Contract II

Conditions and Warranties

It is usual for both seller and buyer to make representations to each other at the time of entering into a contract of sale. Some of these representations are mere opinions which do not form a part of contract of sale.Whereas some of them may become a part of contract of sale.Representations which become a part of contract of sale are termed as stipulation which may rank as condition and warranty e.g. a mere commendation of his goods by the seller doesn’t become a stipulation and gives no right of action to the buyer against the seller as such representations are mere opinion on the part of the seller.But where the seller assumes to assert a fact of which the buyer is ignorant,it will amount to a stipulation forming an essential part of the contract of sale.

Meaning of Conditions [Section 12(2)]
A condition is a stipulation Which is essential to the main purpose of the contract The breach of which gives the aggrieved party a right to terminate the contract.
Meaning of Warranty[Section 12(3)]
A warranty is a stipulation Which is collateral to the main purpose of the contract. The breach of which gives the aggrieved party a right to claim damages but not a right to reject goods and to terminate the contract.
Conditions to be treated as Warranty[Section 13]
In the following three cases a breach of a condition is treated as a breach of a warranty:
Where the buyer waives a conditions; once the buyer waives a conditions,he cannot insist on its fulfillment e.g. accepting defective goods or beyond the stipulated time amount to waiving a conditions.Where the buyer elects to treat breach of the condition as a breach of warranty;e.g. where he claims damages instead of repudiating the contract. Where the contract is not severable and the buyer has accepted the goods or part thereof,the breach of any condition by the seller can only be treated as breach of warranty.It can not be treated as a ground for rejecting the goods unless otherwise specified in the contract.Thus,where the buyer after purchasing the goods finds that some condition is not fulfilled,he cannot reject the goods.He has to retain the goods entitling him to claim damages.
Express and Implied Conditions and Warranties
In a contract of sale of goods,conditions and warranties may be express or implied.
1.Express Conditions and Warranties.
These are expressly provided in the contract.For example,a buyer desires to buy a Sony TV Model No. 2020.Here,model no. is an express condition.In an advertisement for Khaitan fans,guatantee for 5 years is an express warranty.

Implied Conditions and Warranties
These are implied by law in every contract of sale of goods unless a contrary intention appears from the terms of the contract.The various implied conditions and warranties have been shown below: Implied Conditions
Conditions as to title [ Section 14 (a)]
There is an implied condition on the part of the seller that In the case of a sale,he has a right to sell the goods,and
In the case of an agreement to sell,he will have a right to sell the goods at the time when the property is to pass.
Condition in case of sale by description [Section 15]
Where there is a contract of sale of goods by description,there is an implied condition that the goods shall correspond with description.The main idea is that the goods supplied must be same as were described by the seller.Sale of goods by
description include many situations as under:
i. Where the buyer has never seen the goods and buys them only on the basis of description given by the seller.
ii. Where the buyer has seen the goods but he buys them only on the basis of description given by the seller.
iii. Where the method pf packing has been described.
Condition in case of sale by sample [Section 17]
A contract of sale is a contract for sale by sample when there is a term in the contract, express or implied,to that effect.Such sale by sample is subject to the following three conditions:
The goods must correspond with the sample in quality.
The buyer must have a reasonable opportunity of comparing the bulk with the sample.
The goods must be free from any defect which renders them unmerchantable and which would not be apparent on reasonable examination of the sample.Such defects are called latent defects and are discovered when the goods are put to use.
Condition in case of sale by description and sample [Section 15]
If the sale is by sample as well as by description, the goods must correspond with the sample as well as the description.
Condition as to quality or fitness [Section 16(1)]
There is no implied condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.In other words,the buyer must satisfy himself about the quality as well as the suitability of the goods.
Exception to this rule:
There is an implied condition that the goods shall be reasonably fit for a particular purpose described if the following three conditions are satisfied. The particular for which goods are required must have been disclosed(expressly or impliedly) by the buyer to the seller. The buyer must have relied upon the seller’s skill or judgement. The seller’s business must be to sell such goods.
Condition as to merchantable quality[Section 16(2)]
Where the goods are bought by description from a seller who deals in goods of that description,there is an implied condition that the goods shall be of merchantable quality.The expression ‘ merchantable quality’ means that the quality and
condition of the goods must be such that a man of ordinary prudence would accept them as the goods of that description.Goods must be free from any latent or hidden defects.
Condition as to wholesomeness
In case of eatables or provisions or foodstuffs,there is an implied condition as to wholesomeness.Condition as to wholesomeness means that the goods shall be fit for human consumption.
Condition implied by custom [Section 16(3)]
Condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. Implied warranties
a)Warranty as to quiet possession [Section14(b)] There is an implied warranty that the buyer shall have and enjoy quiet possession of the goods.The reach of this warranty gives buyer a right to claim damages from the seller.
b)Warranty of freedom from encumbrances [Section 14(c)]
There is an implied warranty that the goods are free from any charge or encumbrance in favour of any third person if the buyer is not aware of such charge or encumbrance.The breach of this warranty gives buyer a right to claim damages
from the seller.
a) Warranty as to quality or fitness for a particular purpose annexed by usage of trade[Section 16(3)]
b) Warranty to disclose dangerous nature of goods In case of goods of dangerous nature the seller fails to do so, the buyer may make him liable for breach of implied warranty.

Continuing Guarantee

Continuing guarantee Where a guarantee extends to a series of transaction, it is called as Continuing guarantee.

