Hire Purchase Act, 1972
applicable

GOODS: MEANING AND CLASSIFICATION

Existing Goods (Specific, Ascertained and Unascertained Goods)

Physically in existence, owned or possessed by the seller.

Specific, Ascertained and Unascertained Goods

Future Goods (To be manufactured, produced or acquired by the seller after

making the contract of sale)

Contingent Goods (whose acquisition by the seller depends on a contingency,

which may or may not happen)

RULES REGARDING TRANSFER OF TITLE ON SALE

Only an owner can validly transfer the ownership of goods.

Nemo dat quod non-habet:

“No one can transfer a better title than what he himself has”

Exception to the Rule:

Sale by a mercantile agent

Transfer of Title by estoppel

Sale by one of the joint owners

Sale by a person in possession under a voidable contract

Sale by seller in possession after sale

Sale by buyer in possession after agreement to buy

Sale by an unpaid seller

Sale by a finder of lost goods

Sale by Pledgee

Sale by official assignee or official receiver

Sale by a mercantile agent

An agent having authority in the customary course of business.

Eg. P the owner instructing the MA to sell a product at a stipulated price and not
below. Bona fide purchaser if resells. Real owner can’t recover.

Transfer of Title by Estoppel

When a person by words or action makes another person believe..

Sale by one of the joint owners

Sale by a person in possession under a voidable contract

A by misrepresentation induces B a jeweller to sell and deliver to him a diamond
ring. If A resells to C who buys it in good faith for value, gets good title.

Sale by seller in possession after sale

TV in a deliverable state, yet left with seller. Another buyer buys in good faith for
value without having notice of defect acquires good title.

Seller must be in possession of goods in capacity of seller and not otherwise!!

Sale by buyer in possession after agreement to buy

A sells his car to B on EMI. Before paying all the installments, B disposes of the
same to another buyer C.

Sale by an unpaid seller

Where an unpaid seller who has exercised his right of lien or stoppage in transit
re-sells the goods, the buyer acquires a good title thereto as against the original
buyer, notwithstanding that no notice of the re-sale has been given to the original
buyer. (Section 54(3) Sale of Goods Act)

Sale by a finder of lost goods

When a thing which is commonly the subject of sale is lost, if the owner cannot
with reasonable diligence be found, or if he refuses upon demand, to pay the
lawful charges of the finder, the finder may sell it—

(1) When the thing is in danger of perishing or of losing the greater part of its
value, or
(2) When the lawful charges of the finder, in respect of the thing found, amount to
two-thirds of its value.

Sale by Pledgee

On default of Pledger/Pawnor to repay the loan- Right to sell

Reasonable notice

Sale by official assignee or official receiver

Conditions and Warranties: Meaning and Differences

Terms of contract-Quality, Use, Utility etc.
Mere expression of opinions not part of the contract.

Condition and warranty.

(1) A stipulation in a contract of sale with reference to goods which
are the subject thereof may be a condition or a warranty.

(2) A condition is a stipulation essential to the main purpose of the

contract, the breach of which gives rise to a right to treat the contract
as repudiated.

(3) A warranty is a stipulation collateral to the main purpose of the

contract, the breach of which gives rise to a claim for damages but
not to a right to reject the goods and treat the contract as repudiated.

(4) Whether a stipulation in a contract of sale is a condition or a

warranty depends in each case on the construction of the contract. A
stipulation may be a condition, though called a warranty in the
contract.

13. When condition to be treated as warranty

(1) Where a contract of sale is subject to any condition to be fulfilled
by the seller, the buyer may waive the condition or elect to treat the
breach of the condition as a breach of warranty and not as a ground
for treating the contract as repudiated.

(2) Where a contract of sale is not severable and the buyer has
accepted the goods or part thereof, the breach of any condition to be
fulfilled by the seller can only be treated as a breach of warranty and
not as a ground for rejecting the goods and treating the contract
as .repudiated, unless there is a term of the contract, express or
implied, to that effect.

(3) Nothing in this section shall affect the case of any condition or
warranty fulfilment of which is excused by law by reason of
impossibility or otherwise.

Suitable for touring purpose, Mileage of a vehicle.

Express Conditions: Color specified.

Implied Conditions
Condition as to Title:
Sale- has a right to sell,
Agreement to sell- Shall have a right to sell
Nemo dat Quod non habet

Condition as to Description:
Goods shall correspond with the description
Only an year old, actually extremely old, repainted.
Method of Packing too can be description.

Condition as to Sample:
Correspondence of bulk with the sample
Reasonable opportunity of comparing the bulk with the sample

Condition as to Sample as well as description:

Condition as to Quality of Fitness:

There is no implied condition as to quality of fitness…CE
Condition as to Merchantability
Goods bought from a seller who deals with goods of that description
Condition as to wholesomeness
(Sale of provisions and food stuffs)

Rules regarding Transfer of Property

Unpaid Seller: Concepts, Rights of an Unpaid Seller

Unpaid seller” defined.—
(1) The seller of goods is deemed to be an “unpaid seller” within the
meaning of this Act—
(a) when the whole of the price has not been paid or tendered;

(b) when a bill of exchange or other negotiable instrument has been

received as conditional payment, and the condition on which it was
received has not been fulfilled by reason of the dishonour of the
instrument or otherwise.

Rights of an Unpaid Seller

Against the Goods
Right of Lien or Retention
Right of Stoppage of goods in transit
Right of Resale
Right to withhold delivery

Distinction between Right of Lien and Right of Stoppage of

goods in transit
Lien Stoppage of Goods in
transit
Goods must be in actual Exercisable when
possession of the seller. the seller has parted
with his goods but
the goods are in
transit.
Right is available when the Exercisable against
buyer is in default, whether he non-payment of the
is insolvent. price but only when
the buyer is
insolvent.
Comes to an end as soon as Commences when
unpaid seller parts with the seller has parted
possession of goods. with goods and end
i.e. delivered to a
carrier.
Remains in force till stoppage in Extension of right of
transit commences. lien. Till goods are
delivered to buyer.

Against the Buyer

Right for Price
Suit for damages for non-acceptance
Suit for damages and repudiating contract before due date
Suit for interest and special damages