KINDS OF GOODS-
CONTRACT OF SALE 4(3) includes two things-
Agreement to sell
Essential Conditions for a contract of sale-
Existence of minimum two parties
Transfer or agreement to transfer property in goods
Subject matter of contract must necessarily be some good
Valid consideration in terms of money
All other essential conditions for a valid contract must be present which includes-
Free consent of parties (13 to 22 of contract Act)
Competent to contract (10-12 Contract Act)
Lawful consideration (23-24 of Contract Act)
Should not be expressly declared void by law
Should not restrict trade or legal proceedings or both (27-28 of Contract Act)
Should not be Uncertain or wagering (29-30 of Contract Act)
Not contingent on happening of impossible event/act (36,56 of Contract Act)
DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL
LEADING CASE LAWS-
State of AP v Kolla Sree Ramamurthy
Bayyana Bhimayya v AP
Butterworth v Kingsway Motors
BSNL v Union of India
CST v MP Electricity Board
Tata Consultancy Services v AP
SALE AND CONTRACT FOR WORKS AND LABOUR
LEADING CASE LAWS-
State of Madras v Gannon Dunkerley
Supply of building material for construction of a building is not a contract to sell material but for work and labour. that no sales tax could be levied on the transfer of property in goods in the case of such an inseparable contract where there is both sale and work and labour involved. But 46th amendment that came after this provided such contract to be split for taxation.
Commissioner of Commercial Tax v Hindustan Aeronautics
Sentinel Rolling Shutters v CST
Issue- Whether a contract for fabrication, supply and erection of certain types of rolling shutters was a contract of sale or work and labour?
Held- The erection and installment of rolling shutter is an essential part for a person wanting the rolling shutter. It is fixed on the premise of the customer and at once it becomes his property. There is no transfer of property in shutter by manufacturer to customer as chattel.
Three forms of contracts ca be possible depending upon the nature of transaction-
Contract may be for work to be done and for remuneration and supply for material -both types of contract
Contract in which use of material is secondary to the execution of work, is only work and labour contract
Contract for supply of goods where some work is required to be done but is secondary to the purpose is only contract of sale.
AP v Kone Elevators
Hindustan Shipyards v AP
Xerox Modicorps Ltd v Karnataka
A entered into maintenance agreement with B, a company dealing in Xerox machines for maintenance of his photocopy machines. When company repaired the machines by applying new parts tanners and developers, tax was levied by tax authorities. Xerox contended that maintenance agreement was a service agreement and not of sale.
Held- Just like petrol is consumed after sale or ink is consumed after sale in this case also the toners and developers get consumed after sale. The property passes the moment they are put in the machine. At that stage they are not consumed but are tangible goods in which property can pass.
Northern India Caterers v Delhi
Issue- Whether the serving of meals in Hotels/restaurants is sale?
Held- Serving of meals is not sale but service because they treat the customer as their guests where the customer after finishing the meal cannot take the rest with him, though the innkeeper may hand it to them. however packed food to customers may be a sale.
Subsequently Government of India brought an amendment to the constitution and introduced the service tax in such cases.
However where food is supplied in a eating house and the substance of transaction evident by its dominant object is a sale of food and rendering of service is merely incidental, it will be sale.
Hindustan Aeronautics v Karnataka
In every case, the court will have to find out what was the primary object of the transaction of the parties while entering into it.
HIRE PURCHASE AGREEMENTS
Goods are let on hire under which the the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement in which-
the possession of good is delivered to the hirer on condition that he will pay agreed amount in periodic installments
The property in goods shall pass on to the hirer on payment of last installment
The hirer has a right to terminate the agreement at anytime before the property in goods so passes to him
EFFECT OF PERISHING OF GOODS-
Goods perishing before making of contract (S.7)- if specific goods have perished at the time of the making of contract, the contract entered into shall bee void. It is based on the rule that mutual mistake of fact essential to the contract renders the contract void.
Goods perishing before sale but after the agreement to sell (S.8)- if this happens without the fault of either parties, the contact may be avoided before the property in goods passes to the buyer and so the risks associated with it. Following are the essential conditions of S.8-
The contract must be an agreement to sell
The goods agreed to be sold must be specific
Goods perish or damage to an extent that they no longer match the description as mentioned in the agreement
They must perish before the risk passes to the buyer
The loss must not be caused by wrongful act or default/negligence of either party.