Chapter VIII, Section 129 to Section 131 of the Indian Contract Act, 1872 deals with the provisions relating to

Continuing guarantee

Definition of Continuing Guarantee

Section 129 of the Indian Contract Act, 1872 defines continuing guarantee as “A guarantee which extends to a

series of transaction, is called, a “continuing guarantee”.

Illustrations

(a) A, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be responsible,

to (b) A guarantees payment to B, a tea-dealer, to the amount of £ 100, for any tea he may from time to time supply

to C. B supplies C with tea of above the value of £ 100, and C pays B for it. Afterwards, B supplies C with tea of the

value of £ 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to

B to the extent of £ 100.

Revocation of Continuing Guarantee

A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.

Illustrations

(a) A, in consideration of B’s discounting, at, A’s request, bills of exchange for C, guarantees to B, for twelve

months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000

rupees. Afterwards, at the end of three months, Arevokes the guarantee. This revocation discharges A from all

liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C.

(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B

draws upon C, C accepts the bill. A gives notice of revocation. C dishonours the bill at maturity. A is liable upon his

guarantee.

Modes of Revocation of Continuing Guarantee

A continuing guarantee can be revoked by the Surety in the following ways

(i) By Notice:A continuing guarantee can be revoked by the surety by giving notice to the Creditor as regards future

transactions only.

(ii) By Death of the Surety: If surety dies, the continuing guarantee regarding the future transaction will stand

revoked. Section 131 of the Indian Contract Act, 1872 deals with Revocation of continuing guarantee by surety’s

death it runs as follows:

“The death of the surety operates, in the absence of any contract to the contrary, as a revocation of ma continuing

guarantee, so far as regards future transactions.”

(iii) Other Mode: Continuing guarantee is revoked by all such modes when the surety is discharged from the

liability.

Relevant Case law

R.K. Devan V. State of Uttar Pradesh, AIR 1956 Mad 211 in this case, court held that Liability of deceased surety can be imposed against his legal heirs but only to the extent of the property inherited by them.

State Bank of India Vs Gemini Industries (2001) 3 Guj CD 1885. in this case, a guarantee for a cash-credit account has been held to be a continuing guarantee. the sureties could not claim to be discharged from their liability by reason of the fact that the goods in the hypothetical store were changed.

Performance of contract of Sale

The Sale of Goods Act 1930 states under Sec 31 that, “It is the duty of the seller to deliver the goods and the buyer to accept and pay for them, in accordance with the terms of the Contract of Sale.” The performance of a Contract of Sale defines a simple transaction where the seller delivers the goods in exchange for a payment made by the buyer. Sections 31 to 40 of the Sale of Goods Act, 1930 state the rules and regulations that govern the Sale of goods and their delivery. Let’s define delivery, buyer, seller and their duties

According to Section 2 (2) of the Sale of Goods Act, 1930, delivery means voluntary transfer of possession of goods from one person to another. Hence, if a person takes possession of goods by unfair means, then there is no delivery of goods. Having understood delivery, let’s look at the law on sales.

“voluntary transfer of possession of goods from one person to another.” The transfer of goods from one person to another will be considered a delivery under a Sale of goods act only when:

The transfer of goods is voluntary.

The transfer is not done using theft, fraud or force.

Mere possession of good does not constitute a valid delivery of goods.

Law on Sales

1] The Duty of the Buyer and Seller (Section 31)

It is the duty of the seller to deliver the goods and the buyer to pay for them and accept them, as per the terms of the contract and the law on sales.

2] Concurrency of Payment and Delivery (Section 32)

The delivery of goods and payment of the price are concurrent conditions as per the law on sales unless the parties agree otherwise. So, the seller has to be willing to give possession of the goods to the buyer in exchange for the price. On the other hand, the buyer has to be ready to pay the price in exchange for possession of the goods.

Rules Pertaining to the Delivery of Goods

The Sale of Goods Act, 1930 prescribes the following rules regarding delivery of goods:

a. Delivery (Section 33)

The delivery of goods can be made either by putting the goods in the possession of the buyer or any person authorized by him to hold them on his behalf or by doing anything else that the parties agree to.

b. Effect of part-delivery (Section 34)

If a part-delivery of the goods is made in progress of the delivery of the whole, then it has the same effect for the purpose of passing the property in such goods as the delivery of the whole. However, a part-delivery with an intention of severing it from the whole does not operate as a delivery of the remainder.

c. Buyer to apply for delivery (Section 35)

A seller is not bound to deliver the goods until the buyer applies for delivery unless the parties have agreed to other terms in the contract.

d. Place of delivery [Section 36 (1)]

When a sale contract is made, the parties might agree to certain terms for delivery, express or implied. Depending on the agreement, the buyer might take possession of the goods from the seller or the seller might send them to the buyer.

