Sec 4(1) – contract of sale – 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.
Two parties - Seller and buyer
Transfer of property
Essential elements of a valid contract
Contract of sale
Contract of sale and agreement to sell
Condition and warranties
Both seller and buyer make representations to each other at the time of entering into contract of sale.
Some of these representations are mere opinions which do not form a part of the contract of the sale. Whereas some become part of the contract of sale
Representations which become part of the contract of sale are termed as stipulations which may rank as condition or warranty
Stipulation – Sec 12(1) – A stipulation in a contract of sale of goods may be a condition or warranty.
Meaning of condition
A condition is a stipulation –
(a) which is essential to the main purpose of the contract
(b) the breach of which gives the aggrieved party a right to terminate the contract.
It goes to the root of the contract.
Its non-fulfillment upsets the very basis of the contract.
It is a stipulation collateral to the main purpose of the contract
It is of secondary importance
If there is a breach of a warranty, the aggrieved party can only claim damages and it has no right to treat the contract as repudiated.
Condition and warranties
There is no hard and fast rules as to which stipulation is a condition and which one is a warranty.
Whether a stipulation is a condition or a warranty depends in each case on the construction of the contract as a whole.
The court is not to be guided by the terminology used by the parties to the contract
Basis of distinction
It is a stipulation which is essential to the main purpose of the contract.
The aggrieved party can terminate the contract
A breach of condition can be treated as a breach of warranty . For example, a buyer may like to retain the goods and claim only damages.
It is a stipulation which is only collateral to the main purpose of the contract
The aggrieved party can claim damages but cannot terminate the contract.
A breach of warranty cannot be treated as a breach of condition.
Conditions and warranties
Two kinds – express and implied
Express conditions and warranties – Conditions and warranties expressly provided in the contract
Implied conditions – They are implied by the law into the contract –
Condition as to title
Sale by description
Sale by sample
Condition as to the quality of the items
Conditions and warranties
Implied warranties –
Warranty of quite possession
Warranty as to freedom from encumbrances
Warranty to disclose dangerous nature of goods
Doctrine of caveat emptor
“ Let the buyer beware”
It is the duty of the buyer to be careful while purchasing goods of his requirement and in the absence of the enquiry from the buyer, the seller is not bound to disclose every defect in the goods of which he may be cognisant.
Exceptions to the doctrine of caveat emptor
In case of misrepresentation by the seller
In case of concealment of latent defect
In case of sale by description
In case of sale by sample
In case of sale by sample and description
Fitness for a particular purpose
Passing of property
Transfer of property in goods from the seller to the buyer is the main object of a contract of sale.
“ property in goods” means the ownership of goods
An article may belong to A although it may not be in his possession. B may be in possession of that article although he is not its owner.
It is important to know the precise moment of time at which the property in goods passes from the seller to the buyer for the following reasons
Significance – Time of transfer of ownership of goods decides various rights and liabilities of the seller and buyer.
Risk – Owner to bear the risk and not the person who merely hs the possession
Action against third party – Owner can take action and not the person who merely has possession.
Types of goods
Types of existing goods
Goods sent “on approval” or “on sale on return basis”
Goods must be ascertained – Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.
Intention of the parties –Where there is a contract for the sale of specific or ascertained goods the property in them passes to the buyer at the time when the parties intend it to pass
Where the intention of the parties cannot be ascertained from the contract-
Specific goods –
Passing of the property at the time of the contract – Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made.
Passing of property delayed beyond the date of the contract
(1) Goods not in a deliverable state –Where there is a contract for the sale of specific goods not in a deliverable state,ie, the seller has to do something to the goods to put them into a deliverable state, the property does not pass until such thing is done and the buyer has notice of it.
(2) When the price of goods is to be ascertained by weighing, etc. – Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh measure test or to do some other act or thing with reference to the goods for the purpose of ascertaining the price the property does not pass until such act or thing is done and the buyer has notice thereof
Unascertained goods –
Where there is a contract for the sale of unascertained goods, the property in the goods does not pass to the buyer until the goods are ascertained. Until the goods are ascertained there is merely an agreement to sell.
Where there is a contract for sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, the property in the goods thereupon passes to the buyer.
“ ascertainment of goods’, “unconditional appropriation to the contract”
Delivery to carrier
A seller is deemed to have unconditionally appropriated the goods to the contract where he delivers them to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the right of disposal.
Goods sent on approval or “on sale or return’
When goods are delivered to the buyer on approval or ‘on sale or return’ or other similar terms the property therein passes to the buyer –
(1) When he signifies his approval or acceptance to the seller:
(2)When he does any other act adopting the transaction
Reservation of right of disposal
The property in goods whether specific or subsequently appropriated to the contract does not pass to he buyer if the seller reserves the right of disposal of goods until certain conditions are fulfilled.
Rights of an unpaid seller
Meaning of an unpaid seller – Sec 45(1)(2)
The seller of the goods is deemed to be an ‘unpaid seller’ -
(a) When whole of the price has not been paid or tendered
(b) When a bill of exchange or other negotiable instrument (such as cheque) has been received as conditional payment and it has been dishonoured [sec 45(1)]
The seller shall be called an unpaid seller even when only a small portion of the price remains to be paid.
It is for the non-payment of the price and not for other expenses that a seller is termed as an unpaid seller.
Where the goods have been sold on credit, the seller cannot be called as an unpaid seller during the credit period unless the buyer becomes insolvent. On the expiry of credit period if the price remains unpaid, then only the seller will become an unpaid seller
Where the full price has been tendered by the buyer and the seller refused to accept it, the seller cannot be called as an unpaid seller.
Rights of an unpaid seller
Against buyer personally
Where the property in goods has passed to the buyer Where the property in goods has not passed to the buyer
Where the property in goods has passed to the buyer
Right of lien Right of stoppage in transit Right of resale
Right of lien
The right of lien means the right to retain the possession of the goods until the full price is received.
Circumstances under the right of lien can be exercised
Where the goods have been sold without any stipulation to credit
Where the goods have been sold on credit, but the term of credit has expired
Where the buyer becomes insolvent
Right of stoppage of goods in transit
Right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retain them till the full price is paid.
Conditions under which Right of stoppage in transit can be exercised
(i)Seller must have parted with the possession of goods,ie, the goods must not be in the possession of the seller
(ii) the goods must be in course of transit
(iii) buyer must have become insolvent
Right of resale
An unpaid seller can resell the goods under the following circumstances:
(i) Where the goods are of a perishable nature
(ii) Where the seller expressly reserves the right of resale if the buyer commits a default in making payment
(iii)Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his intention to resell and buyer does not pay or tender within a reasonable time.
Where the property in goods has not passed to the buyer
Withholding delivery Lien Stoppage in transit Resale
Against the buyer personally
Suit for price Suit for damages Suit for interest
(a) Suit for damages for non-delivery of the goods