CONDITIONS AND WARRANTIES (11 to 17 and 62&63)
The parties are at liberty to enter into a contract with any terms and conditions they please.
Stipulation- if the buyer enters into the contract relying on the statement made by the seller, it is called stipulation. This stipulation may either be condition or warranty. Whether it is a condition or warranty is a matter of substance of the contract rather than the forms of words used.
Condition- if the stipulation forms the very basis of the contract, ie it is very essential to the main purpose of the contract, it is condition.
Implied- Assumed by law unless parties agree to the contrary.
Express- Stated definitely in so many words.
Warranty- if the stipulation is collateral to the main purpose of the contract.
Implied- Assumed by law or custom unless parties agree to the contrary.
Express- stated definitely in words.
S.11 of SOGA says that time is not deemed to be an essence of contract unless contrary intention appears from-
The language of the agreement
The nature of the property sold
The conduct of parties and the surrounding circumstances
Stipulation regarding time fall int two categories-
Time of Payment- not an essence of the contract unless agreed otherwise
Time of performance- If time of delivery is mentioned in the contract of sale and the seller makes a delay, the buyer may avoid the contract.
Leading case Laws-
1) China Cotton Exporters v Beharilal-
That in mercantile contracts, stipulations as to time of delivery is essential condition if mentioned in the agreement. The seller cannot put blame on supplier or circumstance beyond his control.
2) British Paints v Union of India
Facts- UOI invited tenders for supply of paints. After acceptance of tender from British paints, the delivery date was fixed but extended from time to time and finally unto 30th April 1953. British Paints failed to supply within that time. UOI repudiated the contract. British paint contested that time was not an essence because it was extended many times.
Issue-whether time was an essence to contract?
Held- The burden of showing that time was not an essence will lie on party asserting it. In this case though UOI extended the time of delivery from time to time but made it explicitly clear in the last extension that there will be no further extension. Further time will be considered as an essence in the following cases-
where the parties have expressly stated
Where delay operates as an injury
Where the nature and necessity of the contract require it so.
WAIVER OF STIPULATION
Stipulation as to time may be waived by the party in whose favor they are inserted expressly or by implication.
Hartley v Hyman- A had to supply some quantity of cotton per week to B beginning from a specified date. He failed to supply the full amount per week. The buyer continued to take the quantity supplied. After some time when he tried to cancel the contract, court held that by his conduct the buyer has waived his right to repudiate the contract.
Wasco Enterprises v JJ Mills- plaintiff was to supply some agreed quantity of groundnut oil to defendant by some agreed time on a agreed ship. When they failed to supply, the defendant at their request extended the deadline but when the plaintiff again failed to supply, they repudiated the contract. Court held that stipulation to time was a condition precedent which must have been obliged for the performance of contract.
CASES ON CONDITIONS AND WARRANTIES-
There is no fixed rule as to which stipulation is condition and which one is warranty. It all depends on the facts and circumstances of each case and the substance, intention and object of the contract.
Baldry v Marshall- plaintiff brought a car for touring purpose on the advise of car dealer. Later he discovered that the car was not fit for touring purpose and wanted to return the car. The dealer refused and told that there is warranty of one year against all kinds of mechanical fault. Court held the fitness of car for touring purpose was an essential condition for the contract and allowed the buyer to repudiate the sale.
Harrison v Knowles and Foster- The plaintiff purchased two ships with deadweight capacity of 460 tons as told by the seller. But in reality the capacity was only 360 tons. The plaintiff wanted to reject the ships. Court held that representation of capacity was not a condition but warranty and the plaintiffs should have sued for damages.
CHANGE OF CONDITION INTO WARRANTY (S.13)
There are two cases where a breach of condition is to be treated as breach of warranty.
Voluntary waiver of condition and its effect.
When buyer has a choice of either accepting or rejecting the goods and he chooses to accept them, his right of rejection can no more be exercised- where the buyer has received the goods and subsequently he comes to know of the breach of the condition, he can only sue for damages. Or if he has received only a part of the good and the contract is indivisible, he will have to treat the brach of condition as breach of warranty.