If no such terms are specified in the contract, then as per law on sales

The goods sold are delivered at the place at which they are at the time of the sale
The goods to be sold are delivered at the place at which they are at the time of the agreement to sell. However, if the goods are not in existence at such time, then they are delivered to the place where they are manufactured or produced.

e. Time of Delivery [Section 36 (2)]

Consider a contract of sale where the seller agrees to send the goods to the buyer, but not time of delivery is specified. In such cases, the seller is expected to deliver the goods within a reasonable time.

f. Goods in possession of a third party [Section 36 (3)]

If at the time of sale, the goods are in possession of a third party. Then there is no delivery unless the third party acknowledges to the buyer that the goods are being held on his behalf. It is important to note that nothing in this section shall affect the operation of the issue or transfer of any document of title to the goods.

g. Time for tender of delivery [Section 36 (4)]

It is important that the demand or tender of delivery is made at a reasonable hour. If not, then it is rendered ineffectual. The reasonable hour will depend on the case.

h. Expenses for delivery [Section 36 (5)]

The seller will bear all expenses pertaining to putting the goods in a deliverable state unless the parties agree to some other terms in the contract.

i. Delivery of wrong quantity (Section 37)

Sub-section 1 – If the seller delivers a lesser quantity of goods as compared to the contracted quantity, then the buyer may reject the delivery. If he accepts it, then he shall pay for them at the contracted rate.
Sub-section 2 – If the seller delivers a larger quantity of goods as compared to the contracted quantity, then the buyer may accept the quantity included in the contract and reject the rest. The buyer can also reject the entire delivery. If he wants to accept the increased quantity, then he needs to pay at the contract rate.
Sub-section 3 – If the seller delivers a mix of goods where some part of the goods are mentioned in the contract and some are not, then the buyer may accept the goods which are in accordance with the contract and reject the rest. He may also reject the entire delivery.
Sub-section 4 – The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties.

j. Installment deliveries (Section 38)

The buyer does not have to accept delivery in installments unless he has agreed to do so in the contract. If such an agreement exists, then the parties are required to determine the rights and liabilities and payments themselves.

k. Delivery to carrier [Section 36 (1)]

The delivery of goods to the carrier for transmission to the buyer is prima facie deemed to be ‘delivery to the buyer’ unless contrary terms exist in the contract.

l. Deterioration during transit (Section 40)

If the goods are to be delivered at a distant place, then the liability of deterioration incidental to the course of the transit lies with the buyer even though the seller agrees to deliver at his own risk.

m. Buyers right to examine the goods (Section 41)

If the buyer did not get a chance to examine the goods, then he is entitled to a reasonable opportunity of examining them. The buyer has the right to ascertain that the goods delivered to him are in conformity with the contract. The seller is bound to honor the buyer’s request for a reasonable opportunity of examining the goods unless the contrary is specified in the contract.

Acceptance of Delivery of Goods (Section 42)

A buyer is deemed to have accepted the delivery of goods when:

He informs the seller that he has accepted the goods; or
Does something to the goods which is inconsistent with the ownership of the seller; or
Retains the goods beyond a reasonable time, without informing the seller that he has rejected them.

Return of Rejected Goods (Section 43)

If a buyer, within his right, refuses to accept the delivery of goods, then he is not bound to return the rejected goods to the seller. He needs to inform the seller of his refusal though. This is true unless the parties agree to other terms in the contract.

Refusing Delivery of Goods (Section 44)

If the seller is willing to deliver the goods and requests the buyer to take delivery, but the buyer fails to do so within a reasonable time after receiving the request, then he is liable to the seller for any loss occasioned by his refusal to take delivery. He is also liable to pay a reasonable charge for the care and custody of goods.

The Doctrine of Caveat Emptor

The Latin phrase ‘Caveat Emptor’ means let the buyer beware. The doctrine of Caveat Emptor under the Sale of Goods Act talks about the onus of the buyer in ascertaining the risks in a contract.

The Doctrine of Caveat Emptor means that the responsibility lies on the buyer of goods and he must perform due diligence before the purchase of the goods. It is expected from the buyer to be alert in a contract of sale. He cannot hold the seller responsible for inferior goods unless the contact is based on fraud. The Doctrine of Caveat Emptor is generally applicable in the case of property transactions but it can also be applied in the sale of goods and other services. Section 16 of the Sale of Goods Act, defines it as ‘“there is no implied warranty or condition as to the quality or the fitness for any particular purpose of goods supplied under such a contract of sale“. example. The seller makes the goods available in the market and it is the responsibility of the buyer to inspect them well before buying. If the buyer later discovers a defect in the goods that could have been detected earlier by him, he cannot sue the seller for inferior quality.

Though the responsibility lies with the buyer, he can shift it to the seller under the given conditions:

If the buyer has informed the seller about the purpose of the purchase, before making the purchase.

2. If the buyer relies on the technical expertise and experience of the seller.

3. If the goods are of a description that the seller supplies in his normal course of business.

Exceptions to the Doctrine of Caveat Emptor

The Doctrine of Caveat Emptor and its exceptions will help us understand the situations in which the responsibility is not put only on the buyer.

Fitness of the Product for the Buyer’s Purpose of Purchase- Section 16 (1)

If the buyer informs the seller about his purpose behind purchasing the goods and the seller does not sell the goods according to that knowingly, it relieves the buyer from the responsibility. In this case, it becomes the duty of the seller to supply the right goods to the buyer. For example, A informs B, who is a shoe seller, that he wishes to purchase shoes for running. If B still sells him shoes that are not for running, then B can be held responsible.

2. Sale of Goods Under the Trade Name:

If the buyer purchases a branded product or a product sold under a trading name, then he is assured of the quality that is associated with that brand name. The seller in this case cannot be held responsible. In this case, the buyer is not relying on the skill or judgment of the seller but on the implied quality standard that the brand offers.

3. Goods Sold by Description:

If the buyer purchases the goods based on their description which matches the product, then the seller cannot be held liable. The seller will be held liable only if he provides an incorrect description of the goods.