Impossibility of performance due to war, governmental restrictions etc. In such cases both conditions and warranties are waived off.
Svenska Handelsbanken v Indian Charge Chrome-
Facts- plaintiffs invited tenders for setting up of power plants of capacity 108MW. Defendants tender was accepted and they set up the plant of 60MW and handed it over to the the plaintiffs in 1989 who continued to use it till 1991 and in 1991 they filed for repudiation of contract on the basis that they were fraudulently persuaded to go for 60MW plant.
Issue- whether breach of warranty gives a right to repudiate the contract?
Held- that capacity of power plant being 108MW was a condition and the plaintiff could have repudiated the contract but they continued to use it for two years, therefore breach of condition has been treated as breach of warranty and therefore they cannot repudiate the contract of sale of power plants.
IMPOSSIBILITY OF PERFORMANCE- Sometimes due to impossibility (war, governmental restrictions etc) or otherwise the seller may be excused by law from fulfilling any condition or warranty and the buyer will have no remedy in such cases.
IMPLIED CONDITIONS (S.14-17)
Conditions whose existence in the contract is presumed by law even without their actually having been put in the contract unless agreed otherwise.
Implied conditions under sale of goods Act 1930-
Implied condition to title/ownership (14a)- unless agreed otherwise it is implied on part of seller that he has the ownership of good and has right to sell that good in both sale and agreement to sell. Buyer can reject the goods if the title of the seller turns out to be defective. Also the seller has no right to sell if he infringes the trade mark of another person.
Rowland v Divall- A purchased a car from B who had not title to it. A used the car for several months before the true owner C spotted it and demanded. A will have to return the car to C, though he can sue B, for the price paid and additional damages. But had A purchased the car from Chor Bazar knowing that the vehicles there are of theft, he would have had no remedy.
Nilblett v Confectioner- A brought 3000 tins of condensed milk from B out of which 1000 tins were labelled as Nissle Brand. C the owner of Nestle Milk Brand claimed this to be infringement of his trademark. Consequently A had to remove the labels and sell at loss. Court held that seller B, breached the implied conditions and allowed damages.
Implied condition in a sale by description - in contract of sale of goods by description, there is an implied condition that the goods will match the description. e.g. when when sells rice under the tag of Basmati rice, it is expected that the rice will be basmati rice.
Bowes v Sand- Court said that if the seller contracts to sell peas, she cannot oblige a party to take beans. If the description of article tendered is different, the other party is not bound to take it. Sale of goods by description includes the following cases-
Where the buyer has never seen the goods and buys them only on the basis of description given by the seller. e.g. in Varley v Whip, the buyer bought a reaping machine relying on seller who stated that the machine is new and can be used to cut 50-60 acres in a day. The buyer found it to be old and returned it. The sellers action against buyer for price failed.
Where the buyer has seen the goods but relies on what has been stated to him-eg Nicholson v Smith- the auction case.
The packing of goods may sometimes be part of description. Eg- the buyer asked the seller to sent him consignment of 3000 tins of canned fruit packed in cases each contains 30 tins. The sellers sends the consignment but each case contained 24 tins. The buyer was allowed to reject the whole consignment.
Implied condition in a sale by sample [S.17(2)]- In sale by sample, the goods should correspond with the sample and no reliance is given by to the words of the seller. the seller has shown a sample of goods to the buyer and agreed to supply the goods according to the sample. There must be express provision in the contract for sale by sample or evidence of intention of parties that they intended sale by sample to seek a remedy in case good not matching the sample shown. Certain commodities like tobacco are always considered to be sale by sample even thought the contract is silent on this point. Three essential conditions are-
The bulk shall correspond with sample in quality- Leonard v Fowler- where there is a sale of large quantity of beans, the buyer cannot reject a single package for failing to match the quality of sample because the standard is that the bulk should match the sample.
The buyer shall have reasonable opportunity of comparing the bulk with sample. In Lorymer v Smith- There was sale by sample of two parcels of wheat, one containing 700 ton and the other 1400 ton. The buyer was shown only the first parcel and the seller refused to show the other. The buyer was allowed to rescind the whole contract.