4. Merchantable Quality of Goods- Section 16(2):

The seller must provide goods of merchantable quality to the buyer. This means that the goods must be fit for resale in the market and must pass the market standards. When the buyer purchases the goods from a seller based on a description and the seller deals in the goods of that description, then the goods must be of merchantable quality. If the goods are not of merchantable quality, then the seller can be held liable for the same.

5. Sale by Sample Inspection:

The Doctrine of Caveat Emptor does not apply if the buyer purchases the goods after careful inspection of a sample of the goods that he intends to buy and the seller supplies goods different from that sample. For example, A inspects a sample carpet manufactured by B. He gives an order of 100 carpets of the same quality as that of the sample. If B supplies carpets that do not match the sample carpet in quality, then he will be held liable. If the sale is made based on a description as well as a sample and the goods do not match both, then the buyer is not held responsible.

6. Sale by Description and Sample

If the sale is done via a sample as well as a description of the product, the buyer will not be responsible if the goods do not resemble the sample and/or the description. Then the responsibility will fall squarely on the seller.

7. Usage of Trade

There is an implied condition or warranty about the quality or the fitness of goods/products. But if a seller deviated from this then the rules of caveat emptor cease to apply. For example, A bought goods from B in an auction of the contents of a ship. But B did not inform A the contents were sea damaged, and so the rules of the doctrine will not apply here.

8. Fraud or Misrepresentation by the Seller

This is another important exception. If the seller obtains the consent of the buyer by fraud then caveat emptor will not apply. Also if the seller conceals any material defects of the goods which are later discovered on closer examination then again the buyer will not be responsible. In both cases, the seller will be the guilty party.

Define Goods and its kinds

Definition of “goods”
‘Goods’ is defined as per Section 2 (7) of the ‘Act’ as. “Every 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.”
Definition of “Movable Property”
As per section 3(36) of the General Clauses Act 1897, “movable property” is defined as “property of every description except immovable property.” Section 3(26) of the same Act reads as, “Immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.”
Hence, a conjoint reading of the two sections gives us a clear definition that anything that is attached to the land maybe termed as “movable property”, provided that there is an element of severability involved.

The element of severability is important while deciding on the nature of the property, and this element can be established by ascertaining the nature of the property, intention of the parties and the terms of the contract between them. For instance, timber
falls under the ambit of “goods” as per S.2(7) because timber trees are severed from the land for the purpose of sale and hence they become a commercial
commodity- M/s Mukesh Kumar Aggarwal & Co. V. State of M.P. Perumal v Ramaswami, AIR 1969 Mad.346.- if an oil engine is attached to the earth and it is used as long as it can, and it can be detached and shifted to some other place when it is not used, such an engine is not immovable property.

Difference between the English law and the Indian law
In English law as per Sec. 61(1) of the Sale of Goods Act 1979, “goods” include personal chattels which can be further divided into “choses in possession” and “choses in action”. As per the English law only the former is included in the definition of “goods” whereas the latter which include commodities like shares, debentures, bills of exchange, and other negotiable
instruments are excluded from the definition as they all are actionable claims. On the other hand in India, the definition as elucidated in Sec.2(7) is much wider in scope than the English definition as it includes stocks and shares
as within the scope of “goods”.
The following discussion primarily focuses on the point that whether certain

Goods may be classified into:

1. Existing goods;

2. Future goods

3. Contingent goods

Existing goods: At the time of sales if the goods are physically in existence and are in possession of the seller the goods are called ‘Existing Goods’. The goods that are referred to in the contract of sale are termed as existing goods if they are present (in existence) at the time of the contract. In sec 6 of the Act, the existing goods are those goods which are in the legal possession or are owned by the seller at the time of the formulation of the contract of sale. The existing goods
are further of the following types:
a) Specific goods: Goods identified and agreed upon at the time of the making of the contract of sale are called ‘specific goods’ [Sec. 2(14)]. It may be noted that in actual practice the term ‘ascertained goods’ is used in the same sense as
‘specific goods,’ These are those goods that are “identified and agreed upon” when the contract of sale is formed.
For example, you want to sell your mobile phone online. You put an advertisement with its picture and information. A buyer agrees to the sale and a contract is formed. The mobile, in this case, is specific good. For example, where A agrees to sell to B a particular radio bearing a distinctive number, there is a contract of sale of specific or ascertained goods.
B) Ascertained Goods: This is a type not defined by the law but by the judicial interpretation. This term is used for specific goods which have been selected from a larger set of goods. For example, you have 500 apples. Out of these 500 apples, you decide to sell 200 apples. To sell these 200 apples, you will need to separate them from the 500 (larger set). Thus, you specify 200 apples from a larger group of unspecified apples. These 200 apples are now the ascertained goods. c)Unascertained goods. The goods, which are not separately identified or ascertained at the time of the making of the contract, are known as ‘unascertained goods.’ They are indicated or defined only by description. These are the goods that have not been specifically identified but have rather been left to be selected from a larger group For example, if A agrees to sell to B one bag of sugar out of the lot of one hundred bags lying in his godown; it is a sale of unascertained goods because it is not known which bag is to be delivered. As soon as a particular bag is separated from the lot for delivery, it becomes ascertained or specific goods. For example, from your 500 apples, you decide to sell 200 apples but you don’t specify which ones you want to sell. A seller will have the liberty to choose any 200 apples from the lot. These are thus the unascertained goods. The distinction between ‘specific’ or ‘ascertained’ and ‘unascertained’ goods is important in connection with the rules regarding ‘transfer of property’ from the seller to the buyer.