The goods shall be free from any defect rendering them unmerchantable. Where a part of the good is equal to the sample and a part is inferior to the sample, the buyer may reject the whole or may accept the whole and claim damages for the portion which is inferior to the sample.
Godley v Parry- G bought a catapult of toys from P a dealer in toys and was injured by its defective condition. Court allowed damages for breach of the condition as to the fitness and merchantable quality as defect was not apparent on reasonable examination of the sample.
James Drummond v EH Van- there was a sale of sample of coated substance equal to quality and weight to the samples. When delivered they were found to have latent defect due to which they would not stand ordinary wear and tear test and therefore not merchantable. These defects could not be detected on reasonable examination of the sample. Repudiation was allowed.
Champanhac v Waller- plaintiff saw samples of balloons and after inspection when he found them strong and merchantable purchased 200 balloons ‘with all faults and imperfections’ After delivery the balloons were found to be defective and unmerchantable. Implied condition was held to be breached as the fabric of balloon did not correspond with the sample.
Implied condition in a sale by sample as well as description [S.15]- if goods confirm to the sample but not to the description, the buyer can reject the goods.
Nichol v Godt- there was sale of rape oil. The oil supplied corresponded to the sample shown but on inspection found to be mixed with hemp oil. Thus they were not in accordance with description ‘rape oil’
Wallis v Patt- there was contract of sale by sample of English seeds but subject to condition that seller giving no warranty express or implied as to growth description or any other matter’. When crops came out, it was of common seeds and not English seeds. In an action by the buyer, the seller relied on the exemption clause.
Implied condition as to quality and fitness [S.16(1)]- ordinarily there is no implied warranty or condition as to the quality of fitness of the good. The ordinary rule is that of CAVEAT EMPTOR except in the following cases-
The buyer expressly or impliedly tells the specific purpose of the goods to the seller
Buyer could not have reasonably inspected the good.
The buyer must rely on seller’s skill/judgement
The goods must be of description which the seller is known to sell.
Jones v Padgett- B an woolen merchant made a contract with seller B known to sell indigo blue cloth, without mentioning the specific purpose. The cloth was found to be not fit for tailoring. Remedy was allowed.
Priest v Last- the buyer asked the seller for a hot water bottle. The seller sold him a bottle saying that it would stand hot but not boiling water. When the bottle bursted, the buyer was allowed damages as he relied on the skills of the seller.
Purchase of comfortable clothing.
Governments Regulations like Consumer Protection Act in India. e.g. MC Mehta v UOI, SP Gupta v UP, Donoghue v Stevenson etc.
Implied condition of merchantable quality [S.16(2)]
Priest v Last
Morelli Fitch and Gibbons- one purchased a bottle of wine on sale of goods by description. If the bottle breaks while opening it and the buyer gets injured, he can sue for damages.
RC Thakur v NCEC Corp- a layman purchased a radio on hire purchase. It gave trouble to the buyer for two months since purchase. It was held that he purchased the radio for a specified purpose and the radio ought to have been reasonably fit for that purpose and the seller is liable because he knew that purpose and his liability is absolute in such cases. But such criteria shall not apply in second hand goods. (Mckenzie v Narendranath)
Leading case Law-
ASWAN ENGINEERING V LUPDINE-
A an exporter purchased a waterproofing compound from B in large quantity for export purposes. The compounds were packed in heavy duty plastic containers supplied by C. The containers collapsed under the intense heat of the compound and the whole compound was lost. Containers could have only withstood the extreme heat, if the compound had been packed in a particular way which they were not.
Issue- Whether containers were of merchantable quality? And whether there was an implied condition as to the fitness of container for the purpose they were bought?
Held- goods are of merchantable quality if they are fit one purpose for which they might be expected to but they are not required to be fit for every purpose within such range of purposes for which such goods were normally bought.
There was no evidence that A and B relied on skills and judgment of C in purchasing the container. They could have reasonably inspected the product as they were regular dealers in such products.
The scope of manufactures’s duty of care did not extend beyond forceable consequences.
Although a purchaser would expect that containers would withstand the stress of being packed but he would not expect them to be bear the pressure in all climatic conditions and geographical locations.
T has been proved by C, that same containers are being used to export the same compound in many parts of the world and containers do not break when packed in a particular way. In the present case the compound was not packed in the prescribe way.
But the court allowed some damages.
Implied conditions by trade usage/custom [S.16(3)]
Contract have to be construed in the light of trade usages. eg a custom that for impurity of seeds the buyer will get rebate on price but cannot reject the goods.
An implied conditions/warranty as to the quality of fitness for a particular purpose can be made by trade usages.
Jones v Bowden- there was a trade usage to declare any sea-damage in cases of sale of drugs by auction. If not declared they would be presumed to be fit.
Implied condition as wholesomeness
In case of eatables and provisions, there is implied condition of wholesomeness.
Frost v A Dairy- A brought milk from a dairy B. The milk was contaminated with germs of typhoid fever. B was held liable to pay damages.
IMPLIED WARRANTIES (14B)
They are those warranties which law presumes to have been incorporated into the contract despite not expressly included by parties-
As to quite possession- that the shall have and enjoy quite possession of goods. If his position is disturbed by anyone having superior title over the goods, he is entitled to hold the seller liable for breach of warranty.
Warranty as to freedom from encumbrance- that the goods shall be free from any other charge or encumbrance in favor of any third party.
Nilblett v Confectioners- the milk -nestle-trade mark case.
Warranty to disclose the dangerous nature of goods- the seller must warn the buyer if the goods are inherently dangerous or likely to be dangerous.
Warranties implied by custom/usage of trade- as to quality or fitness for a particular purpose.
Statutory warranties regarding fitness and quality cannot be excluded by contract. e.g. Burma groundnut cake for cattle example.
EXEMPTION TO THE IMPLIED CONDITIONS AND WARRANTIES-
S.16 provides an exemption to the principle of implied conditions and warranties.
A purchases Horse from B for riding purpose but he does not mention this to B. The horse was not suitable for riding but only for carriage. A can neither reject the horse nor can claim any damages.
Ward v Hobbs- A paid price for healthy pigs but got ill pigs. He was able to claim damages.
EFFECTS OF CONTRACT: PASSING OF PROPERTY (18-26 & 63)
The main object of a sale of good is passage of ownership from seller to buyer. It is important to know the precise moment when property in goods passes to the buyer-
The general rule is that the risk follows the ownership whether the delivery has been made or not.
When the goods are damaged by actions of third parties, it is the owner who can take action.
Transfer of property in goods is different from delivery of goods.
TIME WHEN PROPERTY PASSES-
Regarding the sale of specific goods-the property passes when the parties intend it to pass, and their intention can be ascertained by-
The terms of the contract
The conduct of the parties
The circumstances of the case
For unascertained goods, no property in goods passes unless the goods are ascertained
Transfer of property in case of ascertained goods-(20-22)
In case of generic/unascertained goods-
In case goods sold on sale or return basis-
when the buyer signifies his approval or acceptance or does any act adopting the transaction or if the buyer retains the goods without giving notice of rejection-
If a time has been fixed for return, on expiry of such time
If if no such time is fixed, on expiry of a reasonable time.
STOPPAGE IN TRASNSIT
Can be effected only till the time the seller is able to exert his influence
Once the good is delivered to carrier, he is assumed to be the agent go buyer in absence of any clause to the contrary.
Mercantile practice that whenever there is contract of carriage by sea- (usage/practice) that ship shall not be bound by stoppage in transit to unpaid seller.
Case- British India steam navigation v Chanmukh
26- Risk prima facie passes with the property- Unless otherwise agreed, the goods remain at the sellers risk until the property in goods passes to the buyer regardless of the delivery being made or not.
If the delivery has been delayed through the fault of either party, the goods are at the risk of the party at fault.
Express agreement- this can happen cases of agreement to sell where the property in goods pass at a later stage but the parties may agree that goods will remain with the seller but at the buyer’s risk even though property has not passed.
Where Buyer acts as a bailee- eg- buyer took the good after paying the price in form of checks but the check gets bounced. As per law therefore the property in goods has not passed to the buyer but he has the possession of the goods and if it gets damaged, he shall be responsible for it.