Future goods: Future goods are goods to be manufactured or produced or yet to be acquired by seller. There cannot be present sale in respect future goods because the property cannot pass. In sec 2(6) of the Act, future goods have been
defined as the goods that will either be manufactured or produced or acquired by the seller at the time the contract of sale is made. The contract for the sale of future goods will never have the actual sale in it, it will always be an agreement to sell.
For example, -you have an apple orchard with apples in it. You agree to sell 1000 apples to a buyer after the apples ripe. This is a sale that has to occur in the future but the goods have been identified already and the agreement made. Such goods are known as future goods.
Example- A agrees to sell to B all the milk that his cow may yield during the coming year. This is a contract for the sale of future goods. X agrees to sell to Y all the mangoes, which will be produced in his garden next year. It is contract of sale of future goods, amounting to ‘an agreement to sell.’
Contingent Goods: Though a type of future goods, these are the goods the acquisition of which by the seller depends upon a contingency, which may or may not happen [Sec. 6 (2)]. Contingent goods are actually a subtype of future goods
in the sense that in contingent goods the actual sale is to be done in the future. These goods are part of a sale contract that has some contingency clause in it. For example, if you sell your apples from your orchard when the trees are yet to produce apples, the apples are a contingent good. This sale is dependent on the condition that the trees are able to produce apples, which may not happen.

SALE OF GOODS ACT 1930

INTRODUCTION

The Indian Sale of Goods Act, 1930, is a Mercantile Law that came into existence on July 1, 1930, during the British Raj, borrowing heavily from the Sale of Goods Act of 1893. Till 1930, the transactions relating to the sale and purchase of goods were regulated by the Indian Contract Act, 1872 (sec. 76-123) and were repealed and made a separate act called the Indian Sale of Goods Act 1930. The act was amended on September 23, 1963, and was renamed the Sale of Goods Act, 1930. It is still in force in India. The Sale of Goods Act, 1930, herein referred to as the Act, is the law that governs the sale of goods in all parts of India. Originally, transactions related to the sale and purchase of goods were regulated by Chapter VII (Sections 76 to 123) of the Indian Contract Act, 1872, which was broadly based on English common law. A need was felt to overhaul the law due to the rapid growth of mercantile transactions and various progressive English judgments being passed to meet the needs of the community. Thus, the provisions of Chapter VII were repealed and suitably amended, keeping in mind the English Sales of Goods Act of 1893 and recent judicial decisions of the time. A separate act, the Sale of Goods Act, came into force on July 1, 1930. It does not affect rights, interests, obligations, or titles acquired before the commencement of the Act. The Act deals with the sale but not with the mortgage or pledge of the goods. The contacts for the sale of goods are subject to the general principles of the law relating to contracts, i.e., the Indian Contact Act. A contract for sale of goods has, however, certain peculiar features such as the transfer of ownership of the goods, delivery of goods, the rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for sale of goods, etc

Definition of sale:

Section 4 of the Sales of Goods Act, 1930, defines a sale of goods as a “contract sale whereby the seller transfers or agrees to transfer the property in goods to the buyer for price.”. The term ‘contract of sale’ includes both a sale and an agreement to sell.

A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such an offer by the other party. The contract may be oral or in writing. A contract of sale may be absolute or conditional.
Formalities of a contract of sale: Section 5 of the Act specifically provides for the following three steps or formalities in a contract of sale:
1) Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods for a price and acceptance of such offer.
2) Delivery and Payment: It is not necessary that the payment for the goods to the seller and the delivery of the goods to the buyer be simultaneous. They can be made at different times or in installments, as per the contract.
3) Express or Implied: The contract can be in writing, oral, or implied. It can also be partly oral and partly written.
Essential features
The five essential features of a contract of sale are discussed below:
1) Two parties (It is a contract between two parties, one known as the seller and the other as the buyer.).
2) Subject matter to be goods
3) Transfer of ownership of goods (the seller should transfer or agree to transfer the property (ownership) in the goods to the buyer).
4) Consideration is price (The transfer of property (ownership) in the goods from the seller to the buyer is for consideration known as ‘price’.)
5) Essential elements of a valid contract: Agreement between the competent parties
1) Two parties: there must be 2 distinct parties i.e. a buyer and a seller, to affect a contract of sale and they must be competent to contract. ‘Buyer’ means a person who buys or agrees to buy goods [Sec. 2(1)]. ‘Seller’ means a person who sells or agrees to sell goods [Sec. (13)]. A sale has to be bilateral because the goods have to pass from one person to another. The seller and the buyer must be different persons. A part owner can sell to another part owner. A partner may, therefore, sell to his firm or a firm may sell to a partner. But if joint owners distribute property among themselves as per mutual agreement, it is not ‘sale’. A person cannot be the seller of his own goods as well as the buyers of them. However, when a bankrupt person’s goods are sold under an execution of decree, the person may buy back his own goods from his trustee.
2) Subject matter to be goods: Goods: there must be some goods the property in which is or is to be transferred from the seller to the buyer. The goods which form the subject-matter of the contract of sale must be movable. Transfer of immovable property is not regulated by the Sale of Goods Act.

The term ‘goods’ is defined in Section 2(7). It states that ‘goods’ “means every 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”. Money cannot be sold because money means legal tender and not the old coins which can be sold and purchased as goods. Actionable claims are things that a person cannot make use of, but which can be claimed by him by means of legal
action such as a debt. Sale of immovable property is not covered under this Act. As per Section 3 of the Transfer of Property Act, 1882, ‘immovable property’ does not include standing timber, growing crops or grass. They are considered movable property and thus goods. Standing timber is taken as movable property while trees are immovable property. Things like goodwill, copyright, trademark, patents, water, gas, electricity are all goods.

In the case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board [AIR 1970 SC 732], the Supreme Court observed –
“…electricity…can be transmitted, transferred, delivered, stored, possessed, etc., in the same way as any other movable property…If there can be sale and purchase of electric energy like any other movable object, we see no difficulty in holding that electric energy was intended to be covered by the definition of “goods”. In the case of H. Anraj vs. Government of Tamil Nadu [AIR 1986 SC 63], it was held that lottery tickets are goods and not actionable claims. Thus, sale of lottery tickets is sale of goods. Sugarcane supplied to a sugar factory is goods within the meaning of Section 2(7) of the Act as held in the case of UP
Cooperative Cane Unions Federation vs. West UP Sugar Mills Assn. [AIR 2004 SC 3697]
3) Transfer of ownership of Goods: There must be transfer of ownership or an agreement to transfer the ownership of goods from the seller to the buyer – not the transfer of mere possession or limited interest as in the case of pledge, lease or hire purchase agreement). If goods remain in possession of seller after sale transaction is over, the ‘possession’ is with seller, but ‘ownership’ is with buyer. The Act uses the term ‘general property’ implying that sale involves total ownership and not a specific right limited by conditions. Delivery of goods refers to a voluntary transfer of possession of goods from one person to another. Delivery may be constructive or actual depending upon the circumstances of each case. A contract may provide for the immediate delivery of the goods or immediate payment of the price or both. Alternatively, the delivery or payment may be made by installments or be postponed.
4) Consideration is Price: Price is an essential ingredient for all transactions of sale and in the absence of the price or the consideration, the transfer is not regarded as a sale. The transfer by way of sale must be in exchange for a price.
It has been held that price normally means money considerations for a sale of goods sec 2 (10). The price can be paid fully in cash or it can be partly paid and partly promised to be paid in future. The price can be fixed by the agreement between the parties before the conveyance of the property. When goods are exchanged for goods, it is a contract of barter or exchange-(Commissioner of Income Tax v Motar and General Store ltd. AIR, 1968.S.C.200). When there is no consideration for the contract and the transfer is gratuitous, the transaction will be by way of gift.
The consideration in a contract of sale has to be price i.e., money. If goods are offered as the consideration for goods, it will not amount to sale. It will be barter. If there is no consideration, it will be called gift. But where the goods are sold for definite sum and the price is paid partly in kind and partly in cash, the transaction is a sale. Consideration is an essential for a valid contract as per the Indian Contract Act, 1872 It is the duty of a buyer who has received and appropriated the goods to pay a reasonable price.

According to Section 2(10) ‘price’ means the money consideration for the sale of goods. If the price is not fixed, the contract is void ab initio.
Section 9 lays down how the price may be fixed in a contract of sale:
a) It can be fixed by the contract itself; or
b) It can be fixed in a manner provided by the contract, such as appointment of a valuer; or
c) It can be determined by the course of dealings between the parties; or
d) If the price is not capable of being fixed in any of the ways mentioned ways,
the buyer is bound to pay reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. It is not necessary that reasonable price should be equal to the market price. Section 10 makes it clear that if the third party appointed under the agreement to fix the price cannot or does not make such valuation, then the agreement to sell goods will become void. If the third party is prevented in his valuation due to the buyer or the seller, the party not at fault can file a suit for damages against the party in fault.
5) Essential elements of a valid contract: All essential elements of a valid contract must be present in the contract of sale. viz., competent parties, free consent, legal object and so on. The transfer of possession and ownership under the Act has to be voluntary and not be tainted with fraud or duress. Time: Any stipulation with respect to time is not deemed to be of essence to a
contract of sale unless a different intention appears from the terms of the contract.
Unless all these ingredients of sale are duly proved, mere entry or endorsement made by the registering authority under sec 31 of the motor vehicles act showing transfer of ownership of the vehicle. Thus, to constitute a transaction of sale of goods the essential ingredients of sale under the sale of goods act have to be proved.
Contract under statutory compulsion- sometimes a contract may not be entered into by the normal process of negotiation, but under a statutory compulsion. When the goods are supplied under a statutory compulsion. When the goods are supplied under a statutory compulsion whether that results in sale or not, is the question which has arisen in a number of cases.
Coffee Board Karnataka v Commissioner of Commercial Taxes, it has been held that the compulsory delivery of coffee by the coffee growers to the coffee board constitutes a sale and not compulsory acquisition, and the state can impose purchase tax on the same.
Performance – they may provide that the delivery of the goods will be made either immediately or by installments or on some future date. Similarly, regarding the payment of price too the contract may require either immediate payment, or payment by installments or the payment on some future date. Compliance of the provisions of the sale of goods act The transfer of title in any goods, e.g., a car depends on fulfillment of the provisions of the sale of goods act, rather than the provisions of the Motar
vehicles act, 1939.
Transfer of general property: There must be a transfer of general property as distinguishes from special property in goods from the seller to the buyer. For e.g. if A owns certain goods he has general property in the goods. If he pledges them with B, B has special property in the goods.

Valuation by a third party-: It has noted that one of the modes of determinations of the price may be by the valuation being made by a third party. Sec 10(1) provides that if a third party who is supposed to make valuation cannot or does not make such valuation, the agreement is thereby avoided.