27- Sale by person not the owner- in such cases the buyer acquires no better tiles than the seller unless the owner gives his consent to the transaction.
In case of sale by authorized mercantile agent, it will be deemed to have been made by the true owner provided the buyer acts in good faith and is not aware that the seller has no authority to sell on behalf of the owner.
28- Sale by Joint owners- sale by any one of them will be valid if made in good faith
29- Sale by person in possession under voidable contract- in such cases if the contract has not been rescinded at the time of sale, and the buyer buys in good faith without knowing the defective title, he acquires a good title to the good.
30- Seller/buyer in possession after sale- if one continues to have possession of good/documents of title even after sale, the resale of that good by him or his agent under good faith and without notice of the previous sale, shall be valid.
In case, if the buyer has the possession of goods with the consent of the seller in a sale and he resells the good in good faith and the new buyer buys that good in good faith without knowing any lien or any other right of the original seller in relation to the goods, it shall be deemed a valid sale.
P Talukdar v Maharaja Probirendra Tagore
Actual possession is not necessary but there should be effective control over the goods of the person selling it.
31- Duties of seller and buyer- 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.
32- Payment and delivery are concurrent conditions- Unless otherwise agreed payment and delivery have to be done simultaneously/concurrently at the same time.
33- Delivery- can be made by doing anything which the parties agree shall be treated as delivery.
34- Effect of part delivery- part delivery of goods shall have the effect of whole delivery unless the intention is otherwise. Ie a delivery of part of the good with an intention of severing it from the whole does not operate as a delivery of the remainder
35- Buyer to apply for delivery- the seller is not bound to deliver the goods until the buyer applies for the delivery
(the seller can deliver on his own as well but he is also entitled to wait until the buyer applies for delivery)
36- Rules as to delivery-
it depends in each case upon the terms of the contract express or implied as to how delivery has to be made ie whether the buyer will himself take the possession of goods or the seller will send them to the buyer.
Delivery has to be made in reasonable time if no specific time for delivery is mentioned in the contract
If the goods are in possession of third person, there is no delivery from seller to buyer unless that third person acknowledges to the buyer that he holds the good on his behalf
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.
Unless otherwise agreed the expense of and incidental to putting goods into a deliverable state shall be borne by seller.
37- Delivery of wrong quantity- in such cases the buyer can reject the goods, but if he accepts he will have to pay for them at the contract rate.
If larger quantity is sent and the buyer accepts all, he will have to pay for all. He can also reject all
If delivery is made to buyer mixed with other goods, he has the option of accepting only those mentioned in contract or reject all.
These provisions are subject to any usage of trade, special agreement or course of dealing between the parties.
38- Installment deliveries- Unless otherwise agreed, buyer is not bound to accept goods in installments
Where delivery of goods is to be made in stated installments, the option of buyer to repudiate the whole contract in case of any defective installment or the choice of seller to rescind the contract in case of default by buyer in payment, will depend upon facts and circumstances of each case.
Sriram v Sagarmal
Where the contract is one and indivisible though its performance is stipulated to be made in stages, the question as to repudiation of part will amount to repudiation of whole is to be decided with reference to the contract as whole.
39- Delivery to career or wharfinger-
if in pursuance of contract of sale, the seller is authorized/required to send the goods to buyer, delivery of goods to carrier (whether named by buyer or not) for the transmission of goods to buyer or to wharfinger for safe custody will be deemed to be a delivery of goods to buyer.
Unless otherwise agreed, the seller is to make contract with the career/wharfinger on behalf of buyer as maybe reasonable having regard to the nature of the goods and other circumstances of the case. Otherwise he shall be responsible for the consequences in case the goods are lost or damaged.
If the goods are to be sent by sea route, unless otherwise agreed, the seller is bound to notify the buyer of the same so as to enable him to insure the goods during the sea-transit. Otherwise the seller shall be responsible for the consequences .
40- Risk where goods are delivered at distant place- if the seller on his own account agrees to deliver the goods at a place other than where they are when sold, the buyer shall nevertheless unless agreed otherwise, will borne risk of deterioration in the goods incident to the course of transit.
Disclaimer– Pending review