Time for performance

Time, place and manner of performance (Sections 46 – 50)

The parties are free to decide as to when and where the performance of the contract is to be made.

No time is specified for performance (Sec 46)

Time of performance is not specified + promisor agreed to perform without, a demand from the promise the performance must be made

within a reasonable time. Reasonable time – in each particular case – a question of fact. Sec 36(2) the sale of goods act also contains a similar provision:- when the seller is bound to deliver the goods, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.

Time specified but hour not mentioned (Sec 47)

Time of performance specified + promisor agreed to perform without application by the promise. Performer must perform on the day fixed during the usual business hours and at place at which the promise ought to be performed.

Time and place for performance of promise, where time is specified, and no application to be made. (during business hours on such day/usual closing time)

A promise to deliver goods at B’s warehouse on 1^st Jan. on that day, A brings the goods to B’s warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise.

Where time is fixed and application to be made (Sec 48)
- Proper place and within the usual hour of business.
- Promisee to apply for performance.

When the promise is to apply for performance, he must do so at proper time and place. (Usual hours of business)

Performance of promise where no place is specified and no application is to be made by the promise (Sec 49)

It is the duty of the promisor to apply to the promise to appoint a reasonable place for the performance and perform it at such appointed place.

Place of performance of promise, where application to be made and no place fixed for performance (Reasonable place)

A undertakes to deliver a thousand mounds of jute to B on a fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place.

Performance in manner or at the time prescribed or sanctioned by promise. (Sec 50)
- In such prescribe manner and
- Prescribed time

The performance of any promise may be in any manner, or at any time which the promise prescribes or sanctions.

Ex. A desires B who owes him Rs.10,000/- to send him a promissory note for Rs.10,000/- by post. The debt is discharged as soon as B puts into the post a letter containing the promissory note duly addressed to A.

B owes A, Rs.2000/- A desires B to pay the amount to A’s account with C, a banker. B who also banks with C, orders the amount to be transferred from his account to As credit, and this is done by C.

Indian Partnership Act, 1932

Partnerships are a form of business association between two or more persons who join to carry on a trade or business. Each person contributes money, property, labour or skill and expects to share in the profits and losses of the business.

Partnership is a form of business organization, where two or more persons join together for jointly carrying on some business. It is an improvement over the ‘Sole-trade business’, where one single individual with his own resources, skill and effort carries on his own business. Due to the limitation of resources of only a single person being involved in the sole-trade business, a larger business requiring more investments and resources than available to a sole-trader, cannot be thought of in such a form of business organization. In partnership, on the other hand, a number of persons could pool their resources and efforts and could start a much larger business, than could be afforded by any of these partners individually. In case of loss the burden gets divided among various partners in a Partnership

As per Section 4 of The Indian Partnership Act, 1932 “Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all Persons who have entered into partnership with one another are called individually, “partners” and collectively “a firm” and the name under which their business is carried on is called the “firm-name”.

ESSENTIAL ELEMENTS TO CONSTITUTE PARTNERSHIP FIRM

Atleast 2 parties. Persons must be competent to enter into a contract.
Parties may be natural or Artificial.
Agreement between the parties.
Agreement may be oral or in writing.
It may be express or implied.
Agreement must be to share the profits of the business;
Business must be carried on by all or any of them acting for all

Important Points

1. Members of HUF carrying on family business together are not partners. Burmese Buddhist Husband and wife doing business together are not partners.

2. Sharing of Profits is not the only evidence for partnership – This means that of two person are only sharing profit then it does not means that they both are partners.

Example – A joint owner of a property sharing its return with the other owner does not make joint owners partner

Salient features of partnership:

For partnership there must be two or more people who are eligible to contract, partners may be natural person or artificial person.
In a partnership, the partners are agents for the partnership. As such, one partner may legally bind the partnership to a contract or agreement that appears to be in line with the partnership’s operations. As most partnerships create unlimited liability for its partners, it is important to know something about potential partners before beginning a partnership.
In a partnership the liability of partners is unlimited. Partners may be called on to use their personal assets to satisfy partnership debts when the partnership cannot meet its obligations. If one partner does not have sufficient assets to meet his/her share of the partnership’s debt, the other partners can be held individually liable by the creditor requiring payment.
The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such are not partners in such business.
As general rule, a person who receives a share of the profits is prima facie deemed to be a partner of the firm but the receipt of such share, or of a payment contingent on or varying in the profit of a business, does not of itself make him a partner in the business. Thus if a person is being repaid the money that it has advanced to the partnership firm from the profits of the firm then it does not become a partner.
Sharing of profit means sharing of losses too.
Pa-basis Partnership Company Legal Status A firm is not a legal entity. Therefore, it has no legal identity distinct from the personalities of its constituent members A company is considered a separate legal entity distinct from its members. Agency In a firm All the partners are an agent for each other, as well as of the firm In a company, a member is not an agent of any other member nor the company. A member’s actions do not bind either Distribution of Profits The profits of a firm must be distributed among the partners according to the terms stated in the partnership deed There are no compulsions to distribute its profits among its members. A portion of the profits becomes distributed among the shareholders when dividends are declared partnership should be there to carry on some business.

CONTRACT OF AGENCY

Since it is not always possible for a person to do everything by himself, it becomes necessary to delegate some of the acts to be performed by another person. Such another person is called an agent. The person represented is called the principal. The law relating to agency is contained in Chapter X (Sections 182 to 238) of the Indian Contract Act, 1872

MEANING OF CONTRACT OF AGENCY

By a contract of agency, a person employs another person to do any act for him or to represent him in dealing with third persons so as to bind himself by the acts of such another person.

The law of agency is based on the following general rules:

(i) Whatever the principal can do by himself, he may get the same done through an agent, except when the act involved is of personal nature e.g. the principal can¬not ask his agent to become insolvent on his behalf or to marry on his behalf.

(ii) What a person does by another, he does by himself. Thus, the acts of the agent are the acts of the principal.

AGENT

Meaning of an Agent [Section 182]

An agent is a person employed to do any act for another or to represent another in dealings with third persons. Thus, an agent establishes a contract between such another person and third person.

Who May be an Agent [Section 184]

As between the principal and third persons, any person (whether he has contractual capacity or not) may become an agent. Thus, a minor or a person of unsound mind can also become an agent.

Agent’s Responsibility to his Principal (Section 184]

An agent who is not of the age of majority and of sound mind is not responsible to his principal.

Example X hands over to Y, a minor, a TV set worth As 18,500 and instructs him not to sell below Rs 19,000. Y sells the same to Z for Rs 18,000. X will be responsible to Z for the act of Y but Y himself will not be responsible to X since he has no contractual capacity.

Distinction between an Agent and Servant

Basis of distinction	An agent	Servant
1. Authority to create contractual relationship	Hehastheauthoritytocreate contractual relationshipbetween the principal and a third party.	He ordinarily has no such authority.
2. Work of several persons	He may work for several principals at a time.	He ordinarily works only for one master.
3. Remuneration	He usually gets commission..	He usually gets salary orwages.

Distinction between an Agent and Independent Contractor

*Basis of distinction*	*An agent*	*Independent contractor*
1. Control and supervision	He works under the control and supervision of the principal.	He works independently of the control of the person for whom he does the work.


2. Personal liability	He is not personally liable for allacts done by him within the scope of his authority.	He is personally liable for all acts done by him.
3. Remuneration	He usually gets commission.	He usually gets the fixed contracted amount or amount at afixed contracted rate.

Modes of Discharge of Surety’s Liability

In a contract of guarantee, a surety undertakes to pay the amount to the creditor in case the principal debtor is not able to pay the amount. The Indian Contract Act, 1872 through its different provisions ensures that it protects the interest of all the parties in a contract of guarantee, especially the interests of the surety. It may happen that initially when the contract of guarantee had been entered into, the contract was not entirely based on good faith. However, after entering into such a contract, our legal system makes it a point that good faith is imposed on the creditor. It also ensures that there is no ambiguity related to the rights and liabilities of the surety.

Surety

A surety is a person or an organization that guarantees to pay the sum of money to the creditor in an instance where the principal debtor makes a default or is not able to pay. A surety is also called the ‘guarantor’. When the principal debtor fails to pay his debts, a surety assumes upon himself, the responsibility to pay the debts of the principal debtor. Section 126 of ICA, also defines the term ‘surety’ while defining the contract of guarantee. In a contract between two parties, where one party questions the ability of the other party to satisfy the requirements of the contract, a presence of surety is very common. A lender, in order to reduce risk, may require the debtor with a surety while entering into a contract. Therefore, a surety takes all the responsibility to pay the debts of the principal debtor if he is unable to pay them.

A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.

Discharge of surety

The Indian Contract Act, 1872 provides for the discharge of the liability of surety, in case of certain given circumstances. A surety is said to discharge from his liability if his liability to perform the promise, in case of a default by the principal debtor, comes to an end. A surety is considered as a ‘favored debtor’ and the liability of a surety can be discharged or released. Discharge of surety’s liability means that the liabilities of the surety have come to an end and he is no longer under any obligation. A surety may be discharged or released from his liabilities by any agreement, operation of law, the performance of the principal debtor’s act, payment of principal debtor’s debt, or by any breach on the part of the creditor in the contract of guarantee. The ICA incorporates certain circumstances under which the surety is discharged from its liabilities. These circumstances are provided under Sections 130-144. They can be enclosed under the following heads:-

· Discharge by Revocation

· Discharge by Conduct

· Discharge by Invalidation of a Contract

1.DISCHARGE OF SURETY BY REVOCATION:(1) Revocation of surety by giving a notice (sec-130):A specific guarantee cannot berevoked by the surety if the liability has already accrued. A continuing guarantee may at anytime, be revoked by the surety, as to future transactions, by giving notice to the creditor. Butthe surety remains liable for transactions already entered into.

(2) Revocation by Death (sec-131):The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.. The effect of the death of the surety is that it results in automatic revocation of the guarantee as to future transactions. But such revocation does not affect the transactions which were executed prior to the death of the surety.For example:in a contract of guarantee, it is mentioned that on the death of the surety, his property or his legal representatives will be responsible for such liability, in such a case, e guarantee is not revoked even if the surety dies.

Eg: A owes money to B under a contract. It is agreed between A, B and C, that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.

3.Discharge by Invalidation of a Contract.

According to Section 142 of The Indian Contract Act, any Guarantee obtained by misrepresentation is invalid. Section 142 runs as follows:
Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

Eg: C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a mortgage of B’s furniture. C, cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

Conclusion

The Indian Contract Act, 1872 provides for the discharge of the liability of surety in case of certain given circumstances with the objective of securing the interests of the surety, who guarantees payment of the debt in case of a default. The situation under which the surety can be discharged from his liability can be categorised into three different heads i.e. by revocation, the conduct of the parties and invalidation of the contract.

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